4Q16 & 2016 Earnings Summary Business Strategy. PAYCO Split-off Appendix. - Mobile Game. - Web-board Game. - PAYCO: Easy Payment

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2 4Q16 & 2016 Earnings Summary Business Strategy - Mobile Game - Web-board Game - PAYCO: Easy Payment - COMICO: Mobile Webtoon PAYCO Split-off Appendix 2

3 Change Change (KRW m) 4Q15 3Q16 4Q Y/Y Q/Q Y/Y Sales 217, , , % 13.1% 856, % Game 116, , , % 3.2% 472, % Mobile 68,694 66,946 67, % 1.1% 277, % PC 47,950 47,191 50, % 6.1% 195, % Others 101,155 93, , % 25.3% 383, % Technology 22,966 23,359 29, % 27.8% 93, % Commerce 50,111 35,489 49, % 38.7% 164, % Entertainment 20,484 24,551 27, % 11.1% 91, % Others 7,594 9,956 10, % 6.3% 34, % Operating Expenses 227, , , % 12.1% 830, % Commission 104,015 88, , % 18.6% 366, % Labor 60,362 63,100 72, % 14.4% 263, % Marketing 28,785 21,319 19, % -10.1% 69, % Depreciation 10,537 9,218 9, % 2.3% 36, % Communications 6,668 5,816 5, % 0.6% 24, % Others 17,133 17,145 18, % 7.2% 69, % Operating Income -9,700 2,280 4,554 TTB 99.8% 26,368 TTB OPM -4.5% 1.1% 1.9% 6.4%p 0.8%p 3.1% 11.5%p Non-op Income 54,999 29,248 14, % -49.6% 110, % Non-op Expenses 17,914 24,713 72, % 194.4% 111, % Pre-tax Income 27,385 6,815-53,464 TTR TTR 26, % Income Tax 5,284 5,342-4,817 18, % Net Income 22,101 1,473-48,648 TTR TTR 7, % NPM 10.1% 0.7% -20.7% -30.9%p -21.4%p 0.8% -24.8%p *TTB: Turned To Black / TTR: Turned To Red [FY2016] Sales KRW 856.4b / OP KRW 26.4b / NP KRW 7.1b [Sales] Seasonality in web-board games and other businesses [Mobile] Decreased 1.5% Y/Y due to Friends POP for Kakao Up 1.1% Q/Q as existing major games sales recovered [PC] Increased 4.4% Y/Y, 6.1% Q/Q driven by seasonality in web-board games while PC online remained sluggish [Others] Up both Y/Y, Q/Q thanks to seasonality effect [OPEX] Up Y/Y, Q/Q driven by commission and labor costs [Commission] Increased 1.0% Y/Y, 18.6% Q/Q due to sales increase in game, commerce and entertainment [Labor] Up 19.6% Y/Y, 14.4% Q/Q due to increased number of headcounts and incentives [Marketing] Fell 33.4% Y/Y, 10.1% Q/Q driven by cost-efficient activities [OP] Thanks to seasonality effect in web-board games and other businesses, and efficient cost management turned to profit Y/Y, increased 99.8% Q/Q [NP] Turned to net loss Y/Y, Q/Q due to impairment of available-for-sale financial assets 3

4 Mobile Game Easy Payment Targeted Ad 4

5 Collaboration x Partnership IP Line-up expansion using well known IPs [LINE Friends] [Kakao Friends] [Angry Birds] [Youkai Watch] [The God of High School] Platform Offering via various platforms to suit different user characteristics 5

6 Major Games LINE Disney Tsum Tsum LINE Disney Tsum Tsum Youkai Watch Puni Puni LINE POP 2 Friends Pop for Kakao Crusaders Quest Launched: Jan 2014 Launched: Oct 2015 Launched: Nov 2014 Launched: Aug 2015 Launched: Nov Q16 Sales: KRW 99.0b* 4Q16 Sales: KRW 15.7b* 4Q16 Sales: KRW 13.1b* 4Q16 Sales: KRW 7.9b 4Q16 Sales: KRW 7.4b Available in Global Available in Global Available in Global Available in Korea Available in Global (* Net sales recognized, but shown in gross sales for investors reference) 6

