Core Viewpoint - The rapid development of AI continues to disrupt the market, with NetDragon (00777) emphasizing its dual-driven strategy in gaming and education, particularly focusing on its education business following the successful spin-off and listing of its overseas education segment as "Mynd.ai" [1][4] Company Strategy - NetDragon's education business accounts for over 50% of its revenue, with the recent spin-off allowing for a focused approach on AI in education, aiming to establish Mynd.ai as a global SaaS company [1][4] - The management highlighted three reasons for the spin-off: better understanding of the company's value by local investors, potential for stock price and market value enhancement, and the release of company potential to pursue its vision [1][3] Market Position - NetDragon's education segment has shown a compound annual growth rate (CAGR) of 14.01% from 2018 to 2022, with its interactive flat panel (IFPD) products leading the global market with over 20% market share [1][2] - The company has established a competitive advantage through an integrated hardware-software-content model, targeting schools with its products [2][3] Financial Impact - The spin-off of Mynd.ai is expected to improve cash flow significantly, allowing for independent financing and reducing reliance on the parent company for funding [3][4] - The education business is projected to accelerate growth through AI+education SaaS services, enhancing profitability and optimizing the company's overall financial performance [4][5] Industry Outlook - The global education information technology market is expanding, with a market size exceeding 2.5 trillion yuan in 2020, and AI is anticipated to further upgrade educational products [2][3] - NetDragon's early investment in AI technology positions it well to capitalize on the evolving educational landscape, with plans to integrate AI into its existing product offerings [2][3] Valuation Insights - The dual strategy of gaming and education remains unchanged, with the gaming segment continuing to contribute significantly to profits and cash flow [4][5] - Analysts express optimism regarding the spin-off, suggesting it will enhance the company's focus on AI+education and improve overall valuation, with target prices indicating substantial upside potential [4][5]

Revenue Performance - Revenue for the first half of 2023 was RMB 3.7 billion, a decrease of 13% year-on-year[7]. - Game business revenue reached RMB 1.9 billion, accounting for 52% of total revenue, with an 8% year-on-year increase[7]. - Education business revenue was RMB 1.7 billion, representing 47% of total revenue, down 29% year-on-year[7]. - Revenue for the six months ended June 30, 2023, was RMB 3,681 million, a decrease of 13.2% compared to RMB 4,240 million for the same period in 2022[73]. - Revenue from online and mobile games was RMB 1,920 million, an increase of 8.1% compared to RMB 1,776 million in the previous year[91]. - Education revenue, including sales of educational equipment and related services, was RMB 1,720 million, down 28.7% from RMB 2,410 million in the same period last year[91]. - Revenue from mobile solutions, products, and marketing was RMB 41 million, slightly up from RMB 38 million in the previous year[91]. - Revenue from the Chinese market was RMB 1,790 million, while revenue from the United States was RMB 1,463 million, indicating a significant contribution from both regions[96]. Profitability Metrics - Gross profit amounted to RMB 2.3 billion, a decrease of 2% year-on-year[7]. - Operating profit was RMB 699 million, a decrease of 6% year-on-year[7]. - Non-GAAP operating profit was RMB 692 million, down 19% year-on-year[7]. - Net profit for the period was RMB 453 million, a decrease of 16.5% compared to RMB 542 million in the prior year[74]. - Basic earnings per share for the period was RMB 92.61, down from RMB 104.42 in the same period last year[74]. - The company reported a profit before tax of RMB 579 million for the six months ended June 30, 2023, compared to RMB 713 million in the same period of 2022, reflecting a decrease of approximately 18.8%[99]. - The company reported a profit of RMB 500 million for the six months ended June 30, 2023, a decrease of 11.5% compared to RMB 565 million for the same period in 2022[109]. Dividends and Shareholder Returns - The company announced an interim special dividend of HKD 1.0 per share and an interim dividend of HKD 0.4 per share[7]. - The interim special dividend and interim dividend declared for the six months ending June 30, 2023, are HKD 1.0 and HKD 0.4 per ordinary share, respectively, totaling HKD 1.4 per share[38]. - The total dividend amount for the six months ending June 30, 2023, is expected to be distributed on or around November 30, 2023[38]. - The board declared an interim special dividend of HKD 1.0 per share and an interim dividend of HKD 0.4 per share, compared to HKD 0.5 and HKD 0.4 per share in 2022[62]. Cash Flow and Financial Position - As of June 30, 2023, the group's cash and cash equivalents amounted to approximately RMB 4,173 million, an increase from RMB 3,909 million as of December 31, 2022[19]. - The group's net current assets as of June 30, 2023, were approximately RMB 3,878 million, compared to RMB 3,723 million as of December 31, 2022[19]. - The total assets as of June 30, 2023, amounted to RMB 7,031 million, an increase from RMB 6,687 million at the end of 2022[75]. - Cash and cash equivalents were RMB 3,645 million, slightly down from RMB 3,701 million at the end of 2022[75]. - The company reported a significant increase in interest expenses on convertible and exchangeable bonds, rising to RMB 108 million from RMB 90 million, an increase of 20%[79]. - The company’s total liabilities increased to RMB 1,583 million, up from RMB 1,468 million, indicating a rise of 7.8%[76]. - The company's equity attributable to owners increased to RMB 7,132 million, a rise of 3.4% from RMB 6,899 million[76]. Employee and Talent Management - As of June 30, 2023, the total number of employees in the group reached 5,207, an increase from 5,135 at the end of 2022 and 4,784 a year earlier[27]. - The company attracted 501 new talents in the first half of 2023, including 62 senior elite talents, and conducted campus recruitment activities that attracted 9,233 graduates[28]. - Total employee costs increased to RMB 1,170 million in the first half of 2023, up from RMB 1,043 million in the same period of 2022, reflecting a rise of 12.2%[107]. - The remuneration for directors and other key management personnel for the six months ended June 30, 2023, was RMB 94 million, up from RMB 66 million in the same period of 2022, representing a 42.4% increase[146]. Market and Product Development - The company aims to enhance revenue growth in its education business by strengthening product segmentation and integrating AI tools into its products[17]. - The launch of the new interactive panel ActivPanel LX aims to capture a larger market share in the cost-effective segment[10]. - The company is developing a flagship mobile game version 2.0 for "Honor of Kings" aimed at the overseas market[13]. - Multiple AIGC projects have been initiated to enhance player experience, focusing on NPCs and AI companions[12]. - The company has plans for market expansion and new product development, focusing on mobile solutions and educational products[98]. Corporate Governance and Shareholder Structure - Liu Dejian holds a beneficial interest of 40.75% in the company through DJM Holding Ltd., which owns 35.99% of the voting shares[41]. - DJM Holding Ltd. holds 35.99% of the company's shares, making it the largest shareholder[46]. - International Data Group owns approximately 10.08% of the company's shares, alongside Ho Chi Sing, who also holds 10.08%[46][47]. - The company maintains transparency regarding the interests and holdings of its directors and key executives in the company's shares[40]. Financial Instruments and Investments - The company issued convertible and exchangeable bonds totaling $150 million, equivalent to approximately HK$1,174.5 million, which can be converted into 279,510,479 ordinary shares of Best, representing 11.16% of the total issued share capital[57]. - The total amount of convertible and exchangeable bonds was RMB 1,469 million as of June 30, 2023, up from RMB 1,333 million as of December 31, 2022[125]. - The group holds a 40% stake in Yunqi Smart Technology Co., Ltd., a joint venture[143]. - The group holds a 60% stake in Fujian Guoteng Information Technology Co., Ltd., a joint venture[143]. Sustainability and Corporate Responsibility - The company improved its S&P Global Sustainability score to 40, ranking in the top 7% of the interactive media, services, and home entertainment industry[10]. - The company has received multiple awards, including recognition for outstanding corporate social responsibility and competitiveness in the gaming industry[18].

Financial Performance - Game revenue for the first half of 2023 reached RMB 1.9 billion, an 8% year-on-year increase and a 16% quarter-on-quarter increase[3] - In the first half of 2023, total revenue was RMB 3.7 billion, a year-over-year decrease of 13%[8] - Revenue from the gaming business was RMB 1.9 billion, accounting for 52% of total revenue, with an 8% year-over-year increase[8] - Revenue from the education business was RMB 1.7 billion, accounting for 47% of total revenue, reflecting a 29% year-over-year decrease[8] - The operating profit for the first half of 2023 was RMB 699 million, a year-over-year decrease of 6%[8] - Net profit for the period was RMB 453 million, a decrease of 16.5% from RMB 542 million in the prior year[12] - Basic earnings per share decreased to RMB 92.61 from RMB 104.42, representing a decline of 11.3%[14] - The group reported a total profit before tax of RMB 579 million, compared to RMB 580 million in the same period last year, indicating a stable performance despite revenue decline[30] Market Performance - Domestic game business revenue grew by 9% year-on-year, significantly outperforming the market growth rate of 2%[3] - The flagship game "Magic Domain" saw a 10% year-on-year revenue increase, with a 22% quarter-on-quarter increase[3] - The company maintained its leading position in the global market outside of China, with the highest market share in key markets such as the US, Germany, and the UK[5] Education Business - Education business revenue declined by 29% year-on-year to RMB 1.7 billion, reflecting the overall market trend post-pandemic[5] - The cumulative registered users of the national primary and secondary school smart education platform exceeded 84 million, with over 25 billion page views as of June 30, 2023[6] - The company signed a merger agreement to spin off its overseas education business with a valuation of $750 million, which is expected to enhance financing options and governance structure[7] Dividends and Shareholder Returns - A special dividend of HKD 1.0 per share and an interim dividend of HKD 0.40 per share were announced for the first half of 2023[2] - The company declared an interim special dividend of HKD 1.0 per share, amounting to RMB 490 million, and an interim dividend of HKD 0.4 per share, amounting to RMB 196 million[38] - The board declared an interim special dividend of HKD 1.0 per share and an interim dividend of HKD 0.4 per share for the six months ending June 30, 2023[74] Cash Flow and Assets - Cash and cash equivalents were RMB 3,645 million, slightly down from RMB 3,701 million[15] - The company reported a net cash inflow from operating activities of RMB 457 million, down from RMB 480 million in the previous year[20] - Total assets as of June 30, 2023, increased to RMB 7,031 million from RMB 6,687 million at the end of 2022, marking a growth of 5.1%[15] Research and Development - The company plans to launch multiple new games, including MMORPGs and a new casual game, in the second half of 2023[4] - The integration of generative AI (AIGC) into game operations is expected to enhance content production efficiency and improve player experience[4] - The number of research and development employees increased to 3,068 as of June 30, 2023, from 2,960 as of December 31, 2022[50] Corporate Governance - The company has adopted a code of conduct for securities transactions that meets or exceeds the standards set by the listing rules[73] - The Audit Committee reviewed the interim financial performance for the six months ending June 30, 2023, ensuring compliance with applicable accounting standards[77] - The company has adhered to the corporate governance code throughout the review period[77] Share Repurchase - The company repurchased a total of 9,844,500 shares at a total cost of HKD 146.7 million during the period ending June 30, 2023[78] - The repurchased shares were subsequently canceled in June 2023[78] - In April 2023, the company repurchased 3,633,500 shares at a price range of HKD 14.46 to HKD 15.44, totaling HKD 54.4 million[79]

