Tencent Announces 2015 Third Quarter Results

Nov 10, 2015, 06:39 ET from Tencent Holdings Limited

SHENZHEN, China, Nov. 10, 2015 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or the "Company") (SEHK 00700), a leading provider of Internet value added services in China, today announced the unaudited consolidated results for the third quarter ("3Q2015") ended September 30, 2015.

3Q2015 Key Highlights:

  • Total revenues were RMB26,594 million (USD4,181 million1), an increase of 34% over the third quarter of 2014 ("YoY").
  • Operating profit was RMB10,331 million (USD1,624 million), an increase of 37% YoY. Operating margin increased to 39% from 38% last year.
  • Profit for the period was RMB7,584 million (USD1,192 million), an increase of 34% YoY. Net margin was 29%, the same as the third quarter of last year.
  • Profit attributable to equity holders of the Company for the period was RMB7,445 million (USD1,170 million), an increase of 32% YoY.
  • Basic earnings per share were RMB0.800. Diluted earnings per share were RMB0.792.
  • On a non-GAAP2 basis, excluding share-based compensation, deemed disposals/ disposals, amortization of intangible assets and impairment provision:
    • Operating profit was RMB10,516 million (USD1,653 million), an increase of 27% YoY. Operating margin decreased to 40% from 42% last year.
    • Profit for the period was RMB8,450 million (USD1,328 million), an increase of 28% YoY. Net margin decreased to 32% from 33% last year.
    • Profit attributable to equity holders of the Company for the period was RMB8,280 million (USD1,302 million), an increase of 26% YoY.
    • Basic earnings per share were RMB0.890. Diluted earnings per share were RMB0.881.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "During the third quarter of 2015, we continued to deliver solid operational growth in our core platforms. Financially, our smart phone games business accelerated growth following the implementation of a new strategy that extends our product range. Our online advertising revenue continued to double year-on-year. For mobile payments, over 200 million users have bound their bank cards to our QQ Wallet and Weixin Pay services, and payment volumes have sharply increased, especially for person-to-person, e-Commerce, and O2O transactions. We leveraged our platform to launch "9.9 Charity Day" with over 95 charitable organizations on September 9 to raise donation and increase awareness for them. This one-of-a-kind "Internet+" campaign has significant impact among our partners and users."

[1] Figures stated in USD are based on USD1 to RMB6.3613.

[2] Since the second quarter of 2015, we have included relevant non-GAAP adjustments for our material associates in our non-GAAP adjustments. We adopted the new presentation in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to be industry practice. Comparative figures have been adjusted to conform to the new presentation.

3Q2015 Financial Review

Value Added Services ("VAS")3. Revenues increased by 28% to RMB20,547 million for 3Q2015 on a YoY basis. Online games revenues increased by 27% YoY to RMB14,333 million. The increase mainly reflected revenue growth from smart phone games, primarily driven by our diversified game portfolio and, to a lesser extent, the impact of the adoption of gross revenue recognition. Revenues from PC client games also climbed, mainly driven by our key titles. Social networks revenues grew by 32% YoY to RMB6,214 million. The increase primarily reflected higher subscription revenues from QQ Membership and digital content subscription services, as well as an increase in revenues from in-game item sales. If gross revenue recognition for smart phone games had been adopted for the third quarter of 2014, revenues from our VAS business would have increased by 24% YoY, of which online games revenues would have increased by 22% YoY and social networks revenues would have increased by 28% YoY for 3Q2015.

[3] We recognise revenues from smart phone games we publish on an exclusive basis on a gross basis, from the fourth quarter of 2014 onward, primarily to reflect changes in our co-operation models that qualify us the principal, rather than agent, for certain licensed titles. Correspondingly, we record revenue sharing with third-party developers and channel costs of these titles in costs of revenues, instead of treating them as contra-revenue items. Net versus gross revenue recognition does not impact the Company's profits.

Online advertising. Revenues increased by 102% to RMB4,938 million for 3Q2015 on a YoY basis. Brand display advertising revenues increased by 67% YoY to RMB2,552 million, mainly driven by revenue growth from our mobile media platforms such as Tencent Video and Tencent News, which benefited from more traffic. Performance-based advertising revenues grew by 160% YoY to RMB2,386 million, reflecting higher contributions from performance-based social advertising on mobile, primarily due to Mobile Qzone, Weixin Moments and Weixin Official Accounts.

Other Key Financial Information for 3Q2015

Share-based compensation was RMB780 million, up 12% YoY.

EBITDA was RMB10,806 million, up 32% YoY. Adjusted EBITDA was RMB11,569 million, up 33% YoY.

Capital expenditure was RMB1,653 million, up 56% YoY. 

Free cash flow was RMB6,618 million, down 5% YoY.

