Tencent Announces 2014 First Quarter Results - KTEN.com - No One Gets You Closer

Tencent Announces 2014 First Quarter Results

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SOURCE Tencent Holdings Limited

Revenue Increased 36% YoY, Non-GAAP Net Income[1] Increased 29% YoY

HONG KONG, May 14, 2014 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or the "Company", SEHK 00700), a leading provider of comprehensive Internet services in China, today announced the unaudited consolidated results for the first quarter of 2014 ended March 31, 2014. 

Highlights of the First Quarter of 2014:

  • Total revenues were RMB18,400 million (USD2,991 million[2]), an increase of 8% over the fourth quarter of 2013 ("QoQ") or an increase of 36% over the first quarter of 2013 ("YoY").
  • Operating profit was RMB7,790 million (USD1,266 million), an increase of 64% QoQ or an increase of 54% YoY. Operating margin increased to 42% from 28% last quarter.
    Non-GAAP[3] operating profit was RMB6,477 million (USD1,053 million), an increase of 27% QoQ or an increase of 28% YoY. Non-GAAP operating margin increased to 35% from 30% last quarter.
  • Profit attributable to equity holders of the Company for the quarter was RMB6,457 million (USD1,050 million), an increase of 65% QoQ or an increase of 60% YoY.
    Non-GAAP profit attributable to equity holders of the Company for the quarter was RMB5,194  million (USD844 million), an increase of 17% QoQ or an increase of 29% YoY.
  • Basic earnings per share were RMB3.500. Diluted earnings per share were RMB3.449.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "During the first quarter of 2014, we substantially expanded our mobile ecosystem, providing new services to users, generating value for our business partners, and enhancing our own financial performance. Our smart phone games business achieved clear market leadership, allowing us to achieve 29% year-on-year growth in our non-GAAP net income while funding significant investments in various strategic initiatives.  We transformed our eCommerce strategy through our combination with JD.com, China's leading online retailer; deepened our mobile games pipeline via an in investment in CJ Games; and broadened our O2O offerings through partnerships with category pioneers such as Dianping and Leju. We look forward to continuing to balance our strategic investments in O2O services, online payment and digital content with maintaining healthy financial returns, and to developing new services for users as China's internet evolves."

[1]

This refers to the Non-GAAP net profit attributable to equity holders of Tencent

[2]

Figures stated in USD are based on USD1 to RMB6.1521

[3]

Since the first quarter of 2014, we have included gains/losses on disposal of investees and businesses in the non-GAAP adjustments due to its increased significance. Previously, we only included gains/losses on deemed disposals of investees in the non-GAAP adjustments. Comparative figures have been restated to conform to the new presentation. We changed this policy in order to present clearly to investors the one-time nature of the gains on disposals of investees and businesses we generated during the first quarter of 2014. See "Non-GAAP Financial Measures" section for more details on the reasons for presenting these measures

Financial Review for the First Quarter of 2014

- VAS.  VAS revenues increased 21% QoQ to RMB14,413 million and represented 78% of our total revenues for the first quarter of 2014. Online games revenues increased 23% QoQ to RMB10,387 million. The growth was mainly driven by increased revenues from smart phone games integrated with Mobile QQ and Weixin, increased revenues from major PC titles which benefited from promotional activities and positive seasonality, as well as contributions from new PC game titles such as Blade & Soul. Social networks revenues increased 16% QoQ to RMB4,026 million. This mainly reflected an increase in platform revenues from smart phone games integrated with Mobile QQ and Weixin. 

- Online advertising.  Online advertising revenues decreased 21% QoQ to RMB1,177 million and represented 6% of our total revenues. This mainly reflected the impact of weaker seasonality on advertisers' spending around the Chinese New Year holidays, together with the transition in our eCommerce strategy which affected eCommerce-related advertising revenues.

- eCommerce transactions.  eCommerce transactions revenues decreased 24% QoQ to RMB2,524 million and represented 14% of our total revenues. This was mainly driven by weaker seasonality in the eCommerce industry and the transition in our business strategy. Subsequent to the completion of the transaction with JD.com in March 2014, we no longer recognise fee income generated from physical goods transactions on our marketplaces.

Other Key Financial Information for the First Quarter of 2014

Share-based compensation was RMB568 million for the first quarter of 2014 as compared with RMB463 million for the previous quarter.  

Capital expenditure was RMB1,138 million for the first quarter of 2014 as compared with RMB1,679 million for the previous quarter. 

