NetDragon Websoft Holdings Limited ($777)

Dear investors, good morning. Thank you for joining NetDragon Websoft Holdings Limited to our 2025 Annual Results Presentation. [Foreign Language] Before the start of our presentation, please allow me to introduce the management who are joining us today. Dr. Simon Leung, Group Vice Chairman and Executive Director Mr. Wood Lau, Group Interim CFO; Mr. Lin Chen, Group's Senior Vice President. [Foreign Language] Now let's pass our time to Dr. Simon Leung to host our presentation today. [Foreign Language]

Well, thank you. Good morning, good afternoon, good evening, depending on where you are. Well, it's that time of the year. So great to have everybody on the call. We're going to go through the things frankly, talk a little bit about the highlights and then what is going to take us through the financials, and then we'll go through gaming with Lin Chen. I'll talk about mine and education of it, and then I'm going to wrap it up with the outlook and then we'll go and driving very active hopefully, Q&A. So today's theme is, besides going through all the businesses and the progress and all that, I think you can hear a lot about AI. I mean, we've been kind of talking about increasing AI, I mean the coin term called AI now. So you will see what's going on in 2025, but more importantly, what's going to happen in 2026. If you look at the AI technology, 2026 is an inflection year. It really because of the coming of AIGC is actually -- is going to make a huge difference. Before AI is there to assist you. But now AI is going to do things fully. [indiscernible] is going to talk a little bit about that, how it's going to help us to the future growth and I'm going to talk about in the education side, how to take create more opportunity for us. As far as we are concerned, we're going to take advantage of that transition or inflection. I would say we're going to go from optimization at of cost. Now by the way, we're going to continue to optimize our cost, but more importantly, how do we leverage AI for growth. So with that, I'm going to go into the highlights. I'll start with gaming. As you get here, we spent a lot of time optimizing our gaming business. I'm not going to still intense fund by going on all the details. If you look at a lot of the key statistics, MAU and there's been things that growth is actually is there. So while we are optimizing our cost structure, which is actually quite difficult. My analogy is that you're flying a plane and you're changing the engine at the same time. So congratulations to our Internet team by making it happen. But I think more is how do we create native AI gains going forward. So again, items going to talk about it. The next one I'm going to talk about freights education rather than just online. It's actually -- the good news sector we're making progress on line. It is, frankly, is a challenging environment because of the worldwide economy uncertainty of some of the policies in the U.S., U.S. given our biggest market. And by coming into 2026, we feel open optimistic. At the beginning of the year, which is January and then all of a sudden, we are seeing a war in Iran. So what we're going to do is essentially we're going to continue work on cost optimization. AI is going to play out a key role on that. I'll talk about our outlook for 2026 for Mynd. The thing is that we expanded our product line, so we can expand our addressable market. And then again, that leveraging our big installed base of 1 million classrooms around the world so we can maintain our revenue. We see growth. And then we are also going to be looking at how we can get back to compatibility very quickly. very encouraging. We are seeing a lot of country opportunities for us, both in Africa and in Asia, which I will go into a little bit more detail later on and some specific opportunity for us, leveraging the AI technology, which is developing around the world and the AI expertise that we have is going to give us a lot of great opportunity in those markets. With that, I will turn it over to Wood to go through the financials.