Financial Performance - The company achieved a revenue growth of 11.8% year-on-year, surpassing RMB 7.9 billion in 2022[12]. - The gross profit for 2022 was RMB 4.315 billion, with a gross margin of approximately 54.8%[9]. - Operating profit for 2022 was RMB 1.15 billion, reflecting a decrease of 17% compared to the previous year[9]. - The net profit attributable to the company's owners for 2022 was RMB 834 million, down from RMB 1.062 billion in 2021[10]. - The company reported a basic earnings per share of RMB 154.15 for 2022, compared to RMB 191.67 in 2021[10]. - Total revenue for the year was RMB 7.9 billion, representing an 11.8% year-on-year increase[16]. - Operating profit decreased by 17.0% year-on-year to RMB 1.2 billion, with a significant drop in profit from the gaming segment by 14.1% to RMB 1.8 billion[16]. - Cash flow from operating activities increased by 4.2% year-on-year to RMB 1.1 billion, indicating a stable cash generation capability[16]. Revenue Breakdown - Game revenue decreased by 5.8% year-on-year to RMB 3.4 billion, while mobile game revenue slightly declined by 0.2%, outperforming the domestic mobile game market's decline of 14.4%[13]. - The flagship mobile game "Magic Domain Pocket Edition" achieved a revenue growth of 6.2% year-on-year, supported by a ROI-focused user acquisition strategy and continuous content updates[13]. - Overseas business revenue grew by 6.5% year-on-year to RMB 540 million, accounting for 15.7% of total game revenue, with significant contributions from the "Conquest" IP[13]. - Education business revenue increased by 34.2% year-on-year to RMB 4.3 billion, marking a historical high and reflecting a growing market share despite increased competition[14]. - Total revenue for the education business reached RMB 4.3 billion, a year-on-year increase of 34.2%, accounting for 55.1% of total revenue[19]. Strategic Initiatives - The company emphasized strengthening strategic partnerships and enhancing market strategies as key growth drivers[12]. - The company is positioned for long-term sustainable development through its efforts in 2022[12]. - The company plans to expand its market presence through strategic partnerships and acquisitions, including the acquisition of Explain Everything, a leading digital whiteboard platform[20]. - The company announced a strategic partnership with AI education technology leader Merlyn Mind to develop an AI-supported interactive panel, expected to launch with the next product update[19]. Research and Development - Research and development expenses increased to RMB 1.224 billion in 2022, representing a 5.5% increase from the previous year[9]. - The company added over 300 R&D personnel during the year to enhance its game development capabilities[19]. - Research and development expenses for gaming increased by 16.7% year-on-year to RMB 768 million, accounting for 22.4% of gaming revenue[25]. Corporate Governance - The company is committed to maintaining high standards of corporate governance and compliance through its audit and remuneration committees[47]. - The company’s board of directors includes both executive and independent non-executive members, ensuring governance and oversight[62]. - The company has established an audit committee responsible for reviewing financial reporting procedures and risk management[105]. - The company has adopted a new share option scheme effective from May 24, 2018, replacing the previous scheme[114]. Shareholder Information - The company announced a final dividend of HKD 0.40 per ordinary share, maintaining the same level as the previous year, with total dividends accounting for 73.0% of the annual profit attributable to owners[15]. - The company proposed a final dividend of HKD 0.4 per share, with an expected payout of approximately RMB 193 million, scheduled for July 7, 2023[58]. - The top five customers accounted for approximately 22.7% of total revenue, while the largest customer contributed about 12.0%[61]. Employee Engagement and Development - The total number of employees as of December 31, 2022, is 5,135, reflecting the company's commitment to talent acquisition and development[37]. - The company has received multiple employer brand awards in 2022, including the "2022 Most Loved Employer Award" and "2023 Outstanding Employer Award" for its innovative employment practices[37]. - The company is actively promoting a "metaverse organization" model, focusing on open communication and innovation to enhance employee engagement and value creation[38]. Risk Management - The company has taken measures to mitigate risks associated with its structural contracts, including annual reviews and disclosures in reports[99]. - The company is committed to hiring external legal advisors to ensure compliance with existing contracts and regulations[99]. - The company has established a comprehensive cybersecurity management framework to ensure robust governance and operational continuity[181]. Compliance and Ethics - The company emphasizes strict compliance with data protection laws and regulations to safeguard employee and customer privacy[57]. - The company provides multiple reporting channels for employees to report unethical behavior, including an internal OA system[172]. - The company has updated its business ethics rules and code of conduct 15 times over the past 20 years, currently at version 7.3[171]. Market Challenges - The company operates in the competitive online and mobile gaming industry, facing challenges from major players like Electronic Arts and Tencent[55]. - The company relies on consumer spending for revenue, which may be affected by economic uncertainties and inflation[56]. - The company faces risks related to new technologies that could render its game designs outdated[56].

Financial Data and Key Metrics Changes - The company reported significant changes in financial metrics, including revenue growth and profit margins, reflecting overall business performance [1] Business Line Data and Key Metrics Changes - Each business line showed varying performance, with some segments experiencing growth while others faced challenges, indicating a mixed operational landscape [1] Market Data and Key Metrics Changes - The company highlighted changes in market dynamics, including shifts in consumer demand and competitive pressures, which impacted overall market performance [1] Company Strategy and Development Direction - The company outlined its strategic focus on innovation and market expansion, aiming to strengthen its competitive position within the industry [1] Management Comments on Operating Environment and Future Outlook - Management provided insights into the current operating environment, discussing challenges and opportunities, and expressed a cautiously optimistic outlook for future growth [1] Other Important Information - Additional information included updates on new product launches and partnerships that are expected to drive future revenue [1] Q&A Session Summary Question: What are the expectations for revenue growth in the upcoming year? - Management indicated that they anticipate steady revenue growth driven by new product introductions and market expansion efforts [1] Question: How is the company addressing competitive pressures? - The company is focusing on enhancing product differentiation and customer engagement strategies to mitigate competitive risks [1] Question: What are the key challenges faced in the current market? - Management acknowledged supply chain disruptions and changing consumer preferences as significant challenges that the company is actively addressing [1]

Financial Performance - NetDragon Websoft Holdings Limited reported a revenue growth of 11.8% year-on-year, reaching RMB 77.9 billion for the fiscal year ending December 31, 2022[1]. - The education business achieved a record revenue of RMB 43.0 billion, representing a year-on-year increase of 34.2%, accounting for 55.1% of total revenue[3]. - Game business revenue decreased by 5.8% year-on-year to RMB 34.0 billion, with mobile game revenue slightly declining by 0.2% to RMB 577 million, outperforming the domestic mobile game market decline of 14.4%[6]. - The company announced a net profit attributable to shareholders of RMB 834 million for 2022, a decrease of 21.5% year-on-year[9]. - Operating profit for 2022 was RMB 1.2 billion, down 17.0% year-on-year[9]. - Revenue for 2022 was RMB 7,866 million, an increase of 11.8% from RMB 7,036 million in 2021[13]. - Gross profit decreased to RMB 4,315 million in 2022 from RMB 4,523 million in 2021, representing a decline of 4.6%[13]. - Net profit for the year was RMB 764 million, a decrease of 22.2% compared to RMB 983 million in 2021[13]. - The group reported a profit before tax of RMB 840 million for the year, compared to RMB 1,236 million in the previous year, indicating a decrease of about 32.1%[30]. Revenue Breakdown - Game revenue for 2022 was RMB 3.43 billion, a decrease of 5.8% year-on-year, while education revenue rose by 34.2% to RMB 4.3 billion[9]. - Revenue from online and mobile games was RMB 3,430 million, a decrease from RMB 3,642 million in the previous year, reflecting a decline of about 5.8%[27]. - Education revenue, including sales of educational equipment and related services, increased significantly to RMB 4,336 million from RMB 3,231 million, marking a growth of approximately 34.3%[27]. Strategic Initiatives - The company announced a strategic partnership with AI education technology leader Merlyn Mind to develop an AI-supported interactive panel, expected to launch with the next product update[5]. - The company acquired Explain Everything, a leading digital whiteboard platform, to enhance its product offerings and revenue-generating applications[3]. - The company aims to explore acquisition opportunities to expand market coverage and core competitiveness[8]. - The company plans to launch five new games based on the "Magic Domain" IP in 2023 and 2024, with the first game already released in March 2023[8]. Shareholder Returns - The company declared a final dividend of HKD 0.40 per share, with total dividends for the year amounting to HKD 1.30 per share, representing 73.0% of the total profit attributable to owners[2]. - The board proposed a final dividend of HKD 0.40 per share for the year ended December 31, 2022, totaling approximately RMB 193 million[67]. Cash Flow and Assets - Cash flow from operating activities increased by 4.2% year-on-year to RMB 1.1 billion[9]. - Total assets decreased to RMB 6,687 million in 2022 from RMB 6,941 million in 2021, a reduction of 3.7%[16]. - Cash and cash equivalents at year-end were RMB 3,701 million, slightly down from RMB 3,717 million in 2021[19]. - The company reported a net cash inflow from operating activities of RMB 1,070 million, an increase from RMB 1,027 million in 2021[18]. Employee and R&D Investments - The total number of employees increased to 5,135 as of December 31, 2022, from 4,834 in the previous year, with R&D staff rising to 2,960[47]. - R&D expenses grew by 16.7% year-on-year to RMB 768 million, representing 22.4% of game revenue[8]. Debt and Liabilities - New bank loans added in 2022 amounted to RMB 878 million, significantly higher than RMB 411 million in 2021[19]. - The debt-to-equity ratio increased to 0.11 as of December 31, 2022, compared to 0.06 in the previous year[46]. - Total bank loans amounted to approximately RMB 739 million as of December 31, 2022, up from RMB 403 million in 2021, with floating-rate loans at RMB 376 million and fixed-rate loans at RMB 363 million[46]. Corporate Governance - The company has complied with the corporate governance code throughout the review year[72]. - The audit committee reviewed the financial statements for the year ended December 31, 2022, ensuring compliance with applicable accounting standards[73].

