NCsoft PRESENTATION

August 2012

NCSOFT Corporation 157-37 Samsung-dong, Kangnam-gu, Seoul 135-090, KOREA Tel: +82-2-2186-3300 Fax : +82-2-2186-3550 Copyright NCSOFT Corporation. All Rights Reserved WWW.NCSOFT.COM

Global Online Game Publisher NCsoft

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 NCsofts 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 2Q 2012 have been prepared on an un-audited basis, and may be subject to change during independent auditing process. Consolidated subsidiaries (K-IFRS based) : NC Interactive(100%, US), Arenanet(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)

Global Online Game Publisher NCsoft

Contents

I. Overview

1. Industry Overview 2. Company Overview

II. 2Q 2012 Earnings

3. Financial Highlights 4. Sales Breakdown 5. Costs Breakdown

III. Investment Points

6. Opportunities 7. Catalysts 8. Strengths

Appendix
9. Parent Earnings 10. Summarized Financial Statements 11. Screenshots

Global Online Game Publisher NCsoft

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) Thousands of players play in an evolving virtual persistent world simultaneously over the internet MOG (Multiplayer Online Games) Online games with limited number of players in a single game world at a time Web Board Games

Definition

Easy to play browser games such as chess, poker, etc.

Main User Base Product Life Cycle Business Model

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)

Mid-core & light users Male & female, from teens to 40s
Generally shorter than MMOGs In-game items sales, optional fees for premium contents Relatively low development cost, shorter development period

Development cost

Global Online Game Publisher NCsoft

1-2. Industry Overview(Growth Projection)

Online is the fastest growing game platform with 19% CAGR (2009~2013). China is the fastest growing online game market with 20% CAGR (2009~2013).
Game Market by Platforms
(Unit : USD BN)

Online Game Market by Regions

(Unit : USD BN)

100 90 80 70 60 50 40 30 32 20 10 10 0
2008 2009 2010 2011E 2012E 2013E

25 2 6 2 7 9 10 12 13 20 1 1 4

35

1 1
34 34 34 34 33 15 1 1 10 1 1 2 2 3 2 0
2008 2009 2010 2011E

3 4 3 6 6

1 1 3 2

3 3

3 21

3 18

3 16

2 2

28

24

6 5

5 16 19 22 24

4
4 5 6 7

13

2012E

2013E

Online

Arcade

PC

Console

Mobile

Korea

China

NA

Europe

Japan

Others

(Source : Game White Paper 2011, Ministry of Culture, Korea) 5

Global Online Game Publisher NCsoft

2-1. Company Overview(NCsoft at a Glance)

Leading online game company boasting the finest development capabilities and global publishing network. Snapshot
Foundation : CEO : BOD : March, 1997 Taek Jin Kim Taek Jin Kim(CEO) Hee Sang Lee(COO) Byoung Moo Park* Myoung Oh* Yun Seok Seo* 3,100 MMORPG

Services

Casual Games

Employees** :

Global network : Korea, North America, Europe, Japan, Taiwan, Thailand Ownership** : Web Games & Board Games

Game Portal
* Outside Directors ** As of August 2012
6

Global Online Game Publisher NCsoft

2-2. Company Overview(Annual Revenue Trend)

Legacy products remain solid. With the case of Lineage, sales actually increased. Blockbuster hits are expected with soon-to-be released games such Blade & Soul and Guild Wars 2.
1,200,000
(Unit : KRW MN)

Royalty
1,000,000

Others AION

Guild Wars
800,000

B&S, GW2

City of Heroes/Villains Lineage2 Lineage

600,000

GW
400,000

AION
252,060 262,137

223,248

CoH Lineage2
9,682 122,937 100,574 147,211 110,600 118,953 119,206 131,154 131,154 20,756 113,265 132,847 117,641 112,800 115,012 118,050 111,401 111,401 112,602 132,033 152,754 182,947 195,702

200,000

Lineage
200

6,640

54,605

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2007

2008

2009

2010

2011

2012(E)

