Tencent Announces 2021 Second Quarter and Interim Results

HONG KONG,Aug. 18,2021 --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 ("2Q2021") and first half year of 2021 ("1H2021") ended June 30,2021.

1H2021 Key Highlights

Revenues: +23% YoY,non-IFRS[1] profit attributable to equity holders of the Company: +17% YoY

Total revenues were RMB273.6 billion (USD42.3 billion[2]),an increase of 23% over the first half year 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 profitwas RMB85.6billion (USD13.2 billion),an increase of 17%YoY. Operating margin decreased to 31% from 33% last year.

-Profit for the periodwas RMB69.6billion (USD10.8billion),an increase of 18%YoY. Net margin decreased to 25% from 27% last year.

-Profit attributable to equity holders of the Companyfor the period was RMB67.2billion (USD10.4 billion),an increase of 17% YoY.

-Basic earnings per sharewere RMB7.055. Diluted earnings per share were RMB6.916.

On an IFRS basis:

- Operating profit was RMB108.8 billion (USD16.8 billion),an increase of 42% YoY. Operating margin increased to 40% from 34% last year.

-Profit for the period was RMB92.0 billion (USD14.2 billion),an increase of49% YoY. Net margin increased to 34% from 28% last year.

-Profitattributable to equity holders of the Companyfor the period was RMB90.4 billion(USD14.0 billion),an increaseof46%YoY.

-Basic earnings per share were RMB9.492. Diluted earnings per share were RMB9.299.

Total cash were RMB255.2 billion (USD39.5 billion) at the end of the period.

2Q2021 Key Highlights

Revenues: +20% YoY,non-IFRS profit attributable to equity holders of the Company: +13% YoY

Total revenues were RMB138.3 billion (USD21.4 billion),an increase of 20% over the second 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 profitwas RMB42.8 billion (USD6.6 billion),an increase of 14%YoY. Operating margin decreased to 31% from 33% last year.

- Profit for the periodwas RMB35.1billion (USD5.4billion),an increase of 13%YoY. Net margin remained decreased to 25% from 27% last year.

- Profit attributable to equity holders of the Companyfor the quarter was RMB34.0billion (USD5.3 billion),an increase of 13% YoY.

-Basic earnings per sharewere RMB3.574. Diluted earnings per share were RMB3.504.

On an IFRS basis:

- Operating profit was RMB52.5 billion (USD8.1 billion),an increase of 34% YoY. Operating margin increased to 38% from 34% last year.

-Profit for the period was RMB43.0 billion (USD6.7 billion),an increase of33% YoY. Net margin increased to 31% from 28% last year.

- Profitattributable to equity holders of the Companyfor the quarter was RMB42.6 billion(USD6.6 billion),an increaseof29%YoY.

- Basic earnings per share were RMB4.472. Diluted earnings per share were RMB4.387.

[1]Non-IFRS adjustments (formerly referred as non-GAAP) excludes share-based compensation,M&A related impact such asnet (gains)/losses from investee companies,amortisation of intangible assets and impairment provision/(reversals),as well as income tax effects.

[2]Figures stated in USD are based on USD1 to RMB6.4601

Mr. Ma Huateng,Chairman and CEO of Tencent,said,"In the quarter,we enhanced our services and achieved healthy growth rates across our business lines,particularly Business Services and advertising,while our game revenue benefitted from international growth. We are increasingly deploying our technologies and expertise to help SMEs,public services,corporations collaborate internally,and connect with their users externally,which we believe contributes to the real economy and to society at large. During the recent Henan floods,Tencent Docs,our cloud-based productivity solution,played a valuable role assisting people providing and seeking help,thanks to its collaborative data editing functionality."

2Q2021 Financial Review

Revenues from VAS increased by 11% to RMB72.0 billion for the second quarter of 2021 on a year-on-year basis. Games revenues increased by 12% to RMB43.0 billion,primarily driven by the increase in revenues from games such as Honour of Kings,PUBG Mobile,Valorant,Clash of Clans and Moonlight Blade Mobile,partly offset by the decrease in revenues from Peacekeeper Elite. Mobile games VAS revenues (including mobile games revenues attributable to our social networks business) increased by 13% to RMB40.8 billion,while PC client games revenues grew by 1% to RMB11.0 billion for the second quarter of 2021. Social networks revenues grew by 9% to RMB29.0 billion,mainly due to revenue growth from digital content services,as well as in-game virtual item sales.

Revenues from Online Advertising increased by 23% to RMB22.8 billion for the second quarter of 2021,reflecting rising demand from advertiser categories such as Internet services and consumer staples,as well as consolidation of Bitauto's advertising revenue,which outweighed weakness in education. Social and others advertising revenues grew by 28% to RMB19.5 billion,due to increased adoption of Mini Programs as landing pages,more video advertising inventories inside Weixin Moments,as well as revenue growth from our mobile advertising network. Media advertising revenues were RMB3.3 billion,broadly stable compared to the second quarter of 2020,as greater advertising revenues from our music apps offset lower news advertising revenues.

