Tencent Announces 2021 Third Quarter Results

HONG KONG,Nov. 10,2021 --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 third quarter ("3Q2021") of 2021 ended September 30,2021.

3Q2021 Key Highlights

Revenues: +13% YoY,non-IFRS[1] profit attributable to equity holders of the Company: -2% YoY

Total revenueswereRMB142.4 billion(USD22.0 billion[2]),an increaseof13%over the third 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 RMB40.8 billion (USD6.3 billion),an increase of 7%YoY. Operating margin decreased to 29% from 30% last year.

- Profit for the periodwas RMB32.5billion (USD5.0billion),a decrease of 2%YoY. Net margin decreased to 23% from 27% last year.

- Profit attributable to equity holders of the Companyfor the quarter was 31.8billion (USD4.9 billion),a decrease of 2% YoY.

- Basic earnings per sharewere RMB3.329. Diluted earnings per share were RMB3.269.

On an IFRS basis:

- Operating profit was RMB53.1 billion (USD8.2 billion),an increase of 21% YoY. Operating margin increased to 37% from 35% last year.

- Profit for the period was RMB40.1billion (USD6.2 billion),an increase of3% YoY. Net margin decreased to 28% from 31% last year.

- Profitattributable to equity holders of the Companyfor the quarter was RMB39.5 billion(USD6.1 billion),an increaseof3%YoY.

- Basic earnings per share were RMB4.143. Diluted earnings per share were RMB4.074.

Total cash were RMB289.5 billion (USD44.6 billion) at the end of the period.

Mr. Ma Huateng,Chairman and CEO of Tencent,said,"During the third quarter,the Internet industry,including the domestic games industry,and certain advertiser categories,adapted to new regulatory and macroeconomic developments. We are proactively embracing the new regulatory environment which we believe should contribute to a more sustainable development path for the industry. In the domestic games market,our industry-leading efforts in fully complying with new regulations significantly reduced minors' game time and spending,fostering a healthier gameplay environment. We also invested actively in key strategic areas,as well as in frontier technologies,along with making new commitments in common prosperity initiatives. Looking forward,we are committed to delivering superior experiences to users,assisting enterprises to digitalise their operations and contributing to the society at large."

[1]Non-IFRS adjustments exclude share-based compensation,M&A related impact such asnet (gains)/losses from investee companies,amortisation of intangible assets and impairment provisions/(reversals),income tax effects and others.

[2]Figures stated in USD are based on USD1 to RMB6.4854

3Q2021 Financial Review

Starting the third quarter of 2021,we disclose revenue from Domestic Games[3] and International Games as new sub-segments under VAS,reflecting the increasing scale of our International Games business.

Revenues from VAS[4] increased by 8% to RMB75.2 billion for the third quarter of 2021 on a year-on-year basis. Domestic Games revenues grew by 5% year-on-year to RMB33.6 billion,driven by games including Honour of Kings,Call of Duty Mobile,and Moonlight Blade Mobile. International Games revenues grew by 20% year-on-year to RMB11.3 billion,or 28% in constant currency terms,due to robust performance of games including Valorant and Clash of Clans. Social Networks revenues grew by 7% year-on-year to RMB30.3 billion,driven by relatively rapid growth from video and music subscription services,as well as moderate growth from live streaming and in-game item sales.

Revenues from Online Advertising increased by 5% to RMB22.5 billion for the third quarter of 2021 on a year-on-year basis,reflecting resilience of advertiser categories such as consumer staples and Internet services,as well as consolidation of Bitauto's advertising revenue,which was largely offset by weakness in categories including education,insurance and games. Social and Others Advertising revenues grew by 7% year-on-year to RMB19.0 billion,driven by advertising revenue growth from Weixin Mini Programs and Weixin Official Accounts. Media Advertising revenues decreased by 4% year-on-year to RMB3.5 billion,primarily due to lower advertising revenues from Tencent News app.

Revenues from FinTech and Business Services increased by 30% to RMB43.3 billion for the third quarter of 2021 on a year-on-year basis. FinTech Services revenue growth primarily reflected increasing commercial payment volume. Business Services revenues increased healthily year-on-year,due to factors including increased digitalisation of traditional industries and videolisation of the Internet industry,as well as consolidation of Bitauto's Business Services revenue.