Global Online Game Publisher NCsoft

2-3. Company Overview(Lineage)

Lineage, one of the legacy games, is now stronger than ever. Hybrid biz model(free-to-play/premium subscription + in-game item sales) drove up further growth.
Annual Revenue of Lineage
300,000
(Unit : KRW MN)

Quarterly Revenue of Lineage

70,000
(Unit : KRW MN)

250,000

60,000

66,287
50,951

58,449

50,000

200,000
In-game item sales
40,000

51,618

43,646 42,459 39,952

In-game item sales

50,050

150,000

47,955

40,915

38,512

30,000

100,000 132,847

195,702 182,947

20,000

29,023

50,000

118,050 112,602 132,033 117,641 115,012 111,401 113,265 112,800 111,401 54,605 6,640 200
2010
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007 2008 2008 2009 2011

29,351 28,887 27,481 28,088 25,151 26,605

10,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12
8

Global Online Game Publisher NCsoft

2-4. Company Overview(Development & Publishing Network)

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)

China Shanda (AION) Tencent (B&S, Lineage, LineageII, Punch Monster ) Korea NCsoft Corporation (Headquarters) Japan NC Japan (60%, JV with Soft Bank) North America NC Interactive (100%) Carbine Studio (under NCsoft Corporation) Paragon Studio (under NC Interactive) Arenanet (100%)

Gameforge (AION)

Thailand
NC True (49%, JV with True corp.)

Taiwan NC Taiwan (85%, JV with Gamania) Gamania (Lineage)

Development Studio Publishing Entity First Party Studio License Partner

Global Online Game Publisher NCsoft

2-5. Company Overview(Never-Ending Innovation)

Lineage Eternal

To be launched
In service
Blade and Soul AION Lineage2
Differentiated action Proprietary graphic engine Personalized story line Dynamic quest system

...

Wildstar

Guild Wars 2
Epic scale combats Drag skill MMO + SNG Never seen before adventures Smart view Interactive object

Lineage
Flying characters Wide range of customization The first 3D MMO in Korea Seamless world Users get to create their own contents Large scale PvP called Gong Sung Jeon

Seamless instant dungeons Smart UI

10

Global Online Game Publisher NCsoft

2-6. Company Overview(Quality Assurance System)

Individual project level : Project Review Committee(PRC), Milestone Review Committee(MRC) Global portfolio level : Portfolio Steering Committee(PSC)

Development Unit PRC Proposal Milestone1~ (Prototype) Production (Alpha)

Idea

Game

MRC Check Check Check

PRC Project Approval Termination if necessary Mass Production Approval

11

Global Online Game Publisher NCsoft

3. Financial Highlights
Revenues increased QoQ thanks to solid L1 and royalties. Profits dropped reflecting one-off labor cost.
Sales
200,000 166,815 150,000 100,000 50,000 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12
4% QoQ 12% YoY

Operating Profit
(Unit : KRW in MN)

60,000 147,603 138,969 141,170 146,808 50,000 40,000 30,000 20,000 10,000 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 (7,641) 17,050 13,749 43,497 33,793

(10,000)

Pre-tax Income
60,000 50,000 49,423 60,000 50,000 41,359

Net Income

40,000
30,000 20,000 10,000 (10,000) 2Q 11

38,840
22,226 18,346

40,000 30,000 20,000 10,000 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 (7,263)

12

27,875 16,993 12,556

3Q 11

4Q 11

1Q 12

2Q 12 (3,233)

(10,000)

Global Online Game Publisher NCsoft

4. Sales Breakdown
Korea and royalty were strong on the back of L1 in-game item sales and casual games respectively While L1 was sound, AION was weak due to scaled back in-game item sales.
Sales by Region
180,000
166,815 14,393 (9%) 5,708 (3%) 17,105 (10%) 120,000 5,014 (3%) 6,901 (4%) 146,808 17,126 (12%) 3,120 (2%) 16,898(12%) 699 (0%) Royalty 5,783 (4%) Others Taiwan Japan Europe N. America Korea 103,182(70%) 180,000