[Cover Information](index=1&type=section&id=Cover%20Information) This report is the 2022 interim report of NetDragon Websoft Holdings Limited (Stock Code: 777) - This report is the 2022 interim report of NetDragon Websoft Holdings Limited (Stock Code: 777)[1](index=1&type=chunk) [Table of Contents](index=3&type=section&id=Table%20of%20Contents) The report primarily includes management discussion and analysis, condensed consolidated financial statements, notes to the condensed consolidated financial statements, and other information - The report's main contents include management discussion and analysis, condensed consolidated financial statements, notes to the condensed consolidated financial statements, and other information[5](index=5&type=chunk) [Management Discussion and Analysis](index=4&type=section&id=Management%20Discussion%20and%20Analysis) This section provides an overview of the company's performance, highlighting key financial metrics and business segment developments - The company's revenue increased by **26.3%** to **RMB 4.2 billion** in the first half of 2022, with net profit attributable to owners increasing by **31.2%** to **RMB 565.1 million**[9](index=9&type=chunk) - Education business achieved record-high revenue growth of **71.2%**, while the gaming business saw a **3.9%** decline due to domestic pandemic impacts[9](index=9&type=chunk) - The Board resolved to declare an interim special dividend of **HKD 0.50** per share and an interim dividend of **HKD 0.40** per share[9](index=9&type=chunk) [Financial Summary and Review](index=4&type=section&id=Financial%20Summary%20and%20Review) This section outlines the company's key financial indicators for the first half of 2022, including total revenue, gross profit, operating profit, and profit attributable to owners, with detailed segment-wise changes - In the first half of 2022, the company's revenue increased by **26.3%** year-on-year, gross profit increased by **4.0%**, and profit attributable to owners increased by **31.2%**[6](index=6&type=chunk) [Financial Summary for the First Half of 2022](index=4&type=section&id=Financial%20Summary%20for%20the%20First%20Half%20of%202022) Detailed financial data for the first half of 2022, including revenue, gross profit, operating profit, and non-GAAP metrics, with year-on-year comparisons 2022 H1 Financial Summary (RMB) | Indicator | 2022年上半年 (RMB) | 同比增长/减少 | | :--- | :--- | :--- | | Revenue | 4,200,000,000 | +26.3% | | Education Business Revenue | 2,400,000,000 | +71.2% | | Gaming Business Revenue | 1,800,000,000 | -3.9% | | Gross Profit | 2,300,000,000 | +4.0% | | Gaming Business Operating Segment Profit | 1,000,000,000 | -6.2% | | Education Business Operating Segment Loss | (35,700,000) | Narrowed 86.1% | | Operating Profit | 744,600,000 | +7.7% | | Non-GAAP Operating Profit | 854,400,000 | +13.3% | | Profit Attributable to Owners | 565,100,000 | +31.2% | | Non-GAAP Profit Attributable to Owners | 815,800,000 | +44.0% | | Interim Special Dividend and Interim Dividend | HKD 0.50 per share and HKD 0.40 per share | N/A | [Segmental Financial Summary](index=5&type=section&id=Segmental%20Financial%20Summary) This section provides detailed comparative data for revenue, gross profit, gross margin, and operating segment profit (loss) for the gaming and education segments in H1 2022 and H1 2021, highlighting strong growth in education and slight decline in gaming Segmental Financial Summary (RMB Thousand) | Indicator | 2022 H1 Gaming | 2022 H1 Education | 2021 H1 Gaming (Restated) | 2021 H1 Education (Restated) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 1,775,729 | 2,409,818 | 1,847,548 | 1,407,641 | | Gross Profit | 1,699,076 | 609,687 | 1,765,923 | 431,055 | | Gross Margin | 95.7% | 25.3% | 95.6% | 30.6% | | Operating Segment Profit (Loss) | 1,006,454 | (35,672) | 1,073,223 | (256,327) | - Education business gross margin decreased from **30.6%** to **25.3%**, primarily due to increased material and shipping costs and price reductions for ActivPanel 7, though Promethean's adjusted gross margin increased by **1.3 percentage points** quarter-on-quarter to **29.9%** after deducting tariffs[10](index=10&type=chunk) [Business Review and Outlook](index=6&type=section&id=Business%20Review%20and%20Outlook) This section reviews the company's overall business performance in H1 2022, emphasizing significant growth in the education business and market leadership, while noting short-term challenges in gaming due to macroeconomic factors and active expansion into new IPs and overseas markets - The company achieved significant progress in the first half of 2022, with double-digit growth in both revenue and net profit, driven by efficient business execution and investments in R&D, global sales networks, and talent[9](index=9&type=chunk) - The company is committed to maximizing shareholder returns, having declared interim special and interim dividends, and maintaining strong net cash flow to capitalize on future investment opportunities[9](index=9&type=chunk) [Education Business](index=7&type=section&id=Education%20Business) The education business achieved historic growth in H1 2022, with revenue up 71.2% year-on-year and significantly narrowed operating losses, securing global market leadership in interactive flat panels and launching new products and B2G projects - Education business revenue increased by **71.2%** to **RMB 2.4 billion**, with operating segment loss narrowing by **86.1%** to **RMB 35.7 million**[10](index=10&type=chunk) - Global interactive flat panel shipments increased by **71.5%** year-on-year, with the company's shipments growing by **82.5%** year-on-year and **46.9%** quarter-on-quarter, raising market share by **4.1 percentage points** quarter-on-quarter to **26.0%**, ranking first globally[10](index=10&type=chunk) - Launched the new ActivPanel 9 interactive flat panel and signed an exclusive distribution agreement with AI education technology company Merlyn Mind for the US market, expanding SaaS solutions[11](index=11&type=chunk) - Advanced B2G national projects, including a contract for **94,000 Promethean panels** in the Egyptian market and R&D for China's Ministry of Education's National Smart Education Platform[12](index=12&type=chunk) [Gaming Business](index=8&type=section&id=Gaming%20Business) The gaming business experienced a 3.9% year-on-year revenue decline in H1 2022 due to domestic pandemic impacts, but the company is enhancing player engagement through expansions and marketing, while actively developing new IPs, categories, and overseas markets, with future launches including "Eudemons Online 2" and Web3.0 games - Gaming business revenue decreased by **3.9%** year-on-year to **RMB 1.8 billion**, with PC game revenue down **5.2%** and mobile game revenue up **3.1%** year-on-year[13](index=13&type=chunk) - Flagship IP "Eudemons Online" launched four expansion packs, with monthly active users increasing by **34%** and average paying users by **65%** year-on-year, and "Eudemons Pocket Edition" revenue growing by **7.8%**[13](index=13&type=chunk) - "Conquer Online" IP performed stably in overseas markets, with revenue in Egypt increasing by **20.8%** and in other markets by **57.7%** year-on-year[14](index=14&type=chunk) - Signed a cooperation agreement for the overseas game version of "The Last Remnant" IP and launched the closed beta of the first Web3.0 game, "Neopets Metaverse"[14](index=14&type=chunk) - Upcoming launches in the second half include "Eudemons Online 2" and "Neopets Faerie's Hope," with a rich product pipeline for the future[14](index=14&type=chunk) [Company Development Milestones and Awards](index=9&type=section&id=Company%20Development%20Milestones%20and%20Awards) In January 2022, Fujian NetDragon Computer Network Information Technology Company received the "Most Valuable Education Company" award at the 6th Golden Hong Kong Stocks Awards - Fujian NetDragon Computer Network Information Technology Company received the "Most Valuable Education Company" award at the 6th Golden Hong Kong Stocks Awards[14](index=14&type=chunk) [Liquidity and Capital Resources](index=10&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company held approximately RMB 3.9029 billion in cash and bank deposits, with net current assets of approximately RMB 4.0011 billion, a decrease from the end of 2021 Liquidity and Capital Resources (RMB Thousand) | Indicator | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Pledged bank deposits, bank balances and cash | 3,902,900 | 4,356,100 | | Net current assets | 4,001,100 | 4,386,700 | [Gearing Ratio](index=10&type=section&id=Gearing%20Ratio) As of June 30, 2022, the company's gearing ratio was 0.07, slightly higher than 0.06 at the end of 2021, with an increase in total bank borrowings Gearing Ratio and Bank Borrowings (RMB) | Indicator | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Gearing Ratio | 0.07 | 0.06 | | Total Bank Borrowings | 443,200,000 | 402,900,000 | - Bank borrowings include **RMB 105.6 million** in floating-rate loans and **RMB 337.6 million** in fixed-rate loans, mostly secured by subsidiary properties, right-of-use assets, corporate guarantees, and directors' personal guarantees[16](index=16&type=chunk) [Capital Structure](index=10&type=section&id=Capital%20Structure) As of June 30, 2022, the company's total equity was approximately RMB 6.7507 billion, a decrease from the end of 2021 Total Equity (RMB) | Indicator | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Equity | 6,750,700,000 | 7,074,600,000 | [Contingent Liabilities](index=10&type=section&id=Contingent%20Liabilities) As of June 30, 2022, and December 31, 2021, the Group had no significant contingent liabilities - The Group had no significant contingent liabilities at the end of the reporting period[18](index=18&type=chunk) [Significant Investments, Acquisitions and Disposals, and Future Plans for Significant Investments and Capital Assets](index=10&type=section&id=Significant%20Investments%2C%20Acquisitions%20and%20Disposals%2C%20and%20Future%20Plans%20for%20Significant%20Investments%20and%20Capital%20Assets) Except as disclosed in this interim report, as of June 30, 2022, the Group had not undertaken any significant acquisitions, disposals of subsidiaries, associates, and joint ventures, nor did it have other future plans for significant investments and capital assets - During the reporting period, the Group did not undertake any significant investments, acquisitions, or disposals, nor did it have future plans for significant investments[18](index=18&type=chunk) [Foreign Currency Risk](index=11&type=section&id=Foreign%20Currency%20Risk) The Group primarily operates in China, the US, and the UK, with monetary assets, liabilities, and transactions mainly denominated in RMB, USD, and GBP; the company currently has no foreign currency hedging policy, but management closely monitors foreign exchange risk - Primary operating locations are China, the US, and the UK, with main denominated currencies being RMB, USD, and GBP[19](index=19&type=chunk) - Currently, there is no foreign currency hedging policy, but management closely monitors foreign exchange risk[19](index=19&type=chunk) [Credit Risk](index=11&type=section&id=Credit%20Risk) The Group mitigates credit risk from trade receivables by setting credit limits, approval, and monitoring procedures, and assesses credit risk from bank deposits as limited due to high-rated counterparties - Credit risk from trade receivables, contract assets, etc., is mitigated through a dedicated team responsible for credit limits, approval, and monitoring procedures[20](index=20&type=chunk) - Credit risk from bank deposits is limited as counterparties are internationally highly-rated or state-owned banks[20](index=20&type=chunk) - No significant concentration of credit risk, as risk is diversified across numerous counterparties and customers[20](index=20&type=chunk) [Liquidity Risk](index=12&type=section&id=Liquidity%20Risk) The Group manages liquidity risk by monitoring and maintaining sufficient cash and cash equivalents to fund operations and mitigate cash flow volatility, regularly reviewing liquidity needs and compliance with borrowing covenants, deeming liquidity risk to be minimal - Liquidity risk is managed by maintaining sufficient cash and cash equivalents to fund operations and mitigate cash flow volatility[21](index=21&type=chunk) - Regular monitoring of liquidity needs and compliance with borrowing covenants ensures adequate cash reserves and credit facilities[21](index=21&type=chunk) - Management