The Company didn't repurchase any shares on the Stock Exchange during the first quarter of 2014 and the previous quarter.

As at March 31, 2014, net cash position totaled RMB34,245 million which excluded borrowings of RMB9,035 million and long-term notes payable of RMB9,232 million.

As at March 31, 2014, the total number of shares of the Company in issue was 1.864 billion.

Strategic Highlights

In the first quarter of 2014, we conducted several transactions to complement our corporate strategy, including: (1) our transaction with JD.com for further developing our eCommerce business; (2) our investment in and partnership with CJ Games, which should bring more high quality mobile game experiences to our users; and (3) our investment in and partnership with Leju, to broaden our O2O offerings for real estate services.

On the financing side, we gained increased market recognition for our strong credit profile and raised new funds. In March 2014, we received an upgrade from Moody's on our issuer and senior unsecured debt ratings from Baa1 to A3. In April 2014, we established a USD5 billion global medium term note programme and completed the initial issuance of an aggregate principal amount of USD2.5 billion under the programme, which comprised USD500 million 3-year senior notes at a 2.000% coupon and USD2 billion 5-year senior notes at a 3.375% coupon. We are pleased that global institutional investors actively participated in the initial issuance, showing their recognition of our market leading position, history of stable growth and record of good corporate governance.  With our healthy cash generation and substantial net cash balance, we are well-positioned to maintain our strong credit profile and we remain committed to our prudent financial management approach.

Divisional and Product Highlights

  • Key platform statistics:
    • Monthly active Instant Messaging ("IM") user accounts were 848 million, an increase of 5% QoQ or an increase of 3% YoY.
    • Peak simultaneous online IM user accounts were 199 million, an increase of 11% QoQ or an increase of 15% YoY. 
    • Combined MAU of Weixin and WeChat were 396 million, an increase of 12% QoQ or an increase of 87% YoY.
    • Monthly active Qzone user accounts were 644 million, an increase of 3% QoQ or an increase of 5% YoY. 
    • Fee-based VAS registered subscriptions were 88 million, a decrease of 1% QoQ or a decrease of 16% YoY. 

Key Platforms

Both QQ and Qzone experienced significant expansion in their mobile user bases and enhancement in user engagement on mobile. For QQ, aggregate MAU increased by 3% year-on-year to 848 million at the end of the first quarter of 2014.  PCU benefited from improved user experience on smart phones and reached 200 million in April 2014.  Mobile QQ enjoyed strong user growth as smart device MAU increased by 52% year-on-year to 490 million. For Qzone, aggregate MAU grew by 5% year-on-year to 644 million at the end of the first quarter of 2014. Qzone smart device MAU reached 467 million, representing a year-on-year increase of 44%.

Combined MAU of Weixin and WeChat increased by 87% year-on-year to 396 million at the end of the first quarter of 2014. During the quarter, we focused on building an ecosystem for Weixin through measures including: (1) integrating with Dianping and other services under Weixin Payment; (2) expanding the user base of Weixin Payment via a significant subsidy programme, notably for booking taxi rides; and (3) exploring mobile eCommerce with selected merchants via their Official Accounts.  Internationally, we continued to drive user engagement for WeChat in selected countries.

As for our media platforms, Tencent News leveraged our strengths in mobile platforms to consolidate its position as the leading mobile news application in China. Tencent Video achieved a strong uplift in users and traffic during the first quarter of 2014, riding on enriched content, platform integration and enhanced user experience. While online video market shares are somewhat driven by content rights and therefore volatile, we are pleased that iResearch reported Tencent Video reached first place in terms of PC monthly unique visitors among Chinese online video sites during March 2014, and comScore reported Tencent Video reached first place in terms of PC monthly video views during the same month.

VAS

In the first quarter of 2014, item-based sales on our open platforms registered solid year-on-year growth, as we expanded the portfolio of applications available to users and improved user experience. In aggregate, our VAS subscription services remained weak compared to the same period last year. However, QQ Membership, our longest-established subscription service, achieved modest year-on-year revenue growth during the quarter, boosted by integration of mobile with PC privileges, and we look forward to extending mobile privileges to some of our other subscription services.

Our online games business achieved a healthy year-on-year increase in revenues, with growth across PC client games and mobile games. For PC client games, while our major titles and international business expanded organically, new titles such as Blade & Soul made significant revenue contribution. For mobile games, we expanded our portfolio of smart phones games integrated with Mobile QQ and Weixin, and focused on leveraging the strengths of our platforms to increase monetisation. For the first quarter of 2014, the paying user base for these games more than doubled sequentially, and total revenues approximately tripled sequentially, to over RMB1.8 billion.  Six of these games were ranked within the Top 10 Grossing Chart in China's iOS App Store at some point during the quarter. To enrich our portfolio of smart phone games, we added several international hit titles to our pipeline, such as Candy Crush Saga and Taming Monster.