Sales by Games (excluding royalty)

152,422 2,981 (2%) 2,253 (1%) 2,787 (2%) 125,940 6,334 (5%) 1,709 (1%) 2,890 (2%) 52,947 (42%) 23,854 (16%)

150,000

141,170
15,230 (11%) 3,695 (3%) 14,889(11%) 3,306 (2%) 6,907 (5%)

150,000

120,000

54,259 (36%)

129,682 13,822(11%) 1,277 (1%) 2,855 (2%) 36,367(28%)

90,000

90,000

60,000

117,694 (71%) 97,144 (69%)

60,000

16,912(13%) 18,413 (15%) 66,287 (43%) 43,646 (35%) 58,449(45%)

Others GW COH/V AION L2 L1

30,000

30,000

2Q 11 1Q 12 2Q 12

2Q 11
L1 : Lineage 1 L2 : Lineage 2

1Q 12

2Q 12

COH/V : City of Heroes/Villains GW : Guild Wars

13

Global Online Game Publisher NCsoft

5. Costs Breakdown
Labor cost temporarily surged 27% QoQ due to one-off severance pay. Royalty expense went up 35% QoQ reflecting full quarter impact from Ntreev consolidation as opposed to 1 month impact in 1Q. Box production fee also rose due to AION box sales in Japan. Marketing expense increased 112% QoQ with marketing activities for B&S launch in June. D&A expanded 28% QoQ recognizing full quarter amortization related to Ntreev.
(Unit : KRW in MN)

2Q 11 Labor Cost Variable expense - Payment processing fee - Royalty expense - Box production fee - Other variable Marketing expense D&A Others(*) Sub Total Other Income Other Expense Total 68,634 9,838 6,352 1,366 1,121 999 3,968 6,658 28,014 117,112 4,478 10,684 123,318

3Q 11 65,355 9,402 6,168 1,538 974 722 5,328 7,002 30,020 117,107 4,527 1,230 113,810

4Q 11 66,062 10,885 7,247 1,880 1,257 501 6,315 7,885 32,817 123,965 4,689 2,643 121,918

1Q 12 72,940 12,081 5,762 3,201 468 2,650 3,225 8,992 31,552 128,790 3,444 2,074 127,420

2Q 12 92,578 13,386 6,437 4,307 1,479 1,163 6,829 11,524 33,600 157,917 4,860 1,393 154,450

QoQ 27% 11% 12% 35% 216% -56% 112% 28% 6% 23% 41% -33% 21%

YoY 35% 36% 1% 215% 32% 16% 72% 73% 20% 35% 9% -87% 25%

* 2Q12 Others : Bandwidth costs(5,634), Rent(3,229), Wage for outsourced staff(3,316), Outsourced R&D(2,983), etc.

14

Global Online Game Publisher NCsoft

6. Opportunity
Online is the fastest growing game platform (CAGR 19%). Great potential for growth, but only a few selected players currently in the market.
Game Markets by Platform
40 35 30
28
(Unit : USD in BN)

Annual Revenue Trend of Blizzard

1,800
(Unit : USD in MN)

1,646

35 32

CAGR -1%
34 34 34 34 33

1,600 1,420 1,400 1,346 1,196 1,082 1,000 1,243

25 20 15

Online Arcade PC Console Mobile

CAGR -13%
24 21 19 16 13

CAGR 19%
22 18

24

1,200

800

16

696

CAGR 17%
10 12 9

13

600 458 400

10

10 7

5
0

200

160

2008

2009

2010

2011E

2012E

2013E

CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012

(Source: Hudson Square Research)

(Source: Game White Paper 2011, Ministry of Culture, Korea)

15

Global Online Game Publisher NCsoft

7-1. Catalysts (New Games + Hybrid model)