Thank you, Simon. Good morning, everyone, and let me walk you through our financial highlights in 2025. Despite a challenging background environment and revenue station, we still achieved a minimum core in the second half of 2025. In this half, profitability improved significantly. You can see for operating profit growth 47% Y-o-Y to RMB 164 million and half-over-half is also growth of 21%. Our operating margin in 2025 2nd half growth to 7.9% or 3 percentage point Y-o-Y and coverage. And more importantly, our OpEx in the second half that dropped 28% Y-o-Y and 0.7% H-overH2 RMB 1.3 billion. And this demonstrates our cost-saving initiatives and operating efficiency improvement that will transforming into our margin content. And now turning to the full year performance. Revenue was RMB 4.5 billion, down 26% Y-o-Y. And breaking this down, gaming and application services decreased by 70% to 3.3 billion. And this due to the optimization of our fracs IP to support its long-term development and the sustainability and my behind by 43%, primarily due to the disposal of the in early education business in the second half of 2024. And as that a prolonged demand adjustment cycle. But as mentioned by Simon, once the market conditions stabilize and we will be expect cost demand to gradually recover. Gross profit was RMB from RMB 3.1 billion down [indiscernible] Y-o-Y. And on our OpEx side, both selling and marketing expense decreased by 30% due to the low asset measure to tighten our marketing spending and mistake expense on lies and Y-o-Y and the R&D expense down 29% to RMB 1 billion due to the foreign organization that just is going to better live into AI. And when you see the bottom line point attributable to the owners of the company in 2025 was RMB is 151 million. And bear in mind, we have 2 one-off adjustments here. One is the net impairment and 2o25 was about RMB 59 million and burst in the disposal to in the 2024. And another of the service payment in 2025 is amounting to RMB 220 million. And this takes the rate of our cost saving of savings. Excluded in [indiscernible] adjusted office to owner actually was higher than the base. And turning to the segmental performance. The gaming and application and services, the revenue is down 1% to RMB 3.5 billion. And however, our gross margin will still keep at a high level at 57%. And our growth segmental corporate has only decreased 3% to about RMB 697 million. And we have suffered a lower revenue but at the same time is largely offset by the cost savings. So the core annual profit margin increased by 3.9 percentage to 27.4%. And talking about the market, the segmental OpEx expenses become 22% Y-o-Y to about the 22% is due to our AI strategy to fully capturing the positive balance. Overall, you can see our game application services is still highly profitable and cash generated and talking about the MI business, a record can 43% to RMB 1.2 billion and due to the disposal of the Singapore earlier educate business and the prolonged demand adjustment. And the gross margin will still keep stable at 35% this year. While the core dementia loss at March, about RMB 315 million but our operating expenses declined 21% Y-o-Y. So the market is at a better position for the growth in the next few years. And in summary, while 2025 was a year of the rate net jobs. We have been successfully restore new momentum in the second half of this year and for the cost optimization and the strategic focus and our organic businesses remain possible and highly cash generated, while made at a better position for the -- once the market conditions get improved and stable. So now I'll pass over to Lin Chen to talk about the gaming business. [Foreign Language]

