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For Immediate Release
TENCENT ANNOUNCES 201 7 SECOND QUARTER AND INTERIM RESULTS
Hong Kong, AUGUST 16, 201 7 – Tencent Holdings Limited (“Tencent” or the “Company”, 00700 .hk), a leading provider of Internet value added services in China, today announced the unaudited consolidated results for the
second quarter (“2Q2017”) and the first half year of 2017 (“1H2017”) ended June 30, 2017.
1H2017 Key Highlights^1 - Revenues: +57% YoY, non-GAAP net profit: +43% YoY
Total revenues were RMB106,158 million (USD 15 , 670 million), an increase of 57 % over the first half of 201 6 (“YoY”). Operating profit was RMB41,832 million (USD6,175million), an increase of 51 % YoY. Operating margin decreased to 39% from 4 1 % last year. Profit for the period was RMB32,802 million (USD4,842 million), an increase of 63 % YoY. Net margin was increased to 31 % from 30 % last year. Profit attributable to equity holders of the Company for the period was RMB 32 ,707 million (USD4,828 million), an increase of 64 % YoY. Basic earnings per share were RMB3.48 0. Diluted earnings per share were RMB3.436. On a non-GAAP^2 basis, which exclude certain non-cash items and certain impact of M&A transactions:
- Operating profit was RMB 3 8,556 million (USD5,691 million), an increase of 37 % YoY. Operating margin decreased to 3 6 % from 42 % last year.
- Profit for the period was RMB30,859 million (USD4,555 million), an increase of 43 % YoY. Net margin decreased to 29 % from 32% last year.
- Profit attributable to equity holders of the Company for the period was RMB30,602 million (USD4,517 million), an increase of 43 % YoY.
- Basic earnings per share were RMB3.256. Diluted earnings per share were RMB3.215.
2Q2017 Key Highlights - Revenues: +59% YoY, non-GAAP net profit: +45% YoY
Total revenues were RMB56,606 million (USD8,356 million), an increase of 59 % over the second quarter of 2016 (“YoY”). Operating profit was RMB22,560 million (USD3,330 million), an increase of 57 % YoY. Operating margin was 40%, broadly stable from last year. Profit for the period was RMB18,254 million (USD2, 695 million), an increase of 68 % YoY. Net margin increased to 32% from 3 0 % last year. Profit attributable to equity holders of the Company for the period was RMB 1 8,231 million (USD2,691 million), an increase of 70 % YoY. Basic earnings per share were RMB1. 939. Diluted earnings per share were RMB1. 914. On a non-GAAP basis, which exclude certain non-cash items and certain impact of M&A transactions:
(^1) Figures stated in USD are based on USD1 to RMB6. (^2) Non-GAAP adjustments excludes share-based compensation and M&A related impact such as net (gains)/losses from investee companies, amortisation of intangible assets and impairment provision
- Operating profit was RMB20,036 million (USD2, 958 million), an increase of 36 % YoY. Operating margin decreased to 3 5 % from 41 % last year.
- Profit for the period was RMB 16 , 487 million (USD2, 434 million), an increase of 43 % YoY. Net margin decreased to 29 % from 32% last year.
- Profit attributable to equity holders of the Company for the period was RMB 1 6,391 million (USD2, 420 million), an increase of 45 % YoY.
- Basic earnings per share were RMB 1. 743. Diluted earnings per share were RMB1. 721.
Chairman and CEO of Tencent, Mr. Ma Huateng, said, “During the second quarter of 2017, we delivered strong revenue growth from multiple businesses, which enabled us to reinvest in innovations and new technologies in an increasingly competitive industry. While our games business continued to grow, we have stepped up our effort to ensure users play games in a healthy manner. Successful licensed drama serials and self-commissioned variety shows boosted user engagement and advertising revenue for our video platform. Our payment business continued to make everyday life easier for Internet users, with increased adoption of Weixin Payment for offline transactions. We have also been increasing our investment in cloud services and AI technologies, which will enable us to serve our users and business partners even better into the future.”