New growth drivers such as Blade & Soul, Guild Wars2, Wildstar, Lineage Eternal. Hybrid business model (free-to-play/premium subscription + in-game item sales)

Key Features of Blade and Soul

A unique world view with Asian martial arts element Wider selections of audience through easy play

Not full of repetitive combats, but also variety of activities

Well written stories and stunning visuals Other groundbreaking features that have not been tried so far in MMOs

Key Features of Guild Wars 2

A dynamic and interactive game experience Personalized storylines New depths of character customization An innovative combat system Intense player vs. player action A rich and fully realized fantasy world

16

Global Online Game Publisher NCsoft

7-2. Catalysts (Guild Wars 2)

Guild Wars(GW), one of the most successful PC videogame franchises, has sold over 7 MN copies.

Guild Wars2, the highly anticipated sequel to GW, is launching in US and EU on August 28 2012.

8 7 6 5 4 3 2 1 0

Guild Wars : Eye of the North (Released in August 2007) Guild Wars Nightfall Guild Wars Factions
(Released in October 2006) (Released in April 2006)

(Unit : MN boxes) 7.1

Awards

Best Online Game for Gamescom 2010 / Gamescom Best of Show at PAX 2010 / PAX Most Anticipated Game 2010 / mmorpg.com

2.9

Guild Wars Prophecies

(Released in April 2005)

Tests
4.2 -

Closed Beta Tests in Dec. 2011, Feb. 2012, Mar. 2012 Beta Weekend Events in May, June, July 2012
1.5

1.5
2.7 1.6 -

Launching Schedule
US/EU : Aug. 28, 2012 ASIA : Approximately within 12 months from US/EU launch

1.1

1.1

1.1

1.6
April 2006

1.6
Oct. 2006

1.6
Aug. 2007

1.6
Aug. 2012

Business Model
ASIA : not decided

US/EU : Box sales + micro-transaction

17

Global Online Game Publisher NCsoft

8. Strengths
World-class development capabilities and a strong pipeline

Global publishing network

14 years of operational know-hows and skills
Lineage Eternal Wildstar ...

To be launched
In service
Blade and Soul AION

Guild Wars 2

Internal tests expected in 2012

Hands-on demo at PAX and GamesCom in 2011

To be launched in US/EU on August 28 2012 To be launched in China in 2H 2013

Lineage2

Launched in Korea on June 30 2012 PCU in Korea : 230K (PCU: Peak Concurrent Users)

Lineage

Launch : Nov. 2008

To be launched in China via Tencent in mid 2013 Accumulated Sales: KRW 0.9 TN (launch~1H 2012)

Launch: Oct. 2003 Accumulated Sales: KRW 1.4 TN (launch~1H 2012)

Service Country: 7 countries (EU counted as one)

Latest Quarterly Sales: KRW 36 BN

Launch: Sep. 1998 Accumulated Sales: KRW 1.9 TN (launch~1H 2012)

Service Country: 9 countries (EU counted as one) Latest Quarterly Sales: KRW 17 BN

Service Country: 6 countries Latest Quarterly Sales: KRW 58 BN

18

Global Online Game Publisher NCsoft

Appendix
9. Parent Earnings 10. Summarized Financial Statements 11. B&S screenshots

19

Global Online Game Publisher NCsoft

9-1. Financial Highlights (Parent)

Sales
150,000

Operating Profit
(Unit : KRW in MN)

140,148
124,094 109,005 115,864 116,556

100,000 80,000 63,852 60,000 52,193 28,231 29,475

51% QoQ 77% YoY

100,000

50,000

1% QoQ 17% YoY

40,000 20,000

14,512

2Q 11 3Q 11 4Q 11 1Q 12 2Q 12

2Q 11 3Q 11 4Q 11 1Q 12

2Q 12

Pretax Income
100,000 80,000 60,000 40,000 100,000

Net Income

69,920
57,468 33,650 34,530 18,934

80,000 60,000 40,000

45% QoQ 73% YoY

56,656 45,620 27,179 28,333 14,254

50% QoQ 75% YoY

20,000
2Q 11 3Q 11 4Q 11 1Q 12

20,000 -

2Q 12

2Q 11

3Q 11

4Q 11

1Q 12

2Q 12
20

Global Online Game Publisher NCsoft

9-2. Sales Breakdown (Parent)