As at September 30, 2015, the Company had net cash of RMB21,239 million. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totaled RMB73 billion as at September 30, 2015.

Strategic Highlights

In 3Q2015, we sought to execute our "Connection" strategy via fostering a healthy mobile ecosystem with enriched O2O user experiences, and via strengthening our relationship with strategic partners, bringing our own and our partners' products and services to China consumers via various platforms. Key initiatives this quarter included:

  • Driving the adoption of our payment services, QQ Wallet and Weixin Pay, via enriching payment scenarios, including highly frequent O2O service transactions;
  • Optimizing O2O user experience on our platforms via streamlining user activities, including discovering, selecting, paying for and sharing consumer feedback on O2O services;
  • Moving forward in monetizing our mobile traffic via enhanced performance-based advertising services;
  • Revamping our smart phone game strategy, which contributed to an uptick in our smart phone game revenue;
  • Launching the first 9.9 Charity Day, in which we and our partners facilitated Internet users to donate to a range of charitable initiatives on or around September 9, via leveraging our platforms and payment services.

Business Review and Outlook

Divisional and Product Highlights

Operating information

  • Monthly active user accounts ("MAU") of QQ was 860 million, an increase of 5% YoY.
  • Smart device MAU of QQ was 639 million, an increase of 18% YoY.
  • Peak concurrent user accounts ("PCU") of QQ was 239 million, an increase of 10% YoY.
  • Combined MAU of Weixin and WeChat were 650 million, an increase of 39% YoY.
  • MAU of Qzone was 653 million, an increase of 4% YoY.
  • Smart device MAU of Qzone was 577 million, an increase of 14% YoY.
  • Fee-based VAS registered subscriptions were 89 million, the same as the third quarter of 2014.

Key Platforms

  • For QQ, smart device MAU increased by 18% YoY to 639 million at the end of the quarter, while overall PCU increased by 10% YoY to 239 million. QQ is the most popular social platform for young and entertainment-driven users in China. Mobile QQ usage benefited from enriched QQ Group functionalities for popular user scenarios, such as schoolwork project assignment cooperation for students and a near-by function for finding new friends. QQ Wallet gained popularity mainly due to increased C2C transactions, such as red envelope gifting.
  • For Qzone, smart device MAU increased by 14% YoY to 577 million at the end of the quarter. User activity benefited from enhanced features in areas such as photo editing.
  • For Weixin and WeChat together, MAU reached 650 million at the end of the quarter, representing YoY growth of 39%. Weixin is a fast-growing mobile-focused social platform that attracts a broad range of users, including those who did not use instant messaging before. We enhanced user experience by upgrading voice and video communication functions, and by adding user tools for group chatting. We further drove the adoption of Weixin Pay via increased eCommerce and O2O service transactions, and via enhanced popularity of C2C money transfers.

As we enrich payment scenarios and invest in initiatives to deepen users' mobile payment habit, we are incurring significant bank handling fees on the C2C money transfers which we offer to users largely for free. We believe such cost represents a worthwhile investment for the future given the rapid growth in users binding their bank cards to their Weixin Pay or QQ Wallet accounts, and the fast increase in monthly usage of such accounts. The aggregate number of Weixin Pay and QQ Wallet accounts bound with bank cards exceeded 200 million in September.

VAS

In 3Q2015, our social networks business achieved 32% YoY revenue growth as we improved mobile privileges and enriched digital content subscription services. We will continue to add premium content for our reading, music and video subscription services.

In online games, we began executing on our new smart phone game strategy and sustained our market leadership.

  • For PC client games, we achieved low double-digit YoY revenue growth thanks to increased contributions from key titles and enhanced user engagement.
  • For smart phone games, we generated 60% YoY revenue growth on a gross-to-gross basis, with approximately RMB5.3 billion revenue in the third quarter. We achieved or retained leadership in multiple genres, such as running, MOBA, shooting and board games, as we leveraged our experience operating in multiple categories in PC client games.

Looking forward, we aim to continue developing our smart phone game operations via driving:

  • Content: penetrating high-revenue, low-DAU smart phone game genres, such as RPGs, with titles based on proven IPs, such as The Legend of MIR 2;
  • Gameplay: pioneering new smart phone game genres, such as shooting and MOBA games, by leveraging our experiences in developing new PC client game genres in China;
  • Platform: building player communities for low-ARPU, high-DAU, smart phone game genres, such as playing card and board games, within and on top of our social networks.

Online Advertising

In 3Q2015, our online advertising business achieved rapid YoY revenue growth, mainly reflecting an enlarged advertiser base and more traffic on our platforms. More than 65% of our total advertising revenues was generated on mobile platforms. Looking forward, we will continue investing in premium video content, expanding our mobile advertising inventory and enhancing our performance-based advertising service capabilities.

