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]

Revenue Performance - Revenue for the first half of 2020 was RMB 2,822,900,000, representing a year-on-year growth of 5.6%[6] - Revenue from the gaming business was RMB 1,647,300,000, accounting for 58.4% of total revenue, with a year-on-year increase of 4.5%[6] - Revenue from the education business was RMB 1,137,900,000, accounting for 40.3% of total revenue, with a year-on-year growth of 8.5%[6] - The gaming business revenue for the first half of 2020 increased by 4.5% year-on-year, reaching RMB 1,647,300,000[11] - The education business revenue for the first half of 2020 was RMB 1,137,900,000, reflecting an 8.5% year-on-year growth[12] - Revenue for the six months ended June 30, 2020, was RMB 2,822,858 thousand, an increase from RMB 2,672,547 thousand in the same period of 2019, representing a growth of approximately 5.6%[65] User Engagement - Average monthly active users for the flagship platform 101 Education PPT exceeded 1,000,000, while the online teaching platform saw a peak of approximately 5,000,000 monthly active users, a growth of over 10 times compared to the second half of 2019[9] - The gaming business's daily active users for the flagship game "Magic Domain" increased by 41.4% year-on-year, indicating strong user engagement[10] - Monthly active users for the Edmodo platform reached a historical high of over 17,000,000, driven by the launch of the Edmodo Enterprise platform[13] - The flagship software platform 101 Education PPT had over 1,000,000 monthly active users, with significant user growth due to increased remote learning demand[13] Financial Performance - Operating cash inflow was RMB 528,400,000, reflecting a year-on-year increase of 25.7%[6] - Non-GAAP operating profit was RMB 509,200,000, a decrease of 6.2% year-on-year[6] - Non-GAAP profit attributable to owners of the company was RMB 449,500,000, down 5.5% year-on-year[6] - Operating profit decreased to RMB 434,429 thousand from RMB 480,363 thousand, reflecting a decline of about 9.6% year-over-year[65] - Net profit for the period was RMB 277,794 thousand, down from RMB 375,486 thousand, representing a decrease of approximately 26%[66] - Basic earnings per share for the period was 60.93 cents, compared to 79.66 cents in the previous year, a decline of about 23.6%[66] - The total comprehensive income for the period was RMB 288,329 thousand, down from RMB 375,071 thousand, indicating a decrease of about 23.1%[66] Strategic Initiatives - The group launched Edmodo Enterprise, a comprehensive hybrid learning platform, which rapidly expanded its market presence across multiple countries[9] - The group signed a memorandum of understanding with the Egyptian Ministry of Education to provide customized hybrid learning solutions, expected to generate significant revenue streams over the years[9] - The group plans to launch multiple new games by the end of 2020, including "Magic Domain Legend" and "Magic Domain Mobile II," all of which have obtained approval numbers[11] Employee and HR Management - As of June 30, 2020, the total number of employees in the group was 6,425, with a focus on recruiting 430 new talents primarily in the gaming and education sectors[22] - The R&D department employed 3,726 individuals as of June 30, 2020, reflecting a slight decrease from 3,751 in December 2019, but an increase from 3,479 in June 2019[22] - The company has established a human resources shared service platform to enhance service quality and employee experience, aiming to streamline HR processes and improve organizational efficiency[24] - The company has focused on AI-driven performance management to enhance efficiency and employee engagement, ensuring fair assessments based on output and quality[24] - The group has implemented a differentiated compensation strategy to attract and retain core talents, focusing on high-value positions and enhancing its benefits system[24] Shareholder Structure - The company has a significant shareholder structure, with DJM Holding Ltd. owning 33.88% of the issued voting shares[41] - Liu Dejian holds 44.48% of the company's shares, indicating a strong control over the company[35] - The company has a total of 250,822,457 shares held by Liu Dejian, Liu Luoyuan, and Zheng Hui collectively[35] - The company has a minority shareholder, International Data Group, holding 13.84% of the shares[41] - The ownership structure indicates potential for coordinated actions among major shareholders, particularly Liu Dejian, Liu Luoyuan, and Zheng Hui[37] Financial Position - As of June 30, 2020, total assets amounted to RMB 6,079,117 thousand, an increase from RMB 4,089,088 thousand as of December 31, 2019, representing a growth of approximately 49%[67] - Current liabilities increased to RMB 2,294,628 thousand from RMB 1,903,106 thousand, reflecting a rise of about 21%[68] - The net value of current assets reached RMB 3,784,489 thousand, up from RMB 2,185,982 thousand, indicating a significant increase of approximately 73%[68] - The company’s cash and cash equivalents reached RMB 3,910,220 thousand, significantly up from RMB 2,125,637 thousand, indicating an increase of around 84%[67] Stock Options and Incentives - The company has a significant