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ANNOUNCEMENT OF THE RESULTS
FOR THE THREE AND SIX MONTHS ENDED 30 JUNE 2020
The Board is pleased to announce the unaudited consolidated results of the Group for the three and six months ended 30 June 2020. These interim results have been reviewed by the Auditor in accordance with International Standard on Review Engagements 2410 "Review of interim financial information performed by the independent auditor of the entity" issued by the International Auditing and Assurance Standards Board, and by the Audit Committee.
FINANCIAL PERFORMANCE HIGHLIGHTS
Unaudited | |||||
Three months ended | Quarter- | ||||
30 June | Year- | ||||
30 June | on-year | 31 March | on-quarter | ||
2020 | 2019 | change | 2020 | change | |
(RMB in millions, unless specified) | |||||
Revenues | 114,883 | 88,821 | 29% | 108,065 | 6% |
Gross profit | 53,210 | 39,126 | 36% | 52,794 | 1% |
Operating profit | 39,311 | 27,521 | 43% | 37,260 | 6% |
Profit for the period | 32,454 | 24,684 | 31% | 29,403 | 10% |
Profit attributable to equity | 33,107 | ||||
holders of the Company | 24,136 | 37% | 28,896 | 15% | |
Non-IFRS profit | |||||
attributable to equity | 30,153 | ||||
holders of the Company | 23,525 | 28% | 27,079 | 11% | |
EPS (RMB per share) | 3.491 | ||||
- basic | 2.550 | 37% | 3.049 | 14% | |
- diluted | 3.437 | 2.520 | 36% | 2.999 | 15% |
Non-IFRS EPS | |||||
(RMB per share) | 3.180 | ||||
- basic | 2.486 | 28% | 2.858 | 11% | |
- diluted | 3.130 | 2.456 | 27% | 2.817 | 11% |
1
Unaudited | |||
Six months ended | |||
Year- | |||
30 June | 30 June | on-year | |
2020 | 2019 | change | |
(RMB in millions, unless specified) | |||
Revenues | 222,948 | 174,286 | 28% |
Gross profit | 106,004 | 78,946 | 34% |
Operating profit | 76,571 | 64,263 | 19% |
Profit for the period | 61,857 | 52,540 | 18% |
Profit attributable to equity holders | |||
of the Company | 62,003 | 51,346 | 21% |
Non-IFRS profit attributable to equity | |||
holders of the Company | 57,232 | 44,455 | 29% |
EPS (RMB per share) | |||
- basic | 6.541 | 5.427 | 21% |
- diluted | 6.440 | 5.362 | 20% |
Non-IFRS EPS (RMB per share) | |||
- basic | 6.038 | 4.699 | 28% |
- diluted | 5.945 | 4.643 | 28% |
2
OPERATING INFORMATION | |||||
As at | As at | Year- | As at | Quarter- | |
30 June | 30 June | on-year | 31 March | on-quarter | |
2020 | 2019 | change | 2020 | change | |
(in millions, unless specified) | |||||
Combined MAU of | |||||
Weixin and WeChat | 1,206.1 | 1,132.7 | 6.5% | 1,202.5 | 0.3% |
Smart device MAU of QQ | 647.6 | 706.7 | -8.4% | 693.5 | -6.6% |
Fee-based VAS registered | |||||
subscriptions | 203.4 | 168.9 | 20.4% | 197.4 | 3.0% |
BUSINESS REVIEW AND OUTLOOK
Since the beginning of this year, the COVID-19 pandemic has swept the world, disrupting our daily work and life routines. During this challenging time, we utilised our platforms and technologies to help users adapt to the new normal via online tools, to support enterprises in conducting digital upgrades, and to broadly contribute to economic recovery. Here are some highlights for our key products and business lines:
Communication and Social
For Weixin, we released update to enhance functionalities for communication, content and services. For communication, the new Tickle function has enabled many creative expressions, and the addition of live broadcast function to Weixin school-plus-home groups facilitated online education within Weixin. MAUs and daily messages sent both increased year-on- year. For content, we upgraded the video content publishing functionalities in Official Accounts, enhanced content discovery with strengthened recommendation algorithm and launched content aggregation tools. These initiatives revitalized content consumption in Official Accounts, resulting in year-on-year increase in page views. As for services, we assisted traditional retailers to migrate online and support their business resumption via Mini Programs. Transactions value generated via Mini Programs increased sequentially as economic activities recovered. We launched a free and easy-to-use toolkit, Mini Stores, to help long-tail merchants build and operate digital storefronts, empowering them with various functions such as order management, after-sales services and live broadcast.