Okay. Thank you, Lin Chen. Now you know what I meant by AI everywhere and AI now, like I into talked about I would imagine you probably work with AI in the morning and then at what AI at a that's what you ask. So what I must do is actually go to mine an education a little bit and talk about our AI Now initiative, some of our commitments and then we'll go to the outlook of the year. So this is actually the financials, not pretty, but it's encouraging because we're improving year-over-year. We're going to be taking very aggressive cost cutting, both on the optimization of people using AI, leveraging AI in a way, it's no different from what we've been doing with gaming. So we're going to do it exactly the same with mine with education going forward, while we're waiting for the market to recover. If we will recover, we're going to see some movement in 2026. If the Middle East situation improves, I think we'll become even more on this growth comes back. Next. While we are doing a lot of optimization we also bring our new product. our flagship AP10 came out last year. So this year, it's going to be the first full year that with AP10 in action, which is actually very encouraging news. The reason we spend so much time on AP10 in stain is created to 9. In order to deploy AI services on a panel, you cannot rely on the old architecture because it actually is Android base, really limited. So what we did is we bundle the architecture from -- or we unbundled the OPS from the panel. So we have flexibility of putting in you can enjoy OPS or a PC or even a map to allow us to deploy services on the panel to help students and teachers teaching and learning along the way. So again, we have AI in them. Next. To adjust the low-end market, so we help us to expand the market. We brought our 2 things. One is the LE, which is the lowest end that we have, so we can bring it in tuition in those emerging countries. And also, we brought in a digital signage that we can complement our panel to go into the school because there's some requirement for digital science in the scores in a developed market. Next. Well, another very encouraging news at one of the largest education show in the world. It's actually that was held in London every year. we won the company of the year at. So that's very encouraging to the team. And also we have the best show award at ISC, which is in the U.S. So we continue to get recognition from the industry. Next. Okay. Let me change gears and talk about some of the company by at the group level, the initiative. Next. The first one is again on related to education, but also related on some of the opportunities that I talked about, either in Africa or in Asia Pacific. I'm going to give you 2 examples. I think you heard of one of them. Maybe you of both of them before, but I'll going into a little bit more detail. So it's moving really fast. So in Thailand, we've been working with the high education ministry and to provide training to help them to expand the industry focus. We have them to move into EV, to move into semiconductor. While they are changing the government, we never stop. We are working with them in creating new learning for them. The big one is actually is helping young people in Thailand to learn how to use AI, which is actually very important. So I think everybody knows about AI but how do you use the different tools how do you use it to apply to your day-to-day work. More importantly, we are also helping them to assess the -- your learning because exactly a particular of course, how do you know you're progressing. So assessment and keeping track of your improvement is very important. And ultimately, how do we help you up learning of the AI tools to handle career is an important element. So not only we work with the ministry with but we also work big corporations in Thailand because the hiring is quite different now. before you hire cost according to your job spend, but now a lot of people are looking for candidates with the right quality and then you bring them in and then you put them into different jobs so if they can flourish because with all the AI capabilities that they have. The next one is actually is Cameroon, which I personally attended the opening open of one the intelligent classroom. What they struggle with in Cameron because being a developing countries, is that a teacher probably has ability to bring software and features into the more remote area. So this whole idea of intelligent classroom is started in Egypt that we're now bringing into Cameroon. So actually, I'm in the picture, you may not see it. It's really that's why I'm sitting there looking at the teacher, telling the Prime Minister who sat right next to me how are they leveraging our technology to address one of the key needs they have, which is education. I talk a little bit more about the new concept that we have on how to help them even address that education needs out further in Cameroon and in other emerging countries. Next. So this is a country -- sorry, a company-wide initiative, we call it AI employee, which this is kind of like a workflow. This is actually the workflow for our AI content manufacturing, if you will. So it's actually how do we leverage this AI to a lot of the work for us is applied both in education and also in what Lin Chen was talking about, but just to give you an idea of how we approach everything as a company. Next. Okay. Let's talk about our a little bit. So I know you want us to do that. So next page. We'll continue to commit to enhance the shareholder return with all the assets and with the trust that you have in us. So we'll commit to provide dividend of no less than HKD 1 a year. I think we announced RMB 0.50 for last year, the second half to go forward, we're going to commit the same, if not more. The core segment is actually we're going to maintain our profitability while we are applying AI and we'll return to grow exactly towards the end of the year. We're going to maintain our net cash between dividend and also buyback and we will return no less than RMB 600 million to shareholders. The last one is actually we have been investing in different companies. We are seeing the possibility of all the profitability of us realizing some of the subs. I could time back actually put all the time rather than more on that same point. So we're expecting hundreds of millions of return in that one. I cannot commit, but it's actually a line in sight. Okay. Next one. Another very encouraging deals is actually every company is trying to strive to, which is ESG. So we have rated E, which is very, very encouraging. We are really happy that. Okay. Last but not the least, I'll make some comments from a directional standpoint. I think we talked a lot about MI. So we believe we're going to continue to apply to help us to optimize our cost and position us to grow towards the end of the second half of the year. So that's very important. For medication for mine, we're expecting a pretty even EBITDA year. It gets through a very aggressive cost optimization and also we are only assuming a slight market recovery. We know the Middle East is actually is uncertainty. So that's why we are using very aggressive cost optimization direction to make sure we'll be going to the EBITDA breakeven situation. We optimize our hardware product portfolio by going deeper and wider, i.e. companion product with our panel. We talk about AI. The key is actually how do we bring new services into our classroom solution and leveraging our AP10 to put services into so we can build our SaaS revenue stream. We are in our country's strategy, like Cameroon, like Thailand, I can assure you, those are not the 2 countries that we're working on. Last but not least, I want to touch on only a little bit. I want to tee it up. I do intend to take everybody through the entire strategy going forward, both the investor community and also the community of the media, which is what we call a Sovereign Education Large Language Model. The reason for that is actually in Q4. One education is actually any country's asset going forward. So most countries wants to be in control. Not everybody can own his own PT or Germany or DCP or Chairman and all that. So having the are always important. So we're going to leverage the open source large language model when we localize it either for the time or even for school. I think that's the other important message. Go back to some of the developing countries because they don't have the telecom infrastructure having a local large point rich model. i.e. like a deep sea on a PC support the whole group, it's going to be very, very powerful. So we are moving towards that. And actually, we're working with Cameroon on that one to address one of the key element of programs that we have, which is the lack of infrastructure. Now this also applies to a developed country or area Hong Kong just announced I think, HKD 2.5 billion initiative on the AI actually in school at maybe 500,000. So having a large language model for each individual school cater to their individual needs is going to be very powerful. So we are looking at how do we take this not only to the developing countries, but also to the more developed either region, countries or whatnot. So this is really global initiative that we're working on. So to sum it up, so we did a lot of work in 2025. We continue to do a lot of work, leveraging our commitment and our knowledge of change in 2026 is not only we use AI to optimize our cost, but more importantly, to use AI, to leverage for AI for growth. So with that, thank you so much. I think it's time to open up. Thank you.