Online Advertising

Our online advertising business benefited from revenue growth across the brand display and performance display categories. For brand display advertising, revenues from our online video platform grew robustly year-on-year with higher CPM and sell through rate, while traditional brand display advertising registered more moderate growth. Contributions from brand display advertising on our mobile news service expanded sequentially, albeit from a low base. For performance display advertising, our social platforms benefited from higher impression volume and cost per click, and achieved significant year-on-year revenue growth. During the quarter, we continued to expand our inventories for performance-based advertising and explore performance-based mobile advertising opportunities on our platforms.

eCommerce Transactions

Our eCommerce transaction business registered revenue growth on a year-on-year basis, against a backdrop of business strategy transition. Subsequent to the completion of the transaction with JD.com in March 2014, we no longer recognise fee income generated from physical goods transactions on our marketplaces. Looking ahead, we believe the revenues and costs, of our eCommerce transactions business may decline as we focus our resources on the partnership with JD.com.

About Tencent

Tencent uses technology to enrich the lives of Internet users. Every day, hundreds of millions of people communicate, share experiences, consume information, seek entertainment, and shop online through our integrated platforms. Our diversified services include QQ, Weixin and WeChat for communications; Qzone for social networking; QQ Game Platform for online games; QQ.com for information; as well as our eCommerce services. 

Our company was founded in Shenzhen in 1998 and went public on the Main Board of the Hong Kong Stock Exchange in 2004. The Company has been one of the 50 constituent stocks of the Hang Seng Index since June 10, 2008, under stock code 00700. We seek to evolve with the Internet by investing in innovation, providing a hospitable environment for our partners, and staying close to our users.   

For more information, please visit www.tencent.com/ir

For enquiries, please contact:

Catherine Chan Tel: (86) 755 86013388 ext 88369 or (852) 31485100 Email: cchan@tencent.com

Jerry Huang Tel: (86) 755 86013388 ext 65333 or (852) 31485100 Email: yuntaohuang@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 and non-GAAP profit attributable to equity holders of the Company, non-GAAP basic EPS and non-GAAP 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 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 acquisitions.

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


1Q2014

4Q2013


1Q2014

1Q2013

Revenues

18,400

16,970


18,400

13,548

    VAS

14,413

11,932


14,413

10,666

    Online advertising

1,177

1,497


1,177

850

    eCommerce transactions

2,524

3,324


2,524

1,914

    Others

286

217


286

118

Cost of revenues

(7,800)

(8,198)


(7,800)

(5,954)

Gross profit

10,600

8,772


10,600

7,594

Gross margin

58%

52%


58%

56%

Interest income

375

377


375

277

Other gains, net

1,607

405


1,607

351

Selling and marketing expenses

(1,855)

(2,033)


(1,855)

(963)

General and administrative expenses

(2,937)

(2,770)


(2,937)

(2,196)

Operating profit

7,790

4,751


7,790

5,063

Operating margin

42%

28%


42%

37%

Finance (costs) /income, net

(238)

6


(238)

(82)

Share of profit/(losses) of associates

45

(14)


45

131

Share of losses of joint ventures

(1)

(4)


(1)

(12)

Profit before income tax

7,596

4,739


7,596

5,100

Income tax expense

(1,164)

(808)


(1,164)

(1,029)

Profit for the period

6,432

3,931


6,432

4,071

Net margin

35%

23%


35%

30%

Attributable to:






    Equity holders of the Company

6,457

3,911


6,457

4,044

    Non-controlling interests

(25)

20


(25)

27







Non-GAAP profit attributable to equity
    holders of the Company

5,194

4,440


5,194

4,038







Earnings per share (GAAP)






- basic (RMB)

3.500

2.125


3.500

2.204

- diluted (RMB)

3.449

2.092


3.449

2.166

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in millions, unless specified



Unaudited


Unaudited


1Q2014

4Q2013


1Q2014

1Q2013

Profit for the period

6,432

3,931


6,432

4,071

Other comprehensive income, net of tax:






Items that may be subsequently reclassified to profit or loss






Share of other comprehensive income of associates

8

48


8

-

Net losses from changes in fair value of
              available-for-sale financial assets

(37)