Other Key Financial Information for 3Q2021

EBITDA was RMB42.7 billion,down 5% YoY. Adjusted EBITDA was RMB49.3 billion,up 3% YoY.

Capital expenditures wereRMB7.1 billion,down 19% YoY.

Free cash flow was RMB24.1 billion,down 14% YoY.

As at September 30,2021,net debt position totalled RMB26.1 billion. Fair value of our shareholdings[5] in listed investee companies (excluding subsidiaries) totalled RMB1,196.6 billion. During the third quarter,the Company repurchased approximately 5.6 million shares on the Hong Kong Stock Exchange for an aggregate consideration of approximately USD334 million.

[3]For the purpose of preparing financial and operating information,Domestic Games refers to our games business in the PRC,excluding the Hong Kong Special Administrative Region,the Macao Special Administrative Region and Taiwan.

[4]Mobile games VAS revenues (including mobile games revenues attributable to our Social Networks business) increased by 9% year-on-year to RMB42.5 billion,while PC client games revenues grew by 1% year-on-year to RMB11.7 billion for the third quarter of 2021.

[5]Including those held via special purpose vehicles,on an attributable basis

Operating Metrics

As at

30 September

2021

As at

30 September

2020

Year-

on-year

change

As at

30 June

2021

Quarter-on-

quarter

change

(in millions,unless specified)

Combined MAU of

Weixin and WeChat

1,262.6

1,212.8

4.1%

1,251.4

0.9%

Mobile device MAU of QQ

573.7

617.4

-7.1%

590.9

-2.9%

Fee-based VAS registered

subscriptions

235.4

213.4

10.3%

229.4

2.6%

Business Review and Outlook

Communication and Social

For Weixin,we enriched Video Accounts via our resources in Official Accounts,sports coverage and games content,and enhanced Video Accounts' recommendation technology. Video consumption grew healthily as a result. The number of active Mini Programs increased by over 40% year-on-year as we strengthened our commerce ecosystem and deepened penetration across industries including restaurants,retailing and transportation. Retailers can leverage the integration of WeCom's enterprise communication tool with Mini Programs to enable online conversations between their salespeople and customers within their private domain environments.

For QQ,we upgraded interactive technologies to offer richer video experiences. We provided augmented reality (AR) creation tools customised for festivals and landmarks to drive user-generated video creation and sharing,as well as cross-screen interactive AR effects for more entertaining video call experiences.

Digital Content

Our fee-based VAS subscriptions grew 10% year-on-year to 235 million. Video subscriptions increased 8% year-on-year to 129 million due to content such as Crime Crackdown and You Are My Glory,which were the first- and second-most watched drama series by video views across all online platforms in China for the third quarter. Music subscriptions increased 38% year-on-year to 71 million,as Tencent Music Entertainment enhanced its music streaming experience to attract more paying users.

Domestic Games

Starting from 1 September 2021,we have implemented new measures to fully comply with the latest regulations on restricting Minors[6]' game time in China. Minors accounted for 0.7% of our Domestic Games time spent in September 2021,significantly declining from 6.4% in September 2020. In terms of our Domestic Games grossing receipts,Minors accounted for 1.1% in September 2021,significantly declining from 4.8% in September 2020. We continued our industry-leading efforts in combatting Minors' usage of adult accounts; for example,we upgraded our screening system to identify misused accounts.

We developed a series of popular skins inspired by Chinese culture for Honour of Kings,transmitting provincial arts and traditions to a wider audience. League of Legends: Wild Rift extended the authentic PC experience to mobile,reactivating and enlarging League of Legends' user base,and ranked second by DAU among all mobile games in China in October 2021. We also invigorated the auto-chess genre by introducing player versus environment (PvE) and co-op gameplay in Fight of The Golden Spatula,which is the second-highest DAU new game launched in China year-to-date,behind League of Legends: Wild Rift.

