TENCENT ANNOUNCES 2021 FOURTH QUARTER AND ANNUAL RESULTS

HONG KONG, March 23, 2022 /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 fourth quarter of 2021 ("4Q2021") and the audited consolidated results for the year ended December 31, 2021 ("FY2021").

4Q2021 Key Highlights

Revenues: +8% YoY, non-IFRS^[1] profit attributable to equity holders of the Company: -25% YoY

• Total revenues were RMB144,188 million (USD22,615 million^[2]), an increase of 8% over the fourth quarter of 2020 ("YoY").
• On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:
  - Operating profit was RMB33,151 million (USD5,200 million), a decrease of 13% YoY. Operating margin decreased to 23% from 28% last year.
  - Profit for the period was RMB25,758 million (USD4,040 million), a decrease of 25% YoY. Net margin decreased to 18% from 26% last year.
  - Profit attributable to equity holders of the Company for the quarter was RMB24,880 million (USD3,902 million), a decrease of 25% YoY.
  - Basic earnings per share were RMB2.609. Diluted earnings per share were RMB2.547.

• On an IFRS basis:
  - Operating profit was RMB109,723 million (USD17,210 million), an increase of 72% YoY. Operating margin increased to 76% from 48% last year.
  - Profit for the period was RMB95,705 million (USD15,011 million), an increase of 61% YoY. Net margin increased to 66% from 44% last year. 
  - Profit attributable to equity holders of the Company for the quarter was RMB94,958 million (USD14,894 million), an increase of 60% YoY.
  - Basic earnings per share were RMB9.957. Diluted earnings per share were RMB9.788.

• Total cash were RMB281,286 million (USD44,118 million) at the end of the quarter.

FY2021 Key Highlights

Revenues: +16%, non-IFRS profit attributable to equity holders of the Company: +1%

• Total revenues were RMB560,118 million (USD87,852 million), an increase of 16% over 2020.
• On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:
  - Operating profit was RMB159,539 million (USD25,023 million), an increase of 7% YoY. Operating margin decreased to 28% from 31% last year.
  - Profit for the year was RMB127,919 million (USD20,064 million), an increase of 1% YoY. Net margin decreased to 23% from 26% last year.
  - Profit attributable to equity holders of the Company for the year was RMB123,788 million (USD19,416 million), an increase of 1% YoY.
  - Basic earnings per share were RMB12.992. Diluted earnings per share were RMB12.698.

• On an IFRS basis:
  - Operating profit was RMB271,620 million (USD42,602 million), an increase of 47% YoY. Operating margin increased to 48% from 38% last year.
  - Profit for the year was RMB227,810 million (USD35,731 million), an increase of 42% YoY. Net margin increased to 41% from 33% last year. 
  - Profit attributable to equity holders of the Company for the year was RMB224,822 million (USD35,262 million), an increase of 41% YoY.
  - Basic earnings per share were RMB23.597. Diluted earnings per share were RMB23.164.

• On 23 December 2021, the Board resolved to declare a special interim dividend in the form of a distribution in specie of approximately 457 million Class A ordinary shares of JD.com indirectly held by the Company, on the basis of 1 Class A ordinary share of JD.com for every 21 Shares held by the Qualifying Shareholders^[3] .
• The Board has recommended the payment of a final dividend of HKD1.60 per share for FY2021 (2020: HKD1.60 per share), subject to the approval of the shareholders at the 2022 Annual General Meeting.

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "2021 was a challenging year, in which we embraced changes and implemented certain measures that reinforced the Company's long-term sustainability, but had the effect of slowing our revenue growth. Despite financial headwinds, we continued to make strategic headway, including driving widespread adoption of our enterprise software and productivity tools, increasing content creation and consumption in our Video Accounts, and expanding our international games business. We believe the China Internet industry is structurally shifting to a healthier mode characterised by a re-focus on user value, technology innovation, and social responsibility. We are proactively adapting to the new environment by managing costs, increasing efficiency, sharpening our focus on key strategic areas, and repositioning ourselves for sustainable long-term growth."

4Q2021 Financial Review

Revenues from VAS^[4] increased by 7% to RMB71.9 billion for the fourth quarter of 2021 on a year-on-year basis. Domestic Games revenues grew by 1% to RMB29.6 billion, driven by games including Honour of Kings, as well as recently launched titles such as Fight of The Golden Spatula and League of Legends: Wild Rift, partly offset by the decrease in revenues from Moonlight Blade Mobile and Peacekeeper Elite. International Games revenues grew by 34% to RMB13.2 billion, r6eflecting new content for Valorant and Clash Royale, a true-up adjustment to revenue of Supercell upon periodic review of our revenue deferral periods, and consolidation of Digital Extremes. Social Networks revenues grew by 4% to RMB29.1 billion, driven by our Video Accounts live streaming service, video and music subscription services.