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In QQ, we enriched features to enable users to better interact with their friends and families while they are physically apart. Users can initiate online parties and play AI-empowered social games together with their friends in video chats. To engage the expanding fan base for Anime, Comics, Games and Novels ("ACGN") content, we offered customisable comic stickers within
- chats, and enriched content for ACGN-related Mini Programs, which gained popularity among young users.
Online Games
In China, user time spent on our smart phone games increased year-on-year but decreased quarter-on-quarter due to seasonality and back-to-office behavior. Honour of Kings deepened its user engagement with the release of more top-tier skins during its annual Give Me Five festival. Peacekeeper Elite celebrated its first anniversary with new content and game modes to enhance the competitive game experience, and we partnered with Tesla to introduce in- game Tesla-branded car skins in July, which proved highly popular. In the second quarter, we launched a strategy game, Chess Rush; an action game based on a popular anime IP, The Outcast; and Supercell's Brawl Stars. Brawl Stars ranked first in the iOS China Download Chart in June this year, extending its global leadership in the fast-paced 3v3 MOBA genre.
Internationally, our MAU increased significantly year-on-year and quarter-on-quarter due to new game launches and more user time spent during the stay-at-home period. We released an immersive team-based action game for PC, Valorant; a card game supporting cross-platform play on PC and smart phones, Legends of Runeterra; and a licensed mobile RPG, CODE:D Blood. Valorant was the most watched game globally on Twitch during the second quarter, reflecting the game's instant appeal to immersive action game players.
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Digital Content
Our fee-based VAS subscriptions increased 20% year-on-year to 203 million, primarily due to growth in video and music content subscriptions. Video subscriptions increased 18% year- on-year to 114 million, driven by self-commissioned Chinese anime and drama series, such as The Land of Warriors Season 3《( 鬥羅大陸第三季》), Candle in the Tomb: The Lost Caverns 《( 龍嶺迷窟》) and The Romance of Tiger and Rose《( 傳聞中的陳芊芊》). Sequentially, traffic for long-form video sites in China, including Tencent Video, declined due to work-from- office behavior and delayed releases of certain high-profile variety shows and drama series. However, Tencent Video's traffic has increased subsequent to the quarter end, driven by popular drama series such as Nothing But Thirty《( 三十而已》), which we believe reflects the underlying resilience of our video platform. Music subscriptions rose 52% year-on-year to 47 million as Tencent Music increased the scope of the paid music library.
Online Advertising
Continued strength in social and others advertising contributed to the year-on-year revenue growth for our online advertising business. Sequentially, our online advertising revenue grew at a slower-than-seasonal rate as the games and Internet services sectors, which had ramped up advertising aggressively during the first quarter of 2020 due to work-from-home behavior, reduced their spending to more normal levels. However, our advertiser industry breadth diversified in the second quarter of 2020 as categories such as eCommerce and education spent heavily for the 618 promotional campaigns and summer courses, while categories such as automobile and consumer electronics brands increased their spending as consumption recovered.
To reinforce our long-term competitiveness in performance advertising, we launched an integrated advertising platform in July, where advertisers can more efficiently place advertisements across all of our inventories, including our mobile advertising network. This new platform will also enhance bidding efficiency and provide smarter targeting for advertisers.
5
For social and others advertising, Weixin properties, particularly Moments, saw rapid advertising impressions growth, while our mobile advertising network experienced higher eCPMs as video advertisements' revenue contribution increased from a single digit percentage in the second quarter of 2019 to over 40% in the second quarter this year. We believe the Weixin ecosystem is redefining China's online advertising by enabling advertisers to sustain relationships with their users in their own private domains, such as Official Accounts and Mini Programs, with the result that our advertisers are effectively investing in long-term and loyal customer relationships, rather than just purchasing one-time transactions.
As for media advertising, revenue declined sharply year-on-year due to weak demand from brand advertisers and the delayed production and release of certain variety shows and drama series, some of which we expect to release in the second half of 2020.
