NCSOFT PRESENTATION January 014 NCSOFT Corporation 1 Daewangpangyo-ro 644beon-gil, Bundang-gu, Seongnam-si, Gyeonggi-do, Korea Tel: +8--186-3300 Fax : +8--601-7787 Copyright c NCSOFT Corporation. All Rights Reserved WWW.NCSOFT.COM
Disclaimer Some of the information and data in the material have been prepared based on assumptions. There can be no assurance that the assumptions used by NCSOFT are correct and even if they are, that the effect of such assumptions on NCSOFT s business and results of operations will be as projected. Therefore, NCSOFT will not be responsible for individual investment decisions based solely on this material. The financial results for 3Q FY 013 have been prepared on an un-audited basis, and may be subject to change during independent auditing process. Consolidated subsidiaries (K-IFRS based) : NC West Holdings(100%, US), NC Europe(100%, UK), NC Japan(60%, JP), NC Taiwan(85%, TW), NCSOFT Corporation(HQ, KR), Next Play(80%, KR), NCSOFT Service(100%, KR), NC Dinos Baseball Club(100%, KR), Hotdog Studio(58%, KR), Oraion Soft(100%, KR), Ntreev Soft(76%, KR)
Contents I. Overview 1. Industry Overview. Company Overview II. 3Q FY013 Earnings 3. Financial Highlights 4. Sales Breakdown 5. Costs Breakdown III. Investment Points 6. Opportunities 7. Catalysts 8. Strengths Appendix 9. Summarized Financial Statements 10. Screenshots 3
1-1. Industry Overview(Characteristics & Categories) General Characteristics of Online Game Industry Fast-growing industry High margin business Low cultural barriers Multi-year cycle business Categories of Online Games MMOG (Massively Multiplayer Online Games) MOG (Multiplayer Online Games) Web Board Games Definition Main User Base Product Life Cycle Business Model Development cost Thousands of players play in an evolving virtual persistent world simultaneously over the internet Hardcore users Male, young adults Relatively long (5-10 years) Mainly subscription fees, box sales in some regions High development cost over long development period (4~5 years) Online games with limited number of players in a single game world at a time Mid-core & light users Male & female, from teens to 40 s Generally shorter than MMOGs In-game items sales, optional fees for premium contents Relatively low development cost, shorter development period Easy to play browser games such as chess, poker, etc. 4
1-. Industry Overview(Global Market at a Glance) Online is the fastest growing game platform with CAGR 17% 010~015. China is the biggest online game market with CAGR % 010~015. Growth Projection by Platforms (Unit : USD BN) Breakdown of Online by Regions (Unit : USD BN) 10 100 80 60 40 0 10 115 11 11 7 7 6 8 5 5 44 49 48 14 11 8 1 130 7 3 4 49 46 43 0 19 17 14 18 1 4 7 31 7 35 30 5 0 15 10 5 14 1 1 5 5 18 1 7 7 1 1 7 9 4 1 8 11 7 8 13 31 3 3 9 15 010 011 01 013E 014E 015E Online Mobile Console Arcade PC Package 010 011 01E 013E 014E 015E China Korea Europe N. America Others (Source: DFC 013, iresearch 013, PWC 013, Jamma 007~013, informa 005~008, Enterbrain 013, Playmeter 013, JOGA 013) 5
1-3. Industry Overview(Global Market, Online platform) Online is one of the fastest growing game platforms. China and MMORPG genre are one of the biggest growth drivers for Online games. Growth Projection Market Share Trend 35 (Unit : USD BN) 6% 6% 6% 6% 6% 6% 30 5 Online CAGR 17% (010~015) 4 7 31 5% 5% 3% 1% 19% 17% 0 15 10 5 14 8 18 11 1 14 19 17 Mobile CAGR 19% (010~015) 0 38% 37% 37% 40% 44% 47% 1% 9% 8% 15% 15% 16% 14% 16% 19% 1% % 4% 010 011 01 013E 014E 015E 010 011 01E 013E 014E 015E Online Mobile PC Package Arcade Console Mobile Online (Source: DFC 013, iresearch 013, PWC 013, Jamma 007~013, informa 005~008, Enterbrain 013, Playmeter 013, JOGA 013) 6