number of stock options and reward shares that are part of its employee incentive programs, indicating a focus on employee retention and motivation[45] - The company adopted a new stock option plan in May 2018, replacing the previous plan that expired on June 12, 2018[45] - A total of 6,300,000 stock options were granted on January 24, 2020, with no options exercised or canceled during the period[47] - The company has a stock reward plan that allows for the issuance of shares up to 10% of the issued share capital, with 776,640 shares granted but not yet vested as of June 30, 2020[48] Compliance and Governance - The audit committee reviewed the interim financial results, confirming compliance with applicable accounting standards and regulations[60] - The company maintained compliance with the corporate governance code throughout the review period[60] - The company has adopted a code of conduct for securities transactions that meets or exceeds the standards set out in the Listing Rules[55]

Financial Performance - In 2019, NetDragon reported revenue of RMB 5,793,100,000, representing a year-on-year growth of 15.0%[12] - The profit attributable to owners increased to RMB 807,200,000, reflecting a year-on-year growth of 48.0%[12] - The group achieved a gross profit of RMB 3,855,252,000 in 2019, with a gross margin improvement compared to previous years[9] - The company recorded a net profit of RMB 703,055,000 for the year, a significant recovery from previous losses[10] - Basic earnings per share for 2019 were RMB 152.68, compared to a loss per share in prior years[10] - The overall revenue for the company was RMB 5,793,100,000, reflecting a year-on-year increase of 15.0%[17] - The gross profit was RMB 3,855,300,000, which is a 26.5% increase compared to the previous year[17] - Operating cash inflow increased by 69.4% to RMB 1,175,800,000[17] - The gaming business recorded a revenue of RMB 3,299,600,000, representing a year-on-year growth of 39.4%, accounting for 57.0% of the total revenue[13] - The education business revenue decreased by 6.6% to RMB 2,395,400,000, but excluding a large tender order from Moscow in 2018, it showed a growth of 12.0%[14] - The gaming business's operating profit increased by 51.3% to RMB 1,923,300,000, while the education business reported an operating loss of RMB 524,500,000, a 36.2% increase in loss[18] Strategic Initiatives - The company plans to continue expanding its presence in the digital education sector, leveraging the growth in global digitalization[12] - NetDragon is focusing on new product development and technological advancements to enhance its competitive edge in the gaming and education markets[12] - The group aims to explore strategic acquisitions to further bolster its market position and growth potential[12] - The company plans to launch new games and expand its IP product portfolio, focusing on maximizing IP value[13] - The company is expanding its presence in emerging markets, including a memorandum of understanding with the Egyptian Ministry of Education to provide 265,000 smart classrooms[15] - The company aims to expand its user coverage in the Chinese market through the SaaS model and has won multiple tenders in Fuzhou in 2019[24] Human Resources and Employee Development - The company has a total of 6,460 employees as of December 31, 2019, with a recruitment increase of 20.71% year-on-year, adding 1,317 new talents primarily in the gaming and education sectors[38] - The company has implemented an AI assistant to enhance HR management efficiency, providing employees with a 24-hour personal work assistant[38] - The company emphasizes a culture of innovation, continuously exploring and launching new technologies and products[36] - The company provides a spacious and well-equipped work environment, including various recreational facilities to enhance employee satisfaction and productivity[40] - Employee training and development programs have been implemented to enhance professional knowledge in business operations and management skills[58] - The company has developed a skills certification system based on task lists to support employee career development and talent upgrading[165] Corporate Governance - The board of directors includes both executive and independent non-executive members, ensuring governance and oversight[63] - The company has adopted the standard code of conduct for securities transactions by directors and confirmed compliance for the year ended December 31, 2019[114] - The company has adhered to the corporate governance code as set out in the Listing Rules for the year ended December 31, 2019[115] - The audit committee is responsible for reviewing and supervising the financial reporting process, risk management, and internal control systems[113] - The company has established various committees, including the audit committee, remuneration committee, and nomination committee, to oversee specific responsibilities[135] Market and Competitive Landscape - The competitive landscape in the online and mobile gaming industry is intensifying, with notable competitors such as Zynga, Electronic Arts, and Tencent Holdings, which may impact the company's ability to retain talent and attract new players[54] - The company relies