Revenues from Online Advertising decreased by 13% to RMB21.5 billion for the fourth quarter of 2021 on a year-on-year basis. The year-on-year decrease in Online Advertising revenues reflected weakness in advertiser categories including education, games and Internet services, partly offset by the consolidation of Sogou's advertising revenue. Social and Others Advertising revenues decreased by 10% to RMB18.3 billion, primarily due to lower advertising revenues from our mobile advertising network and Weixin Moments. Media Advertising revenues decreased by 25% to RMB3.2 billion, reflecting lower advertising revenues from Tencent Video and Tencent News services.

Revenues from FinTech and Business Services increased by 25% to RMB48.0 billion for the fourth quarter of 2021 on a year-on-year basis. FinTech Services revenues growth mainly reflected increasing commercial payment volume. Business Services revenues growth was primarily driven by increased use of our services by Internet services, public transportation and retail industries.

Other Key Financial Information for 4Q2021

EBITDA was RMB36,568 million, down 15% YoY. Adjusted EBITDA was RMB42,267 million, down 9% YoY.

Capital expenditures were RMB11,661 million, up 21% YoY.

Free cash flow was RMB33,550 million, up 21% YoY.

As at December 31, 2021, net debt position totalled RMB20.2 billion. Fair value of our shareholdings^[5] in listed investee companies (excluding subsidiaries) totalled RMB982.8 billion.

Operating Metrics

Business Review and Outlook

Communication and Social

Weixin Video Accounts' time spent per user and total video views more than doubled year-on-year as we enriched content diversity and enhanced our product experience. Video Accounts Live Streaming achieved significant breakthroughs in user reach and engagement, exclusively hosting popular boy band Westlife's first-ever online concert, which drew 27 million viewers. While our current focus is primarily on user engagement, we believe Video Accounts will provide significant monetisation opportunities, including short video feeds advertisements, live streaming tipping and live streaming eCommerce. Weixin Mini Programs facilitated independent merchants to thrive within their own private domains, with their physical goods GMV doubling in 2021. Our Health Code has served 1.3 billion users making 180 billion visits, becoming the most-used ePass for verifying health and travel status during the pandemic.

QQ integrated Unreal Engine's graphics capabilities to enable real-time rendering and physics simulation, providing more attractive visuals and lifelike interactions for users. We are testing an application of Unreal Engine in Super QQ Show, which allows users to customise and dress up their 3D virtual avatars, for use in various social scenarios.

Digital Content

Our fee-based VAS subscriptions grew 8% year-on-year to 236 million. Tencent Video increased its subscription counts by 1% year-on-year to 124 million, and cemented its number one position in China with diversified content across animated series, drama series and sports. In view of the latest market conditions, we are implementing a cost optimisation process to reduce financial losses at Tencent Video while maintaining its leading position. For music, we grew subscription counts 36% year-on-year to 76 million, benefitting from expanded sales channels and high-quality content and services.

Domestic Games

We are cultivating our key IP franchises more deeply and broadly. For example, we are developing new games, animated series and a movie based on Honour of Kings' characters. We provided events tied into the Winter Olympics in Peacekeeper Elite, QQ Speed Mobile and QQ Dancer Mobile, delivering lifelike sports experience across multiple genres.

Our industry-leading efforts in restricting time spent and spending by Minors^[6] yielded effective results. In the fourth quarter of 2021, total time spent by Minors reduced by 88% year-on-year, and contributed 0.9% of the total time spent on our Domestic Games. Total grossing receipts from Minors reduced by 73% year-on-year, and contributed 1.5% of the total grossing receipts of our Domestic Games.

Looking ahead, we expect to fully digest the impact of Minor protection measures in the second half of 2022. We believe we will benefit from more new game launches when there are new releases of Banhao.

International Games

We achieved notable progress across different platforms and genres. Among international mobile games, we developed and operate 5 out of the top 10 titles measured by DAU. League of Legends' animated series, Arcane, topped Netflix's English-language TV series viewership chart during the week following its release. League of Legends World Championship consolidated its leadership as the world's most popular eSports tournament, attracting a record-high of approximately 74 million peak concurrent viewers for its Finals. Clash Royale released one of the biggest updates in its history, boosting daily active users and grossing receipts. We launched our global game publishing brand, Level Infinite, to support our studios and partners in delivering games to international gamers.

Going forward, we aim to grow further our existing titles via deepening market penetration, product enhancements and operational optimisation. In addition, we will continue to release new titles, which we expect to drive additional growth, particularly for 2023 and beyond.