7 High Expectations 15 New Games to Be Launched in 2017 LINE POP Chocolat COMPASS Toon POP with NAVER Webtoon Angry Birds Island Critical Ops Genre: Puzzle Genre: RPG Genre: Puzzle Launching: 2Q17 Genre: FPS Launched: Oct 2016 Launched: Dec 2016 Launching: 2Q17 Available in Global Launching: 2H17 Available in Asia Available in Japan Available in Korea Featured IP: Angry Birds Available in Asia Featured IP: LINE Friends Featured IP: NAVER Webtoon 7

8 Web-board Regulation Feb 2014 Mar 2016 Strategy 2-year Regulation Implemented Key Items Betting amount limitation 24-hr lockout upon KRW 100k loss/day Adoption of random matching system Business Impact User-base and revenue contraction due to regulation Major Changes Betting Amount per Round KRW 30k KRW 50k Monthly Maximum Spending KRW 300k KRW 500k Opponent Selection Prohibited Allowed in lower-limit games User Authentication Every Quarter Every Year Business Impact Expectations for business improvement on deregulation New Additions & Updates New addition games, such as Texas Hold em and Black Jack, to increase user engagement and enjoyability Mobile Expansion Mobile Hangame Dual Gostop successfully integrated with PC service 8

9 Major Developments Accumulated Transaction KRW 1.1t Monthly Transaction KRW 110b As of Janaury 2017 Total Transaction Reaches KRW 1.0 Nov 2016, Partnership Expands to 20 Banking Brands Oct 2016, ATM Deposit/Withdrawal Official Launch Aug 2016, Membership & Gift Certificates Jun 2016, Easy Money Transfer Mar 2016, Offline Service Launch Sep 2016, PAYCO ZONE 9

10 Expansion into Financial Services Portal - Easy Payment (Credit Card/Bank Account/Mobile/Points) - Easy Money Transfer - ATM Deposit/Withdrawal - Partnership Credit Card - PAYCO Point - PAYCO Gift Cerfitificate - PAYCO Card - Membership Program - PAYCO VIP Lounge - PAYCO Fingerprint Authentication - PAYCO Easy Log-in ++ More to Come 10

11 Key Index Registered Users 6.3m Paying Users 5.4m VIP 20% Repeat Users 78% Max Daily Transactions 7 times Avg Monthly Money Transfers 6.4 times Avg Amount Transferred KRW 40,000 Registered Credit Cards 5.3m 11

12 Online Service User Retention Program to promote continuous use Merchant-base gradually increasing 1 Choose PAYCO as payment method 2 Apply discount coupons and reward points Online Merchant All sizes of merchants Merchant Expansion Investment Partnership 12

13 Offline Service Providing benefits to users to expand personal experience with PAYCO Reviewing to open PAYCO NFC terminals to potential partners 1 Open PAYCO App 2 Select Pay Offline 3 Touch PAYCO NFC Terminal PAYCO x T-money Merchants 120,000 offline merchants T-Money merchants secured through investment in TMONET PAYCO Merchants 13

14 Targeted Ad US Desktop DA * Market US Mobile DA * Market *DA: Display Ad (USD b) Programmatic Non-programmatic % 57% 57% 63% % 43% 37% 43% % 69% 78% 46% % 40% 31% 22% (Source: emarketer) (Source: emarketer) 14

15 Targeted Advertisement Optimized Ad Services to Audience, Advertiser and Platform TOAST exchange : Real-time Online Ad Bidding Platform Optimized for Targeted Ads Nov 2016, Renewed and Renamed after No. 1 brand in Log Analysis ACE As of Dec 2016, Partnered with 500 Advertisers and 10,000 Publishers DSP Advertiser AD Agency Media ADX SSP DMP Ad Exchange: A platform that enables advertisers and media to buy and sell ad space through real-time auctions DSP: A system that allows advertisers to find and buy proper ad space for their target DMP: A system that sort and houses information, and process in a way that s useful for marketers SSP: A System that enables web publishers to manage their ad space inventory, fill it with ads, and receive revenue (Source: Wikipedia, Digiday) 15

