Tencent Announces 2016 First Quarter Results

HONG KONG, May 18, 2016 /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 first quarter of 2016 ended March 31, 2016 ("1Q2016").

Key Highlights:

  • Total revenues were RMB31,995 million (USD4,952 million[1]), an increase of 43% over the first quarter of 2015 ("YoY").
  • Operating profit was RMB13,398 million (USD2,074 million), an increase of 43% YoY. Operating margin was 42%, the same as the first quarter of 2015.
  • Profit for the period was RMB9,268 million (USD1,434 million), an increase of 34% YoY. Net margin decreased to 29% from 31% last year.
  • Profit attributable to equity holders of the Company for the period was RMB9,183 million (USD1,421 million), an increase of 33% YoY.
  • Basic earnings per share were RMB0.981. Diluted earnings per share were RMB0.970.
  • On a non-GAAP basis[2], excluding share-based compensation, net (gains)/losses from investee companies, amortization of intangible assets and impairment provision:
    • Operating profit was RMB13,484 million (USD2,087 million), an increase of 43% YoY. Operating margin was 42%, the same as the first quarter of 2015.
    • Profit for the period was RMB10,134 million (USD1,568 million), an increase of 39% YoY. Net margin decreased to 32% from 33% last year.
    • Profit attributable to equity holders of the Company for the period was RMB10,032 million (USD1,553 million), an increase of 39% YoY.
    • Basic earnings per share were RMB1.072. Diluted earnings per share were RMB1.059.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "We delivered a strong set of financial results for the first quarter of 2016, and made progress in further building up our social, games and media platforms. Our smart phone games achieved healthy user and revenue growth, thanks to our expanding portfolio of popular titles, operational expertise, and extensive user reach. A rich catalogue of premium content and an improving copyright protection environment in China facilitated robust growth in our digital content businesses. For advertising, we are refining our targeting tools and creating new ad formats to enhance returns for advertisers, thereby putting us in a solid position to capture the sizable market opportunity over the longer run. Our payment service adoption and payment volume saw healthy growth as we connect our users to an expanding range of online and offline services."

[1] Figures stated in USD are based on USD1 to RMB6.4612.


[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.

1Q2016 Financial Review

Value Added Services ("VAS"). Revenues from our VAS business increased by 34% to RMB24,964 million for the first quarter of 2016 on a YoY basis. Online games revenues grew by 28% YoY to RMB17,085 million. The increase mainly reflected contributions from new smart phone games such as CrossFire Mobile, Honor of Kings, The Legend of MIR 2 and Naruto Mobile, as well as revenue growth from PC client games, mainly driven by our key titles and newly launched games in the second half of 2015. Social networks revenues increased by 48% YoY to RMB7,879 million. The increase primarily reflected higher subscription revenues from digital content subscription services and QQ Membership, as well as revenue growth from virtual item sales.

Online advertising. Revenues from our online advertising business increased by 73% to RMB4,701 million for the first quarter of 2016 on a YoY basis. Performance-based advertising revenues increased by 90% YoY to RMB2,532 million, primarily driven by growth in advertising revenues from Mobile Qzone, Tencent News, Weixin Moments and Weixin Official Accounts. Brand display advertising revenues grew by 56% YoY to RMB2,169 million, mainly reflecting revenue growth from Tencent News and Tencent Video.

Other Key Financial Information for 1Q2016

Share-based compensation was RMB707 million, up 19% YoY.
EBITDA was RMB14,329 million, up 44% YoY. Adjusted EBITDA was RMB15,004 million, up 43% YoY.

Capital expenditure was RMB4,105 million, up 208% YoY. 
Free cash flow was RMB13,927 million, up 67% YoY.

As at March 31, 2016, Net cash position totaled RMB27,429 million, up 8% YoY. Fair value of our stakes in listed investee companies (both associates and available-for-sale financial assets) totalled RMB82 billion as at March 31, 2016.

Business Review and Outlook

Operating information

  • Monthly active user accounts ("MAU") of QQ was 877 million, an increase of 5% YoY.
  • Smart device MAU of QQ was 658 million, an increase of 9% YoY.
  • Peak concurrent user accounts ("PCU") of QQ (for the quarter) was 260 million, an increase of 14% YoY.
  • Combined MAU of Weixin and WeChat were 762 million, an increase of 39% YoY.
  • MAU of Qzone was 648 million, a decrease of 3% YoY.
  • Smart device MAU of Qzone was 588 million, an increase of 4% YoY.
  • Fee-based VAS registered subscriptions were 108 million, an increase of 33% YoY.