Revenues from FinTech and Business Services increased by 40% to RMB41.9 billion for the second quarter of 2021 on a year-on-year basis. FinTech Services revenue growth primarily reflected increasing digital payment transactions. Business Services revenues increased rapidly year-on-year,due to digitalisation of public services and traditional industries,as well as consolidation of Bitauto's Business Services revenue.

Other Key Financial Information for 2Q2021

EBITDA was RMB44.6 billion,up 10% YoY. Adjusted EBITDA was RMB50.3 billion,up 15% YoY.

Capital expenditures wereRMB6.9 billion,down 27% YoY.

Free cash flow was RMB17.3 billion,down 39% YoY.

As at June 30,2021,net debt position totalled RMB21.0 billion. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB1,446.0 billion,compared to RMB1,362.3 billion as of March 31,and RMB726.2 billion as of June 30,2020.

Operating Metrics

As at

30 June

2021

As at

30 June

2020

Year-

on-year

change

As at

31 March

2021

Quarter-on-quarter

change

(in millions,unless specified)

Combined MAU of Weixin and

WeChat

1,251.4

1,206.1

3.8%

1,241.6

0.8%

Mobile device MAU of QQ

590.9

647.6

-8.8%

606.4

-2.6%

Fee-based VAS registered

subscriptions

229.4

203.4

12.8%

225.7

1.7%

Business Review and Outlook

Communication and Social

For Weixin,the active user base and engagement further increased,underscoring the vibrancy of our service and commerce ecosystem. Transaction volume generated from Mini Programs more than doubled year-on-year as we helped businesses thrive by facilitating management of their own channels and user relationships,while also enabling them to achieve higher profit margins than on marketplaces. Brands and merchants can: 1) acquire customers for their Mini Programs offline via QR Codes and Weixin Pay; 2) create and distribute content via their own Official Accounts and Weixin Groups,engaging users and driving repeat visits to their Mini Programs; 3) convert visits into sales with Mini Programs' powerful shopping functionalities; and 4) deepen user connections via Video Accounts and live streaming as additional touchpoints.

For QQ,young users are increasingly active in consuming entertainment content such as anime and comics. To cater to young users' need for immersive social and entertainment experiences,we enriched QQ's Augmented Reality camera effects for video content production and video chat. We also automated the in-app video editing process with smart templates and multimedia tools to drive more appealing user-generated content.

Digital Content

Our fee-based VAS subscriptions grew 13% year-on-year to 229 million. Video subscriptions increased 9% year-on-year to 125 million,benefitting from diversified content across sports,animated series,drama series and movies. Music subscriptions increased 41% year-on-year to 66 million,driven by Tencent Music Entertainment's effective marketing and by increased consumer willingness to subscribe for music services.

Games

We reinforced the IP of our key titles in China and overseas. We adapted Honour of Kings into the drama series,"You Are My Glory",which is the most-watched drama series on Tencent Video by video views per episode year-to-date. PUBG Mobile collaborated with internationally recognised brands such as Godzilla vs. Kong,McLaren and Line Friends to create crossover content. Clash of Clans released a major content upgrade in April 2021 and launched its nineth anniversary event in August 2021,retaining its ranking among the top 10 mobile games by DAU internationally. Valorant achieved 14 million MAU on its first anniversary.

We extended our presence in emerging genres through self-developed games. Alchemy Stars,developed by our Tourdog Studio,became Japan's most downloaded tactical RPG in July 2021,benefitting from its anime art style and unique tile-connecting gameplay. Light and Night,developed by our Aurora Studio,ranked as China's top dating simulation game by DAU in July 2021,enhancing our engagement with female players. Our first Survival,Open World,Crafting (SOC) game,Undawn,developed by our Lightspeed and Quantum Studios,has accumulated over 30 million pre-registrations in China to date.

We have sought to pioneer a healthy game playing environment in the game industry. In August 2021,we further tightened our game time and spending limits for Minors[3]in China,beyond regulatory requirement. For Honour of Kings and Peacekeeper Elite,we reduced Minors' daily game time limit to 1 hour on non-statutory holidays and to 2 hours on statutory holidays,versus regulatory requirement of 1.5 hours and 3 hours respectively. We also prevented in-game spending by players aged under 12. These measures will be rolled out in all of our games gradually. We are also cracking down on Minors misusing adult accounts,and transactions of adult accounts on third-party platforms. During the second quarter of 2021,players aged under 16 accounted for 2.6% of our China game grossing receipts. Among which,players aged under 12 accounted for 0.3%.

