Tencent Announces 2008 Interim and Second Quarter results

HONG Kong, Aug. 13 /Xinhua-PRNewswire/ -- Tencent Holdings Limited (“Tencent” or the “Company”, SEHK: 00700), a leading provider of Internet and mobile & telecommunications value-added services in China, today announced the unaudited consolidated results for the first half year and the second quarter of 2008 ended June 30, 2008.

Highlights for the First Half of 2008:

-- Total revenues were RMB3,032.7 million (USD442.1 million(1)), an

increase of 84.8% over the first half of year ended June 30, 2007

(“YoY”)

-- Revenues from Internet value-added services (IVAS) were RMB2,035.8

million (USD296.8 million), an increase of 94.2% YoY

-- Revenues from Mobile & telecommunications value-added services (MVAS)

were RMB626.6 million (USD91.4 million), an increase of 55.6% YoY

-- Revenues from Online advertising were RMB367.4 million (USD53.6

million), an increase of 94.7% YoY

-- Gross profit was RMB2,191.2 million (USD319.5 million), an increase

of 92.6% YoY

-- Operating profit was RMB1,502.6 million (USD219.1 million), an

increase of 117.8% YoY

-- Net profit for the year was RMB1,194.2 million (USD174.1 million), an

increase of 91.2% YoY

-- Profit attributable to equity holders of the Company for the period

was RMB1,178.4 million (USD171.8 million), an increase of 88.6% YoY

(1) Figures stated in USD are based on USD1 to RMB6.8591

Highlights for the Second Quarter of 2008:

-- Total revenues were RMB1,599.8 million (USD233.2 million), an

increase of 11.6% over the first quarter of 2008 (“QoQ”) or an

increase of 84.3% over the second quarter of 2007 (“YoY”)

-- Revenues from IVAS were RMB1,037.0 million (USD151.2 million), an

increase of 3.8% QoQ or an increase of 89.9% YoY

-- Revenues from MVAS were RMB338.3 million (USD49.3 million), an

increase of 17.4% QoQ or an increase of 64.2% YoY

-- Revenues from Online advertising were RMB222.8 million (USD32.5

million), an increase of 54.1% QoQ or an increase of 94.4% YoY

-- Gross profit was RMB1,146.7 million (USD167.2 million), an increase

of 9.8% QoQ or an increase of 90.5% YoY. Gross margin decreased to

71.7% from 72.9% last quarter

-- Operating profit was RMB765.3 million (USD111.6 million), an increase

of 3.8% QoQ or an increase of 111.2% YoY. Operating margin decreased

to 47.8% from 51.5% last quarter

-- Profit for the period was RMB652.2 million (USD95.1 million), an

increase of 20.3% QoQ or an increase of 95.0% YoY. Net margin

increased to 40.8% from 37.8% last quarter

-- Profit attributable to equity holders of the Company for the period

was RMB644.0 million (USD93.9 million), an increase of 20.5% QoQ or

an increase of 92.5% YoY

-- Key platform statistics:

-- Total registered Instant Messaging (“IM”) user accounts increased

to 822.2 million, representing a 5.0% growth QoQ

-- Active IM user accounts increased 7.6% QoQ to 341.9 million

-- Peak simultaneous online user accounts for IM services recorded

42.0 million, a growth of 4.2% QoQ

-- Peak simultaneous online user accounts of QQ Game portal (for mini

casual games only) was 4.0 million, flat QoQ

-- IVAS paying subscriptions were 26.1 million, an increase of 16.5%

QoQ

-- MVAS paying subscriptions were 13.4 million, an increase of 6.4%

QoQ

Mr. Ma Huateng, Chairman and CEO of Tencent, said, “During the second quarter of 2008, we achieved solid financial results leveraging our diversified business portfolio. While our community based Internet

value-added services experienced negative seasonality, our online gaming, wireless and online advertising businesses all registered solid growth. We expect the third quarter will present strong seasonality for our Internet value-added services, but the growth may be partly offset by negative impact of the Olympics event as users spend more time watching the event.”

“On the other hand, we currently have more than 500 people working on Olympics related initiatives. We are going to leverage the historical Olympics event to further develop the recognition of our portal QQ.com as the leading online media for users and advertisers,” added Mr. Ma.