Key Platforms

  • For QQ, smart device MAU increased by 9% YoY to 658 million at the end of the quarter, while overall PCU increased by 14% YoY to 260 million. Mobile QQ usage benefited from enhanced features in areas such as video messaging and virtual gift exchanging. User activity in Interest Tribes, our interest-based communities embedded in QQ, benefited from enriched content discovery features, such as targeted feed-displays.
  • For Qzone, smart device MAU increased by 4% YoY to 588 million at the end of the quarter. User activity benefited from enhanced features in areas such as photo editing and video viewing.
  • For Weixin and WeChat together, MAU reached 762 million at the end of the quarter, representing YoY growth of 39%. User metrics growth benefited from the popularity of red envelope activities during the Lunar New Year holidays in early 2016, and increased original content published on Official Accounts. The volume of commercial payments via Weixin Pay, such as payments for eCommerce and O2O service transactions, grew significantly, accompanying an increasing volume of C2C payment transactions.

In April 2016, we launched Enterprise Weixin, a stand-alone application which is tailored to communication scenarios at work and incorporates mobile office solutions such as calendar and company notice management.

VAS

In the first quarter of 2016, our social networks business sustained healthy revenue growth as we improved virtual item sales, added premium content to our digital content subscription services, and enhanced mobile privileges for QQ Membership subscription services.

In online games, we extended our market leadership in China.

  • For PC client games, we saw increased contributions from key titles and new games launched in the second half of 2015, supported by promotional initiatives such as expansion packs and eSports tournaments.
  • For smart phone games, we cultivated eSports user activity via leveraging QQ, Weixin, Tencent Video and Tencent News, and expanded our mid-core game portfolio.

Looking ahead, we aim to strengthen our smart phone game portfolio via leveraging proven PC game IPs, such as Legend of the Swordman and Zhengtu, and via launching new genres, such as fishing games.

Online Advertising

Our online advertising business sustained rapid YoY growth in the first quarter of 2016, mainly driven by an enlarged advertiser base, higher traffic on our mobile platforms, and improved monetisation of advertising inventories. Approximately 80% of our total advertising revenues was generated on mobile platforms during the quarter.

Under our new exclusive partnership with NBA, online video views of NBA games grew significantly in China and became increasingly attractive to large-budget advertisers. We introduced self-service advertising tools to monetise Weixin Moments traffic generated in low-tier cities, catering particularly to long-tail advertisers.

Looking forward, we will continue growing and monetising advertising inventories on our media and social platforms. While we are optimistic about the long-term growth potential of our online advertising business, our brand advertising business could face near-term challenges due to the uncertainties of macroeconomic environment in China.

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. 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

Tracy Huang

Tel: (86) 755 86013388 ext 83731/ (852) 3148 5100 Email: tracyqhuang#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 Group 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 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 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


1Q2016

1Q2015


1Q2016

4Q2015

Revenues

31,995

22,399


31,995

30,441

    VAS

24,964

18,626


24,964

23,068

  Online advertising

4,701

2,724


4,701

5,733

    Others

2,330

1,049


2,330

1,640

Cost of revenues

(13,406)

(8,965)


(13,406)

(12,661)

Gross profit

18,589

13,434


18,589

17,780

Gross margin

58%

60%


58%

58%

Interest income

703

521


703

649

Other gains, net

506

411


506

249

Selling and marketing expenses

(2,032)

(1,326)


(2,032)

(3,024)

General and administrative expenses

(4,368)

(3,668)


(4,368)

(4,766)

Operating profit

13,398

9,372


13,398

10,888

Operating margin

42%

42%


42%

36%

Finance costs, net

(491)

(433)


(491)

(363)

Share of losses of associates and joint ventures

(1,089)

(310)


(1,089)

(1,329)

Profit before income tax

11,818

8,629


11,818

9,196

Income tax expense

(2,550)

(1,699)


(2,550)

(1,998)

Profit for the period

9,268

6,930


9,268

7,198

Net margin

29%

31%


29%

24%

Attributable to:






     Equity holders of the Company

9,183

6,883


9,183

7,164

     Non-controlling interests

85

47


85

34







Non-GAAP profit attributable to equity holders
     of the Company*

10,032

7,202


10,032

8,953







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






- basic

0.981

0.741


0.981

0.769

- diluted

0.970

0.733


0.970

0.759


* 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.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in millions, unless specified