[6]Players aged under 18

International Games

We are increasing our investments in global game development capabilities through scaling up our China-based studios and established multi-hit international studios,and nurturing the growth of specialist genre-leading international studios with our knowhow,technology and funding. We are strengthening our global IP portfolio through in-house IP development as well as partnerships with renowned IP owners. We are also building up localised publishing and operational capabilities to support our expansion in multiple regions.

Online Advertising

We enabled enterprises to connect directly with users via embedding WeCom chat-to-salesperson functionality in their advertisements,which is particularly effective for lead-driven advertisers,such as automobile dealers. An increasing number of transaction-driven advertisers,such as grocery and eCommerce merchants,use Mini Programs as landing pages for their advertisements,to enhance sales conversion. Our top-tier drama series,variety shows and coverage of the Tokyo 2020 Olympic Games captured higher sponsorship spending from brand advertisers on Tencent Video app.

Despite these initiatives,our advertising revenue growth rate slowed in the period and we expect advertising pricing industry-wide may remain soft for several quarters,due to macro challenges and regulations affecting certain key advertising sectors. We believe the advertising industry should adjust and rebase during 2022,then resume growth as secular growth drivers reassert themselves.

FinTech

For payments,our DAU and payment frequency maintained healthy overall growth rates,though offline commercial payment volume growth moderated on a year-on-year basis due to control measures against COVID-19 resurgence in certain provinces. We deepened our cooperation with UnionPay to develop new payment and service interconnection scenarios through its Cloud QuickPass app.

Cloud and Other Business Services

Our CRM SaaS solution,Tencent QiDian,has served over one million enterprises and is increasingly adopted by medium and large-scale enterprises. Tencent QiDian provides AI-powered customer service across multiple communications channels around the clock,significantly reducing customer service costs for our enterprise clients. Our database PaaS solution,Tencent Database SQL (TDSQL),has been adopted by more than 3,000 clients from verticals such as finance,public services and telecommunications. Within the financial vertical,TDSQL serves six out of the top ten banks in China,and an increasing number of financial institutions are using TDSQL in their core systems,due to their trust in our data security,reliability and consistency.

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,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.

CONSOLIDATED INCOME STATEMENT

RMB in millions,unless specified

Unaudited

Unaudited

3Q2021

3Q2020

3Q2021

2Q2021

Revenues

142,368

125,447

142,368

138,259

VAS

75,203

69,802

75,203

72,013

Online Advertising

22,495

21,351

22,495

22,833

FinTech and Business Services

43,317

33,255

43,317

41,892

Others

1,353

1,039

1,521

Cost of revenues

(79,621)

(68,800)

(79,621)

(75,514)

Gross profit

62,747

56,647

62,747

62,745

Gross margin

44%

45%

44%

45%

Interest income

1,703

1,864

1,630

Other gains,net

22,984

11,551

22,984

20,763

Selling and marketing expenses

(10,435)

(8,920)

(10,435)

(10,013)

General and administrative expenses

(23,862)

(17,189)

(23,862)

(22,638)

Operating profit

53,137

43,953

53,137

52,487

Operating margin

37%

35%

37%

38%

Finance costs,net

(1,942)

(1,945)

(1,942)

Shareof (loss)/profit of associates and joint

ventures

(5,668)

2,630

(5,668)

(3,857)

Profit before income tax

45,527

44,638

45,527

46,688

Income tax expense

(5,452)

(5,739)

(5,452)

(3,666)

Profit for the period

40,075

38,899

40,075

43,022

Net margin

28%

31%

28%

31%

Attributable to:

Equity holders of the Company

39,510

38,542

39,510

42,587

Non-controlling interests

565

357

565

435

Non-IFRS profit attributable to equity

holders of the Company

31,751

32,303

31,751

34,039

Earnings per share for profit

attributable to equity holders of

the Company

(in RMB per share)

- basic

4.143

4.059

4.143

4.472

- diluted

4.074

3.964

4.074

4.387

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in millions,unless specified

Unaudited

3Q2021

3Q2020

Profit for the period

40,075

38,899

Other comprehensive (loss)/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

(157)

192

Currency translation differences

(4,607)

(5,731)

Other fair value gains

133

169

Items that will not be subsequently reclassified to profit or loss

Share of other comprehensive loss of associates and joint ventures

(16)