2 Q201 7 Financial Review
Value Added Services (“VAS”). Revenues increased by 4 3 % to RMB36,804 million for 2 Q2017 on a YoY basis. Online games revenues increased by 39% to RMB23,861 million, primarily driven by revenue growth from our smart phone games, including existing titles such as Honour of Kings, and new titles such as the China version of Contra Return, Dragon Nest Mobile and Legacy TLBB Mobile, and from our key PC titles such as LoL and DnF. Social networks revenues increased by 51% to RMB12,943 million, mainly reflecting growth in revenues from digital content services such as live broadcast, video and music, as well as from item sales in smart phone games.
Online advertising. Revenues increased by 55% to RMB10,148 million for 2 Q2017 on a YoY basis. Media advertising revenues grew by 48% to RMB4,077 million. The increase mainly reflected higher traffic for our Tencent Video services and news feed advertisements for our Tencent News products. Social and others advertising revenues grew by 61% to RMB6,071 million. The increase primarily reflected growth in advertising revenues derived from Weixin (primarily Weixin Moments and Weixin Official Accounts) and other mobile apps. 3
Others. Revenues increased by 177 % to RMB9,654 million for 2 Q2017 on a YoY basis. The increase was mainly due to revenue growth from our payment related and cloud services. 12
Other Key Financial Information for 2 Q 2017
Share-based compensation was RMB1, 408 million, up 63 % YoY. EBITDA was RMB22,427 million, up 44 % YoY. Adjusted EBITDA was RMB23,802 million, up 4 5 % YoY. Capital expenditure was RMB3,010 million, doubled YoY. Free cash flow was RMB17,511 million, up 80 % YoY.
(^3) Since the first quarter of 2017, we have reclassified online advertising revenues. Without the reclassification, performance-based advertising revenues increased by 71% to RMB6, million and brand display advertising revenues increased by 35% to RMB3,816 million on a YoY basis.
Online Games
PC client games achieved approximately RMB13.6 billion in revenue, representing 29% YoY revenue growth
with exceptional strength from key titles such as LoL and DnF. Average revenue per user (“ARPU”) generally
increased both YoY and quarter-on-quarter. We expect PC client game revenue growth rates to decelerate in
future periods.
Smart phone games grew by 54% YoY to approximately RMB14.8 billion in revenue (including smart phone
games revenue attributable to our social networks business) and exceeded PC client games revenue for the
first time. Revenue growth in smart phone games was driven by existing titles such as Honour of Kings in the
MOBA genre, and new titles such as the China version of Contra Return in the Action genre, Dragon Nest
Mobile and Legacy TLBB Mobile in the RPG genre.
Digital Content
Digital content revenue continued to record rapid growth during the quarter, primarily driven by the strong
performance of virtual gifting with live broadcast, video subscriptions and music services subscriptions.
Online Advertising
Our online advertising business achieved 55% YoY growth in revenue.
For media advertising, increased mobile video views and the news feeds of Tencent News were the key
contributors to YoY revenue growth. High quality content, notably certain licensed TV dramas and
self-commissioned variety shows, attracted users to our video platforms and generated a substantial increase in
advertising revenue. While our mobile news services maintained industry leadership in terms of daily active user
accounts (“DAU”), we focused on sharpening personalized recommendation of our news feeds to further
enhance our user experience.
For social and others advertising, Weixin properties, our mobile browser and advertising network, were the
primary drivers of revenue growth. We increased inventories in Weixin by lowering the traffic threshold for
loading advertisements in Official Accounts and expanded our self-service ad platform to cover first-tier cities for
placing Weixin Moments advertisements.
Others
We recorded 177% YoY revenue growth for other businesses, which was primarily driven by the growth of
payment related and cloud services. Payment business for commercial transactions increased rapidly as we
strengthened cooperation with Meituan-Dianping and other channel partners to expand our offline merchant
base.