1-4. Industry Overview(China Market) Online will remain as the most dominant game platform in China. MMORPG will be the most popular genre in China with 50% ~ 60% market share. 18 Growth Projection by Platforms (Unit : USD BN) 16 Breakdown of Online by Genre (Unit : USD BN) 15 16 14 1 10 8 6 4 0.3-7 - 0.4 9-0.7 11-0.8 13-1.0 15 14 1 10 8 6 4 7 1 4 9 5 13 11 4 3 6 6 3 5 7-011 01 013E 014E 015E - 011 01 013E 014E 015E Online Mobile Others MMORPG Casual Games Web-based Games (Source : Game White Paper 013, Ministry of Culture, Korea) (Source : GPC and IDC 013) 7
1-5. Industry Overview(Korea Market) In Korea, as in China, Online will serve as the most dominant game platform. Online will make up 83% of Korean gaming market through 015. 1 Growth Projection by Platforms (Unit : USD BN) 100% Market Share Trend 10 8 6 0.4 0.8 1.3 1.4 1.5 90% 80% 70% 60% 50% 6% 6% 11% 15% 15% 15% 4 0.3 5 6 7 7 8 8 40% 30% 0% 86% 88% 86% 83% 83% 83% 10% - 010 011 01 013E 014E 015E 0% 010 011 01 013E 014E 015E Online Mobile Others Online Mobile Others (Source : Game White Paper 013, Ministry of Culture, Korea) 8
1-6. Industry Overview(US & EU Market) While Console is shrinking, Online and Mobile are expected to grow further. MMORPG is expected to expand continuously in EU on the back of strong user base in Germany. Growth Projection by Platforms Market Share Trend in EU 70 (Unit : USD BN) 100% 60 50 3 14 3 15 3 14 3 13 3 13 3 1 90% 80% 70% 50 49 44 43 41 40 60% 50% 30 0 38 38 34 3 34 35 40% 30% 0% 50 51 56 57 59 10 0 4 4 4 5 5 6 3 3 4 4 5 6 010 011 01 013E 014E 015E 10% 0% 007 008 009 010 011 Online Mobile Console Arcade PC Package (Source :DFC 013, PWC 013, IDC 013, Informa 009, Screendigest 013) MMORPG Casual 9
-1. Company Overview(NCSOFT at a Glance) A leading game company boasting the finest development capabilities and global publishing network. Snapshot Services Foundation : March, 1997 CEO : BOD : Employees** : 3,100 Kim, Taek Jin Kim, Taek Jin(CEO) Lee, Hee Sang(CCO) Bae, Jae Hyun(CPO) Jeong, Jin Soo(COO) Park, Byoung Moo Oh, Myoung * Seo, Yun Seok* Global network : Korea, North America, Europe, Japan, Taiwan Ownership** : MMORPG Casual Games Individual 0% Mgmt 10% Treasury Stock 9% Mobile Games Domestic Institution % Nexon 15% * Outside Directors ** As of January 014 Foreign Institution 4% Game Portal Game Portal 10
-. Company Overview(Annual Revenues Trend) Legacy products remain solid. With the case of Lineage, sales actually increased. B&S and GW will drive growth further via China launch in 014. (Unit : KRW BN) 900 800 700 600 500 400 300 00 100 0 Royalty Casual & Mobile Games Guild Wars Blade & Soul AION Guild Wars City of Heroes/Villains Lineage Lineage Lineage( 03) Lineage( 98) 7 AION( 08) 5 6 3 6 141 13 101 65 153 111 119 119 131 147 1 113 133 118 113 115 118 111 113 13 55 B&S and GW in China( 13~) GW( 1) B&S( 1) 39 1 165 13 183 196 05 1998 1999 000 001 00 003 004 005 006 007 008 009 010 011 01 013(E) - 11
-3. Company Overview(Growth stages) Lineage pioneered online games and still remains solid on the back of social network effect Lineage and AION expanded NCSOFT s domestic presence via product diversification B&S and GW will accelerate global expansion thanks to differentiated quality and target marketing (Unit : KRW BN) 900 800 700 Stage 3 : Global Expansion B&S( 1) GW( 1) 600 500 400 300 00 100 0 Stage : Dominance in Korea AION( 08) 5 10 Lineage( 03) 153 Stage 1 : Pioneer 111 119 119 131 147 Lineage( 98) 1 7 113 133 118 113 115 118 111 113 13 55 165 6 3 6 141 13 101 65 183 196 05 1998 1999 000 001 00 003 004 005 006 007 008 009 010 011 01 013(E) - 1