FinTech
Our commercial payment and wealth management businesses grew their users and business scale, driving FinTech revenue up year-on-year and quarter-on-quarter. Offline merchants, especially SMEs, increasingly adopted our payment services and business management tools, as they sought to digitally upgrade their businesses to access customers and settle transactions via mobile phones. During the quarter, merchant demand for our payment solutions stepped up, especially from categories such as retail and restaurants. As a result, the number of average daily transactions and value per transaction for our commercial payments both grew year-on-year.
For our wealth management business, the aggregated customer assets and the number of active customers increased rapidly year-on-year as more customers appreciated the convenience of managing their cash through our secure and carefully-curated platform.
Cloud and Other Business Services
Increased cloud services usage by Internet companies and the public sector contributed to the year-on-year and sequential revenue growth of our cloud and other business services. Due to the lingering impact from COVID-19, offline project deployment has not fully resumed in the second quarter, but we signed major contracts in the financial and public sectors, while expanding our presence in emerging verticals such as medical, education, and meetings and exhibitions, to help customers in their digital transformation. On technology and infrastructure, we are adopting custom-made equipment, as well as building and expanding our own hyperscale data centres, to enhance the performance and optimise the cost of our cloud services for the long run.
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MANAGEMENT DISCUSSION AND ANALYSIS
Second Quarter of 2020 Compared to Second Quarter of 2019
The following table sets forth the comparative figures for the second quarter of 2020 and the second quarter of 2019:
Unaudited | ||||
Three months ended | ||||
30 June | 30 June | |||
2020 | 2019 | |||
(RMB in millions) | ||||
Revenues | 114,883 | 88,821 | ||
Cost of revenues | (61,673) | (49,695) | ||
Gross profit | 53,210 | 39,126 | ||
Interest income | 1,749 | 1,652 | ||
Other gains, net | 8,607 | 4,038 | ||
Selling and marketing expenses | (7,756) | (4,718) | ||
General and administrative expenses | (16,499) | (12,577) | ||
Operating profit | 39,311 | 27,521 | ||
Finance costs, net | (2,005) | (1,982) | ||
Share of (loss)/profit of associates and joint ventures | (295) | 2,370 | ||
Profit before income tax | 37,011 | 27,909 | ||
Income tax expense | (4,557) | (3,225) | ||
Profit for the period | 32,454 | 24,684 | ||
Attributable to: | ||||
33,107 | ||||
Equity holders of the Company | 24,136 | |||
Non-controlling interests | (653) | 548 | ||
32,454 | 24,684 | |||
Non-IFRS profit attributable to equity holders | ||||
30,153 | ||||
of the Company | 23,525 | |||
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Revenues. Revenues increased by 29% to RMB114.9 billion for the second quarter of 2020 on a year-on-year basis. The following table sets forth our revenues by line of business for the second quarter of 2020 and the second quarter of 2019:
Unaudited | |||||||
Three months ended | |||||||
30 June 2020 | 30 June 2019 | ||||||
% of total | % of total | ||||||
Amount | revenues | Amount | revenues | ||||
(RMB in millions, unless specified) | |||||||
VAS | 65,002 | 57% | 48,080 | 54% | |||
FinTech and Business Services | 29,862 | 26% | 22,888 | 26% | |||
Online Advertising | 18,552 | 16% | 16,409 | 18% | |||
Others | 1,467 | 1% | 1,444 | 2% | |||
Total revenues | 114,883 | 100% | 88,821 | 100% | |||
- Revenues from VAS increased by 35% to RMB65,002 million for the second quarter of 2020 on a year-on-year basis. Online games revenues grew by 40% to RMB38,288 million. The increase was primarily driven by higher revenues from smart phone games in both domestic and overseas markets, including titles such as Peacekeeper Elite and Honour of Kings, partly offset by the decrease in revenues from PC client games such as DnF and CrossFire. Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) were RMB35,988 million and PC client games revenues were RMB10,912 million for the second quarter of 2020. Social networks revenues increased by 29% to RMB26,714 million. The increase was mainly due to revenue contributions from digital content services including the live broadcast services of HUYA Inc. ("HUYA", which we consolidated as a subsidiary from April 2020), and music subscription growth, as well as revenue growth from in-game virtual item sales.
- Revenues from FinTech and Business Services increased by 30% to RMB29,862 million for the second quarter of 2020 on a year-on-year basis. The increase mainly reflected revenue growth from commercial payment due to increased average daily transactions and value per transaction, from wealth management, as well as from cloud services as a result of greater consumption of our public cloud, particularly by the Internet services and municipal services sectors.