For other detailed disclosure, please refer to our website www.tencent.com/ir or follow us via Weixin Official Account.

About Tencent

Tencent uses technology to enrich the lives of Internet users. Every day, hundreds of millions of people communicate, share experiences, consume information and seek entertainment through our integrated platforms. Tencent's diversified services include QQ, Weixin/ WeChat for communications; Qzone for social networking; QQ Game Platform for online games; QQ.com and Tencent News for information and Tencent Video for video content.

Tencent was founded in Shenzhen in 1998 and went public on the Main Board of the Hong Kong Stock Exchange in 2004. The Company is one of the constituent stocks of the Hang Seng Index. Tencent seeks to evolve with the Internet by investing in innovation, providing a mutually beneficial environment for partners, and staying close to users.

For enquiries, please contact:

Investor:
Catherine Chan, Tel: (86) 755 86013388 ext 88369/ (852) 3148 5100 Email: cchan@tencent.com
Angie Chang, Tel: (86) 755 86013388 ext 73951/ (852) 3148 5100 Email: angiechang@tencent.com

Media:
Canny Lo, Tel: (86) 755 86013388 ext 66630/ (852) 3148 5100 Email: cannylo@tencent.com
Limin Chen, Tel: (86) 755 86013388 ext 56011 Email: liminchen@tencent.com

Non-GAAP Financial Measures

To supplement the consolidated results of the Company prepared in accordance with IFRS, certain non-GAAP financial measures, including non-GAAP operating profit, non-GAAP operating margin, non-GAAP profit for the period, non-GAAP net margin, non-GAAP profit attributable to equity holders of the Company, non-GAAP basic EPS and non-GAAP diluted EPS, have been presented in this announcement. These unaudited non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of the Company's financial performance prepared in accordance with IFRS. In addition, these non-GAAP financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary information to assess the performance of the Company's core operations by excluding certain non-cash items and certain impact of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Company's material associates based on available published financials of the relevant material associates, or estimates made by the Company's management based on available information, certain expectations, assumptions and premises.

Forward-Looking Statements

This press release contains forward-looking statements relating to the business outlook, forecast business plans and growth strategies of the Company.  These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release.  They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control.  These forward-looking statements may prove to be incorrect and may not be realized in future.  Underlying the forward-looking statements is a large number of risks and uncertainties.  Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.

 

CONSOLIDATED INCOME STATEMENT

RMB in millions, unless specified


Unaudited


Unaudited


3Q2015

3Q2014


3Q2015

2Q2015

Revenues

26,594

19,808


26,594

23,429

    VAS

20,547

16,047


20,547

18,428

   Online advertising

4,938

2,440


4,938

4,073

    Others1

1,109

1,321


1,109

928

Cost of revenues

(11,014)

(7,167)


(11,014)

(8,991)

Gross profit

15,580

12,641


15,580

14,438

Gross margin

59%

64%


59%

62%

Interest income

559

452


559

598

Other gains, net

614

118


614

612

Selling and marketing expenses

(2,042)

(1,906)


(2,042)

(1,601)

General and administrative expenses

(4,380)

(3,790)


(4,380)

(4,011)

Operating profit

10,331

7,515


10,331

10,036

Operating margin

39%

38%


39%

43%

Finance costs, net

(481)

(317)


(481)

(341)

Share of losses of associates and joint
ventures

(702)

(139)


(702)

(452)

Profit before income tax

9,148

7,059


9,148

9,243

Income tax expense

(1,564)

(1,383)


(1,564)

(1,847)

Profit for the period

7,584

5,676


7,584

7,396

Net margin

29%

29%


29%

32%

Attributable to:






    Equity holders of the Company

7,445

5,657


7,445

7,314

    Non-controlling interests

139

19


139

82







Non-GAAP profit attributable to equity
    holders of the Company

8,280

6,577


8,280

7,975







Earnings per share for profit attributable
     to equity holders of the Company
     (in RMB per share)






- basic

0.800

0.612


0.800

0.787

- diluted

0.792

0.605


0.792

0.778


1 In light of the reduction in size of our eCommerce business, we include the eCommerce in the "Others" business segment in our financial statements from the first quarter of 2015 onwards. Comparative figures have been reclassified to conform to the new presentation.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in millions, unless specified


Unaudited


Unaudited


3Q2015

3Q2014


3Q2015

2Q2015

Profit for the period

7,584

5,676


7,584

7,396

Other comprehensive income, net of tax:






Items that may be subsequently
reclassified to profit or loss






Share of other comprehensive income
of associates

287

30


287

(168)

Net gains/(losses) from changes in fair
value of available-for-sale financial
assets

1,298

(959)


1,298

4,795

Currency translation differences

1,303

(15)


1,303

(367)

Total comprehensive income for the
period

10,472

4,732


10,472

11,656

Attributable to:






    Equity holders of the Company

10,316

4,711


10,316

11,594

    Non-controlling interests

156

21


156

62

 

OTHER FINANCIAL INFORMATION

RMB in millions, unless specified


Unaudited


3Q2015

2Q2015

3Q2014

EBITDA (a)

10,806

10,258

8,174

Adjusted EBITDA (a)

11,569

10,899

8,720

Adjusted EBITDA margin (b)

44%

47%

44%

Interest expense

373

399

266

Net cash (c)

21,239

21,663

21,283

Capital expenditures (d)

1,653

2,841

1,060


Note:

(a) EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of fixed assets and 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, minus borrowings and notes payable.

