Dear investors, good morning. Thank you for joining NetDragon Websoft Holdings Limited to our 2025 annual results presentation. [Non-English content]. Before the start of our presentation, please allow me to introduce the management who are joining us today. [Non-English content]. Dr. Simon Leung, Group Vice Chairman and Executive Director. [Non-English content]. Mr. Wood Lau, Group Interim CFO. [Non-English content]. Mr. Lin Chen, Group Senior Vice President. [Non-English content] Now, let's pass our time to Dr. Simon Leung to host our presentation today. [Non-English content].
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 gonna go through the same thing. Frankly, I'm gonna talk a little bit about the highlights and then Wood's gonna take us through the financials, and then we'll go through gaming with Lin Chen. I'll talk about Mynd.ai and education a little bit, and then I'm gonna wrap it up with the outlook, and then we'll go into, I think, very active, hopefully Q&A. Today's theme is, besides going through all the businesses, the progress and all that, I think you're gonna hear a lot about AI. I mean, we've been kinda talking about embracing AI.
I mean, we coined a term called AI Now. You will see what's going on in 2025, but more importantly, what's gonna 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 gonna make a huge difference. Before AI is there to assist you, but now AI is gonna do things for you. Lin Chen is gonna talk a little bit about that, how it's gonna help us to the future growth. I'm gonna talk about in the education side, how does it create more opportunity for us. As far as we're concerned, we're gonna take advantage of that transition or inflection.
I would say we're gonna go from optimization to execution of our costs. Now, by the way, we're gonna continue to optimize our costs, but more importantly, how do we leverage AI for our growth. With that, I'm gonna go into the highlights. Start with gaming. As you can hear, we spend a lot of time optimizing our gaming business. I'm not gonna steal Lin Chen's thunder by going on all the details. If you look at a lot of our key statistics, MIU, MEU, and all these different things, the growth is actually there. While we are, you know, optimizing our core structure, which is actually quite difficult. My analogy is actually you're flying a plane and you're changing the engine at the same time.
Congratulations to Lin Chen and his team by making it happen. I think more importantly is how do we create native AI games going forward. Again, Lin Chen's gonna talk about it. The next one I'm gonna talk about, frankly, is education rather than just online. Actually, the good news is we're making progress online. It is frankly a challenging environment because of the worldwide economy, the uncertainty of some of the policies in the U.S. given our biggest market. By coming into 2026, we felt actually optimistic at the beginning of the year, which is January, and then all of a sudden we are seeing a war in Iran.
What we're gonna do is actually we're gonna continue with our cost optimization. AI is gonna play a key role in that. I'll talk about our outlook for 2026 for Mynd.ai. At the same time we expanded our product line, so we can expand our addressable market. Then again, that is leveraging our existing base over a billion classrooms around the world so we can maintain our revenue. We're seeing growth, and then we are also gonna be looking at how we can get back to profitability very quickly. They're really 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.
Some specific opportunity for us leveraging the AI technology, which is developing around the world. The AI expertise that we have is gonna give us a lot of great opportunity in those markets. With that, I'm gonna turn it over to Wood to go through the financials.
Okay. Thank you, Simon. Good morning, everyone. Let me walk you through our financial highlights in 2025. Despite a challenging macro environment and the revenue pressures, we still achieved a meaningful recovery in the second half of 2025. In this half, profitability improved significantly. You can see for operating profit, growth 47% YoY to RMB 164 million. Half- over- half is also growth 41%. Our operating margin in 2025 second half growth to 7.9% and almost 3 percentage points YoY and H- over- H. More importantly, our OpEx in second half has dropped 38% YoY and 7% H- over- H to RMB 1.3 billion.
This demonstrate our cost saving initiatives and operating efficiency improvement that will transforming into our margin recovery. Now turning to the full year performance. Revenue for 2025 was RMB 2.4 billion, down 26% YoY. Break it down, gaming and application services decreased by 30% to RMB 3.3 billion. This is due to the optimization of our flagship IP to support its long term development and the sustainability. MY declined by 43%, primarily due to the disposal of the Singapore early education business in the second half of 2024, and as well as facing prolonged demand adjustment cycle. As mentioned by Simon, once the market conditions stabilize and improve, we will be expecting customer demand to gradually recover. Gross profit was RMB 3.1 billion, down 30% YoY.
