Leyou Technologies Announces 2019 Annual Results

Registered Users of Flagship Product Warframe Maintains Growth Momentum;

Total Revenue Reached US$214.2 million

HONG KONG, Mar 26, 2020 – (ACN Newswire) – The global market leader in free-to-play multiplayer online games, Leyou Technologies Holdings Limited (“Leyou Technologies”, and its subsidiaries collectively “the Group”; stock code: 1089) is pleased to announce its annual results for the year ended 31 December 2019 ( the “reporting period”).

During the reporting period, total revenue of the Group slightly decreased by 5.9% to US$214.2 million. Gross profit amounted to US$121.8 million (2018: US$141.5 million). The Group’s EBITDA was US$49.6 million (2018: US$67.0 million). Nevertheless, excluding non-recurring items of impairment losses and equity-settled shared-based payment expenses, adjusted EBITDA only reduced slightly by 2.4% to US$83.2 million.

Mr. Xu Yiran, Chairman and Chief Executive Officer of Leyou Technologies said, “2019 was a challenging and inheriting year. Despite a declining trend in the sales of current-generation consoles, the total number of registered users of our flagship product Warframe recorded impressive growth of 19.5% to 57.5 million, affirming the Group’s strong online game development and publishing capabilities. In addition, the co-development agreement between the Group and Amazon Game Studios to co-develop and co-publish a game based on The Lord of the Rings will enable the Group to develop the game on a larger scale with greater complexity of characters and richness in contents and for more platforms. Looking forward, the Group will continue the content updates for Warframe, and proactively expand Warframe to more platforms such as the next-generation consoles and other devices, to maximise returns to all shareholders.”

Business Overview

Game Development and Publishing Business

Game development and publishing business is currently the Group’s main source of revenue. This segment covered several free-to-play (“F2P”) online games distributed globally, as well as a series of new products in development. In terms of financial results, the revenue and profit of this segment were mainly contributed by Warframe, a flagship product of the Group. During the reporting period, large-scale AAA games with themes and gameplay similar to Warframe were launched. The strong market promotion of these highly competitive new products inevitably diverted market attention from Warframe to a certain extent. With the next-generation consoles to be released by the end of 2020, the number of new console players reduced accordingly. Also, due to the size and scale of the development work related to Empyrean, a milestone content update for Warframe, the update cadence was temporarily affected and less new game content was released during the reporting period. The three aforementioned factors impacted the performance of Warframe; revenue of the game consequently reduced by 12.2% year-on-year.

During the reporting period, Warframe remained its position as one of the most popular F2P properties worldwide. Warframe adhered to its strategy in content updates. Subsequent to the successful release of Plains of Eidolon in 2017 and Fortuna in 2018, the Group launched Empyrean, another milestone content update for Warframe. Similar to the addition of open world environments, Empyrean will become another pillar of the Warframe experience which further expands the possibilities for players and future development. Warframe steadily sits amongst the top 10 of all game genres in terms of the number of players and playtime on Stream, and has a 92% positive review score from players. Warframe is one of the top F2P games on PlayStation 4 and Xbox One in terms of revenue, and the game also won the Steam Platinum Best-selling Game (12 games with the highest annual total revenues) and the Games with Highest Simultaneous Online Users (6 games with the highest numbers of simultaneous online users) in 2017, 2018 and 2019 successively, the only non-Valve (Steam’s developer) F2P online game with such accolades on Steam.

The Group actively expanded Warframe to more platforms. Subsequent to the launch on Nintendo Switch in November 2018, Warframe has been officially available on Tencent Wegame since March 2019.

Work-for-hire and Other Businesses

During the reporting period, the Group’s work-for-hire business recorded a total revenue of US$31.2 million, an increase of 22.3% compared to 2018. The increase was mainly contributed by Splash Damage Limited, the Group’s AAA studio located in the UK. After the changes in the senior management team at the end of 2018 and early 2019, the studio adopted a more pragmatic management style with a greater focus on exceptional production quality. It successfully won multiple new deals, achieving steady revenue growth for the business. The Group had a number of new business deals on hand, which will bring stable cash income to the Group.

Other businesses mainly include the sale of merchandise goods, which generated revenue of US$0.9 million during the reporting period (2018: US$0.3 million).

New Products in the Pipeline

The Group continued to create original IPs or work with globally renowned IPs to develop new products. The Group currently has multiple projects under development, including Transformers, Civilization Online and other unannounced projects. Some of these products have entered the final stage of development and are expected to be launched in 2020. During the reporting period, the Group successfully acquired the IP authorisation of The Lord of the Rings, and will develop a F2P massively multiplayer online game based on its grand worldview. Combining the huge organic traffic of popular IP, with the Group’s leading game development and publishing capabilities, the Group is capable to maximise the success rate of turning the new product into a blockbuster.

During the reporting period, the Group developed and published a casual F2P idle role-playing game Endless World. First under online testing in August 2019 on Steam, Endless World has been elected 2019 Game of the Year Award (New Release) on Steam in the same year. The Group continously devoted time and resources in new product lines in hopes of turning them into the Group’s future competitive advantages.

Outlook

As a game changer in the global video game market, the Group is committed to providing more compelling games to a diverse user base while at the same time increasing the revenue growth momentum of the games. The Group will strive to increase the players’ engagement and loyalty of existing major games and release more game contents with higher average revenue per user. The comprehensive product line will lay a solid foundation for the Group’s profit growth in the next few years and bring better returns to its shareholders.

Mr. Xu concluded, “Despite the fluctuation in our financial performance to a certain extent during the reporting period, the management is confident in the Group’s mid to long-term results. In the next few years, the Group will launch more flagship products in the market and bring more joy and pleasure to players. In the meantime, the Group understands that it is an arduous journey to grow a game development business, we will continue to be pragmatic and persistent so as to bring us further. The Group will continue to leverage its proven strategy, excellent products and reliable team, to maximise returns to all shareholders.”