Business Highlights

IVAS revenues increased 3.8% QoQ to RMB1,037.0 million and represented 64.8% of the total revenues in the second quarter of 2008 despite the fact that the second quarter is generally a slow season for Internet value-added services as there was a lack of long holidays, and as students were busy in preparing for their examinations. The increase was mainly due to the growth in revenues from online gaming. On the other hand, non-game Internet

value-added services such as QQ Membership, and online identity and community products were negatively impacted by the adverse seasonality.

Game-related IVAS revenues increased 15.6% QoQ to RMB452.2 million in the second quarter of 2008 due to the growth in revenues from QQ Games, QQ Fantasy and QQ Huaxia. The increase also reflected an increase in revenues from the introduction of new games in the second quarter of 2008, including Dungeon and Fighter (“DNF”), QQ Dancer and Cross Fire. In addition, revenues increased following the introduction in April of a new expansion pack for QQ Fantasy which extended the number of levels from 60 to 80. The increase was slightly offset by a temporary suspension of the Company’s online gaming services for a period of three days due to a major earthquake in Sichuan in May 2008.

MVAS revenues increased 17.4% QoQ to RMB338.3 million and represented 21.1% of the total revenues in the second quarter of 2008. The increase mainly reflected an increase in revenues from the Company’s 2.5G-related services, in particular, from WAP service due to better than expected revenue collectibility, improvements to the user experience and increased promotion efforts, and from its mobile gaming service due to enhanced mobile game content, including the launch of additional higher-quality games. In addition, revenues in the Company’s mobile voice VAS increased, primarily as a result of an increase in revenues from its mobile IVR service as it increased promotion efforts. The Company’s classification as a “Category A service provider” also contributed to the growth of its business, particularly for SMS, WAP and IVR.

Online Advertising revenues increased 54.1% QoQ to RMB222.8 million and represented 13.9% of total revenues in the second quarter of 2008, mainly reflecting the seasonal impact of the second quarter of each year having stronger sales compared to the first quarter of each year. The improved brand recognition from Tencent’s customers as an effective advertising platform also contributed to increased revenues.

Other Key Financial Information

Basic earnings per share were RMB0.359. Diluted earnings per share were RMB0.349. The total number of shares in issue was 1.797 billion.

Share-based compensation was RMB32.1 million for the second quarter of 2008 as compared with RMB35.4 million for the previous quarter. Foreign exchange loss, as a result of Renminbi appreciation, was RMB40.9 million as compared with RMB94.5 million for the previous quarter.

Outlook

The Company expects the third quarter will present strong seasonality for Internet value-added services, although partly offset by negative impact of the Olympics event as it diverts users’ attention from the consumption of online services. In addition, the Company believes licensed games launched during the second quarter will contribute to incremental revenue in the third quarter, although they will carry lower margins as the Company has to pay licensing fees and revenue share to their developers.

During the second quarter, the Chinese government announced the restructuring plan for the telecom industry. While the Company expects its long-term impact will be positive, it believes the restructuring may create regulatory uncertainties in the short to medium term.

QQ.com portal has played an important role during the Sichuan earthquake, serving as a hub for user interaction and coordination of the Company’s initiatives to support relief work. The Company has reinforced its leading position not only as the largest portal in China by traffic, but also an influential and socially responsible online media. During the Olympics in Beijing, QQ.com portal will again play a central role in the coverage of this historical event with an aim to generate significant traffic growth and enhance its recognition by consumers and advertisers. While there will be additional content and marketing costs incurred, the Company believes they are worthy investments for the long-term.

As the Company looks into the second half of the year, it is getting more cautious on the short-term outlook of the Internet advertising market given the economy in China is slowing down and its effect may become more obvious after the Olympics event.

About Tencent

Tencent aims to enrich the interactive online experience of Internet users in China by providing a comprehensive range of Internet and wireless value-added services. Through its various online platforms, including Instant Messaging QQ, web portal QQ.com, QQ Game portal, multi-media blog service Qzone and wireless portal, Tencent services the largest online community in China and fulfills the user’s needs for communication, information, entertainment and e-Commerce on the Internet.

Tencent has three main streams of revenues: Internet value-added services, mobile and telecommunications value-added services and online advertising.

Shares of Tencent Holdings Limited are traded on the Main Board of the Stock Exchange of Hong Kong Limited, under stock code 00700. The Company became one of the 43 constituents of the Hang Seng Index (HSI) on June 10, 2008. For more information, please visit http://www.tencent.com/ir .

