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      Tencent Announces 2017 Second Quarter and Interim Results


      News provided by

      Tencent Holdings Limited

      Aug 16, 2017, 07:30 ET

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      HONG KONG, Aug. 16, 2017 /PRNewswire/ -- 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 Highlights1 - Revenues: +57% YoY, non-GAAP net profit: +43% YoY

      • Total revenues were RMB106,158 million (USD15,670 million), an increase of 57% over the first half of 2016 ("YoY").
      • Operating profit was RMB41,832 million (USD6,175million), an increase of 51% YoY. Operating margin decreased to 39% from 41% 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 RMB32,707 million (USD4,828 million), an increase of 64% YoY.
      • Basic earnings per share were RMB3.480. Diluted earnings per share were RMB3.436.
      • On a non-GAAP2 basis, which exclude certain non-cash items and certain impact of M&A transactions:
        • Operating profit was RMB 38,556 million (USD5,691 million), an increase of 37% YoY. Operating margin decreased to 36% 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.

      1 Figures stated in USD are based on USD1 to RMB6.7744

      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

      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 30% last year.
      • Profit attributable to equity holders of the Company for the period was RMB18,231 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:
        • Operating profit was RMB20,036 million (USD2,958 million), an increase of 36% YoY. Operating margin decreased to 35% from 41% last year.
        • Profit for the period was RMB16,487 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 RMB16,391 million (USD2,420 million), an increase of 45% YoY.
        • Basic earnings per share were RMB1.743. 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."

      2Q2017 Financial Review

      Value Added Services ("VAS"). Revenues increased by 43% to RMB36,804 million for 2Q2017 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 2Q2017 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 2Q2017 on a YoY basis. The increase was mainly due to revenue growth from our payment related and cloud services.

      3 Since the first quarter of 2017, we have reclassified online advertising revenues. Without the reclassification, performance-based advertising revenues increased by 71% to RMB6,332 million and brand display advertising revenues increased by 35% to RMB3,816 million on a YoY basis.

      Other Key Financial Information for 2Q2017

      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 45% YoY.

      Capital expenditure was RMB3,010 million, doubled YoY. 

      Free cash flow was RMB17,511 million, up 80% YoY.

      As at June 30, 2017, net cash position totalled RMB21,267 million. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totalled RMB146 billion as at June 30, 2017.

      Business Review and Outlook

      In the second quarter of 2017

      We achieved 59% YoY revenue growth, driven primarily by smart phone games and PC games, payment related services, online advertising, and digital content subscriptions and sales. Operating profit grew by 57% YoY. Profit attributable to equity holders of the Company increased by 70% YoY. Non-GAAP profit attributable to equity holders of the Company increased by 45% YoY. Free cash flow grew by 80% YoY.

      Operating Information

      • Monthly active user accounts ("MAU") of QQ was 850 million, a decrease of 5.4% YoY.
      • Smart device MAU of QQ was 662 million, a decrease of 3.9% YoY.
      • Peak concurrent user accounts ("PCU") of QQ (for the quarter) was 268 million, an increase of 8.4% YoY.
      • Combined MAU of Weixin and WeChat were 963 million, an increase of 19.5% YoY.
      • MAU of Qzone was 606 million, a decrease of 7.0% YoY.
      • Smart device MAU of Qzone was 586 million, a decrease of 3.5% YoY.
      • Fee-based VAS registered subscriptions were 118 million, an increase of 12.4% YoY.

      Social and Communications

      • QQ: Overall smart device MAU was down by 3.9% YoY due to fewer casual users, while engagement with core users increased. Specifically, PCU, including PC and mobile, increased by 8.4% YoY to 268 million. In addition, smart device MAU for users aged 21 years or below was up YoY, demonstrating QQ's increased popularity among younger users. Popular features within Mobile QQ, such as Kandian news feeds, increased average user time spent within Mobile QQ.
      • Qzone: Smart device MAU was down by 3.5% YoY broadly in line with the decrease in smart device MAU of QQ. We introduced campus page to increase engagement among users in high schools and colleges
      • Weixin and WeChat: MAU reached 963 million, representing YoY growth of 19.5%. We have extended user access to Mini Programs through the launch of keyword and location-based search functions.

      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.

      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, profit attributable to equity holders of the Company, basic EPS and diluted EPS), have been presented in this press release. These unaudited non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of the Group'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 Group'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 Group'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 realised 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 million, unless specified



      Unaudited


      Unaudited


      2Q2017

      2Q2016


      2Q2017

      1Q2017

      Revenues

      56,606

      35,691


      56,606

      49,552

          VAS

      36,804

      25,680


      36,804

      35,108

         Online advertising

      10,148

      6,532


      10,148

      6,888

          Others

      9,654

      3,479


      9,654

      7,556

      Cost of revenues

      (28,300)

      (15,235)


      (28,300)

      (24,109)

      Gross profit

      28,306

      20,456


      28,306

      25,443

      Gross margin

      50%

      57%


      50%

      51%

      Interest income

      959

      626


      959

      808

      Other gains, net

      5,125

      911


      5,125

      3,191

      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

      19,272

      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

      18,206

      Income tax expense

      (3,970)