- Revenues from Online Advertising increased by 13% to RMB18,552 million for the second quarter of 2020 on a year-on-year basis. Social and others advertising revenues grew by 27% to RMB15,262 million. The increase was primarily due to revenue growth from our mobile advertising network, benefitting from increased traffic and a greater mix of video advertising with higher pricing, as well as increased revenues derived from Weixin Moments due to more inventories and impressions. Media advertising revenues decreased by 25% to RMB3,290 million. The decrease was primarily driven by lower advertising revenues from Tencent Video as a result of weak brand advertising demand amid the challenging macro environment, as well as delayed content production and releases.
8
Cost of revenues . Cost of revenues increased by 24% to RMB61,673 million for the second quarter of 2020 on a year-on-year basis. The increase mainly reflected greater channel and distribution costs, server and bandwidth costs, as well as content costs. As a percentage of revenues, cost of revenues decreased to 54% for the second quarter of 2020 from 56% for the second quarter of 2019. The following table sets forth our cost of revenues by line of business for the second quarter of 2020 and the second quarter of 2019:
Unaudited | ||||||
Three months ended | ||||||
30 June 2020 | 30 June 2019 | |||||
% of | % of | |||||
segment | segment | |||||
Amount | revenues | Amount | revenues | |||
(RMB in millions, unless specified) | ||||||
VAS | 30,100 | 46% | 22,783 | 47% | ||
FinTech and Business Services | 21,222 | 71% | 17,391 | 76% | ||
Online Advertising | 9,008 | 49% | 8,432 | 51% | ||
Others | 1,343 | 92% | 1,089 | 75% | ||
Total cost of revenues | 61,673 | 49,695 | ||||
- Cost of revenues for VAS increased by 32% to RMB30,100 million for the second quarter of 2020 on a year-on-year basis. The increase was mainly driven by greater channel and distribution costs, as well as content costs including those for HUYA's live broadcast services.
- Cost of revenues for FinTech and Business Services increased by 22% to RMB21,222 million for the second quarter of 2020 on a year-on-year basis. The increase primarily reflected greater transaction costs due to increased volume of payment activities, as well as greater server and bandwidth costs as a result of enlarging the scale of our cloud services business.
- Cost of revenues for Online Advertising increased by 7% to RMB9,008 million for the second quarter of 2020 on a year-on-year basis. The increase was primarily driven by greater traffic acquisition costs for our mobile advertising network, as well as increased server and bandwidth costs, partly offset by lower content costs resulting from fewer content releases.
9
Other gains, net. We recorded net other gains of RMB8,607 million for the second quarter of 2020, which mainly comprised of non-IFRS adjustment items including net gains on deemed disposals of certain investee companies in verticals such as eCommerce, live broadcast services and online games, as well as net fair value gains resulting from increased valuations of investees. Such gains were partly offset by impairment provisions for goodwill at China Literature and against certain investee companies, reflecting revisions of their financial/ business outlook and changes in their market environments.
Selling and marketing expenses . Selling and marketing expenses increased by 64% to RMB7,756 million for the second quarter of 2020 on a year-on-year basis. The increase was mainly due to greater marketing spending on our online games, Weishi as well as cloud and business services. As a percentage of revenues, selling and marketing expenses increased to 7% for the second quarter of 2020 from 5% for the second quarter of 2019.
General and administrative expenses. General and administrative expenses increased by 31% to RMB16,499 million for the second quarter of 2020 on a year-on-year basis. The increase was mainly driven by greater R&D expenses and staff costs. As a percentage of revenues, general and administrative expenses were 14% for the second quarter of 2020, broadly stable compared to the second quarter of 2019.
Finance costs, net. Net finance costs were RMB2,005 million for the second quarter of 2020, broadly stable compared to the second quarter of 2019.
Share of loss/profit of associates and joint ventures. We recorded share of losses of associates and joint ventures of RMB295 million for the second quarter of 2020, compared to share of profit of RMB2,370 million for the second quarter of 2019. The movement mainly reflected the impact of longer revenue deferral period and greater marketing spending at an associate game company.
Income tax expense . Income tax expense increased by 41% to RMB4,557 million for the second quarter of 2020 on a year-on-year basis.
Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 37% to RMB33,107 million for the second quarter of 2020 on a year-on-yearbasis. Non-IFRSprofit attributable to equity holders of the Company increased by 28% to RMB30,153 million for the second quarter of 2020.