(d) Capital expenditures consist of additions (excluding business combinations) to fixed assets, construction in progress, land use rights and intangible assets (excluding game and other content licences).

 

 


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

In RMB millions (unless otherwise stated)





Unaudited      

Unaudited


 September 30, 2015


June 30, 2015

ASSETS




Non-current assets




Fixed assets 

8,879


8,528

Construction in progress

4,434


4,005

Investment properties

264


265

Land use rights

2,274


2,286

Intangible assets

 

13,184


10,285

Investments in associates

57,431


53,446

Investments in redeemable preference shares of associates

5,767


4,776

Investments in joint ventures

554


566

Deferred income tax assets

727


621

Available-for-sale financial assets

31,446


26,370

Prepayments, deposits and other assets

3,873


2,115

Term deposits

3,674


3,619






132,507


116,882

Current assets




Inventories

240


238

Accounts receivable

6,821


5,536

Prepayments, deposits and other assets

11,809


9,544

Term deposits

24,976


17,329

Restricted cash

38,810


20,262

Cash and cash equivalents

46,714


48,271






129,370


101,180





Total assets

261,877


218,062





 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

In RMB millions (unless otherwise stated)





Unaudited

Unaudited


September 30, 2015


 June 30, 2015

EQUITY




Equity attributable to the Company's equity holders




Share capital

-


-

Share premium

6,810


6,155

Shares held for share award schemes

(1,867)


(1,405)

Other reserves

10,286


7,238

Retained earnings

93,059


85,614






108,288


97,602





Non-controlling interests

2,715


2,622





Total equity

111,003


100,224





LIABILITIES




Non-current liabilities




Borrowings

7,284


4,280

Notes payable

40,130


37,162

Long-term payables

4,409


1,881

Deferred income tax liabilities

3,232


3,017

Deferred revenue

3,307


3,000






58,362


49,340





Current liabilities




Accounts payable

12,418


10,311

Other payables and accruals

51,467


32,085

Borrowings

6,711


4,280

Notes payable

-


1,834

Current income tax liabilities

1,993


1,584

Other tax liabilities

496


374

Deferred revenue

19,427


18,030






92,512


68,498





Total liabilities

150,874


117,838





Total equity and liabilities

261,877


218,062





Net current assets

36,858


32,682





Total assets less current liabilities

169,365


149,564

 

RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS 


As
reported

Adjustments






RMB in millions,
unless specified


Equity-settled

share-based
compensation

Cash-settled
share-based
compensation (a)

(Gains)/losses
on deemed
disposals/
disposals (b)

Amortisation of
intangible
assets (c)

Impairment
provision (d)

1. Non-GAAP1

Unaudited three months ended September 30 2015

Operating profit

10,331

763

17

-1,020

46

379

10,516

Profit for the period 

7,584

981

18

-783

275

375

8,450

Profit attributable
     to equity holders 

7,445

959

17

-783

267

375

8,280

Operating margin 

39%






40%

Net margin

29%






32%









Unaudited three months ended June 30 2015

Operating profit

10,036

641

18

-1,487

56

1,052

10,316

Profit for the period 

7,396

720

18

-1,399

300

1,057

8,092

Profit attributable
     to equity holders 

7,314

699

17

-1,399

287

1,057

7,975

Operating margin 

43%






44%

Net margin

32%






35%

Unaudited three months ended September 30 2014

Operating profit

7,515

546

152

-159

15

195

8,264

Profit for the period

5,676

645

152

-187

146

195

6,627

Profit attributable
     to equity holders

5,657

635

137

-187

144

191

6,577

Operating margin

38%






42%

Net margin

29%






33%


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 Company, and other incentives

(b) (Gains)/ losses, net on deemed disposals of investee companies and disposals of investee companies and businesses

(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

1 Since the second quarter of 2015, we have included relevant non-GAAP adjustments for our material associates in our non-GAAP adjustments. We adopted the new presentation in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to be industry practice. Comparative figures have been adjusted to conform to the new presentation.

 

 

SOURCE Tencent Holdings Limited



RELATED LINKS

http://www.tencent.com/ir