on consumer spending from gamers, which is influenced by disposable income levels and economic conditions, posing a risk to its financial performance[55] - The company faces risks from emerging technologies and games that could render its current offerings outdated, affecting its ability to recover development costs[55] Shareholder Communication and Value - The company emphasizes the importance of ongoing dialogue with shareholders, regularly meeting with analysts, fund managers, and institutional investors[155] - The company is committed to enhancing shareholder value and ensuring sustainable long-term returns for shareholders[159] - The annual general meeting for shareholders is scheduled for June 3, 2020, to facilitate direct communication and address shareholder inquiries[160] Environmental and Social Responsibility - The company has implemented environmental measures to minimize adverse impacts, focusing on energy conservation and waste recycling[162] - The company actively engages in community outreach and educational initiatives, including VR educational products recognized by government leaders[179] - The company donated VR immersive training classrooms valued at RMB 1.2 million to support educational equity in Yunnan Chuxiong[182] Financial Position and Assets - The total assets of the group increased to RMB 5,596,321,000 by the end of 2019, indicating strong financial health[11] - As of December 31, 2019, the group's cash and cash equivalents amounted to approximately RMB 2,286,500,000, up from RMB 1,723,200,000 in 2018[29] - The group's total equity as of December 31, 2019, was approximately RMB 5,361,000,000, an increase from RMB 4,799,000,000 in 2018[31] - The company's net asset value improved to RMB 5,361,048 thousand in 2019, up from RMB 4,798,980 thousand in 2018, showing an increase of 11.7%[199] Risk Management - The company has established a robust internal control and risk management system, which was deemed effective as of December 31, 2019[143] - The company has taken measures to mitigate risks associated with its structural contracts, including annual reviews by the board and disclosures in annual and interim reports[100] - There are risks associated with the contractual arrangements not complying with current or future Chinese laws and regulations, which could lead to significant adverse effects on the company's operations[96]

Revenue Performance - The company's revenue for the first half of 2019 reached RMB 2,672,500,000, representing an 8.2% year-on-year growth[4] - Revenue from the gaming business was RMB 1,575,800,000, accounting for 59.0% of total revenue, with a year-on-year increase of 51.6%[4] - Revenue from the education business was RMB 1,048,500,000, representing 39.2% of total revenue, but decreased by 24.2% year-on-year[4] - The gaming business revenue for the first half of 2019 increased by 51.6% year-on-year, reaching RMB 1,575,800,000[9] - Mobile game revenue surged by 76.2%, while PC game revenue recorded a strong growth of 47.5% year-on-year[9] - The overseas market also performed well, with revenue growth of 52.1% year-on-year[9] - The flagship IP "Magic Domain" saw a total revenue increase of 56.5% year-on-year, driven by marketing efforts and new content releases[9] - The education business revenue for the first half of 2019 was RMB 1,048,500,000, a decrease of 24.2% year-on-year; excluding irregular tender income, it grew by 4.7%[11] - Online and mobile game revenue for the six months ended June 30, 2019, was RMB 1,575,849,000, compared to RMB 1,039,346,000 in 2018, indicating a significant increase[100] - Education revenue, including sales of educational equipment and related services, was RMB 1,048,529,000 for the six months ended June 30, 2019, down from RMB 1,384,074,000 in 2018[100] Profitability and Financial Performance - Gross profit amounted to RMB 1,865,000,000, reflecting a 33.0% year-on-year growth[4] - The company’s attributable profit surged to RMB 421,000,000, more than doubling from RMB 200,700,000 in the first half of 2018, marking a 109.7% increase[7] - Operating profit increased significantly to RMB 480,363,000, compared to RMB 211,679,000 in the previous year, marking a growth of 126.7%[58] - Net profit for the period was RMB 375,486,000, a substantial increase of 111.1% from RMB 177,742,000 in 2018[58] - Basic earnings per share rose to RMB 79.66, compared to RMB 37.63 in the same period last year, reflecting a growth of 111.5%[59] - The company reported a profit of RMB 375,486,000 for the six months ended June 30, 2019, compared to RMB 177,742,000 for the same period in 2018, representing a year-over-year increase of approximately 111.1%[65] Cash Flow and Liquidity - Operating cash inflow was RMB 420,300,000, compared to an outflow of RMB 156,700,000 in the same period last year[4] - The group maintains sufficient cash reserves and credit commitments from major financial institutions to meet short-term and long-term liquidity needs, with minimal liquidity risk[21] - Cash and cash equivalents, including bank balances, reached RMB 1,674,425,000, up from RMB 1,483,352,000 in the previous year[60] - Operating cash flow before changes in working capital was RMB 680,925,000, significantly up from RMB 327,234,000 