-4. Company Overview(Growth stages of Korea game market) Global Online Game Publisher NCsoft 1. Lineage (MMORPG) : pioneer of online game in Korea. Hangame and Pmang (Web board game) : diversification of online game 3. Sudden Attack and FIFA online (Casual game) : establishment of FP biz model 4. Cross Fire and D&F (Exported game) : global expansion of Korean-made online game 5. Kakao Talk game center (Mobile game) : emergence of mobile games and platforms. Market size of online and mobile game in Korea 1 (Unit : USD BN) Stage5 : Kakao Talk... 10 8 Stage4 : Cross Fire... 1.3 1.4 1.5 6 Stage3 : Sudden Attack... 0.4 0.8 4 0 Stage : Hangame... 0.3 8.4 7.9 0. 7.3 6.8 6. Stage1 : Lineage... 4.8 3.4 0.1 0.1 0. 0.3 0.4 0.7 1.0 1.4 1.7..3 1998 1999 000 001 00 003 004 005 006 007 008 009 010 011 01 013E 014E 015E 13
-5. Company Overview(Hybrid Biz Model) Global Online Game Publisher NCsoft Lineage, one of the legacy games, is now stronger than ever thanks to hybrid business model. Hybrid biz model(subscription + in-game item sales) will be expanded to other existing titles. Annual Revenue of Lineage Quarterly Revenue of Lineage (Unit : KRW MN) (Unit : KRW MN) 300,000 90,000 84,791 80,000 50,000 70,000 00,000 In-game item sales 60,000 50,000 66,87 58,449 64,861 66,038 6,313 150,000 100,000 50,000 0 05,61 195,70 13,847 13,033 118,050 117,641 113,65 115,01 11,60 11,800 111,401 54,605 00 6,640 40,000 30,000 0,000 10,000 0 47,955 51,618 1Q 10 Q 10 4,459 38,51 40,915 3Q 10 4Q 10 1Q 11 Q 11 50,951 3Q 11 39,95 43,646 4Q 11 1Q 1 Q 1 38,306 3Q 1 4Q 1 1Q 13 Q 13 3Q 13 14
-6. Company Overview(Development & Publishing Network) Global Online Game Publisher NCsoft Top talented developers in Korea and U.S. Well-organized publishing arms in major markets such as Japan, Taiwan, Europe, U.S. Europe NCSOFT Europe (100%) Innova System (LineageII) Gameforge (AION) Korea NCsoft Corporation (Headquarters) China Shanda (AION) Tencent (B&S, Lineage, LineageII, Punch Monster ) KongZhong (Guild Wars ) Japan NC Japan (60%, JV with Soft Bank) North America NC Interactive (100%) Carbine Studio (100%) Arenanet (100%) Taiwan NC Taiwan (85%, JV with Gamania) Gamania (Lineage) Development Studio Publishing Entity First Party Studio License Partner 15
-7. Company Overview(Never-Ending Innovation) To be launched In service Wildstar Lineage Eternal... Guild Wars Blade and Soul Epic scale combats Drag skill Lineage AION Lineage Flying characters Wide range of customization The first 3D MMO in Korea Differentiated action Seamless instant dungeons Smart UI Proprietary graphic engine Personalized story line Dynamic quest system MMO + SNG Never seen before adventures Smart view Interactive object Seamless world Users get to create their own contents Large scale PvP called Gong Sung Jeon 16
3. Financial Highlights Revenues dropped with the lion s share of Lineage in-game item sales in 3Q being carried over to 4Q. Profits also dropped reflecting Lineage s temporary decrease. 300,000 83,353 Sales 10,000 113,194 Operating Profit (Unit : KRW in MN) 50,000 00,000 150,000 100,000 50,000-18,189 184,875 19,014 169,740 1% QoQ 7% YoY 3Q 1 4Q 1 1Q 13 Q 13 3Q 13 100,000 80,000 60,000 40,000 0,000 0 55,51 6,48 36,787 30,730 51% QoQ 16% YoY 3Q 1 4Q 1 1Q 13 Q 13 3Q 13 10,000 100,000 113,591 Pre-tax Income 10,000 100,000 101,933 Net Income 80,000 60,000 40,000 0,000 0 54,04 65,7 58,677 31,06 47% QoQ 43% YoY 3Q 1 4Q 1 1Q 13 Q 13 3Q 13 80,000 60,000 40,000 0,000 0 47,15 5,330 34,18 6,97 3% QoQ 44% YoY 3Q 1 4Q 1 1Q 13 Q 13 3Q 13 17