      (2,780)


      (3,970)

      (3,658)

      Profit for the period

      18,254

      10,880


      18,254

      14,548

      Net margin

      32%

      30%


      32%

      29%

      Attributable to:






          Equity holders of the Company

      18,231

      10,737


      18,231

      14,476

          Non-controlling interests

      23

      143


      23

      72







      Non-GAAP profit attributable to equity holders of the
           Company

      16,391

      11,319


      16,391

      14,211







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






      - basic

      1.939

      1.146


      1.939

      1.540

      - diluted

      1.914

      1.133


      1.914

      1.522

      CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

      RMB in million, unless specified



      Unaudited


      2Q2017

      2Q2016

      Profit for the period

      18,254

      10,880

      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

      4,979

      Transfer to profit or loss upon disposal of available-for-sale financial assets

      -

      79

      Currency translation differences

      (3,232)

      1,308

      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

      17,275

      Attributable to:



          Equity holders of the Company

      25,063

      17,116

          Non-controlling interests

      6

      159

      OTHER FINANCIAL INFORMATION

      RMB in million, unless specified



      Unaudited


      2Q2017

      1Q2017

      2Q2016

      EBITDA (a)

      22,427

      19,995

      15,581

      Adjusted EBITDA (a)

      23,802

      21,300

      16,401

      Adjusted EBITDA margin (b)

      42%

      43%

      46%

      Interest expense

      760

      667

      494

      Net cash (c)

      21,267

      27,572

      24,037

      Capital expenditures (d)

      3,010

      2,108

      1,505

      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

      RMB in million, unless specified



      Unaudited


      Audited


      30 June 2017


      31 December 2016

      ASSETS




      Non-current assets




      Property, plant and equipment

      15,874


      13,900

      Construction in progress

      5,346


      4,674

      Investment properties

      846


      854

      Land use rights

      5,165


      5,174

      Intangible assets

      38,891


      36,467

      Investments in associates

      74,202


      70,042

      Investments in redeemable instruments of associates

      23,789


      9,627

      Investments in joint ventures

      715


      630

      Available-for-sale financial assets

      107,117


      83,806

      Prepayments, deposits and other assets

      8,261


      7,363

      Other financial assets

      4,033


      1,760

      Deferred income tax assets

      8,076


      7,033

      Term deposits

      5,364


      5,415






      297,679


      246,745

      Current assets




      Inventories

      297


      263

      Accounts receivable

      14,448


      10,152

      Prepayments, deposits and other assets

      18,013


      14,118

      Other financial assets

      1,974


      1,649

      Term deposits

      61,474


      50,320

      Restricted cash

      1,327


      750

      Cash and cash equivalents

      70,301


      71,902






      167,834


      149,154





      Total assets

      465,513


      395,899







      CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

      RMB in million, unless specified



      Unaudited


      Audited


      30 June 2017


      31 December 2016

      EQUITY




      Equity attributable to equity holders of the Company
      equity holders




      Share capital

      -


      -

      Share premium

      19,793


      17,324

      Shares held for share award schemes

      (3,513)


      (3,136)

      Other reserves

      33,996


      23,693

      Retained earnings

      164,398


      136,743






      214,674


      174,624





      Non-controlling interests

      11,724


      11,623





      Total equity

      226,398


      186,247





      LIABILITIES




      Non-current liabilities




      Borrowings

      70,460


      57,549

      Notes payable

      31,294


      36,204

      Long-term payables

      4,459


      4,935

      Other financial liabilities

      2,468


      2,576

      Deferred income tax liabilities

      5,171


      5,153

      Deferred revenue

      1,886


      2,038






      115,738


      108,455





      Current liabilities




      Accounts payable

      36,982


      27,413

      Other payables and accruals

      21,224


      20,873

      Borrowings

      10,779


      12,278

      Notes payable

      4,059


      3,466

      Current income tax liabilities

      6,332


      5,219

      Other tax liabilities

      1,041


      745

      Deferred revenue

      42,960


      31,203






      123,377


      101,197





      Total liabilities

      239,115


      209,652





      Total equity and liabilities

      465,513


      395,899









      RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS



      As

      reported

      Adjustments

      Non-GAAP

      RMB in million,

      unless specified

      Share-based

      compensation(a)

      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

      20,036

      Profit for the period

      18,254


      1,553

      (5,691)

      472

      1,899

      16,487

      Profit attributable to equity holders

      18,231


      1,492

      (5,670)

      439

      1,899

      16,391

      Operating margin

      40%






      35%

      Net margin

      32%






      29%


      Unaudited three months ended 31 March 2017

      Operating profit

      19,272


      1,339

      (2,747)

      153

      503

      18,520

      Profit for the period

      14,548


      1,530

      (2,717)

      500

      511

      14,372

      Profit attributable to equity holders

      14,476


      1,483

      (2,717)

      458

      511

      14,211

      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

      14,687

      Profit for the period

      10,880


      1,056

      (3,251)

      328

      2,483

      11,496

      Profit attributable to equity holders

      10,737


      1,037

      (3,247)

      317

      2,475

      11,319

      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

      SOURCE Tencent Holdings Limited

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