[3]players who are aged under 18 years old

Online Advertising

We expanded our overall advertiser base by enhancing industry solutions and enabling merchants to better manage their private domain operations within our Weixin ecosystem. More advertisers adopted Mini Programs as landing pages for their Moments advertisements,leading to higher sales conversion and revenue growth. Advertisers increasingly recognised Official Accounts' capability in generating sales leads.

During the Tokyo 2020 Olympic Games,we provided integrated marketing solutions across Weixin,QQ,Tencent Video,Tencent Sports,Tencent News and other properties. Leveraging our strengths in social,long-form and short-form video distribution,as well as in content management,we outperformed other online platforms in terms of video views and user sharing.

FinTech

Daily active users and payment frequency grew at healthy year-on-year rates. SMEs are important contributors to,and beneficiaries of our payment ecosystem growth; we will continue to help SMEs benefit from greater mobile payment acceptance,by charging very low or zero payment take rate in certain cases,and by providing complementary resources and services to support their growth.

Cloud and Other Business Services

We utilise our cloud infrastructure,PaaS and SaaS technologies to assist digitalisation for public services and traditional industries. Enhancements to our technology and product development supported broad customer adoption of our platform and software services such as security,AI and data analytic services. The videolisation trend offers more opportunities for our video cloud solutions,and according to IDC,we ranked first in China in terms of video cloud solution revenue. We deepened connections between our communication and productivity SaaS tools (WeCom,Tencent Meeting and Tencent Docs) to support better collaboration within enterprises,as well as between enterprises and their users.

For other detailed disclosure,please refer to our website https://www.tencent.com/en-us/investors.htmlhttp://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.

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,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 lot 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

2Q2021

2Q2020

2Q2021

1Q2021

Revenues

138,259

114,883

138,259

135,303

VAS

72,013

65,002

72,013

72,443

Online Advertising

22,833

18,552

22,833

21,820

FinTech and Business Services

41,892

29,862

41,892

39,028

Others

1,521

1,467

1,521

2,012

Cost of revenues

(75,514)

(61,673)

(75,514)

(72,668)

Gross profit

62,745

53,210

62,745

62,635

Gross margin

45%

46%

45%

46%

Interest income

1,630

1,749

1,614

Other gains,net

20,763

8,607

20,763

19,521

Selling and marketing expenses

(10,013)

(7,756)

(10,013)

(8,530)

General and administrative expenses

(22,638)

(16,499)

(22,638)

(18,967)

Operating profit

52,487

39,311

52,487

56,273

Operating margin

38%

34%

38%

42%

Finance costs,net

(1,942)

(2,005)

(1,942)

(1,367)

Shareof (loss)/profit of associates and joint

ventures

(3,857)

(295)

(3,857)

1,348

Profit before income tax

46,688

37,011

46,688

56,254

Income tax expense

(3,666)

(4,557)

(3,666)

(7,246)

Profit for the period

43,022

32,454

43,022

49,008

Net margin

31%

28%

31%

36%

Attributable to:

Equity holders of the Company

42,587

33,107

42,587

47,767

Non-controlling interests

435

(653)

435

1,241

Non-IFRS profit attributable to equity

holders of the Company

34,039

30,153

34,039

33,118

Earnings per share for profit

attributable to equity holders of

the Company

(in RMB per share)

- basic

4.472

3.491

4.472

5.020

- diluted

4.387

3.437

4.387

4.917

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in millions,unless specified

Unaudited

2Q2021

2Q2020

Profit for the period

43,454

Other comprehensive income,net of tax:

Items that may be subsequently reclassified to profit or loss

Share of other comprehensive (loss)/income of associates and joint

ventures

(11)

159

Transfer of share of other comprehensive income to profit or loss upon

disposal and deemed disposal of associates and joint ventures

5

(2)

Currency translation differences

(1,428)

2,358

Other fair value gains/(losses)

92

(687)

Items that will not be subsequently reclassified to profit or loss

Share of other comprehensive income of associates and joint ventures

53

-

Net gains from changes in fair value of financial assets at fair value

through other comprehensive income

46,522

56,797

Currency translation differences

(305)

-

Other fair value gains

-

102

44,928

58,727

Total comprehensive income for the period

87,950

91,181

Attributable to:

Equity holders of the Company

87,511

89,242

Non-controlling interests

439

1,939

OTHER FINANCIAL INFORMATION

RMB in millions,unless specified

Unaudited

2Q2021

1Q2021

2Q2020

EBITDA(a)

44,567

49,355

40,525

Adjusted EBITDA (a)

50,347

52,927

43,742

Adjusted EBITDA margin(b)

36%

39%

38%

Interest and related expenses

1,912

1,726

1,822

Net (debt)/cash (c)

(20,972)

5,581

7,212

Capital expenditures (d)

6,936

7,734

9,466

Note:

(a) EBITDA is calculated as operating profit minus interest income and other gains/losses,net,and adding back depreciation of property,plant and equipment,

investment properties as well as right-of-use assets,and amortisation of intangible assets and land use rights. Adjusted EBITDA is calculated as EBITDA

plus equity-settled share-based compensation expenses.