4. Sales Breakdown Royalty dipped as Lineage in Taiwan and Aion in China had high base effect in Q. B&S in Korea showed a significant turn-around thanks to the content update called Baek-chung. Sales by Region Sales by Games (excluding royalty) (Unit : KRW in MN) 00,000 18,189 19,014 169,740 180,000 160,000 140,000 10,000 100,000 80,000 60,000 40,000 0,000 167,67 10,19 45,841 3,66 6,940 13,300 38,306 178,987 13,591 8,899 14,15 3,57 14,98 84,791 159,887 17,14 4,481 0,305,610 13,055 6,313 Others GW B&S AION L L1-3Q 1 Q 13 3Q 13 L1 : Lineage 1 L : Lineage B&S : Blade and Soul GW : Guild Wars 18
5. Costs Breakdown Labor Cost stayed flat to Q without meaningful change in headcount. Royalty expense rose due to new license contract with baseball players association. Marketing went up along with increased Wildstar marketing campaign in US and Europe. Depreciation increased as new R&D center was completed. Others surged by one-off expenses* which are mostly headquarters relocation related. (Unit : KRW in MN) 3Q 1 4Q 1 1Q 13 Q 13 3Q 13 QoQ YoY Labor Cost 73,551 85,484 76,543 76,46 75,481-1% 3% Variable expense 18,5 18,58 1,758 11,591 13,847 19% -4% - Payment processing fee 8,093 8,130 6,584 6,90 6,939 1% -14% - Royalty expense 3,695 4,030 3,46,750 5,43 91% 4% - Box production fee 5,011,437 580 1,163 50-55% -90% - Other variable 1,46 3,931,13 776 1,145 48% -0% Marketing expense 10,819 15,463 4,006 4,875 6,15 7% -43% D&A 11,944 5,611 8,458 8,47 9,097 7% -4% Others(*) 30,863 45,073 7,598 8,403 34,37 1% 11% Sub Total 145,40 170,159 19,363 19,767 139,011 7% -4% * 3Q13 Others: Bandwidth costs(4,480), Rent(,183), Wage for outsourced staff(4,33), Outsourced R&D(1,595), etc. * One-off expenses: Headquarters relocation, Seoul offices restoration, office supplies, etc. 19
6. Opportunity Online is the fastest growing game platform (CAGR 17%). Great potential for growth is ahead, but there are only a handful of players in the market. Game Markets by Platform Annual Revenue Trend of Blizzard 60 (Unit : USD in BN) 1,800 1,600 (Unit : USD in MN) 1,646 50 40 48 49 44 CAGR 0% 43 46 49 1,400 1,00 1,08 1,346 1,196 1,43 1,40 30 0 10 CAGR 17% 8 CAGR -% 7 5 5 4 3 1 0 18 19 17 CAGR 19% 14 14 11 8 6 7 7 7 7 7 31 1,000 800 600 400 00 160 458 696 010 011 01 013E 014E 015E Online Mobile Console Arcade PC Package - CY004 CY005 CY006 CY007 CY008 CY009 CY010 CY011 CY01 (Source: Hudson Square Research) (Source: Game White Paper 013, Ministry of Culture, Korea) 0
7-1. Catalysts (China) MMO genre is the largest segment in Chinese online game market and successful MMOs in China are reported to generate USD 400 MN ~ 500 MN revenues per year. B&S and GW, the most anticipated games in China, are expected to launch in 1H 014. 16 Breakdown of Online by Genre (Unit : USD BN) 15 Annual revenues(fy11) of leading MMOs in China 600 (Unit : USD MN) 14 13 3 500 1 10 9 11 5 400 8 6 4 7 1 4 5 4 3 6 6 7 300 00 100-011 01 013E 014E 015E MMORPG Casual Games Web-based Games (Source : GPC and IDC 013) 0 FWJ Mir TLBB WoW Zhuxian Netease Shanda Changyou Netease Perfect World (Source : duowan.com, companies) 1
7-. Catalysts (Platform expansion) Not only existing games but also new titles will be ported to a variety of platforms. HQ focuses on premium mobile games, while subsidiaries specialize in light and trendy ones. *.......... * Hotdog Studio(58% ownership, KR), Ntreev Soft(76% ownership, KR)