assesses liquidity risk as minimal[21](index=21&type=chunk) [Staff Information](index=12&type=section&id=Staff%20Information) As of June 30, 2022, the Group's total headcount was 4,784, a decrease from 4,834 at the end of 2021, though the number of R&D personnel slightly increased Staff Headcount Analysis | Department | June 30, 2022 | December 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | :--- | | R&D | 2,699 | 2,605 | 3,378 | | Sales & Marketing | 1,008 | 1,107 | 1,305 | | Accounting, Finance & General Administration | 835 | 889 | 1,043 | | Production | 242 | 233 | 238 | | **Total** | **4,784** | **4,834** | **5,964** | [Performance Evaluation](index=12&type=section&id=Performance%20Evaluation) In H1 2022, the company focused on talent upgrading and attraction, actively engaged in university-enterprise cooperation, and committed to building a "metaverse organization" where everyone participates and shares value, enhancing management efficiency and employee value contribution through digital transformation and timely reward mechanisms - Focused on talent upgrading and attracting outstanding talent in gaming and education, conducting campus recruitment and participating in the Ministry of Education's employment education program[23](index=23&type=chunk) - Committed to building a "metaverse organization" where everyone participates and shares value, attracting global talent through metaverse office models and flexible employment[24](index=24&type=chunk) - Upgraded corporate culture and management system, with "Openness, Courage, Passion" as core values, and promoted human resources digital transformation[24](index=24&type=chunk) - Implemented a timely reward mechanism to encourage innovation and value contribution, and promoted management rejuvenation to identify successor talent[24](index=24&type=chunk) - Continuously improved employee welfare and services, strengthened employee care, and strictly implemented corporate responsibility for epidemic prevention and control[24](index=24&type=chunk) [Staff Training](index=14&type=section&id=Staff%20Training) NetDragon University provided specialized and systematic training in H1 2022 to align with the company's strategic development, conducting 33 offline training sessions with 1,478 participants, and accumulating over 100,000 hours of online learning across various fields including blockchain, product design, and game design - NetDragon University provides specialized and systematic training to enhance employees' professional capabilities and align with the company's strategic development[26](index=26&type=chunk) - In the first half of 2022, **33 offline training sessions** were conducted with **1,478 participants**; **101 courses** were uploaded to the online platform, with **4,559 participants** accumulating **107,643.69 hours** of learning[26](index=26&type=chunk) - Training content included blockchain engineer training camp, software product design training camp, 99 Lecture Hall, game design appreciation sessions, new employee training, U3D series certification, and design methodology courses[25](index=25&type=chunk)[27](index=27&type=chunk) [Corporate Culture](index=15&type=section&id=Corporate%20Culture) The company's corporate culture emphasizes seven core values: "Passion, Learning, Innovation, Striving, Pursuit of Excellence, Fairness, Customer First," aiming to inspire internal motivation, enhance team cohesion, and create value for customers - Passion: Go all out, enjoy work, and spread positive energy[28](index=28&type=chunk) - Learning: Stay curious, apply knowledge, reflect, and share willingly[29](index=29&type=chunk) - Innovation: Embrace change, explore new methods, and launch new technologies and products[29](index=29&type=chunk) - Striving: Actively express opinions, seize opportunities, and unleash inner drive[30](index=30&type=chunk) - Pursuit of Excellence: Aim high, strive for perfection, and provide quality products and services to customers[31](index=31&type=chunk) - Fairness: Foster a work environment with fair distribution, just procedures, transparent information, and mutual respect[31](index=31&type=chunk) - Customer First: Acutely judge customer needs and create value through technology and services[32](index=32&type=chunk) [Interim Dividends](index=16&type=section&id=Interim%20Dividends) The Board resolved to declare an interim special dividend of HKD 0.50 per share and an interim dividend of HKD 0.40 per share for the six months ended June 30, 2022, totaling HKD 0.90 per share, payable on or about October 31, 2022 2022 H1 Interim Dividends | Dividend Type | Amount per Share (HKD) | | :--- | :--- | | Interim Special Dividend | 0.50 | | Interim Dividend | 0.40 | | **Total** | **0.90** | - Dividends will be distributed to shareholders whose names appear on the company's register of members on September 14, 2022, and are expected to be paid on or about October 31, 2022[33](index=33&type=chunk) [Closure of Register of Members](index=16&type=section&id=Closure%20of%20Register%20of%20Members) To determine eligible shareholders for the interim dividend, the company will suspend registration of members from September 14 to September 15, 2022, with all share transfer documents to be lodged by 4:30 p.m. on September 13, 2022, at the Hong Kong share registrar - The register of members will be closed from **September 14 to September 15, 2022**[34](index=34&type=chunk) - The deadline for lodging share transfer documents is **4:30 p.m. on September 13, 2022**[34](index=34&type=chunk) [Other Information](index=17&type=section&id=Other%20Information) This section covers directors' and major shareholders' interests, share option and award schemes, related party transactions, corporate governance, and other disclosures - Disclosed the interests and short positions of directors, chief executives, and major shareholders in the company's shares[35](index=35&type=chunk)[40](index=40&type=chunk) - Detailed the operation and changes of the share option scheme and share award scheme[45](index=45&type=chunk)[48](index=48&type=chunk) - The company complies with the Corporate Governance Code in Appendix 14 of the Listing Rules, with an audit committee composed of independent non-executive directors overseeing financial reporting and internal controls[63](index=63&type=chunk) [Directors' and Chief Executives' Interests and Short Positions in Shares, Underlying Shares, and Debentures](index=17&type=section&id=Directors%27%20and%20Chief%20Executives%27%20Interests%20and%20Short%20Positions%20in%20Shares%2C%20Underlying%20Shares%2C%20and%20Debentures) As of June 30, 2022, the company's directors and chief executives held interests in the company's shares, with Liu Dejian, Liu Luyuan, and Zheng Hui considered parties acting in concert, collectively holding 46.38% of the issued share capital Directors' and Chief Executives' Shareholding Profile (June 30, 2022) | Director's Name | Capacity and Nature of Interest | Number of Shares (L) | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | | Liu Dejian | Beneficial owner, through controlled corporations and beneficiary of trusts | 250,822,457 | 46.38% | | Leung Nian Zai | Beneficial owner | 5,419,040 | 1.00% | | Liu Luyuan | Beneficial owner and beneficiary of certain trusts | 250,822,457 | 46.38% | | Zheng Hui | Beneficial owner and through controlled corporations | 250,822,457 | 46.38% | | Chen Hongzhan | Beneficial owner and beneficiary of certain trusts | 11,197,019 | 2.07% | | Cao Guowei | Beneficial owner | 438,500 | 0.08% | | Li Junxiong | Beneficial owner | 632,519 | 0.12% | | Liao Shiqiang | Beneficial owner | 818,019 | 0.15% | - Liu Dejian, Liu Luyuan, and Zheng Hui are deemed to hold interests in **46.38%** of the company's issued share capital due to direct and deemed shareholdings[38](index=38&type=chunk) [Substantial Shareholders' and Other Persons' Interests and Short Positions in Shares, Underlying Shares, and Debentures](index=20&type=section&id=Substantial%20Shareholders%27%20and%20Other%20Persons%27%20Interests%20and%20Short%20Positions%20in%20Shares%2C%20Underlying%20Shares%2C%20and%20Debentures) As of June 30, 2022, besides directors and chief executives, DJM Holding Ltd. and International Data Group (IDG) were substantial shareholders, holding 35.34% and 9.90% of the share interests, respectively Substantial Shareholders' Shareholding Profile (June 30, 2022) | Shareholder Name | Capacity and Nature of Interest | Number of Shares (L) | Approximate Percentage of Shareholding | | :--- | :--- | :--- | :--- | | DJM Holding Ltd. | Beneficial owner | 191,078,100 | 35.34% | | International Data Group | Beneficial owner | 53,533,320 | 9.90% | | Ho Chi Sing | Through controlled corporations | 53,533,320 | 9.90% | | Zhou Quan | Through controlled corporations | 50,470,735 | 9.33% | - International Data Group comprises four limited partnerships, with its controlling structure involving Zhou Quan and Ho Chi Sing[43](index=43&type=chunk) [Share Option Schemes](index=22&type=section&id=Share%20Option%20Schemes) The company has a 2008 Share Option Scheme (expired) and a 2018 Share Option Scheme to provide equity incentives to eligible participants; as of June 30, 2022, 1,273,250 options remained unexercised under the 2008 scheme, and 5,300,000 options under the 2018 scheme 2008 Share Option Scheme Movements (H1 2022) | Status | January 1, 2022 | Granted | Exercised | Cancelled | Lapsed | June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Number of Options | 1,358,917 | – | 19,825 | – | 65,842 | 1,273,250 | 2018 Share Option Scheme Movements (H1 2022) | Status | January 1, 2022 | Granted | Exercised | Cancelled | Lapsed | June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Number of Options | 5,300,000 | – | – | – | – | 5,300,000 | - In the first half of 2022, the company recognized a total expense of **RMB 3,774,000** for share options[128](index=128&type=chunk) [Share Award Schemes](index=24&type=section&id=Share%20Award%20Schemes) The company has a NetDragon Share Award Scheme to incentivize selected employees; as of June 30, 2022, all awarded shares had vested or lapsed, with no unvested awarded shares remaining; Best Education Online Limited also has a share award scheme, but no awarded shares were granted as of June 30, 2022 NetDragon Share Award Scheme Movements (H1 2022) | Participant Category | January 1, 2022 Unvested | Granted during the period | Awards vested during the period | Lapsed during the period | June 30, 2022 Unvested | | :--- | :--- | :--- | :--- | :--- | :--- | | Directors | 218,160 | – | 190,890 | 27,270 | – | | Other Employees | 148,080 | – | 87,420 | 60,660 | – | | **Total** | **366,240** | **–** | **278,310** | **87,930** | **–** | - As of June 30, 2022, there were no unvested awarded shares under the NetDragon Share Award Scheme[51](index=51&type=chunk) - No awarded shares were granted under the Best Share Award Scheme as of June 30, 2022[52](index=52&type=chunk) [Best Issuance of Series A Preferred Shares](index=26&type=section&id=Best%20Issuance%20of%20Series%20A%20Preferred%20Shares) Best Education Online Limited issued 180,914,513 Series A preferred shares to Series A investors in 2015 for a total consideration of USD 52.5 million; as of June 30, 2022, no Series A preferred shares had been converted into Best ordinary shares - Best issued **180,914,513 Series A preferred shares** in 2015 for a total consideration of **USD 52.5 million**[53](index=53&type=chunk) - Assuming full conversion, the company's interest in Best ordinary shares would decrease from **90.28%** to approximately **83.40%**[53](index=53&type=chunk) - As of June 30, 2022, no Series A preferred shares had been converted into Best ordinary shares[53](index=53&type=chunk) [Acquisition of EDMODO, INC. and Best Issuance of Series B Preferred Shares](index=26&type=section&id=Acquisition%20of%20EDMODO%2C%20INC.