Our OpEx side, both selling and marketing expense decreased by 13%, due to the proactive measures to tighten our marketing spending and administrative expense down 9% YoY and the R&D expense down 29% to RMB 1 billion. Due to the, you know, the organizational adjustment to better align with the AI. When you see the bottom line, the profit attributable to the owners of the company in 2025 is RMB 151 million. Bear in mind, we have two one-off adjustments here. One is the Ethereum impairment in 2025, was about RMB 59 million. We're seeing the disposal gain in the 2024. Another one-off severance payment in 2025 is amounting to RMB 220 million.
At this pace, the rate of our cost saving, OpEx saving. Excluding these item adjustments, profit attributable to owner actually was higher than last year. Turning to the segmental performance. The gaming and applications services revenue down 30% to HKD 3.3 billion. However, our gross margin is still kept at a high level at 67%. Our gross segmental profit has only decreased 3% to about $697 million. Due to the lower revenue we have suffered, but at the same time, we've largely offset by the cost saving. The core segmental profit margin increased by 3.9 percentage points to 27.4%. Talking about the OpEx.
The segmental OpEx expenses has declined 22% YoY to about 22% is due to you know our AI strategy to fully capturing the cost saving benefit. Overall, you can see our gaming application services is still highly profitable and cash generative. Talking about the MY business. Revenue declined 43% to RMB 1.2 billion due to the disclosure of you know the Singapore early education business and the prolonged demand adjustment. The gross margin will still keep stable at 35% this year. While you know the core segmental loss has narrowed to about RMB 315 million. Our operating expenses did decline 21% YoY. The MY business is at a better position for the growth in the next few years.
In summary, while 2025 was a year of the revenue adjustment, we have been successfully restored profitability and momentum in the second half of this year and through the cost optimization and the strategic focus. Our gaming business remains profitable and highly cash generative, while Mynd.ai business is at a better position for the future once the market conditions are improved and stabilized. Now I turn over to Lin Chen, talking about the gaming business. Lin Chen.
[Non-English content].
Okay. Thank you, Lin Chen. Now you know what I meant by AI everywhere and AI Now. Like, I mean, Lin Chen talked about AI, but I would imagine he probably works with AI in the morning and then sleep with AI at night. I think that's what he does. What I'm gonna do is actually I'll go through my presentation a little bit and talk about our AI Now initiative, some of our commitment, and then we'll go through the outlook of the year. This is actually the financials. Not pretty, but it's encouraging because we're improving year-over-year. We're gonna be taking very aggressive cost-cutting, both on the optimization of people and using AI, leveraging AI.
It's actually, in a way, it's no different from what we've been doing with gaming. We're gonna do it exactly the same with Mynd.ai and with education going forward while we're waiting for the market to recover. It will recover. We're gonna see some movement in 2026. If the Middle East situation improves, I think we'll be even more obvious growth comes back. Next. While we are doing a lot of optimization, we also bring our new product. Our flagship AP 10 came out last year. This year is gonna be the first full year with AP 10 in action, which is actually very encouraging news.
The reason we spent so much time on AP 10, etc., again, is related to AI. In order to deploy AI services on a panel, you cannot rely on the old architecture because it's actually Android-based, very limited. What we did is that we unbundle the OPS from the panel. We have flexibility of either putting in even Android OPS or a PC or even a Mac to allow us to deploy services on the panels. We have students and teachers teaching and learning along the way. Again, that's it. Next. To address the low-end market, to help us to expand the market. We brought out two things.
One is, you know, LE, which is the lowest end that we have, so we can bring it into Asia- Pacific, Africa, and those emerging countries. We brought in a digital signage that we can complement our panel to go into the school because there's some requirement for digital signage in different schools in the developed market. Next. Well, another very encouraging news. At Bett, one of the largest education show in the world that was held in London every year. We won the Company of the Year award. That's very encouraging to the team. We have the Best Show award at ISE, which is in the U.S. We continue to get recognition from the industry. Next.
Okay, let me change gear and talk about some of the company-wide at the group level, the initiative. Next. The first one is actually 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 gonna give you two example. I think you have heard of one of them, or maybe you have heard of both of them before, but I'll go into a little bit more detail. It's moving really fast. In Thailand, you know, we've been working with the higher education ministry and to provide training to help them to expand their industry focus. We help 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 helping young people in Thailand to learn how to use AI, which is actually very important. 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 it's actually an opportunity, of course, how do you know you're progressing. Assessment and keeping track of your improvement is very important. Ultimately, how do we help you after learning all the AI tools to help your career is an important element. Not only we work with the ministry, but we also work with big corporations in Thailand.