16 Oct 2013 Japan Jun 2014 Taiwan Oct 2014 Korea Mar 2015 Thailand + = Dec 2015 Japan Largest active user-base in Japan * *Source: Nielson Pay-per-view Mobile Game In-app Ad Monetization through premium pay-per-view contents Currently in development of mobile game using wellknown COMICO characters Launching in 2017 Planning to launch in-app ads that utilize the platform and users 16

17 Schedule Objectives Feb 9 Mar 24 Apr 1 Apr 3 Apr 4 Board of Directors Shareholders Meeting Spin-off General Meeting for Reporting Registration of Spin-off Continuous expansion and monetization of PAYCO business Gaining competitive advantage in easy payment market Reorganization to enable alliance with potential partners in a timely manner Establishing independent and professional decision making structure Expected Effect Strengthening Service Competitiveness Expansion of offline coverage, including PAYCO Zone and large merchant-base brands Introduction of various financial services, including easy money transfer, membership, etc Refining Business Value Propelling big data-based targeted advertisement business Sharing marketing expenses with potential partners while utilizing pre-installed NFC readers Expansion of Partnership Sharing in-house services, such as games, ticketing, music, to support the new business Establishing strategic alliance and attracting investment to expand PAYCO business 17

18 Before Spin-off After Spin-off (KRW m) NHN Entertainment NHN Entertainment NHN PAYCO Current Assets 284, ,189 52,398 Cash and Cash Equivalent 82,128 37,128 45,000 ST Financial Instruments 1,600 1,600 0 Financial Asset at Fair Value 11,446 11,446 0 Available-for-sale Financial Assets 15,004 15,004 0 Account Receivables 161, ,242 7,090 Other Current Assets 12,974 12, Non-current Assets 1,367,180 1,394, ,644 Available-for-sale Financial Assets 84,015 53,095 30,921 Investments in Associates 1,106,442 1,165, ,687 Financial Derivatives 2,501 2,501 0 Accounts Receivables 86,986 86,986 0 Deferred Income Taxes 17,209 17,375 0 Tangible Assets 50,252 49,234 1,018 Intangible Assets 19,773 19, Total Assets 1,651,663 1,627, ,041 Current Liabilities 116,147 98,984 17,267 Accounts Payables 30,025 21,429 8,596 ST Borrowings 2,800 2,800 0 Accrued Income Taxes 61,402 61,402 0 Derivative Liabilities 4,885 4,885 0 Other Current Liabilities 17,035 8,468 8,670 Non-current Liabilities 21,787 16,794 5,160 Trade Payables 4,613 4,613 0 Defined Benefit Liability 14,234 11,751 2,483 Provision 2, ,511 Deferred Tax Liabilities Total Liabilities 137, ,778 22,426 Paid-in Capital 9,783 9,783 5,000 Capital Surplus 1,273,667 1,273, ,212 Capital Adjustment (22,668) (22,668) 0 Other Comprehensive Income 11,260 8,857 2,403 Retained Earnings 241, ,686 0 Total Equity 1,513,729 1,511, ,615 18

19 Domestic Outlook Global Outlook (KRW b) (KRW b) % of Asian Market 3,592 3,971 19% 4,403 남미 S. America 유럽 Europe 북미 N. America 아시아 Asia ,328 2, (Source: Korea Creative Content Agency) (Source: NewZoo, Enterbrain, PWC) 19

20 Holding Structure Description Retail, 36.4% Joon-Ho Lee, 40.7% Listed Market KOSPI Stock Code KS Listed Shares 19,565,025 shrs (Treasury 356,210 shrs) Employees (As of end-4q16) Domestic Institution, 9.4% Executives Overseas, 5.8% Institution, 5.8% Treasury, 1.8% 3,873 (Consolidated) 806 (NHN Entertainment) Headquarters Play Museum, Seong-nam, Gyeong-gi, Korea As of December, 2016 Ownership of domestic institutions and others internally estimated 20