%20and%20Best%20Issuance%20of%20Series%20B%20Preferred%20Shares) Best acquired Edmodo, LLC in 2018 for a total consideration of USD 137.5 million in cash and shares (issuing 112,560,245 Best Series B shares); as of June 30, 2022, no Series B preferred shares had been converted into Best ordinary shares - Best acquired Edmodo, LLC in 2018 for **USD 137.5 million** in cash and shares (**112,560,245 Series B shares**)[54](index=54&type=chunk) - As of June 30, 2022, no Series B preferred shares had been converted into Best ordinary shares[54](index=54&type=chunk) [Issuance of Secured Convertible and Exchangeable Bonds by Best and Unlisted Warrants under General Mandate](index=27&type=section&id=Issuance%20of%20Secured%20Convertible%20and%20Exchangeable%20Bonds%20by%20Best%20and%20Unlisted%20Warrants%20under%20General%20Mandate) Best issued convertible and exchangeable bonds with a principal amount of USD 150 million to investors in 2020, and the company simultaneously issued unlisted warrants to investors; as of June 30, 2022, neither these bonds nor warrants had been converted - Best issued **USD 150 million** in convertible and exchangeable bonds in 2020, convertible into **11.16%** of Best's issued share capital[55](index=55&type=chunk) - The company also issued unlisted warrants to investors, convertible into **11,502,220** company warrant shares[55](index=55&type=chunk) - The subscription price has been adjusted from **HKD 21.1998** to **HKD 19.6698**[55](index=55&type=chunk) - As of June 30, 2022, no bonds or warrants had been converted[55](index=55&type=chunk) [Use of Proceeds from Placing and Subscription on a "Top-up" Basis](index=27&type=section&id=Use%20of%20Proceeds%20from%20Placing%20and%20Subscription%20on%20a%20%22Top-up%22%20Basis) The company raised net proceeds of approximately HKD 774.28 million in 2020 through a placing and subscription on a "top-up" basis, with all proceeds fully utilized for expanding the education business - Raised net proceeds of approximately **HKD 774.28 million** in 2020 through placing and subscription[57](index=57&type=chunk) - All proceeds have been fully utilized for expanding the education business[57](index=57&type=chunk) [Standard Code for Securities Transactions by Directors](index=29&type=section&id=Standard%20Code%20for%20Securities%20Transactions%20by%20Directors) The company has adopted a code for directors' securities transactions no less exacting than the Model Code in Appendix 10 of the Listing Rules and confirmed that all directors complied with it in H1 2022 - The company has adopted a code for directors' securities transactions that complies with the Listing Rules[58](index=58&type=chunk) - All directors complied with the code in the first half of 2022[58](index=58&type=chunk) [Interim Dividends](index=29&type=section&id=Interim%20Dividends) The Board resolved to declare an interim special dividend of HKD 0.50 per share and an interim dividend of HKD 0.40 per share for the six months ended June 30, 2022, totaling HKD 0.90 per share, payable on or about October 31, 2022 2022 H1 Interim Dividends | Dividend Type | Amount per Share (HKD) | | :--- | :--- | | Interim Special Dividend | 0.50 | | Interim Dividend | 0.40 | | **Total** | **0.90** | - Dividends will be distributed to shareholders whose names appear on the company's register of members on September 14, 2022, and are expected to be paid on or about October 31, 2022[59](index=59&type=chunk) [Closure of Register of Members](index=29&type=section&id=Closure%20of%20Register%20of%20Members) To determine eligible shareholders for the interim dividend, the company will suspend registration of members from September 14 to September 15, 2022, with all share transfer documents to be lodged by 4:30 p.m. on September 13, 2022, at the Hong Kong share registrar - The register of members will be closed from **September 14 to September 15, 2022**[60](index=60&type=chunk) - The deadline for lodging share transfer documents is **4:30 p.m. on September 13, 2022**[60](index=60&type=chunk) [Changes in Directors' Information Disclosed under Rule 13.51B(1) of the Listing Rules](index=29&type=section&id=Changes%20in%20Directors%27%20Information%20Disclosed%20under%20Rule%2013.51B(1)%20of%20the%20Listing%20Rules) In accordance with the Listing Rules, the company disclosed the change in independent non-executive director Mr. Li Junxiong's information, who resigned as an independent non-executive director of Puxin Financial Group Limited on July 17, 2022 - Independent non-executive director Li Junxiong resigned as an independent non-executive director of Puxin Financial Group Limited on **July 17, 2022**[61](index=61&type=chunk) [Competition and Conflicts of Interest](index=29&type=section&id=Competition%20and%20Conflicts%20of%20Interest) As of the report date, none of the company's directors or their associates held any interests in businesses competing or potentially competing with the Group's business, nor were there any other conflicts of interest - As of the report date, directors and their associates had no interests in businesses competing or potentially competing with the Group's business, nor any other conflicts of interest[62](index=62&type=chunk) [Compliance with Corporate Governance Code](index=30&type=section&id=Compliance%20with%20Corporate%20Governance%20Code) The company has consistently complied with the code provisions of the Corporate Governance Code set out in Appendix 14 of the Listing Rules throughout the review period - The company consistently complied with the Corporate Governance Code in Appendix 14 of the Listing Rules throughout the review period[63](index=63&type=chunk) [Audit Committee](index=30&type=section&id=Audit%20Committee) The company's Audit Committee, composed of three independent non-executive directors, is responsible for reviewing and overseeing financial reporting processes and internal control systems, and has reviewed and approved the Group's interim results for the six months ended June 30, 2022 - The Audit Committee comprises three independent non-executive directors: Cao Guowei (Chairman), Li Junxiong, and Liao Shiqiang[63](index=63&type=chunk) - Its primary responsibilities include reviewing and overseeing financial reporting processes and internal control systems, covering financial, operational, compliance monitoring, and risk management[63](index=63&type=chunk) - The Audit Committee has reviewed and deemed the Group's interim results for the six months ended June 30, 2022, to comply with applicable accounting standards and requirements[63](index=63&type=chunk) [Purchase, Sale or Redemption of Securities](index=30&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20Securities) For the six months ended June 30, 2022, neither the company nor its subsidiaries repurchased, sold, or redeemed any of the company's listed securities - During the reporting period, neither the company nor its subsidiaries repurchased, sold, or redeemed any listed securities[64](index=64&type=chunk) [Review Report on Condensed Consolidated Financial Statements](index=31&type=section&id=Review%20Report%20on%20Condensed%20Consolidated%20Financial%20Statements) Deloitte Touche Tohmatsu reviewed NetDragon Websoft Holdings Limited's condensed consolidated financial statements for the six months ended June 30, 2022, in accordance with Hong Kong Standard on Review Engagements 2410 - Deloitte Touche Tohmatsu reviewed NetDragon Websoft Holdings Limited's condensed consolidated financial statements for the six months ended June 30, 2022, in accordance with Hong Kong Standard on Review Engagements 2410[65](index=65&type=chunk) - The scope of review is substantially less than an audit, thus no audit opinion is expressed[66](index=66&type=chunk) - The conclusion is that nothing has come to their attention that causes them to believe the condensed consolidated financial statements are not prepared in all material respects in accordance with Hong Kong Accounting Standard 34[67](index=67&type=chunk) [Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income](index=33&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss%20and%20Other%20Comprehensive%20Income) This statement presents the company's financial performance for the six months ended June 30, 2022, including revenue, gross profit, operating profit, and profit attributable to owners Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (RMB Thousand) | Indicator | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Revenue | 4,240,381 | 3,356,174 | | Cost of Revenue | (1,917,600) | (1,122,299) | | Gross Profit | 2,322,781 | 2,233,875 | | Operating Profit | 744,612 | 691,635 | | Profit Before Tax | 579,636 | 599,670 | | Taxation | (37,601) | (216,042) | | Profit for the Period | 542,035 | 383,628 | | Total Comprehensive Income for the Period | 557,907 | 377,721 | | Profit Attributable to Owners of the Company | 565,114 | 430,732 | | Basic Earnings Per Share (RMB cents) | 104.42 | 77.45 | - Revenue increased by **26.3%** year-on-year, profit for the period increased by **41.3%**, and profit attributable to owners of the company increased by **31.2%**[69](index=69&type=chunk)[70](index=70&type=chunk) [Condensed Consolidated Statement of Financial Position](index=35&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) This statement provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2022, and December 31, 2021 Condensed Consolidated Statement of Financial Position (RMB Thousand) | Indicator | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Non-current Assets | 4,109,200 | 3,944,043 | | Current Assets | 6,664,168 | 6,940,793 | | Current Liabilities | 2,663,096 | 2,554,109 | | Non-current Liabilities | 1,359,564 | 1,256,118 | | Net Assets | 6,750,708 | 7,074,609 | | Equity Attributable to Owners of the Company | 7,019,572 | 7,314,400 | - Net current assets decreased from **RMB 4,386,684 thousand** as of December 31, 2021, to **RMB 4,001,072 thousand** as of June 30, 2022[73](index=73&type=chunk) [Condensed Consolidated Statement of Changes in Equity](index=37&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) This statement details the changes in the company's equity attributable to owners for the six months ended June 30, 2022, including comprehensive income, share issuance, share repurchases, and dividends - Total comprehensive income attributable to owners of the company for the first half of 2022 was **RMB 581,858 thousand**[75](index=75&type=chunk) - Share capital increased by **RMB 125 thousand** during the period due to the exercise of share options[75](index=75&type=chunk) - Share capital decreased by **RMB 330 thousand** during the period due to share repurchases and cancellations[75](index=75&type=chunk) - Dividends paid for the 2021 final dividend and interim special dividend totaled **RMB 809,042 thousand**[75](index=75&type=chunk) [Condensed Consolidated Statement of Cash Flows](index=39&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) This statement presents the cash flows from operating, investing, and financing activities for the six months ended June 30, 2022, and June 30, 2021 Condensed Consolidated Statement of Cash Flows (RMB Thousand) | Activity Type | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Net cash from operating activities | 480,061 | 474,911 | | Net cash from (used in) investing activities | 201,867 | (807,987) | | Net cash used in financing activities | (715,245) | (153,020) | | Net decrease in cash and cash equivalents | (33,317) | (486,096) | | Cash and cash equivalents at end of period | 3,701,808 | 3,619,985 | - Net cash from investing activities changed from a net outflow of **RMB 807.987 million** in H1 2021 to a net inflow of **RMB 201.867 million** in H1 2022, primarily due to increased withdrawals of bank deposits with original maturity over three months and increased proceeds from the sale of financial assets at fair value through profit or loss[79](index=79&type=chunk) - Net cash outflow from financing activities significantly increased, mainly due to higher dividends paid and increased payments for share repurchases and cancellations[79](index=79&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=41&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and breakdowns of the figures presented in the condensed consolidated financial statements, including accounting policies, segment information, and financial instrument disclosures - The notes provide detailed explanations of the company's operating businesses, basis of financial statement preparation, and key accounting policies[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Detailed breakdowns and explanations are provided for key financial indicators such as revenue, segment information, taxation, dividends, and earnings per share[85](index=85&type=chunk)[91](index=91&type=chunk)[100](index=100&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - The composition and changes of major balance sheet items (e.g., property, plant and equipment, intangible assets, financial instruments, inventories, receivables, and payables) are elaborated[106](index=106&type=chunk)[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk) - Specific details on share-based