Online Advertising

We continued to enhance our differentiated advertising solutions, while adapting to regulatory changes and the evolving macroeconomic environment. For the fourth quarter of 2021, Weixin's daily active advertisers expanded by over 30% year-on-year. Over one-third of Moments' advertising revenue was generated from advertisements using Mini Programs as landing pages and advertisements connecting users to customer service representatives via WeCom. We expect our advertising business to resume growth in late 2022, as we adapt to the new environment and further upgrade our advertising solutions.

FinTech

We strengthened our payment ecosystem by enhancing user security, upgrading transaction and customer management functions for SMEs, as well as reducing merchants' transaction friction via tools such as Weixin Pay Score. We now support digital yuan as an additional funding option within Weixin Pay, as part of the PBOC's digital yuan pilot phase.

Cloud and Other Business Services

For communication and collaboration SaaS, we upgraded the integration among WeCom, Tencent Meeting and Tencent Docs to provide enhanced solutions for enterprises. We also enabled differentiated CRM functions in WeCom via deepened connection with Weixin. While we are currently prioritising scale expansion before significant revenue generation, the monetisation success of critical enterprise SaaS such as CRM software in international markets, as well as the significant size and fast growth of domestic PaaS spending, validate the monetisation potential of critical enterprise SaaS in China.

In view of the changes in market environment, we are repositioning our focus for IaaS and PaaS from revenue growth at all costs to customer value creation and quality of growth. We believe that the change in focus will benefit our customers, as well as our margins, over the longer term.

Environmental, Social and Governance ("ESG") Initiatives

We are committed to harnessing technology to build a sustainable future for our consumers, enterprises, and society at large.

Environment

We announced our commitment to achieve carbon neutrality in our own operations and supply chain, and to use green power for 100% of all electricity consumed by 2030. In our inaugural Tencent Carbon Neutrality Target and Roadmap Report, we outlined key approaches in reaching the net zero goal for scopes 1, 2 and 3. We will improve our power efficiency through technology innovations, increase our usage of renewable energy, actively participate in green power trading, and explore investments in renewable energy projects. We joined the Science-Based Carbon Targets initiative (SBTi) to facilitate the transition to a zero-carbon operation.

Social

In 2021, we established the Sustainable Social Value (SSV) Organisation and announced our commitment to common prosperity initiatives. We upgraded our charitable fundraising platform, extending the reach of our annual "99 Giving Day" to engage 69 million donations and 12,000 enterprises. Leveraging Internet of Things solutions and Weixin Mini Programs, we built a public emergency response platform which connects emergency control centres with volunteers and locates nearby Automated External Defibrillator equipment for offering first aid. We adapted many of our apps to provide elderly-oriented and barrier-free services for senior citizens. We set up dedicated funds to support basic scientific research, as well as critical healthcare and environmental technologies.

Governance

Supplementing risk management and internal control policies we already have in place, we enhanced our internal anti-trust compliance system in 2021, including establishing a dedicated compliance department, updating guidelines for all our businesses, and strengthening staff training. We also updated our policies on anti-money laundering and sanctions compliance to closely follow domestic and global regulatory requirements and trends. Our corporate culture supports diversity and inclusion. We collaborated with the United Nation Development Programme (UNDP) to produce videos and articles promoting women leadership in the technology industry. 

For other detailed disclosure, please refer to our website https://www.tencent.com/en-us/investors.html, or follow us via Weixin Official Account (Weixin ID: Tencent_IR):

About Tencent

Tencent uses technology to enrich the lives of Internet users.

Our communication and social services, Weixin and QQ, connect users with each other and with digital content and services, both online and offline, making their lives more convenient. Our targeted advertising service helps advertisers reach out to hundreds of millions of consumers in China. Our FinTech and business services support our partners' business growth and assist their digital upgrade.

Tencent invests heavily in talent and technological innovation, actively promoting the development of the Internet industry. Tencent was founded in Shenzhen, China, in 1998. Shares of Tencent (00700.HK) are listed on the Main Board of the Stock Exchange of Hong Kong.

Non-IFRS Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS 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-IFRS 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-IFRS financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-IFRS 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-IFRS adjustments include relevant non-IFRS adjustments for the Group's major associates based on available published financials of the relevant major 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, estimates of financial performance, 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 the future. Underlying these forward-looking statements are a lot of risks and uncertainties. In light of the risks and uncertainties, the inclusion of forward-looking statements in this press release should not be regarded as representations by the Board or the Company that the plans and objectives will be achieved, and investors should not place undue reliance on such statements.