830


(37)

(606)

Currency translation differences

17

(50)


17

(12)

Total comprehensive income for the period

6,420

4,759


6,420

3,453

Attributable to:






    Equity holders of the Company

6,441

4,746


6,441

3,428

    Non-controlling interests

(21)

13


(21)

25

 

OTHER FINANCIAL INFORMATION

RMB in millions, unless specified




Unaudited


1Q2014

4Q2013

1Q2013

EBITDA (a)

6,787

5,184

5,157

Adjusted EBITDA (a)

7,121

5,467

5,438

Adjusted EBITDA margin (b)

39%

32%

40%

Interest expense

112

105

98

Net cash (c)

34,245

36,218

32,731

Capital expenditures (d)

1,138

1,679

1,035


Note:

(a) EBITDA consists of operating profit less interest income, and plus other losses/ (gains), net, 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, and
     restricted cash pledged for secured bank borrowings, minus borrowings and long-term 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

  In RMB millions (unless otherwise stated)

Unaudited

Audited


31 March 2014

31 December 2013

ASSETS




Non-current assets




Fixed assets 

8,628


8,693

Construction in progress

2,214


2,041

Investment properties

272


-

Land use rights

806


871

Intangible assets

4,369


4,103

Interests in associates

24,928


12,170

Investment in joint ventures

19


9

Deferred income tax assets

352


431

Available-for-sale financial assets

14,278


12,515

Prepayments, deposits and other assets

1,291


1,296

Term deposits

8,415


11,420


65,572


53,549

Current assets




Inventories

939


1,384

Accounts receivable

3,103


2,955

Prepayments, deposits and other assets

6,778


5,365

Term deposits

17,574


19,623

Restricted cash

6,426


4,131

Cash and cash equivalents

26,523


20,228


61,343


53,686

Total assets

126,915


107,235

EQUITY




Equity attributable to the Company's equity holders




Share capital

-


-

Share premium

3,185


2,846

Shares held for share award schemes

 

(881)


(871)

Other reserves

3,530


3,746

Retained earnings

58,681


52,224


64,515


57,945

Non-controlling interests

491


518

Total equity

65,006


58,463

LIABILITIES




Non-current liabilities

 

 




Borrowings

5,199


3,323

Long-term notes payable

9,232


9,141

Deferred income tax liabilities

1,490


1,441

Long-term payables

1,624


1,600

Deferred revenue

4,147


-


21,692


15,505

Current liabilities




Accounts payable

8,006


6,680

Other payables and accruals

12,127


10,246

Borrowings

3,836


2,589

Current income tax liabilities

725


1,318

Other tax liabilities

428


593

Deferred revenue

15,095


11,841


40,217


33,267

Total liabilities

61,909


48,772

Total equity and liabilities

126,915


107,235





 

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 provisio (d)

Special

dividend

Income (e)

Non-GAAP

Unaudited three months ended 31 March 2014

Operating profit

7,790

334

234

(2,717)

16

820

-

6,477

Operating margin

42%







35%

Profit for the period

6,432

334

234

(2,669)

55

820

-

5,206

Net margin

35%







28%

Profit attributable
    to equity holders

6,457

328

219

(2,682)

52

820

-

5,194

EPS (RMB)









  - Basic

3.500







2.816

  - Diluted

3.449







2.775

Unaudited three months ended 31 December 2013

Operating profit

4,751

283

180

(242)

24

87

-

5,083

Operating margin

28%







30%

Profit for the period

3,931

283

180

(58)

66

87

-

4,489

Net margin

23%







26%

Profit attributable
    to equity holders

3,911

278

160

(58)

62

87

-

4,440

EPS (RMB)









  - Basic

2.125







2.413

  - Diluted

2.092







2.375

Unaudited three months ended 31 March 2013

Operating profit

5,063

281

117

-

38

-

(438)

5,061

Operating margin

37%







37%

Profit for the period

4,071

281

117

-

58

-

(438)

4,089

Net margin

30%







30%

Profit attributable
   
to equity holders

4,044

278

104

-

50

-

(438)

4,038

EPS (RMB)









  - Basic

2.204







2.200

  - Diluted

2.166







2.163


Note:

(a) Including put options granted to employees of investees on their shares and shares to be issued under investees' share-based incentive plans
     which can be acquired by the Group, and other incentives

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

(c) Amortisation of intangible assets resulting from acquisitions, net of related deferred tax

(d) Impairment provision for associates and available-for-sale financial assets

(e) Special dividend income from Mail.ru

 

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