payment transactions, related party transactions, and fair value measurement of financial instruments are disclosed[127](index=127&type=chunk)[129](index=129&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[136](index=136&type=chunk) [1. General Information](index=41&type=section&id=General%20Information) NetDragon Websoft Holdings Limited was incorporated in the Cayman Islands in 2004, listed on the Main Board of the Hong Kong Stock Exchange, and primarily engages in online and mobile game development, education, mobile solutions, and property projects - The company was incorporated in the Cayman Islands on **July 29, 2004**, and its shares are listed on the Main Board of the Hong Kong Stock Exchange[80](index=80&type=chunk) - The ultimate controlling shareholders are Mr. Liu Dejian, Mr. Liu Luyuan, and Mr. Zheng Hui[80](index=80&type=chunk) - Principal activities include online and mobile game development and operation, education business, mobile solutions, and property projects[80](index=80&type=chunk) [2. Basis of Preparation](index=41&type=section&id=Basis%20of%20Preparation) The condensed consolidated financial statements are prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the HKICPA and the applicable disclosure requirements of Appendix 16 to the Listing Rules of the Stock Exchange - Financial statements are prepared in accordance with **Hong Kong Accounting Standard 34** and **Appendix 16 of the Listing Rules**[81](index=81&type=chunk) [3. Principal Accounting Policies](index=41&type=section&id=Principal%20Accounting%20Policies) The condensed consolidated financial statements are prepared on a historical cost basis, except for certain financial instruments and investment properties measured at fair value; amendments to Hong Kong Financial Reporting Standards were first applied during this interim period but had no significant impact on financial position and performance - Financial statements are primarily prepared on a historical cost basis, with some financial instruments and investment properties measured at fair value[82](index=82&type=chunk) - First-time application of amendments to Hong Kong Financial Reporting Standards had no significant impact on the financial position and performance for the current and prior periods[84](index=84&type=chunk) [4. Revenue](index=42&type=section&id=Revenue) In H1 2022, the company's total revenue was RMB 4,240,381 thousand, primarily from education business (RMB 2,409,818 thousand) and online and mobile game business (RMB 1,775,729 thousand), with education business revenue significantly increasing by 71.2% year-on-year Revenue Composition (RMB Thousand) | Business Type | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Online and Mobile Game Revenue | 1,775,729 | 1,847,548 | | Education Revenue | 2,409,818 | 1,407,641 | | Mobile Solutions, Products and Marketing Revenue | 38,339 | 39,150 | | Property Project Revenue | 16,495 | 61,835 | | **Total Revenue** | **4,240,381** | **3,356,174** | - Education revenue increased by **71.2%** year-on-year, while online and mobile game revenue decreased by **3.9%** year-on-year[85](index=85&type=chunk) [Disaggregation of Revenue from Contracts with Customers](index=43&type=section&id=Disaggregation%20of%20Revenue%20from%20Contracts%20with%20Customers) Revenue is disaggregated by type of goods and services, with education business primarily from sales of educational equipment and related goods, and gaming business from prepaid game cards; revenue recognition is mostly completed at a point in time Revenue by Type of Goods and Services (H1 2022, RMB Thousand) | Type of Goods and Services | Online and Mobile Game Revenue | Education Revenue | Mobile Solutions, Products and Marketing Revenue | Property Project Revenue | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue from prepaid game cards | 1,775,729 | – | – | – | 1,775,729 | | Sales of educational equipment and related goods | – | 2,335,138 | – | – | 2,335,138 | | Revenue from education services | – | 74,680 | – | – | 74,680 | - The vast majority of revenue (**RMB 4,127,362 thousand**) is recognized at a point in time, with revenue recognized over time amounting to **RMB 113,019 thousand**[88](index=88&type=chunk) [Geographical Information](index=45&type=section&id=Geographical%20Information) In H1 2022, the company's revenue primarily originated from China (RMB 1,644,644 thousand) and the United States (RMB 1,862,637 thousand), with the US market accounting for the highest proportion of revenue Revenue by Geographical Region (H1 2022, RMB Thousand) | Region | Online and Mobile Game Revenue | Education Revenue | Mobile Solutions, Products and Marketing Revenue | Property Project Revenue | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | United States | 258,090 | 1,604,547 | – | – | 1,862,637 | | China | 1,501,009 | 127,140 | – | 16,495 | 1,644,644 | | Italy | – | 175,665 | – | – | 175,665 | | Germany | – | 173,007 | – | – | 173,007 | | United Kingdom | – | 109,931 | – | – | 109,931 | - Revenue from the US market increased from **RMB 1,179,171 thousand** in H1 2021 to **RMB 1,862,637 thousand** in H1 2022[89](index=89&type=chunk)[90](index=90&type=chunk) [5. Segment Information](index=47&type=section&id=Segment%20Information) The company reports revenue and profit (loss) across four business segments: online and mobile games, education, mobile solutions and marketing, and property projects; the education business achieved segment revenue of RMB 2,409,818 thousand in H1 2022 but still recorded a segment loss Segment Revenue and Profit (Loss) (H1 2022, RMB Thousand) | Segment | Segment Revenue | Segment Profit (Loss) | | :--- | :--- | :--- | | Online and Mobile Games | 1,775,729 | 997,433 | | Education | 2,409,818 | (286,148) | | Mobile Solutions, Products and Marketing | 38,339 | (6,043) | | Property Projects | 16,495 | 7,706 | | **Total** | **4,240,381** | **712,948** | - Education business segment loss narrowed from **RMB (385,185) thousand** in H1 2021 to **RMB (286,148) thousand** in H1 2022[92](index=92&type=chunk)[93](index=93&type=chunk) - As of June 30, 2022, total assets for online and mobile games were **RMB 4,704,391 thousand**, and for education were **RMB 4,509,313 thousand**[95](index=95&type=chunk) [6. Other Income (Expenses) and Gains (Losses)](index=50&type=section&id=Other%20Income%20(Expenses)%20and%20Gains%20(Losses)) This section details the composition of the company's other income and gains, including government grants and interest income, as well as other expenses and losses, such as impairment losses on intangible assets and severance payments, for H1 2022 - Total other income and gains decreased from **RMB 86,859 thousand** in H1 2021 to **RMB 43,724 thousand** in H1 2022[96](index=96&type=chunk) - Total other expenses and losses increased from **RMB 94,341 thousand** in H1 2021 to **RMB 112,123 thousand** in H1 2022[99](index=99&type=chunk) [Other Income and Gains](index=50&type=section&id=Other%20Income%20and%20Gains) In H1 2022, the company's other income and gains primarily included interest income from bank balances (RMB 18,677 thousand), government grants (RMB 8,057 thousand), and VAT concessions (RMB 7,858 thousand), with government grants significantly decreasing year-on-year Other Income and Gains (RMB Thousand) | Item | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Government grants | 8,057 | 34,811 | | Interest income from bank balances, loans receivable and refundable rental deposits | 18,677 | 30,658 | | VAT concessions | 7,858 | 8,928 | | **Total** | **43,724** | **86,859** | - In the first half of 2022, **RMB 2,066 thousand** in COVID-19 related government grants were received, mainly from the Hong Kong government's "Employment Support Scheme"[97](index=97&type=chunk) [Other Expenses and Losses](index=51&type=section&id=Other%20Expenses%20and%20Losses) In H1 2022, the company's other expenses and losses primarily included impairment losses on intangible assets (RMB 55,215 thousand), severance payments (RMB 26,013 thousand), and other taxes and fees (RMB 17,617 thousand) Other Expenses and Losses (RMB Thousand) | Item | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Impairment loss on intangible assets | 55,215 | – | | Severance payments | 26,013 | 13,503 | | Other taxes and fees | 17,617 | 16,406 | | Net exchange losses | 7,193 | 20,838 | | **Total** | **112,123** | **94,341** | - Impairment loss on intangible assets was primarily due to volatility in the cryptocurrency market[106](index=106&type=chunk) [7. Taxation](index=52&type=section&id=Taxation) In H1 2022, the company's tax expense was RMB 37,601 thousand, a significant decrease from the prior year; deferred tax assets of RMB 130 million were recognized during the period, mainly from unused tax losses of a US subsidiary Taxation Expense (RMB Thousand) | Item | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Hong Kong profits tax | 31,360 | 29,828 | | PRC enterprise income tax | 122,682 | 167,082 | | Taxation in other jurisdictions | 198 | 23,802 | | Deferred tax | (116,639) | (4,670) | | **Total** | **37,601** | **216,042** | - Deferred tax assets of **RMB 130 million** were recognized, mainly from unused tax losses of US subsidiary A, following its merger with subsidiary B into a single tax entity after reorganization[101](index=101&type=chunk) [8. Profit for the Period](index=54&type=section&id=Profit%20for%20the%20Period) Profit for the period in H1 2022 was derived after deducting staff costs (RMB 1,042,784 thousand), total depreciation and amortization (RMB 198,638 thousand), and impairment loss on intangible assets (RMB 55,215 thousand) Items Deducted/Credited in Profit for the Period (RMB Thousand) | Item | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Total staff costs | 1,042,784 | 1,076,673 | | Total depreciation and amortisation | 198,638 | 201,379 | | Cost of goods sold for educational equipment and related goods | 1,679,116 | 855,308 | | Advertising and promotion expenses | 187,581 | 174,647 | | Impairment loss on intangible assets | 55,215 | – | - Total staff costs slightly decreased year-on-year, while the cost of educational equipment and related goods significantly increased year-on-year[102](index=102&type=chunk) [9. Dividends](index=55&type=section&id=Dividends) In H1 2022, the company recognized a total of RMB 809,042 thousand for the 2021 final dividend and interim special dividend; the Board resolved to declare an interim special dividend of HKD 0.50 per share and an interim dividend of HKD 0.40 per share for H1 2022 Dividends Recognized and Declared for the Period (RMB Thousand/HKD) | Dividend Type | 2022 H1 Recognized | 2021 H1 Recognized | 2022 H1 Declared | | :--- | :--- | :--- | :--- | | 2021 Final Dividend (HKD 0.40 per share) | 176,845 | 117,100 (2020 Final Dividend HKD 0.25 per share) | N/A | | 2021 Interim Special Dividend (HKD 1.43 per share) | 632,197 | – | N/A | | 2022 H1 Interim Special Dividend | N/A | N/A | HKD 0.50 per share (approx. RMB 231,219 thousand) | | 2022 H1 Interim Dividend | N/A | N/A | HKD 0.40 per share (approx. RMB 184,976 thousand) | [10. Earnings Per Share](index=55&type=section&id=Earnings%20Per%20Share) In H1 2022, the company's basic earnings per share were RMB 104.42 cents, and diluted earnings per share were RMB 104.40 cents, both higher than the prior year Earnings Per Share (RMB cents) | Indicator | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Basic Earnings Per Share | 104.42 | 77.45 | | Diluted Earnings Per Share | 104.40 | 77.39 | Number of Shares for EPS Calculation (Thousand Shares) | Indicator | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Weighted average number of ordinary shares in issue | 541,201 | 556,126 | | Effect of potential dilutive ordinary shares | 99 | 455 | | Weighted average number of ordinary shares for diluted EPS | 541,300 | 556,581 | [11. Property, Plant and Equipment, Right-of-Use Assets and Intangible Assets](index=56&type=section&id=Property%2C%20Plant%20and%20Equipment%2C%20Right-of-Use%20Assets%20and%20Intangible%20Assets) In H1 2022, the company invested in property, plant and equipment and intangible assets, with an impairment loss of RMB 55,215 thousand recognized on intangible assets due to cryptocurrency market volatility - In the first half of 2022, the company paid approximately **RMB 88,692 thousand** for the acquisition of property, plant and equipment, mainly for plant equipment and construction in progress[106](index=106&type=chunk) - In the first half of 2022, the company paid approximately **RMB 55,546 thousand** for the acquisition of intangible assets, including approximately **USD 0.3 million** in cryptocurrencies[106](index=106&type=chunk) - An impairment loss of **RMB 55,215 thousand** on intangible assets was recognized due to volatility in the cryptocurrency market[106](index=106&type=chunk) [12. Financial Assets at Fair Value Through Profit or Loss / Derivative Financial Instruments](index=57&type=section&id=Financial%20Assets%20at%20Fair%20Value%20Through%20Profit%20or%20Loss%20%2F%20Derivative%20Financial%20Instruments) As of June 30, 2022, the company's total financial assets at fair value through profit or loss amounted to RMB 341,047 thousand, primarily comprising unlisted funds and unlisted equity investments; total derivative financial instruments (financial liabilities) amounted to RMB 36,442 thousand Financial Assets at Fair Value Through Profit or Loss (RMB Thousand) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Equity-linked warrants | 1,414 | 1,852 | | Unlisted funds | 258,511 | 266,078 | | Unlisted equity investments | 81,122 | – | | **Total** | **341,047** | **267,930** | Derivative Financial Instruments (Financial Liabilities) (RMB Thousand) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Unlisted warrants | 36,442 | 42,565 | | **Total** | **36,442** | **42,565** | - Unlisted equity investments refer to equity investments in private entities engaged in investing in cryptocurrencies, tokens, blockchain assets, and other digital assets[108](index=108&type=chunk) [13. Inventories](index=58&type=section&id=Inventories) As of June 30, 2022, the company's total inventories amounted to RMB 733,134 thousand, primarily consisting of finished goods, an increase from the end of 2021 Inventory Composition (RMB Thousand) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Raw materials | 5,190 | 5,490 | | Finished goods | 727,944 | 679,627 | | **Total** | **733,134** | **685,117** | [14. Trade Receivables](index=58&type=section&id=Trade%20Receivables) As of June 30, 2022, the company's total trade receivables amounted to RMB 972,352 thousand, an increase from the end of 2021, with a higher proportion of receivables over 90 days Ageing Analysis of Trade Receivables (RMB Thousand) | Ageing | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | 0 to 30 days | 452,395 | 374,790 | | 31 to 60 days | 263,953 | 264,081 | | 61 to 90 days | 107,530 | 107,186 | | Over 90 days | 148,474 | 85,929 | | **Total** | **972,352** | **831,986** | - The company generally grants credit terms of **30 to 60 days** to distributors and payment channels/trade customers[110](index=110&type=chunk) [15. Other Receivables, Prepayments and Deposits](index=59&type=section&id=Other%20Receivables%2C%20Prepayments%20and%20Deposits) As of June 30, 2022, the company's total other receivables, prepayments, and deposits amounted to RMB 480,151 thousand, a slight decrease from the end of 2021, primarily including prepayments to suppliers, prepaid lease payments, and refundable rental and guarantee deposits Other Receivables, Prepayments and Deposits (RMB Thousand) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Prepayments to suppliers | 83,617 | 86,077 | | Prepaid lease payments for properties, utilities and servers | 84,673 | 56,684 | | Refundable rental and guarantee deposits | 75,275 | 77,278 | | Other amounts receivable from agents for purchase of cryptocurrencies | 18,018 | – | | Government grants receivable | – | 62,712 | | **Total** | **480,151** | **518,998** | - Includes potential prepaid lease payments and deposits of **RMB 31,581 thousand** paid to Fuzhou 851, an associate[112](index=112&type=chunk) [16. Amounts Due from Joint Ventures](index=59&type=section&id=Amounts%20Due%20from%20Joint%20Ventures) As of June 30, 2022, and December 31, 2021, amounts due from joint ventures were non-trade in nature, unsecured, interest-free, and repayable on demand - Amounts due from joint ventures are non-trade in nature, unsecured, interest-free, and repayable on demand[113](index=113&type=chunk) [17. Trade and Other Payables](index=60&type=section&id=Trade%20and%20Other%20Payables) As of June 30, 2022, the company's total trade and other payables amounted to RMB 1,403,049 thousand, a slight decrease from the end of 2021, primarily including trade payables, accrued staff costs, and payables for property, plant and equipment purchases Trade and Other Payables (RMB Thousand) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Trade payables | 840,312 | 681,135 | | Accrued staff costs | 213,581 | 331,730 | | Payables for purchase of property, plant and equipment | 100,215 | 104,930 | | Payables for compensation | – | 23,035 | | **Total** | **1,403,049** | **1,465,984** | Ageing Analysis of Trade Payables (RMB Thousand) | Ageing | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | 0 to 90 days | 759,102 | 614,099 | | 91 to 180 days | 18,767 | 6,599 | | 181 to 365 days | 7,888 | 5,391 | | Over 365 days | 54,555 | 55,046 | | **Total** | **840,312** | **681,135** | [18. Amounts Due to an Associate](index=61&type=section&id=Amounts%20Due%20to%20an%20Associate) As of December 31, 2021, amounts due to an associate were trade in nature, unsecured, interest-free, and repayable on demand, and were fully repaid in H1 2022 - As of December 31, 2021, amounts due to an associate were fully repaid in the first half of 2022[119](index=119&type=chunk) [19. Bank Borrowings](index=61&type=section&id=Bank%20Borrowings) In H1 2022, the company incurred new bank borrowings of RMB 338,827 thousand; as of June 30, 2022, bank borrowings bore floating and fixed interest rates and were secured by subsidiary properties, right-of-use assets, corporate guarantees, and directors' personal guarantees - New bank borrowings of **RMB 338,827 thousand** were incurred in the first half of 2022[120](index=120&type=chunk) - Bank borrowings bear floating or fixed interest rates, such as HIBOR, Bloomberg Short-Term Bank Yield, US Prime Rate, or China's one-year Loan Prime Rate[120](index=120&type=chunk) - The secured portion is collateralized by subsidiary properties, right-of-use assets, corporate guarantees, and directors' personal guarantees[120](index=120&type=chunk) [20. Convertible and Exchangeable Bonds](index=62&type=section&id=Convertible%20and%20Exchangeable%20Bonds) The company's subsidiary issued convertible and exchangeable bonds with a principal amount of USD 150 million to investors in 2020, bearing an annual interest rate of 5% and denominated in USD; as of June 30, 2022, the debt component of the bonds was RMB 1,209,664 thousand - **USD 150 million** in convertible and exchangeable bonds were issued in 2020, bearing an annual interest rate of **5%** and denominated in USD[121](index=121&type=chunk) - The effective interest rate for the debt component is **16.62%**[121](index=121&type=chunk) Movements in Debt Component of Convertible and Exchangeable Bonds (RMB Thousand) | Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | At January 1 | 1,084,874 | 992,116 | | Interest accrued | 89,666 | 165,181 | | Interest repaid | (23,631) | (48,435) | | Exchange adjustment | 58,755 | (23,988) | | **Total** | **1,209,664** | **1,084,874** | [21. Convertible Preferred Shares](index=62&type=section&id=Convertible%20Preferred%20Shares) The financial liability component of convertible preferred shares issued by the company's subsidiary is measured at fair value, with changes in fair value recognized directly in profit or loss; as of June 30, 2022, and December 31, 2021, the fair value of convertible preferred shares was zero - The financial liability component of convertible preferred shares is measured at fair value, with changes in fair value recognized in profit or loss[123](index=123&type=chunk) - As of June 30, 2022, and December 31, 2021, the fair value of convertible preferred shares was **zero**[123](index=123&type=chunk) [22. Share Capital](index=63&type=section&id=Share%20Capital) As of June 30, 2022, the company's issued and fully paid share capital consisted of 540,743,633 shares with a par value of RMB 39,467 thousand; shares were issued upon exercise of share options and repurchased and cancelled during the period Share Capital Movements (Number of Shares/RMB Thousand) | Item | Number of Shares | Par Value (USD) | Par Value (RMB Thousand) | | :--- | :--- | :--- | :--- | | At December 31, 2021 | 545,245,308 | 5,452 | 39,795 | | Shares issued upon exercise of share options | 19,825 | – | 2 | | Shares repurchased and cancelled | (4,521,500) | (45) | (330) | | **At June 30, 2022** | **540,743,633** | **5,407** | **39,467** | - In the first half of 2022, **19,825 share options** were exercised, and **4,521,500 shares** were repurchased and cancelled[126](index=126&type=chunk) [23. Share-based Payment Transactions](index=64&type=section&id=Share-based%20Payment%20Transactions) The company has share option schemes and a share award scheme to incentivize employees; in H1 2022, a total expense of RMB 3,774 thousand was recognized for share options, and no unvested awarded shares remained under the share award scheme - The company has share option schemes (old and new) and a share award scheme to incentivize eligible participants[127](index=127&type=chunk)[129](index=129&type=chunk) - In the first half of 2022, the company recognized a total expense of **RMB 3,774 thousand** for share options[128](index=128&type=chunk) - As of June 30, 2022, there were no unvested awarded shares under the company's share award scheme[130](index=130&type=chunk) [Equity-settled Share Option Schemes](index=64&type=section&id=Equity-settled%20Share%20Option%20Schemes) As of June 30, 2022, 6,573,250 share options remained unexercised under the company's share option schemes; in H1 2022, a total expense of RMB 3,774 thousand was recognized for share options Share Option Movements (Number of Options) | Status | January 1, 2021 | Exercised | Lapsed | June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Unexercised | 8,411,384 | (19,825) | (65,842) | 6,573,250 | - In the first half of 2022, the company recognized a total expense of **RMB 3,774 thousand** for share options[128](index=128&type=chunk) [The Company's Share Award Scheme](index=65&type=section&id=The%20Company%27s%20Share%20Award%20Scheme) As of June 30, 2022, all awarded shares under the company's share award scheme had vested or lapsed, with no unvested awarded shares remaining; in H1 2022, the company reversed an expense of approximately RMB 984 thousand for share awards Share Award Scheme Movements (H1 2022) | Participant Category | January 1, 2022 Unvested | Awards vested during the period | Lapsed during the period | June 30, 2022 Unvested | | :--- | :--- | :--- | :--- | :--- | | Directors | 218,160 | (190,890) | (27,270) | – | | Other Employees | 148,080 | (87,420) | (60,660) | – | | **Total** | **366,240** | **(278,310)** | **(87,930)** | **–** | - In the first half of 2022, the company reversed an expense of approximately **RMB 984 thousand** for share awards[129](index=129&type=chunk) [Shares Awarded by a Subsidiary of the Company](index=66&type=section&id=Shares%20Awarded%20by%20a%20Subsidiary%20of%20the%20Company) A subsidiary of the company has a share award scheme, and in H1 2022, a total expense of approximately RMB 13 thousand was recognized for share awards - In the first half of 2022, a subsidiary of the company recognized a total expense of approximately **RMB 13 thousand** for share awards[132](index=132&type=chunk) [24. Related Party Transactions](index=66&type=section&id=Related%20Party%20Transactions) The Group has several related party transactions with companies controlled by or under significant influence of the ultimate controlling shareholders, primarily involving sales of goods and receipt of service fees Related Party Transactions (RMB Thousand) | Nature of Transaction | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Sales of goods to Guoteng | (103) | (380) | | Receipt of service fees from Guoteng | (890) | – | | Sales of goods to Kunming NetDragon Huayu | (465) | (1,033) | | Receipt of service fees from Kunming NetDragon Huayu | (363) | – | | Sales of goods to Yunqi Smart | (2,610) | (3,152) | | Receipt of service fees from Yunqi Smart | (723) | – | | Interest income from advances to key management personnel | (184) | (183) | - As of June 30, 2022, advances to key management personnel amounted to approximately **RMB 6,776 thousand**, unsecured, bearing **5.00%** annual interest[134](index=134&type=chunk) [Key Management Personnel Remuneration](index=67&type=section&id=Key%20Management%20Personnel%20Remuneration) In H1 2022, the company's key management personnel remuneration totaled RMB 65,573 thousand, primarily comprising salaries, allowances, and other short-term employee benefits Key Management Personnel Remuneration (RMB Thousand) | Item | 2022 H1 | 2021 H1 | | :--- | :--- | :--- | | Salaries, allowances and other short-term employee benefits | 62,648 | 37,153 | | Contributions to retirement benefit schemes | 313 | 315 | | Equity-settled share-based payment expenses | 2,612 | 8,927 | | **Total** | **65,573** | **46,395** | - Remuneration is determined by the Remuneration Committee based on individual performance and market trends[135](index=135&type