(b) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.

(c) Net (debt)/cash represents period end balance and is calculated as cash and cash equivalents,plus term deposits and others,minus borrowings and

notes payable.

(d) Capital expenditures consist of additions (excluding business combinations) to property,construction in progress,investment

properties,land use rights and intangible assets (excluding video and music content,game licences and other content).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

RMB in millions,unless specified

Unaudited

Audited

As at

June 30,2021

As at

December 31,2020

ASSETS

Non-current assets

Property,plant and equipment

61,141

59,843

Land use rights

15,953

16,091

Right-of-use assets

13,769

12,929

Construction in progress

5,805

4,939

Investment properties

559

583

Intangible assets

161,904

159,437

Investments in associates

356,687

297,609

Investments in joint ventures

7,743

7,649

Financial assets at fair value through profit or loss

178,915

165,944

Financial assets at fair value through other

comprehensive income

291,500

213,091

Prepayments,deposits and other assets

29,936

24,630

Other financial assets

385

4

Deferred income tax assets

22,971

21,348

Term deposits

39,219

31,681

1,186,487

1,015,778

Current assets

Inventories

1,020

814

Accounts receivable

53,523

44,981

Prepayments,deposits and other assets

57,481

40,321

Other financial assets

471

1,133

Financial assets at fair value through profit or loss

9,417

6,593

Term deposits

65,330

68,487

Restricted cash

2,322

2,520

Cash and cash equivalents

141,721

152,798

331,285

317,647

Total assets

1,517,772

1,333,425

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

RMB in millions,2020

EQUITY

Equity attributable to equity holders of the Company

Share capital

-

-

Share premium

58,013

48,793

Shares held for share award schemes

(4,674)

(4,412)

Other reserves

172,666

121,139

Retained earnings

620,202

538,464

846,207

703,984

Non-controlling interests

80,764

74,059

Total equity

926,971

778,043

LIABILITIES

Non-current liabilities

Borrowings

114,007

112,145

Notes payable

147,481

122,057

Long-term payables

10,876

9,910

Other financial liabilities

8,102

9,254

Deferred income tax liabilities

15,228

16,061

Lease liabilities

10,962

10,198

Deferred revenue

6,540

6,678

313,196

286,303

Current liabilities

Accounts payable

99,279

94,030

Other payables and accruals

49,637

54,308

Borrowings

14,686

14,242

Current income tax liabilities

8,599

12,134

Other tax liabilities

1,404

2,149

Other financial liabilities

3,735

5,567

Lease liabilities

4,013

3,822

Deferred revenue

96,252

82,827

277,605

269,079

Total liabilities

590,801

555,382

Total equity and liabilities

1,425

RECONCILIATIONS OF IFRS TO NON-IFRS RESULTS

As

reported

Adjustments

Non-IFRS

RMB in millions,

unless specified

Share-based

compensation (a)

Net (gains) from

investee companies (b)

Amortisation of

intangible assets (c)

Impairment

Provision (d)

Income

tax effects (e)

Unaudited three months ended June 30,2021

Operating profit

52,487

6,202

(20,383)

1,124

3,372

–

42,802

Profit for the period

43,022

7,658

(20,413)

3,140

3,338

(1,605)

35,140

Profit attributable to equity

holders

42,587

7,376

(20,537)

2,767

3,331

(1,485)

34,039

Operating margin

38%

31%

Net margin

31%

25%

Unaudited three months ended March 31,2021

Operating profit

56,273

3,704

(18,331)

1,062

50

–

42,758

Profit for the period

49,008

5,036

(22,231)

2,699

178

(187)

34,503

Profit attributable to equity

holders

47,767

4,855

(21,829)

2,352

178

(205)

33,118

Operating margin

42%

32%

Net margin

36%

26%

Unaudited three months ended June 30,2020

Operating profit

39,311

3,507

(14,672)

870

8,613

-

37,629

Profit for the period

32,454

4,225

(16,108)

1,886

9,268

(505)

31,220

Profit attributable to equity

holders

33,107

4,019

(15,436)

1,503

7,310

(350)

30,153

Operating margin

34%

33%

Net margin

28%

27%

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) on deemed disposals/disposals of investee companies,fair value changes arising from investee companies,and other expenses in relation to equity transactions of investee companies

(c) Amortisation of intangible assets resulting from acquisitions

(d) Impairment provisions for associates,joint ventures,goodwill and other intangible assets arising from acquisitions

(e) Income tax effects of non-IFRS adjustments

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