Sales by Games

Quarterly Royalty
(Unit : KRW in MN)

150,000

140,148
22,492 2,401

30,000

115,864
21,680

116,556

25,000

25,620 22,492

26,180

21,608 20,000 4,446 28,380 Royalty Others AION L2 L1

100,000 41,351

21,815

21,680 21,608

2,661

11,218
50,000

42,822 6,987

15,000

8,582
62,685 55,135

10,000

40,118

5,000

2Q 11 1Q 12 2Q 12

1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12

21

Global Online Game Publisher NCsoft

9-3. Costs Breakdown (Parent)

(Unit : KRW in MN)

2Q 11 Labor cost Variable expense - Payment processing fee - Royalty Expense - Other variable Marketing expense D&A Others Sub Total Other Income Other Expense Total 49,304 6,074 4,664 1,379 32 3,285 3,138 15,557 77,359 3,276 2,213 76,296

3Q 11 45,846 6,143 4,448 1,551 144 1,715 3,298 17,535 74,536 2,988 351 71,900

4Q 11 42,200 6,337 4,430 1,888 19 10,059 3,424 17,902 79,921 1,589 2,442 80,774

1Q 12 52,504 8,774 3,888 2,434 2,453 4,990 3,886 15,790 85,945 2,504 2,949 86,389

2Q 12 69,083 7,978 4,342 3,172 464 7,929 4,526 15,772 105,288 3,448 204 102,044

QoQ 32% -9% 12% 30% -81% 59% 16% 0% 23% 38% -93% 18%

YoY 40% 31% -7% 130% 1370% 141% 44% 1% 36% 5% -91% 34%

22

Global Online Game Publisher NCsoft

9-4. Equity Method Gain/Loss (Parent)

(Unit : KRW in MN)

2Q 11
Domestic Subsidiaries Orion Soft Crazy Diamond NCsoft Service Zepetto NC Dinos Baseball Club Ntreev Soft Nextplay Hotdog Studio Overseas Subsidiaries NC Interactive NC Europe NC Japan Ncsoft Japan NC Taiwan Arenanet NC True Total 568 (259) 18 (18) 308 519 (8,770) (5,235) (2,437) (3,067) (17) 1,138 848 (8,203)

3Q 11
471 446 (23) 158 762 (731) (141) (10,117) (7,844) (3,484) (206) 93 424 898 (9,646)

4Q 11
1,387 261 22 168 963 164 (191) (3,441) (5,821) 793 1,286 252 (751) 800 (2,054)

1Q 12
(29) (120) 74 263 67 213 (272) (255) (9,987) (6,409) (3,195) (160) (272) (935) 985 (10,016)

2Q 12
(723) 8 3 (14) 608 416 (1,505) (238) (7,323) (7,798) (940) (154) (135) 935 768 (8,046)

QoQ
-96% 813% 95% -22% -

YoY
-84% 97% -20% -9% -

23

Global Online Game Publisher NCsoft

9-5. Quarterly Sales by Subsidiaries (Parent)

(Unit : KRW in MN)

2Q 11
NC Interactive Arenanet NC Europe NC Japan NC Taiwan NC True Ntreev Soft Total 6,972 672 5,014 17,267 5,718 4,292 39,934