8. Strengths World-class development capabilities and a strong pipeline Global publishing network 15 years of operational know-hows and skills In service To be launched Wildstar Lineage Eternal... Guild Wars AION Blade and Soul Hands-on demo at PAX and GamesCom in 013 Internal tests expected in 014 To be launched in US and EU in 1H 014 Lineage Launched in US/EU on August 8 01 To be launched in China via KongZhong in 1H 014 Lineage Launch: Sep. 1998 Accumulated Sales: KRW TN (launch~01) Service Country: 6 countries Latest Quarterly Sales: KRW 65 BN Launch: Oct. 003 Accumulated Sales: KRW 1.5 TN (launch~01) Service Country: 9 countries (EU counted as one) Latest Quarterly Sales: KRW 15 BN Launch : Nov. 008 To be launched in China via Tencent in 1H 014 Accumulated Sales: KRW 1 TN (launch~01) Service Country: 7 countries (EU counted as one) Latest Quarterly Sales: KRW 5 BN Launched in Korea on June 30 01 PCU in Korea : 30K (PCU: Peak Concurrent Users) 3
Appendix 9. Summarized Financial Statements 10. Screenshots 4
9-1. Summarized B/S Global Online Game Publisher NCsoft Consolidated Parent (Unit : KRW in MN) 01 3Q 013 Current Assets 674,304 79,55 Cash & cash equivalents 13,041 141,385 Short-term financial instruments 313,035 361,367 Account receivables 76,70 64,140 Others 161,55 16,660 Non-current Assets 64,5 705,49 Investment assets 45,5 98,73 Tangible assets 45,88 51,831 Intangible assets 133,317 117,735 Others 37,855 36,960 Total Assets 1,316,86 1,434,801 Current Liabilities 35,65 46,53 Borrowings 1,174 10,18 Payables 5,474 33,705 Current tax liabilities 5,317,647 Other provisions 8 8 Others 19,679 179,675 Non-current Liabilities 60,610 71,00 Defined benefit obligations 35,84 4,969 Long-term employee benefits 4,550 4,861 Others 0,776 3,17 Total Liabilities 96,6 317,56 Capital Stock 10,949 10,957 Other Paid-up Capital 117,910 119,78 Other Components of Equity 991 (3,103) Retained Earnings 870,734 970,360 Non-Controlling Interests 19,979 0,053 Total Stockholders Equity 1,00,564 1,117,545 Total Liabilities and Stockholders Equity 1,316,86 1,434,801 (Unit : KRW in MN) 01 3Q 013 Current Assets 534,191 576,80 Cash & cash equivalents 6,37 0,784 Short-term financial instruments 301,000 347,000 Account receivables 48,09 41,879 Others 158,611 166,617 Non-current Assets 666,33 741,684 Investment assets 6,07 469,633 Tangible assets 399,739 30,808 Intangible assets 9,69 6,703 Others 10,685 14,541 Total Assets 1,00,514 1,317,964 Current Liabilities 17,559 144,463 Payables 1,01 3,164 Current tax liabilities 5,068 19,571 Others 108,90 101,79 Other Provisions,000 - Non-current Liabilities 34,13 48,368 Defined benefit obligations 9,576 36,197 Long-term employee benefits 4,05 4,477 Derivatives Liabilities 351 4 Other Account Payble - 7,670 Total Liabilities 161,691 19,83 Capital Stock 10,949 10,957 Other Paid-up Capital 17,935 19,615 Other Components of Equity,533 1,079 Retained Earnings 897,406 983,481 Total Stockholders Equity 1,038,83 1,15,133 Total Liabilities and Stockholders Equity 1,00,514 1,317,964 5
9-. Summarized P/L Global Online Game Publisher NCsoft Consolidated Parent (Unit : KRW in MN) 01 3Q 013 Sales 753,50 169,740 Cost of Sales 6,176 54,74 Gross Profit 57,344 115,016 Selling & Administrative Expense 376,09 84,86 Operating Income 151,5 30,730 Other Income 50,9 6,451 Other Expense 18,574 6,155 Income before Income Tax Expense 18,907 31,06 Income Tax Expenses 9,40 4,78 Net income 153,667 6,97 Non-Controlling Interests (,136) 910 Equity Attributable to the owners of the 155,80 5,388 (Unit : KRW in MN) 01 3Q 013 Sales 475,30 117,771 Cost of Sales 13,441 4,017 Gross Profit 351,861 93,754 Selling & Administrative Expense 50,85 66,090 Operating Income 101,009 7,664 Other Income 4,079 4,487 Other Expense 5,067 4,717 Income before Income Tax Expense 91,01 7,434 Income Tax Expenses,7,81 Net Income 68,749 4,614 6
10-1. Screenshot(Blade & Soul) Global Online Game Publisher NCsoft 7
10-. Screenshot(Guild Wars ) Global Online Game Publisher NCsoft 8
10-3. Screenshot(Wildstar) Global Online Game Publisher NCsoft 9
10-4. Screenshot(Lineage Eternal) Global Online Game Publisher NCsoft 30
Thank you 31