Because the hiring is quite different now. Before you hire, of course, according to your job spec, but now a lot of people are looking for candidates with the right quality. Then you bring them in, and then you put them into different jobs, so they can flourish because with all the AI capabilities that they have. The next one is actually Cameroon, which I personally attended. This is the opening of one of the intelligent classrooms. What they struggle with in Cameroon, because being a developing country, is actually teacher quality, ability to bring software and features into the more remote area. This whole idea of the intelligent classroom, it started in Egypt, and we're now bringing it into Cameroon. Actually I'm in the picture. You may not see it.
It's very satisfying sitting there looking at the teacher, telling the prime minister who's sitting 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 need further in Cameroon and in other emerging countries. Next. This is 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. It's actually how do we leverage AI to do a lot of the work for us.
This applies both in education and also in what Lin Chen was talking about. Just to give you an idea of how we approach everything as a company. Next. Okay, let's talk about our goals a little bit. I know you want us to do that. 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. We'll commit to provide a dividend of no less than HKD 1 a year. I think we announced HKD 0.50 for last year, the second half to go forward. We're gonna commit the same, if not more.
The fourth statement is actually we're gonna maintain our profitability while we are applying AI, and we'll return to grow exactly towards the end of the year. We're gonna maintain our net cash between dividend and also buyback. We'll return no less than HKD 600 million to shareholders. The last one is actually we have been investing in different companies. We are seeing the possibility, all the possibility of us realizing some of them some return. I put XX. In hindsight, I should put dollar sign rather than X. I think it looks more certain from that standpoint. So we're expecting hundreds of millions of return in that one. Cannot commit, but it's actually lying in front. Okay. Next one.
Another very encouraging news is actually every company is trying to strive to, which is ESG. So we got rated A, which is very encouraging and we are very happy with that. Next. Okay. Last but not least, I'll make some comment from a directional standpoint. I think we talked a lot about the image. So we believe we're gonna continue to apply AI to help us to optimize our cost and to position us to grow towards the end of maybe the second half of the year. So that's very important. From education, from my, we're expecting even that year. It gets through very aggressive cost optimization. Also, we are only assuming a slight market recovery.
We know the Middle East is actually uncertainty. That's why we are using very aggressive cost optimization direction to make sure we go into a EBITDA and even 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, i.e. leveraging our API to put services into, so we can build our SaaS revenue stream. We are raising our country strategy, like, Cameroon, like, Thailand. I can assure you those are not the two countries that we're working on. Last but not least, I wanna tee it up.
I do intend to take everybody through the entire strategy going forward, both the investor community and also the PR community or the media, which is what we call a sovereign education large language model. The reason for that is actually twofold. One is education is actually every country's asset going forward. Most countries want to be in control. Not everybody can own his own ChatGPT or Gemini or DeepSeek or Qwen and all that. Having their own is important. We're gonna leverage the open source large language model, but we localize it either for the country or even for the 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 language model, i.e., like a DeepSeek thing on a PC to support the whole school is gonna be very, very powerful. We're moving towards that and actually working with Cameroon on that one to address one of the key element or problem that they have, which is the lack of infrastructure. Now, this also applies to a developed country or area. Hong Kong just announced, I think, a HKD 2.5 billion initiative on AI. Actually, each school will get maybe HKD 500,000. Having a large language model for each individual school catered to their individual needs is gonna be very powerful.
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. This is really a global initiative that we're working on. To sum it up, we did a lot of work in 2025. We'll continue to do a lot of work leveraging our commitment and our knowledge of AI. The change in 2026 is not only we use AI to optimize our cost, but more importantly to use AI to leverage AI for growth. With that, thank you so much. I think it's time to open it up. Thank you.
Thank you, Dr. Leung and management. Now it's time for our Q&A session. You're welcome to raise questions in two ways. First, if you would like to raise questions through the teleconferencing system, you may press star one, star one on your keypad and our operator will put you through. Second, if you would like to raise questions via our webcast platform, please enter your question by clicking the Q&A button at the bottom of your screen. We welcome questions in both English and Chinese. Let's welcome our first question. [Non-English content].
Okay. I'll answer the first one, the easy one, then 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 do it. Actually, I committed to you. Let me reiterate. 2026 dividend is no less than HKD 1. Okay. It's actually. The total return will be no less than HKD 600 million. It's actually kind of the same commitment as last year. But yeah. How do we fund it is actually if you look at the other three columns, it's actually we maintain our financial profit in gaming.