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 Group and are stated herein on the basis of the outlook at the time of this announcement. 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.

CONDENSED CONSOLIDATED INCOME STATEMENT

In RMB ‘000 (unless otherwise stated)

Unaudited Unaudited

2Q2008 1Q2008 2Q2008 2Q2007

Revenues 1,599,778 1,432,911 1,599,778 868,016

Internet VAS 1,037,042 998,733 1,037,042 546,235

Mobile & Telecom

VAS 338,311 288,291 338,311 206,036

Online

Advertising 222,790 144,580 222,790 114,599

Others 1,635 1,307 1,635 1,146

Cost of revenues (453,069) (388,465) (453,069) (266,041)

Gross profit 1,146,709 1,044,446 1,146,709 601,975

Gross margin 71.7% 72.9% 71.7% 69.4%

Other gains, net 25,855 47,448 25,855 23,315

S&M expenses (100,212) (85,934) (100,212) (70,870)

G&A expenses (307,059) (268,642) (307,059) (192,017)

Operating profit 765,293 737,318 765,293 362,403

Operating margin 47.8% 51.5% 47.8% 41.8%

Finance costs (40,918) (94,466) (40,918) (16,690)

Share of losses of

associates (1,558) -- (1,558) --

Profit before income

tax 722,817 642,852 722,817 345,713

Income tax expense (70,618) (100,840) (70,618) (11,227)

Profit for the period 652,199 542,012 652,199 334,486

Net margin 40.8% 37.8% 40.8% 38.5%

Attributable to:

Equity holders of the 643,979 534,378 643,979 334,486

Company 643,979 534,378 643,979 334,486

Minority interest 8,220 7,634 8,220 --

Earnings per share

- basic (RMB) 0.359 0.298 0.359 0.188

- diluted (RMB) 0.349 0.290 0.349 0.183

CONDENSED CONSOLIDATED BALANCE SHEETS

In RMB ‘000 (unless otherwise stated)

Unaudited Unaudited

30 June 31 March

2008 2008

ASSETS

Non-current assets

Fixed assets 1,010,180 905,065

Construction in progress 200,452 136,576

Investment property 65,698 66,056

Leasehold land and land use rights 36,421 36,609

Intangible assets 452,008 446,976

Investment in a jointly controlled entity 2,500 --

Investment in associates 332,416 333,974

Deferred income tax assets 352,133 316,519

Held-to-maturity investments -- 70,190

Available-for-sale financial assets 66,455 66,455

Other long-term assets 92,648 171,413

Prepayments, deposits and other

receivables 201,167 --

2,812,078 2,549,833

Current assets

Inventories 1,261 1,134

Accounts receivable 899,007 735,288

Prepayments, deposits and other

receivables 279,366 163,912

Financial assets held for trading 409,443 464,787

Held-to-maturity investments 68,591 --

Derivative financial instruments 44,133 67,041

Term deposits with initial term of over

three months 1,127,551 903,197

Restricted cash 300,000 300,000

Cash and cash equivalents 2,263,418 2,360,257

5,392,770 4,995,616

Total Assets 8,204,848 7,545,449

EQUITY

Equity attributable to the Company’s

equity holders

Share capital 195 195

Share premium 1,402,286 1,428,511

Shares held for share award scheme (10,218) --

Share-based compensation reserve 287,971 255,786

Other reserves 93,712 93,712

Retained earnings 4,334,377 3,948,201

6,108,323 5,726,405

Minority interests in equity 107,656 99,436

Total Equity 6,215,979 5,825,841

LIABILITIES

Non-current liabilities

Deferred income tax liabilities 50,864 59,479

Current liabilities

Accounts payable 255,446 198,790

Other payables and accruals 603,737 472,818

Short-term bank borrowing 292,184 292,184

Derivative financial instruments 26,434 49,342

Current income tax liabilities 170,833 150,934

Other tax liabilities 179,924 153,696

Deferred revenue 409,447 342,365

1,938,005 1,660,129

Total Liabilities 1,988,869 1,719,608

Total Equity and Liabilities 8,204,848 7,545,449

For enquiries, please contact:

Catherine Chan

Tel: +86-755-8601-3388 x8369 or +852-2179-5122

Email: cchan@tencent.com