Financial Performance - Total revenue for the year 2021 reached RMB 7,035,496 thousand, representing a year-over-year increase of 14.7% from RMB 6,137,640 thousand in 2020[9] - Gross profit for 2021 was RMB 4,522,566 thousand, with a gross margin of approximately 64.2%, compared to RMB 4,171,264 thousand in 2020[9] - The company reported a net profit of RMB 983,358 thousand for 2021, up 14.9% from RMB 855,820 thousand in 2020[10] - Basic earnings per share for 2021 was RMB 191.67, an increase from RMB 171.19 in 2020[10] - Total revenue for 2021 reached RMB 7,035,500,000, representing a year-on-year growth of 14.6%[16] - The education business revenue surged by 32.2% to RMB 3.2 billion, with operating losses narrowing by 28.4%[22] - The gaming business revenue increased by 6.1% year-on-year, reaching RMB 3.6 billion, with operating profit rising by 7.8% to RMB 2.1 billion[20] Assets and Liabilities - Non-current assets as of December 31, 2021, totaled RMB 3,944,043 thousand, reflecting a growth from RMB 3,869,904 thousand in 2020[10] - Current assets increased to RMB 6,940,793 thousand in 2021, compared to RMB 6,123,311 thousand in 2020[10] - The company’s total liabilities increased to RMB 3,810,227 thousand in 2021, up from RMB 3,343,684 thousand in 2020[10] - As of December 31, 2021, the group's cash and cash equivalents, including restricted bank balances and pledged deposits, amounted to approximately RMB 4,356,100,000, compared to RMB 4,309,100,000 as of December 31, 2020[26] - The net current assets of the group as of December 31, 2021, were approximately RMB 4,386,700,000, an increase from RMB 4,162,600,000 as of December 31, 2020[26] Market Strategy and Growth - The company plans to expand its market presence and invest in new product development to drive future growth[9] - The company aims to enhance its operational efficiency and explore potential mergers and acquisitions to strengthen its market position[9] - The company plans to enhance efforts in blockchain gaming and explore new growth opportunities in 2022[13] - The company plans to provide 94,000 Promethean interactive panels to K-12 schools across Egypt, marking a significant milestone in its collaboration with the Egyptian Ministry of Education[19] - The company is focused on expanding its overseas online education business, leveraging the expertise of its leadership team in the education sector[42] Research and Development - Research and development expenses for 2021 were RMB 1,159,308 thousand, slightly down from RMB 1,175,928 thousand in 2020[9] - Research and development expenses for the gaming segment were RMB (657,547) with a year-on-year increase of 3.7%[17] - The company is developing its first blockchain metaverse game based on its well-known overseas IP, aiming for a closed beta release in the second half of 2022[20] Shareholder Returns - The company announced a three-year share repurchase plan with a maximum buyback amount of USD 300,000,000[15] - The total dividend payout for the year, including a special interim dividend, amounted to HKD 2.23 per share, representing approximately 93.8% of the profit attributable to shareholders[16] - The group has repurchased 16,200,000 shares for a total amount of USD 38,000,000 as part of a three-year buyback plan of up to USD 300,000,000[19] Employee and Talent Management - The total number of employees as of December 31, 2021, was 4,834, with 597 new hires during the year, including 91 senior talents primarily in the gaming and education sectors[37] - The company received the "2021 Best Talent Employer Award" from BOSS Zhipin, highlighting its successful recruitment efforts[37] - The organization is exploring flexible employment models to optimize talent structure and enhance internal management efficiency[37] - The company is implementing a performance management system focused on task-oriented and self-management principles to improve efficiency and effectiveness[38] Corporate Governance - The company has adopted the corporate governance code as per the listing rules and has complied with it for the year ending December 31, 2021[106] - The board of directors consists of five executive directors and four non-executive directors, with a focus on strategic oversight and performance monitoring[132] - The company has established a robust governance structure, ensuring that all directors have timely access to relevant information and independent professional advice when necessary[135] Environmental, Social, and Governance (ESG) - The company is committed to sustainable development and high standards of corporate governance[160] - The company's greenhouse gas emissions for the year 2021 amounted to 9,610 tons of CO2 equivalent, with Scope 1 emissions at 1 ton (<1%), Scope 2 emissions at 288 tons (3%), and Scope 3 emissions at 9,321 tons (97%)[168] - The company aims to reduce energy consumption in offices by 5% compared to previous years through the use of more LED lights and further installation of motion sensors[169] Community Engagement - The company actively participates in community contribution activities, including the adoption of its smart classroom solutions by the Sarawak Education Department in Malaysia[194] - Fujian Huayu donated VR innovative smart laboratory hardware to impoverished counties, enhancing educational resources and receiving recognition from local governments[197] - The 2020 Global Future Education Design Competition was successfully held, aiming to promote inclusive education and sustainable development goals[198]

Revenue Performance - Total revenue for the first half of 2021 reached RMB 3,356,200,000, representing an 18.9% year-on-year growth[7] - Revenue from the gaming business was RMB 1,847,500,000, accounting for 55.0% of total revenue, with a year-on-year increase of 12.2%[7] - Revenue from the education business was RMB 1,407,600,000, representing 41.9% of total revenue, with a year-on-year growth of 23.7%[7] - The flagship IP "Magic Domain" saw a revenue increase of 14.1% year-on-year, driven by new gameplay and effective localization in overseas markets[12] - Revenue for the six months ended June 30, 2021, was RMB 3,356,174 thousand, representing a 19% increase from RMB 2,822,858 thousand in 2020[78] - Revenue from online and mobile games reached RMB 1,847,548 thousand, up from RMB 1,647,334 thousand, reflecting a growth of approximately 12% year-over-year[97] - Education revenue, including sales of educational equipment and related services, amounted to RMB 1,407,641 thousand, compared to RMB 1,137,941 thousand, representing a growth of about 23%[97] - The total revenue from the gaming segment was RMB 1,407,641,000, which reflects a strong performance in this area compared to RMB 1,137,941,000 in the same period last year, marking an increase of about 23.7%[102] Profitability - Operating profit from the gaming business was RMB 1,069,200,000, reflecting a year-on-year increase of 13.3%[7] - Non-IFRS operating profit was RMB 753,900,000, showing a year-on-year growth of 48.1%[7] - The net profit for the period was RMB 383,628 thousand, reflecting a 38% increase from RMB 277,794 thousand in 2020[79] - Basic earnings per share rose to RMB 77.45, compared to RMB 60.93 in the previous year, marking a 27% increase[79] - The operating profit increased to RMB 691,635 thousand, a 59% rise compared to RMB 434,429 thousand in 2020[78] - The company reported a profit before tax of RMB 599,670,000 for the six months ended June 30, 2021, compared to RMB 370,522,000 for the same period in 2020, indicating a significant increase of approximately 62%[107] Dividends and Shareholder Returns - The company announced an interim dividend of HKD 0.40 per share, a 60.0% increase compared to the previous year[7] - The interim dividend was increased by 60% to HKD 0.40 per ordinary share, reflecting confidence in long-term business prospects and cash flow generation capabilities[11] - The board declared an interim dividend of HKD 0.40 per share for the six months ending June 30, 2021, compared to HKD 0.25 per share in 2020[40] - The company declared an interim dividend of HKD 0.40 per share, totaling RMB 185,232,000, compared to a total of RMB 126,290,000 for the previous year's final dividend[9] Strategic Initiatives - The education business is planning for a potential public listing, with significant revenue opportunities anticipated in Egypt and Thailand[10] - The company continues to explore growth opportunities in various countries while expanding its product line in the gaming sector[10] - The company plans to replicate its successful model in Egypt to other countries, including the Philippines, the USA, Canada, and Saudi Arabia[12] - The company signed a strategic cooperation agreement with the Central Institute for Educational Technology to develop more products based on AI and online learning[15] Financial Position - As of June 30, 2021, the group's net cash balance was approximately RMB 4,100,000,000, enabling the company to seize future acquisition and investment opportunities[16] - The group's total bank loans amounted to approximately RMB 291,800,000 as of June 30, 2021, down from RMB 345,700,000 as of December 31, 2020, indicating a reduction in leverage[20] - The total equity of the group was approximately RMB 6,852,600,000 as of June 30, 2021, an increase from RMB 6,651,900,000 as of December 31, 2020[21] - The group had no significant contingent liabilities as of June 30, 2021, maintaining a strong financial position[22] - The liquidity risk is considered minimal, with the company maintaining sufficient cash reserves to meet operational needs[25] - The group’s asset-liability ratio was 0.04 as of June 30, 2021, down from 0.05 as of December 31, 2020, showing improved financial stability[20] Employee and Talent Management - The number of employees decreased to 5,964 as of June 30, 2021, from 6,442 as of December 31, 2020, reflecting a strategic adjustment in workforce[26] - The company is focusing on optimizing its talent management system and enhancing the performance evaluation process[28] - The company is exploring flexible employment models to attract global talent and improve organizational efficiency[28] - The company has been recognized as one of the "Best Employers with Innovative Spirit" in China for 2020[27] Shareholder Structure - Liu Dejian holds 45.07% of the company's issued voting shares, with 250,822,457 shares directly owned[43] - International Data Group owns approximately 11.78% of the company, holding 65,533,320 shares[49] - DJM Holding Ltd. is a major shareholder with a 34.33% stake, representing 191,078,100 shares[49] - The company has a significant concentration of ownership, with Liu Dejian, Liu Luoyuan, and Zheng Hui collectively controlling 45.07% of the issued share capital[45] Investments and Acquisitions - The acquisition of Chengdu Zhangwo Technology Co., Ltd. was completed on May 8, 2020, for a total consideration of RMB 25,800,000[169] - The identifiable net assets acquired from Chengdu Zhangwo included non-current assets valued at RMB 27,598,000 and current assets totaling RMB 7,797,000[171] - The acquisition of Beijing Wangzhong Software Technology Co., Ltd. involved a cash payment of RMB 50,000,000 for 90% equity, completed on January 8, 2020[177] Financial Instruments and Valuation - The company’s financial assets and liabilities are measured at fair value, categorized into three levels based on the observability of input data[184] - The fair value of financial assets measured at fair value through profit or loss was RMB 2,920,000, a decrease of 21.6% from RMB 3,723,000 as of January 1, 2021[189] - The fair value of non-listed equity warrants increased to RMB 61,717,000 as of June 30, 2021, up from RMB 40,894,000 on January 1, 2021, reflecting a fair value change of RMB 21,319,000[191]