3Q 11
6,606 598 4,521 18,229 4,127 4,532 38,612

4Q 11
6,681 381 2,893 29,895 2,724 4,601 47,175

1Q 12
6,760 648 3,306 14,893 3,695 4,384 3,832 37,518

2Q 12
5,649 412 699 16,920 3,122 4,600 9,729 41,131

QoQ
-16% -36% -79% 14% -16% 5% 154% 10%

YoY
-19% -39% -86% -2% -45% 7% 3%

24

Global Online Game Publisher NCsoft

10-1. Summarized Statement of Financial Position

Consolidated
(Unit : KRW in MN)
2011 Current Assets Cash & cash equivalents Short-term financial instruments Account receivables Others Non-current Assets Investment assets Tangible assets Intangible Assets Others Total Assets Current Liabilities Borrowings Payables Current tax liabilities Other Provisions Others Non-current Liabilities Defined benefit obligations Long-term employee benefits Others Total Liabilities Capital Stock Other Paid-up Capital Other Components of Equity Retained Earnings Non-Controlling Interests Total Stockholders Equity Total Liabilities and Stockholders Equity 638,973 59,154 423,653 72,661 83,506 474,458 36,149 366,333 30,255 41,722 1,113,432 198,683 12,380 30,656 7,613 148,035 46,285 34,330 5,391 6,564 244,968 10,925 115,258 3,991 725,418 12,872 868,463 1,113,432 1H 2012 578,602 97,012 291,710 46,557 143,324 649,768 39,531 404,293 163,235 42,709 1,228,371 259,189 22,513 49,576 13,164 11,578 162,359 78,337 31,013 6,593 40,732 337,527 10,947 122,225 3,997 726,702 26,974 890,844 1,228,371
Current Assets Cash & cash equivalents Short-term financial instruments Account receivables Others Non-current Assets Investment assets Tangible assets Intangible assets Others Total Assets Current Liabilities Payables Current tax liabilities Others Other Provisions Non-current Liabilities Defined benefit obligations Long-term employee benefits Other allowance liablities Derivatives Liabilities Other Account Payble Other non-current liabilities Total Liabilities Capital Stock Other Paid-up Capital Other Components of Equity Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity

Parent
(Unit : KRW in MN)
2011 599,839 21,497 416,000 59,674 102,668 544,719 161,891 341,851 23,790 17,188 1,144,558 139,899 19,160 6,856 113,883 40,593 32,928 5,265 2,400 180,492 10,925 112,114 1,554 839,474 964,066 1,144,558 1H 2012 503,624 41,135 276,000 36,933 149,556 696,606 275,934 373,576 31,570 15,526 1,200,229 147,099 31,343 13,001 91,186 11,569 35,973 25,863 5,776 1,534 2,800 183,071 10,947 127,660 2,395 876,156 1,017,158 1,200,229

25

Global Online Game Publisher NCsoft

10-2. Summarized Income Statement

Consolidated
(Unit : KRW in MN)

Parent
(Unit : KRW in MN)

2011 Sales Cost of Sales Gross Profit Selling & Administrative Expense Other Income Other Expense Operating Income Finance Income Finance Expense Income before Income Tax Expense Income Tax Expenses Minority Interests Net income 608,878 139,147 469,732 334,009 16,683 17,349 135,056 22,913 758 157,211 39,535 (3008) 120,684

1H 2012 287,978 85,246 202,732 201,461 8,304 3,467 6,108 9,365 360 15,113 10,530 (711) 5,294

2011 Sales Cost of Sales Gross Profit Selling & Administrative Expense Other Income Other Expense Operating Income Finance Income Finance Expense Income before Income Tax Expense Income Tax Expenses Net Income 500,177 94,932 405,245 210,260 9,405 7,512 196,878 23,524 500 219,902 42,978 176,925

1H 2012 232,420 50,958 181,462 140,274 5,952 3,153 43,986 9,478 53,464 10,877 42,587

26

Global Online Game Publisher NCsoft

11-1. Concept art(Blade & Soul)

27

Global Online Game Publisher NCsoft

11-2. Concept art(Guild Wars 2)

28

Global Online Game Publisher NCsoft

11-3. Concept art(Wildstar)

29

Global Online Game Publisher NCsoft

11-4. Concept art(Lineage Eternal)

30

Global Online Game Publisher NCsoft

Thank you

31