Thank you, Dr. Simon. Now it's our Q&A. [Operator Instructions] [Foreign Language] We welcome questions in both English and Chinese. [Foreign Language] So let's welcome our first question. [Foreign Language]

Okay. I'll answer the first one. The easy one, I would answer the next one. If you can put the chart back up, the one with all the commitment to, I think this is how we work. So actually, I committed to you let me reiterate. 2026 dividend is no less than $1, okay? It's actually -- the total return will be no less than HKD 600 million. So it actually is kind of the same commitment as last year. And how do we fund it is actually if you look at the other 3 columns. So it's actually we maintain our financial profit in gaming, really going to EBITDA breakeven in Mynd is actually we continue to optimize our costs. So it's actually because of that, we expect to maintain our cash level if not doing better. The last one is actually is the upside, right? So we expect -- now I don't know whether it's going to be next year because that's why we said next 12 months, so which is because now we're in March. So we will see some of our some of the investment that we have made in -- most likely in the AI area that will come into fruition. So that's what I committed. So I kind of anticipate that that question is going to further come up. Do you have any other quick comment to add to the cash flow?

[Foreign Language]

We then move to our next question. [Foreign Language]

[Foreign Language]

So our next question comes from the platform, which are English questions. So first of all would be how is the company's progression with our overseas business expansion with our partner, [indiscernible], partnership with [indiscernible]? And the second question is also related to AI. Is there a CapEx plan or CapEx guidance for our AI-related development or investment?

Would you want to take the CapEx?

Yes. First, yes. Yes. Of course, we know we are in now. So increase our case in the AI area. And when you look at the 2025 or our CapEx about is about RMB 115. So we are honest to buckle our investment in the -- including the AI area. So we expect to have RMB 300 million into the CapEx, including the AI.

Okay. I'll go back to the first one. So number one is actually it's going really well. First of all, we're in the birth of announcing a few new products not only for Hong Kong, but for overseas. So remember that still a cherry picks thunder. So when that happened, which is imminent, by the way. So I invite you to join us in some of the conferences and all that. The other one is actually -- when I talk about the sovereign large language model, which is actually is a localized large language model. So I didn't use an example of maybe DeepSeek. But definitely, winters a large brand and which model is part of the consideration. So we're very happy with the progress and we are very excited about the prospects. So offer describe it at a high level right now because I don't want to steal the fund from [indiscernible]. So I can rest assure you it's actually our relationship with winter going to be coming to us sometime this year.

Thank you, Simon. Thank you, Wood. Our next question is also regarding our education business. So what is the latest development of our Thailand project? And what's the target in our second half? And other than Cameroon, what are the national level projects we are working on?

I have to say I thought I've talked about all that. Can you put the chart back up on Thailand. So this is exactly what's happening. So it's actually we are moving forward on what we did and -- but we are expanding into the area of very important is to use AI to teach people how to use AI tools. And then at the same time, we're helping them to assess -- we're also helping the enterprise to look at how they can kind of pivot to a new way of recruiting talents. Like I said before, you have a job spec, you look at the experiences. I think now the new way of reporting, you're looking for talent, you're looking for capabilities. So that's what we do. So it's moving very fast forward because the encouraging news is actually the election is over, actually, the party that's come in to working with us is actually returning to be the main partner moving part in Thailand. So we fully expect this to continue and to expand I can't talk about some of the other ones. I can assure you, Cameroon is not the only country that they're working on. So just to share with you, not try to be too personal, by wave is actually not very happy with my travel schedule. So you know I'm traveling to work on different projects. The other thing, I don't know whether you remember last September, we were -- or I was in Paris with the team attending UNESCO comments. So that was very good success. As a result of that, there is a lot of countries, in Africa, in the Middle East and also in Southeast Asia to come to talk to us. But [indiscernible] actually is not too tough to work on every single one. The key for us is actually is to focus on the work that we can print them on the value.

Our next question comes from [indiscernible].

[Foreign Language]

[Foreign Language]

Thank you, Dr. Wang. Thank you, Wood and Lin Chen. This successfully concludes our presentation today. Once again, I would like to thank you all for joining us. If you would like to communicate with the management further, please can head us for one-on-one meeting arrangement. Thank you, and we wish you have a great day. [Foreign Language]