-

Net (losses)/gains from changes in fair value of financial assets at fair

value through other comprehensive income

(36,411)

9,535

Currency translation differences

(130)

-

Other fair value gains

-

202

(41,188)

4,367

Total comprehensive (loss)/income for the period

(1,113)

43,266

Attributable to:

Equity holders of the Company

(594)

43,082

Non-controlling interests

(519)

184

OTHER FINANCIAL INFORMATION

RMB in millions,unless specified

Unaudited

3Q2021

2Q2021

3Q2020

EBITDA(a)

42,683

44,567

45,055

Adjusted EBITDA (a)

49,257

50,347

47,849

Adjusted EBITDA margin(b)

35%

36%

38%

Interest and related expenses

2,092

1,912

1,855

Net (debt)/cash (c)

(26,146)

(20,972)

6,363

Capital expenditures (d)

7,061

6,936

8,684

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

September 30,2021

As at

December 31,2020

ASSETS

Non-current assets

Property,plant and equipment

59,779

59,843

Land use rights

16,153

16,091

Right-of-use assets

14,917

12,929

Construction in progress

5,435

4,939

Investment properties

531

583

Intangible assets

180,574

159,437

Investments in associates

369,441

297,609

Investments in joint ventures

6,790

7,649

Financial assets at fair value through profit or loss

193,931

165,944

Financial assets at fair value through other

comprehensive income

243,940

213,091

Prepayments,deposits and other assets

36,288

24,630

Other financial assets

549

4

Deferred income tax assets

24,566

21,348

Term deposits

36,969

31,681

1,189,863

1,015,778

Current assets

Inventories

2,735

814

Accounts receivable

53,837

44,981

Prepayments,deposits and other assets

63,932

40,321

Other financial assets

1,392

1,133

Financial assets at fair value through profit or loss

13,768

6,593

Term deposits

68,578

68,487

Restricted cash

2,606

2,520

Cash and cash equivalents

170,873

152,798

377,721

317,647

Total assets

1,567,584

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

62,041

48,793

Treasury shares

(435)

-

Shares held for share award schemes

(5,028)

(4,412)

Other reserves

124,226

121,139

Retained earnings

675,732

538,464

856,536

703,984

Non-controlling interests

74,840

74,059

Total equity

931,376

778,043

LIABILITIES

Non-current liabilities

Borrowings

141,275

112,145

Notes payable

148,077

122,057

Long-term payables

10,807

9,910

Other financial liabilities

7,278

9,254

Deferred income tax liabilities

15,861

16,061

Lease liabilities

11,850

10,198

Deferred revenue

6,193

6,678

341,341

286,303

Current liabilities

Accounts payable

99,808

94,030

Other payables and accruals

54,957

54,308

Borrowings

26,276

14,242

Current income tax liabilities

10,658

12,134

Other tax liabilities

2,298

2,149

Other financial liabilities

3,831

5,567

Lease liabilities

4,315

3,822

Deferred revenue

92,724

82,827

294,867

269,079

Total liabilities

636,208

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)/losses from

investee companies (b)

Amortisation of

intangible assets (c)

Impairment

provisions/

(reversals) (d)

Others (e)

Income

tax effects (f)

Unaudited three months ended September 30,2021

Operating profit

53,137

6,652

(26,569)

1,149

6,389

70

-

40,828

Profit for the period

40,075

10,242

(26,781)

3,093

6,452

70

(633)

32,518

Profit attributable to

equity holders

39,510

10,063

(26,491)

2,719

6,452

70

(572)

31,751

Operating margin

37%

29%

Net margin

28%

23%

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 September 30,2020

Operating profit

43,953

3,059

(8,703)

905

(1,098)

-

-

38,116

Profit for the period

38,899

3,770

(10,099)

2,005

(973)

-

(277)

33,325

Profit attributable to equity

holders

38,542

3,517

(10,133)

1,620

(1,026)

-

(217)

32,303

Operating margin

35%

30%

Net margin

31%

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)/losses 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/(reversals) for associates,joint ventures,goodwill and other intangible assets arising from acquisitions

(e) Including expenses incurred in establishing certain social responsibility initiatives

(f) Income tax effects of non-IFRS adjustments