We're going to EBITDA breakeven in time. It is actually we continue to optimize our costs. It's actually because of that we expect to maintain our cash flow if not doing better. The last one is actually the upside, right? We expect. Now, I don't know whether this is gonna be next year, because that's why we said next 12 months. Just because now we're in March, we will see some of our investment that we have made, most likely in the AI area, that will come into fruition. That's what I committed. I kind of anticipated that questions gonna come up. Wood, do you have any other comment to add to the cash flow?
[Non-English content].
[Non-English content].
[Non-English content], our next question. [Non-English content].
[Non-English content].
[Non-English content].
[Non-English content] cost optimization, [Non-English content].
[Non-English content].
[Non-English content].
[Non-English content] Simon [Non-English content], Simon [Non-English content] AI agent [Non-English content].
[Non-English content].
[Non-English content] competition [Non-English content].
AI [Non-English content].
[Non-English content] leverage [Non-English content] elevate.
[Non-English content]. AI [Non-English content].
[Non-English content].
Yeah.
[Non-English content]. Our next question comes from the platform, which are English questions. First of all would be, how is the company's progression with our overseas business expansion with our partner, Zhongke WengAI, yeah, our partnership with Zhongke WengAI. Okay. The second question is also related to AI. Is there any CapEx plan or CapEx guidance for our AI related development or investment?
Would you want to take the CapEx?
Yeah.
First, yeah.
Yeah. Of course you know we are AI Now, so increase our CapEx in the AI area. When you look at the 2025, our CapEx is about RMB 115 million. We will honestly double our investment including AI area. We expect to have RMB 300 million in 2025, the CapEx including the AI area.
I'll go back to the first one. Number one actually is going really well. First of all, we are on the verge of announcing a few new products not only for Hong Kong but for overseas. I'm not going to steal Cherrypicks's thunder. When that happens, which is imminent, by the way. Yeah, I invite you to join us in some of the conferences and all that. The other one actually is when I talk about the sovereign large language model, which actually is a localized large language model. I did use an example of maybe DeepSeek. Definitely, whenever a large language model is part of the consideration.
We're very happy with the progress and we are very excited about the prospect. I'll probably describe it at the high level right now because I don't want to steal the thunder from Cherrypicks. I can rest assured you, it's actually our relationship with WengAI is going to be coming to fruition sometime this year.
Thank you, Simon. Thank you, Wood. Our next question is also regarding our education business. What is the latest development of our Thailand project and what's the target in our second half? Other than Cameroon, what other national level projects we are working on?
I have to say, I thought I'd talk about all that. Can you put the chat back up to Thailand? This is actually what's happening. It's actually we are moving forward on what we did and but we expanding into the area of very important is to use AI to teach people how to use AI tools. Then at the same time we helping them to assess. We 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 recruiting, you're looking for talent. You're looking for capability. That's what we do.
It's moving very fast forward because the encouraging news is actually the election is over. Actually, the party that's committed to working with us is returning to be the main party now moving party entirely. We fully expect this to continue and to expand. As I can't talk about some of the other ones, I can assure you Cameroon is not the only country that are working on. Just to share with you, not try to be too personal. My wife is actually not very happy with my travel schedules.
You know, I'm traveling a lot 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 conference, so that was very good success. As a result of that, there is a lot of countries in Africa, in the Middle East, you know, and also in Southeast Asia to come to talk to us. But our key is actually not to talk to work on every single one of them. The key for us is actually to focus on the work that we can bring a lot of value to.
Thank you.
Thank you. Yeah.
[Non-English content], our next question comes from [Non-English content] , [Non-English content]AIGC [Non-English content].
[Non-English content].
[Non-English content] .
[Non-English content].
[Non-English content] Simon. [Non-English content] Simon [Non-English content] Simon [Non-English content]?
[Non-English content].
[Non-English content] program.
[Non-English content] partner, [Non-English content] CDW, [Non-English content] TD SYNNEX [Non-English content] partner [Non-English content] sovereign education LLM [Non-English content] marketing [Non-English content], sales support, [Non-English content] country strategy [Non-English content] local [Non-English content] partner [Non-English content], so that you know, [Non-English content], I cannot name the people, [Non-English content] LLM [Non-English content] server [Non-English content] partner, [Non-English content] partner, [Non-English content], Cherrypicks [Non-English content] partner [Non-English content].
[Non-English content] Simon , thank you. Thank you Dr. Leung, 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 contact us for one-on-one meeting arrangement. Thank you and we wish you have a great day.