in the previous year, indicating strong operational performance[65] - The company reported a net cash outflow from investing activities of RMB 255,651,000, an improvement from RMB 341,920,000 in the previous year, suggesting better cash management[66] Market Strategy and Expansion - The company plans to launch an online tutoring service (AskMo) in the upcoming academic year to monetize user traffic on the Edmodo platform[7] - The company is implementing a large-scale market strategy for Promethean products in China, recently winning a significant order in Fuzhou[8] - The group plans to expand its online tutoring services and has significant tender opportunities in emerging markets like Egypt, Russia, and Turkey[12] - Future outlook remains positive with expectations of continued revenue growth and market expansion strategies being discussed[58] - The company plans to continue expanding its market presence and investing in new technologies to drive future growth[108] Shareholder Information and Dividends - The interim dividend declared for the six months ended June 30, 2019, is HKD 0.15 per share, an increase from HKD 0.10 per share in 2018[32] - The company will suspend shareholder registration from September 12 to September 13, 2019, for the purpose of dividend distribution[33] - The company reported a dividend payable of RMB 69,998,000 as of June 30, 2019, compared to no dividends payable in the previous year[61] - The interim dividend is expected to be paid on or before October 18, 2019[32] Employee and Talent Management - As of June 30, 2019, the total number of employees in the group was 6,122, with R&D accounting for 3,479 employees[22] - In the first half of 2019, the group recruited 530 new talents, primarily focusing on elite professionals in the gaming and education sectors[23] - The group conducted a total of 189 training sessions in the first half of 2019, with 8,181 participants[25] - The group has implemented a differentiated compensation strategy to ensure competitive salaries for core positions, continuously reviewing and optimizing the compensation structure[24] - The total employee costs for the period amounted to RMB 897,921,000, up from RMB 832,610,000 in the previous year, reflecting a year-on-year increase of approximately 7.8%[1] Corporate Governance and Compliance - The company has adopted a set of corporate governance standards in compliance with the Listing Rules throughout the review period[53] - The audit committee reviewed the interim financial results for the six months ended June 30, 2019, ensuring compliance with applicable accounting standards[53] - The company confirmed compliance with the trading standards set out in the Listing Rules during the six months ended June 30, 2019[49] Asset Management and Investments - The total assets as of June 30, 2019, amounted to RMB 3,939,048,000, an increase from RMB 3,354,915,000 at the end of 2018[60] - The company invested RMB 258,692,000 in property, plant, and equipment during the six months ended June 30, 2019, compared to RMB 250,104,000 in the same period of 2018, indicating continued investment in infrastructure[66] - The company recognized a goodwill impairment of RMB 12,534,000, indicating challenges in certain business segments[65] - The company has invested in new technologies and product development, although specific figures were not disclosed in the conference call[58] Financial Instruments and Fair Value - The company has chosen to account for the convertible preferred shares as financial liabilities measured at fair value through profit or loss[152] - The fair value of convertible preferred shares was RMB 95,651,000 as of June 30, 2019, down from RMB 108,904,000 at the end of 2018, reflecting a decrease of 12.3%[191] - The expected discount rates for cash flow valuation of convertible preferred shares ranged from 14.28% to 23.87%[191] Acquisitions and Strategic Partnerships - The acquisition of Edmodo, Inc. was completed for a total value of $137,500,000, consisting of $15,000,000 in cash and the issuance of 112,560,245 Series B shares[48] - The net identifiable assets acquired from Edmodo amounted to RMB 95,714,000, resulting in goodwill of RMB 64,444,000 generated from the acquisition[169] - The group sold its entire equity interest in Beijing Qihang Interactive Network Technology Co., Ltd. for RMB 400,000 on April 20, 2019, to focus on other business areas[172]

Financial Performance - Total revenue for 2018 reached RMB 5,037.54 million, a significant increase from RMB 3,867.62 million in 2017, representing a growth of approximately 30.3%[6] - Gross profit for 2018 was RMB 3,047.24 million, up from RMB 2,179.76 million in 2017, indicating a growth of about 39.9%[6] - Operating profit for 2018 was RMB 526.40 million, a turnaround from an operating loss of RMB 29.99 million in 2017[6] - Net profit attributable to the owners of the company for 2018 was RMB 545.57 million, compared to a loss of RMB 20.84 million in 2017, marking a substantial recovery[7] - Basic earnings per share for 2018 was RMB 102.42, a significant increase from a loss of RMB 4.12 in 2017[7] - The company reported a significant reduction in administrative expenses, which totaled RMB 853.18 million in 2018, compared