21 NHN PlayArt (100%) NHN COMICO (100%) NHN Hangame (100%) NHN Entertainment USA (100%) NHN PIXELCUBE (100%) NHN STUDIO629 (100%) NHN BLACKPICK (100%) NHN STARFISH (100%) BUGS (41%) KS Critical Force (20%) NHN Godosoft (100%) Accommate Holdings (59%) Bee3Stars (58%) NHN wetoo (100%) Fashion POP (63%) NHN Investment (100%) NHN Techorus (100%) NHN GOODFRIENDS (100%) NHN Korea Cyber Payment (33%) KS KG Inicis (5%) KS NHN TICKETLINK (100%) TMONET (24%) Ticket Monster (2.7%) K-Innovation (100%) PNP Secure (100%) PIOLINK (29%) KS UBIVELOX (8.8%) KS Devsisters (16%) KS Thumb Age (5.5%) KS NHN Entertainment AD (100%) NHN TX (Toast exchange) (100%) NHN D&T (Data & Technology) (100%) Mocoplex (10%) Incross (11%) KS 21

22 Revenue by Business (KRW m) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Sales 152, , , , , , , , , , , ,688 Game 147, , , , ,588 90, , , , , , ,746 PC 102,802 67,451 69,232 66,693 57,683 46,938 49,033 47,950 48,773 49,592 47,191 50,073 Mobile 44,259 44,625 48,952 47,470 49,905 43,516 52,439 68,694 72,695 69,985 66,946 67,673 Others 5,067 7,722 18,026 34,565 30,540 35,171 61, ,155 82,151 91,044 93, ,942 Game Revenue by Region 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Domestic 67.0% 56.5% 57.1% 58.2% 61.0% 56.7% 58.0% 59.5% 55.3% 56.9% 60.2% 60.4% Overseas 33.0% 43.5% 42.9% 41.8% 39.0% 43.3% 42.0% 40.5% 44.7% 43.1% 39.8% 39.6% 22

23 Income Statement Balance Sheet (KRW m) 4Q15 1Q16 2Q16 3Q16 4Q16 Sales 43,774 48,607 51,210 55,857 62,894 Game 38,111 42,795 44,726 47,482 53,832 Others 5,663 5,811 6,484 8,375 9,062 Operating Expenses 64,962 52,499 47,739 57,126 64,289 Commission 24,737 23,605 20,090 25,012 27,249 Labor 14,172 15,079 16,182 16,032 22,146 Marketing 20,033 7,657 6,345 10,479 9,372 Depreciation 3,234 2,919 2,864 2,851 2,991 Others 2,786 3,239 2,258 2,752 2,531 Operating Income -21,187-3,892 3,471-1,269-1,395 Operating Margin -48.4% -8.0% 6.8% -2.3% -2.2% Financial Income 2,830 32,532 3, ,829 2,126 Equity Method Income , Other Income 761 6, ,570 1,659 Financial Expense 1, ,038 5,911 Equity Method Loss 16, ,585 2,869 14,408 Other Expense ,263 10, Pre-tax Income -35,981 33,969 1, ,299-18,698 Income Tax -5, ,430 40,414 4,865 Net Income -30,118 34, ,885-23,563 Net Income Margin -68.8% 70.3% 0.2% 239.7% -37.5% (KRW m) 4Q15 1Q16 2Q16 3Q16 4Q16 Current Assets 244, , , , ,483 Cash and Cash Equivalent 126, ,871 89, ,045 95,173 Accounts Receivables 100, , , , ,332 Others 17,593 16,197 63,029 59,927 27,978 Non-current Assets 1,393,754 1,409,419 1,398,515 1,375,023 1,367,180 Tangible Assets 50,006 48,901 48,270 48,193 50,252 Intangible Assets 13,895 13,703 14,634 19,167 19,773 Investment Assets 1,235,968 1,252,614 1,240,950 1,199,437 1,190,458 Others 93,885 94,202 94, , ,697 Total Assets 1,638,541 1,652,846 1,652,968 1,671,582 1,651,663 Current Liabilities 93,025 88, ,415 99, ,147 Accounts Payables 29,248 20,200 22,624 24,540 30,025 Short-term Borrowings 35,777 32,800 62,800 2,800 2,800 Accrued Income Taxes 17,491 23,655 16,975 51,428 61,402 Others 10,508 11,694 13,016 20,459 21,920 Non-current Liabilities 58,106 52,619 44,690 19,888 21,787 Long-term Accounts Payables 8,791 7,078 7,128 4,460 4,613 Allowance for Severance Pay 10,776 11,320 12,131 12,878 14,234 Others 38,539 34,222 25,431 2,550 2,940 Total Liabilities 151, , , , ,934 Shareholders Equity 1,487,411 1,511,878 1,492,863 1,552,467 1,513,729 Paid-in Capital 9,783 9,783 9,783 9,783 9,783 Capital Surplus 1,273,667 1,273,667 1,273,667 1,273,667 1,273,667 Capital Adjustment -23,813-23,712-23,373-23,022-22,667 Other Comprehensive Income 129, , ,687 26,056 11,260 Retained Earnings 97, , , , ,686 Total Equity 1,487,411 1,511,878 1,492,863 1,552,467 1,513,729 23