Unaudited



1Q2016

1Q2015


Profit for the period

9,268

6,930


Other comprehensive income, net of tax:




Items that may be subsequently reclassified to profit or loss




Share of other comprehensive income of associates

8

70


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

(1,653)

1,764


Currency translation differences

(214)

187


Other fair value losses

(139)

-






Items that may not be subsequently reclassified to profit or loss




Other fair value losses

(262)

-


Total comprehensive income for the period

7,008

8,951


Attributable to:




           Equity holders of the Company

6,920

8,898


           Non-controlling interests

88

53


 

OTHER FINANCIAL INFORMATION

RMB in millions, unless specified



Unaudited



1Q2016

4Q2015

1Q2015


EBITDA (a)

14,329

12,040

9,945


Adjusted EBITDA (a)

15,004

12,831

10,506


Adjusted EBITDA margin (b)

47%

42%

47%


Interest expense

477

409

329


Net cash (c)

27,429

19,114

25,319


Capital expenditures (d)

4,105

1,883

1,332



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 licenses).


 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
RMB in millions (unless otherwise stated)



Unaudited


Audited


31 March 2016


31 December 2015

ASSETS




Non-current assets




Fixed assets

10,301


9,973

Construction in progress

5,176


4,248

Investment properties

291


292

Land use rights

4,087


2,293

Intangible assets

13,793


13,439

Investments in associates

60,747


60,171

Investments in redeemable preference shares of associates

7,015


6,230

Investments in joint ventures

537


544

Deferred income tax assets

667


757

Available-for-sale financial assets

43,489


44,339

Prepayments, deposits and other assets

6,694


5,480

Term deposits

9,033


3,674






161,830


151,440

Current assets




Inventories

226


222

Accounts receivable

7,148


7,061

Prepayments, deposits and other assets

12,723


11,397

Other financial assets

928


1,198

Term deposits

33,719


37,331

Restricted cash

85,816


54,731

Cash and cash equivalents

56,607


43,438






197,167


155,378





Total assets

358,997


306,818





EQUITY




Equity attributable to the Company's equity holders




Share capital

-


Share premium

13,670


12,167

Shares held for share award schemes

(2,257)


(1,817)

Other reserves

6,268


9,673

Retained earnings

109,185


100,012






126,866


120,035





Non-controlling interests

2,243


2,065





Total equity

129,109


122,100





LIABILITIES




Non-current liabilities




Borrowings

18,802


12,922

Notes payable

36,886


37,092

Long-term payables

3,774


3,626

Deferred income tax liabilities

3,518


3,668

Deferred revenue

2,687


3,004






65,667


60,312





Current liabilities




Accounts payable

19,748


15,700

Other payables and accruals

98,546


70,199

Borrowings

12,373


11,429

Notes payable

3,869


3,886

Current income tax liabilities

2,423


1,608

Other tax liabilities

301


462

Deferred revenue

26,961


21,122






164,221


124,406





Total liabilities

229,888


184,718





Total equity and liabilities

358,997


306,818

 

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)

Net (gains)/losses

from investee
companies
(b)

Amortisation of

intangible

assets (c)

Impairment
provision
(d)

Non-GAAP*

Unaudited three months ended 31 March 2016

Operating profit

13,398

675

32

(728)

47

60

13,484

Profit for the period

9,268

866

32

(786)

356

398

10,134

Profit attributable to 
    equity holders

9,183

857

32

(786)

348

398

10,032

Operating margin 

42%






42%

Net margin

29%






32%

Unaudited three months ended 31 December 2015

Operating profit

10,888

791

18

(929)

46

719

11,533

Profit for the period

7,198

959

17

(995)

313

1,525

9,017

Profit attributable to
    equity holders

7,164

939

16

(995)

304

1,525

8,953

Operating margin

36%






38%

Net margin

24%






30%

Unaudited three months ended 31 March 2015

Operating profit

9,372

561

32

(839)

50

223

9,399

Profit for the period

6,930

644

32

(839)

298

228

7,293

Profit attributable to
    equity holders

6,883

624

31

(839)

291

212

7,202

Operating margin

42%






42%

Net margin

31%






33%

* 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.


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 on options we own in investee companies

(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

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/tencent-announces-2016-first-quarter-results-300270832.html

SOURCE Tencent Holdings Limited

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