Tencent Cloud further expanded its global infrastructure coverage and now operates 34 availability zones
around the world. In addition to solidifying our lead in providing cloud services to the game, video and live
broadcast industries, we expanded our market share in TMT and finance industries during the quarter.
We view artificial intelligence (“AI”) as an essential capability that benefits our businesses by enhancing our
overall user experience, sharpening our targeting technology and empowering our ecosystem partners. Our
in-house engineers have recently made breakthroughs in several areas including Go Chess AI, face recognition
and medical imaging. Artificial intelligence is a strategic initiative and we will continue to make long-term
investments to strengthen our competence in machine learning, computer vision, speech recognition and
natural language processing. Given the intensifying competitive nature of the industry, we expect our investment
in new initiatives such as payment, cloud services and AI to increase, enabling us to serve our users and
business partners even better into the future.
For other detailed disclosure, please refer to our website www.tencent.com/ir , or follow us via Weixin Official
Account (Weixin ID: Tencent_IR):
About Tencent
Tencent uses technology to enrich the lives of Internet users. Our social products Weixin and QQ link our users to a rich digital content catalogue including games, video, music and books. Our proprietary targeting technology helps advertisers reach out to hundreds of millions of consumers in China. Our infrastructure services including payment, security, cloud and artificial intelligence create differentiated offerings and support our partners’ business growth. Tencent invests heavily in people and innovation, enabling us to evolve with the Internet.
Tencent was founded in Shenzhen, China, in 1998. Shares of Tencent (00700.hk) are traded on the Main Board of the Stock Exchange of Hong Kong.
For investor and media enquiries, please contact: Jane Yip Tel: (86) 755 86013388 ext 68961/ (852) 3148 5100 Email: janeyip#tencent.com Stella Lui Tel: (86) 755 86013388 ext 68870/ (852) 3148 5100 Email: stellalui#tencent.com Kennis Lau Tel: (86) 755 86013388 ext 68958 / (852) 3148 5100 Email: kennislau#tencent.com
Non-GAAP Financial Measures To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-GAAP financial measures (in terms of, operating profit, operating margin, profit for the period, net margin,
CONSOLIDATED INCOME STATEMENT
RMB in million, unless specified
Unaudited Unaudited 2 Q2017 2 Q2016 2 Q2017 1Q Revenues 56,606 35,691 56,606 49, VAS 3 6,804 25,680 3 6,804 35, Online advertising 10,148 6,532 10,148 6, Others 9,654 3,479 9,654 7, Cost of revenues (28,300) (15,235) (28,300) (24,109) Gross profit 28,306 20,456 28,306 25, Gross margin 50 % 57 % 50 % 51% Interest income 959 626 959 808 Other gains, net 5,125 911 5,125 3, Selling and marketing expenses (3,660) (2,365) (3,660) (3,158) General and administrative expenses (8,170) (5,299) (8,170) (7,012) Operating profit 22,560 14,329 22,560 19, Operating margin 40% 40 % 40% 39% Finance costs, net (834) (377) (834) ( 691 ) Share of profit/ (losses) of associates and joint venture 498 (292) 498 (375) Profit before income tax 22,224 13,660 22,224 18, Income tax expense (3,970) (2,780) (3,970) (3,658) Profit for the period 18,254 10,880 18,254 14, Net margin 32 % 30 % 32 % 29% Attributable to: Equity holders of the Company 18,231 10,737 18,231 14, Non-controlling interests 23 143 23 72
Non-GAAP profit attributable to equity holders of the Company
1 6,391 11,319 1 6,391 14,
Earnings per share for profit attributable to equity holders of the Company (in RMB per share)
- basic 1.939 1.146 1.939 1.