24 Income Statement Balance Sheet (KRW m) 4Q15 1Q16 2Q16 3Q16 4Q16 (KRW m) 4Q15 1Q16 2Q16 3Q16 4Q16 Sales 217, , , , ,688 Current Assets 682, , , , ,463 Game 116, , , , ,746 Cash and Cash Equivalent 443, , , , ,752 Others 101,155 82,151 91,044 93, ,942 Accounts Receivables 180, , , , ,172 Operating Expenses 227, , , , ,134 Others 58,472 72,040 88,016 96,931 80,539 Commission 104,015 86,216 86,319 88, ,087 Non-current Assets 1,150,600 1,148,955 1,146,975 1,061,642 1,088,662 Labor 60,362 61,548 66,477 63,100 72,213 Tangible Assets 105, , , , ,331 Marketing 28,785 13,375 15,403 21,319 19,167 Intangible Assets 307, , , , ,978 Depreciation 10,537 9,283 9,044 9,218 9,433 Investment Assets 600, , , , ,665 Communications 6,668 6,640 6,001 5,816 5,851 Accounts Receivables 116, , , , ,484 Others 17,133 17,359 17,040 17,173 18,384 Others 20,689 21,670 22,951 36,539 45,205 Operating Income -9,700 9,197 10,338 2,280 4,554 Total Assets 1,833,330 1,835,320 1,912,446 1,844,410 1,838,125 Operating Margin -4.5% 4.5% 4.9% 1.1% 1.9% Current Liabilities 232, , , , ,504 Financial Income 48,663 22,706 33,772 25,079 10,694 Accounts Payables 113,836 91, , , ,587 Equity Method Income 1,036 1,479 1,282 1,229 1,562 Short-term Borrowings 45,101 46,747 78,326 25,412 23,013 Other Income 5,301 6,120 1,590 2,939 2,489 Accrued Income Taxes 29,101 35,623 42,335 66,210 66,993 Financial Expense 6, ,874 56,732 Others 44,862 49,926 47,595 49,574 45,911 Equity Method Loss 3,402 3,938 4,322 8,174 2,206 Non-current Liabilities 97,918 91,841 85,695 47,820 60,172 Other Expense 7,698 2,218 2,051 11,664 13,825 Long-term Accounts Payables 17,308 15,562 15,810 13,064 13,349 Pre-tax Income 27,385 32,721 39,933 6,815-53,464 Long-term Borrowings 17,416 15,318 16, Income Tax 5,284 8,215 10,152 5,342-4,817 Allowance for Severance Pay 18,920 20,262 20,931 21,739 23,129 Net Income 22,101 24,506 29,781 1,473-48,648 Deferred Income Tax Credits 36,097 30,705 22,665 3,297 3,523 Net Income Margin 10.1% 12.0% 14.1% 0.7% -20.7% Others 8,178 9,994 9,372 9,720 20,171 Total Liabilities 330, , , , ,676 Shareholders Equity 1,426,967 1,447,129 1,479,748 1,497,036 1,462,800 Paid-in Capital 9,783 9,783 9,783 9,783 9,783 Capital Surplus 1,237,639 1,237,639 1,237,639 1,237,639 1,237,639 Capital Adjustment -38,327-38,395-38,333-61,264-61,467 Other Comprehensive Income -33,031-37,213-35, ,221 Retained Earnings 250, , , , ,624 Non-controlling Interests 75,543 72,988 71,684 57,198 47,650 Total Equity 1,502,510 1,520,117 1,551,433 1,554,234 1,510,450 24