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Perfect World Co., Ltd. (PWRD)

Q1 2012 Earnings Call

May 29, 2012 9:00 p.m. EDT


Joanne Deng – IR Manager

Michael Chi – Chairman and CEO

Kelvin Lau – CFO

Vivien Wang – VP of IR


Mark Marostica – Piper Jaffray

Steve Zhang – Macquarie

Timothy Chen – Morgan Stanley

Wendy Huang – Royal Bank of Scotland

Huizi Zhang – Nomura Securities

Adam Krejcik – Roth Capital Partners

Martin Bao – CICC

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Eric Wen – Mirae Asset

Andy Young – Oppenheimer

Atul Bagga – Lazard Capital

William Huang – Barclays Capital

Jialong Shi – CLSA



Ladies and gentlemen, thank you for standing by, and welcome to the Perfect World Co. Limited First Quarter Earnings Conference Call.

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At this time, all participants are in a listen-only mode. There’ll be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you’ll need to press star 1 on your telephone. In fairness to other callers, please keep your questions limited to one, and then you're free to return to the queue. I must advise you that this conference is being recorded today, Wednesday, the 30th of May, 2012.

I would now like to hand the conference over to your first speaker today, Mr. [Chip Fleming]. Thank you, sir, please go ahead.

Joanne Deng

Thank you, operator, and thank you everyone for joining us today for Perfect World’s first quarter 2012 earnings release conference call. We distributed our unaudited earnings release earlier today. You may find a copy of the press release on our official website or through the newswires.

Today you will hear from Mr. Michael Chi, our Chairman and CEO, who will give us a brief update on our business. Mr. Kelvin Lau, our CFO, will then provide an overview of the quarter. Ms. Vivien Wang, our Vice President of Investor Relations and Corporate Communications, will then take us through some of our latest operational developments. And then she will pass the call back to Mr. Lau to go through our financial performance in the first quarter 2012. Following the prepared remarks, Mr. Chi, Mr. Lau and Ms. Wang would be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but not limited to those outlined in our public filings with the SEC, including our annual report on Form 20-F.

For more information about these risks and uncertainties, please refer to our filings with the SEC. Perfect World does not undertake any obligations to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

Our earnings release and this call include discussions of certain non-GAAP financial measures. Our earnings release contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures and is available on our website at under the Investor Relations section.

I would now like to turn the call over to Michael.

Michael Chi

Thank you, Joanne. Thank you all for joining our call today.

Our first quarter results came within our expectations, although we slowed some of our promotional activities during the quarter. And we are pleased to see some of existing games, including our popular titles, Perfect World II and Forsaken World, continued to deliver solid performance.

Our diverse game portfolio and pipeline are one of the major strengths of our company. During the first quarter we continued to work on our rich pipeline which includes several new MMORPGs like the highly-anticipated titles, Swordsman Online and Saint Seiya Online, as well as a number of different type of games such as web games.

This year we are gearing up for the launch of two martial arts MMORPGs, Heaven Sword and Dragon Saber, and the Return of the Condor Heroes. Both of these games are adapted from widely-popular martial arts novels by Louis Cha, one of China’s most celebrated writers. We expect to launch both titles in the second half of this year, and believe they will bring a new level of fighting fun to both martial arts fans and gamers. At the same time, we are actively managing the healthy lifecycle and the sustainable growth of our portfolios by working on content enhancement of our existing games.

Another core component of our business continues to be our effective globalization strategy. We maintain our global presence of subsidiaries and specialized production studios in both China and abroad. That’s so to further enhance our strong R&D capabilities worldwide. Our newly-acquired US-based Cryptic Studios is currently developing the highly-anticipated game Neverwinter and other projects, adding additional world-class titles to our portfolio.

We also continue to enhance our global operating capabilities through [extensing of reach in] network of subsidiaries and partners. With diverse portfolios and pipeline, strong and innovative R&D teams worldwide, and extensive global outreach in network, we will continue to grow our business to meeting the increasing high standards of today’s online gamer and create long-term value for our shareholders.

Thank you. Now I will pass the call to Kelvin.

Kelvin Lau

Thank you, Michael.

Our first quarter revenues fell within our expectation, although [inaudible] compared to the previous quarter. In the first quarter we are more focused on preparation for our upcoming game launches and content enhancement for the healthy lifecycles of our existing games. Furthermore, we slowed down promotional activities as many players were away from their computers for the Chinese New Year and we did not have any major new launches during the quarter, which resulted in a reduction in sales and marketing expenses for the quarter.

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