- diluted 1.914 1.133 1.914 1.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
RMB in million, unless specified
Unaudited 2 Q2017 2 Q
Profit for the period 18,254 10,
Other comprehensive income, net of tax:
Items that may be subsequently reclassified to profit or loss Share of other comprehensive income of associates 66 277 Net gains from changes in fair value of available-for-sale financial assets 10,190^ 4, Transfer to profit or loss upon disposal of available-for-sale financial assets -^79 Currency translation differences (3,232)^ 1, Other fair value losses (162)^ (^182 )
Items that may not be subsequently reclassified to profit or loss Other fair value losses (^47 )^ (^66 ) Total comprehensive income for the period 25,069 17,
Attributable to:
Equity holders of the Company 25,063 17, Non-controlling interests 6 159
OTHER FINANCIAL INFORMATION
RMB in million, unless specified
Unaudited 2 Q2017 1Q2017 2 Q 2016
EBITDA (a) 22,427 19,995 15,
Adjusted EBITDA (a) 23,802 21,300 16,
Adjusted EBITDA margin (b) 42 % 43% 46 %
Interest expense 760 667 494
Net cash (c) 21,267 27 ,572 2 4,
Capital expenditures (d) 3,010 2,108 1,
Note:
(a) EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of property, plant and equipment as well as investment properties, and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-settled share-based compensation expenses. (b) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues. (c) Net cash represents period end balance and is calculated as cash and cash equivalents, term deposits and others, minus borrowings and notes payable. (d) Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress, land use rights and intangible assets (excluding media contents, game licences and other contents).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) RMB in million, unless specified
Unaudited Audited 3 0 June 2017 31 December 2016 EQUITY Equity attributable to equity holders of the Company Share capital^ equity holders - - Share premium 1 9,793 (^) 17, Shares held for share award schemes (3, 513 ) (^) (3,136) Other reserves 33,996 23, Retained earnings 164,398 136,
214,674 174 ,
Non-controlling interests 11, 724 11,
Total equity 2 26,398^ 186,
LIABILITIES Non-current liabilities Borrowings 70,460 57, Notes payable 31,294 36, Long-term payables 4,459^ 4, Other financial liabilities 2,468^ 2, Deferred income tax liabilities 5, 171 5, Deferred revenue (^) 1, 886 2,03 8
1 15,738 108,
Current liabilities Accounts payable 3 6,982 27, Other payables and accruals 21,224 20, Borrowings 10,779^ 12, Notes payable 4,059^ 3, Current income tax liabilities 6,332 5, Other tax liabilities 1, 041 745 Deferred revenue (^) 42, 960 31,
12 3,377 101,
Total liabilities 23 9,115^ 209,
Total equity and liabilities 4 65,513 395,
RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS
As reported
Adjustments
RMB in million, Non-GAAP unless specified
Share-based compensation(a)
的股份酬金
Net (gains)/losses from investee companies(b)
Amortisation of intangible assets(c)
Impairment provision(d) Unaudited three months ended 30 June 2017 Operating profit 22,560 1, 408 (5,619) 115 1,572 20, Profit for the period 1 8,254 1,5 53 (5,69 1 ) 472 1,899 1 6,
Profit attributable to equity holders 1 8,231 1,4 92 (5,670) 439 1,899 1 6,
Operating margin 40 % 3 5% Net margin 32 % 29% Unaudited three months ended 31 March 2017 Operating profit 19,272 1,339 (2,747) 153 503 1 8, Profit for the period 14,548^ 1,^530 (2,717)^500 511
1 4,
Profit attributable to equity holders 14,476 1, 483 (2,717) 458 511 1 4,
Operating margin 39 % 37 % Net margin 29 % 29 % Unaudited three months ended 30 June 2016 Operating profit 14,329 862 (2,990) 49 2,437 1 4, Profit for the period 10,880 1,056 (3,251) 328 2,483 1 1,
Profit attributable to equity holders 10,737 1,037 (3,247) 317 2,475 1 1,
Operating margin 40 % 41 % Net margin 30 % 32%
Note: (a) Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies’ share-based incentive plans which can be acquired by the Group, and other incentives (b) Including net (gains)/losses on deemed disposals, disposals of investee companies and businesses, and fair value changes arising from investments (c) Amortisation of intangible assets resulting from acquisitions, net of related deferred tax (d) Impairment provision for associates, available-for-sale financial assets, and intangible assets arising from acquisitions