to RMB 734.56 million in 2017[6] - The company achieved a record revenue of RMB 5,037,500,000 in 2018, representing a year-on-year growth of 30.2%[19] - In the second half of 2018, total revenue was RMB 2,567,600,000, reflecting a year-on-year growth of 22.7%[14] Revenue Breakdown - Game revenue reached RMB 2,367,400,000, accounting for 47.0% of total revenue, with a year-on-year growth of 41.5%[15] - Education revenue was RMB 2,565,600,000, representing 50.9% of total revenue, and increased by 21.9% year-on-year[15] - The gaming segment's revenue reached RMB 2,367,400,000, a 41.5% increase compared to the previous year, with mobile gaming being a significant growth driver[19] - The education business revenue for 2018 increased by 21.9% year-on-year to RMB 2,565,600,000[21] Assets and Liabilities - Non-current assets as of December 31, 2018, totaled RMB 3,391.03 million, an increase from RMB 3,140.29 million in 2017[8] - Current assets increased to RMB 3,354.92 million in 2018 from RMB 2,695.37 million in 2017, reflecting a growth of approximately 24.5%[8] - Total liabilities increased to RMB 1,946.96 million in 2018 from RMB 1,747.60 million in 2017, indicating a rise of about 11.4%[8] - The total net current assets of the group as of December 31, 2018, were approximately RMB 1,872,500,000, compared to RMB 1,658,800,000 at the end of 2017[26] - The group's total equity as of December 31, 2018, was approximately RMB 4,799,000,000, an increase from RMB 4,484,100,000 in 2017[28] User Engagement and Market Expansion - The user base for the education business exceeded 100,000,000, with a presence in over 190 countries[10] - The number of registered users in the online community exceeded 100,000,000, accelerating the monetization of the business[19] - The flagship platform 101 Education PPT had 5,000,000 installed users by the end of 2018, up from 1,200,000 at the end of 2017[19] - The company plans to continue expanding its market presence and investing in new product development to sustain growth in the coming years[6] - The company plans to expand its market presence in Southeast Asia, targeting a 30% market share by 2025[50] Strategic Acquisitions and Investments - The acquisition of Edmodo, a major learning community with over 100,000,000 users, expanded the company's education offerings[10] - The company completed the acquisition of Edmodo, enhancing its product offerings across various learning scenarios[19] - The company plans to launch multiple new games in 2019, including various strategy and tactical games, which are expected to generate significant revenue[20] - A strategic acquisition is in progress, which is projected to increase the company's overall market valuation by 10%[49] Management and Governance - The company has a strong management team with extensive experience in technology and education sectors, enhancing its operational capabilities[56] - The company has implemented AI technology in human resource management to enhance decision-making and promote a fair and efficient organizational atmosphere[37] - The company has adopted the corporate governance code as per the listing rules, ensuring high standards of corporate governance[136] - The company has established a framework agreement with Fujian Wanglong, where executive directors hold a combined 99.96% interest[143] Employee Engagement and Welfare - The group emphasizes innovation as a core value, continuously exploring new technologies and products to meet customer needs[31] - The group has a strong focus on employee welfare, providing a friendly and enjoyable work environment with various recreational facilities[38] - The company prioritizes performance-based compensation policies to attract and retain core talent[37] - In 2018, the company conducted 469 training sessions with a total of 12,476 participants, focusing on skill enhancement and management training[178] Risk Management and Compliance - The company has implemented a robust risk management framework to address the challenges posed by market competition and technological advancements[60] - The company adheres to strict compliance with laws and regulations regarding employee rights and data privacy[63] - The company has implemented measures to mitigate risks related to its structural contracts, including regular reviews by the board and disclosures in annual and interim reports[104] Environmental and Social Responsibility - The company has implemented environmental measures to minimize adverse impacts, promoting energy conservation and waste recycling[173] - The company is committed to equal employment opportunities, ensuring no discrimination based on various social identities[174] - The company has initiated a public welfare fund aimed at poverty alleviation, officially launched in January 2018[188] Shareholder Communication and Dividends - The board proposed a final dividend of HKD 0.15 per share, up from HKD 0.10 per share in 2017, pending shareholder approval[15] - The company emphasizes transparency and regular communication with shareholders through annual meetings and reports[170] - Shareholders holding at least 10% of the paid-up capital can request the board to convene a special general meeting within two months of the request[166]