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Second Quarter of 2020 Compared to First Quarter of 2020
The following table sets forth the comparative figures for the second quarter of 2020 and the first quarter of 2020:
Unaudited | ||||
Three months ended | ||||
30 June | 31 March | |||
2020 | 2020 | |||
(RMB in millions) | ||||
Revenues | 114,883 | 108,065 | ||
Cost of revenues | (61,673) | (55,271) | ||
Gross profit | 53,210 | 52,794 | ||
Interest income | 1,749 | 1,636 | ||
Other gains, net | 8,607 | 4,037 | ||
Selling and marketing expenses | (7,756) | (7,049) | ||
General and administrative expenses | (16,499) | (14,158) | ||
Operating profit | 39,311 | 37,260 | ||
Finance costs, net | (2,005) | (1,684) | ||
Share of losses of associates and joint ventures | (295) | (281) | ||
Profit before income tax | 37,011 | 35,295 | ||
Income tax expense | (4,557) | (5,892) | ||
Profit for the period | 32,454 | 29,403 | ||
Attributable to: | ||||
Equity holders of the Company | 33,107 | 28,896 | ||
Non-controlling interests | (653) | 507 | ||
32,454 | 29,403 | |||
Non-IFRS profit attributable to equity holders of the | ||||
Company | 30,153 | 27,079 | ||
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Revenues. Revenues increased by 6% to RMB114.9 billion for the second quarter of 2020 on a quarter-on-quarter basis.
- Revenues from VAS increased by 4% to RMB65,002 million for the second quarter of 2020. Online games revenues grew by 3% to RMB38,288 million. The increase primarily reflected revenue growth from domestic smart phone games such as Peacekeeper Elite and Honour of Kings, as well as revenue contributions from overseas titles, partially offset by lower revenues from PC client games. Social networks revenues increased by 6% to RMB26,714 million. The increase was mainly driven by revenues contributed from digital content services, including the consolidation of HUYA's live broadcast services.
- Revenues from FinTech and Business Services increased by 13% to RMB29,862 million for the second quarter of 2020. The increase was primarily due to higher revenues from commercial payment, social payment and cloud services, as a result of recovering consumer sentiment in the Mainland of China.
- Revenues from Online Advertising increased by 5% to RMB18,552 million for the second quarter of 2020. Social and others advertising revenues increased by 5% to RMB15,262 million. The increase primarily reflected revenue growth from Weixin Moments and our mobile advertising network, resulting from more traffic and increased eCPM due to greater proportion of rewarded videos advertisements, which are widely used by the eCommerce and education sectors. Media advertising revenues grew by 5% to RMB3,290 million. The increase was mainly driven by higher advertising revenues arising from our media platforms including music and news. Compared to historic patterns, we experienced a slower-than-usual seasonal upturn from the first to the second quarter of 2020, reflecting the COVID-19 pandemic driving unusually high traffic, and thus spending by game and Internet services advertisers, in the first quarter of 2020. However, other advertiser categories, such as eCommerce, education, automobiles and consumer electronics, increased their spending quarter-on-quarter.
Cost of revenues . Cost of revenues increased by 12% to RMB61,673 million for the second quarter of 2020 on quarter-on-quarter basis. The increase was primarily due to greater content costs, channel and distribution costs and costs of FinTech services. As a percentage of revenues, cost of revenues increased to 54% for the second quarter of 2020 from 51% for the first quarter of 2020, partly due to the consolidation of HUYA.
- Cost of revenues for VAS increased by 18% to RMB30,100 million for the second quarter of 2020. The increase was mainly driven by greater content costs for live broadcast, online games and video streaming services, including content costs attributable to HUYA, as well as increased channel and distribution costs.
- Cost of revenues for FinTech and Business Services increased by 11% to RMB21,222 million for the second quarter of 2020. The increase was mainly due to greater transaction costs of payment-related services, flowing from increased payment volume, as well as greater project deployment costs and server and bandwidth costs for cloud business.
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- Cost of revenues for Online Advertising was RMB9,008 million for the second quarter of 2020, broadly stable compared to the first quarter of 2020, as greater channel and distribution costs, as well as content costs, were offset by the industry-wide removal of cultural construction fee for this year.
Selling and marketing expenses . Selling and marketing expenses increased by 10% to RMB7,756 million for the second quarter of 2020 on a quarter-on-quarter basis. The increase mainly reflected greater marketing spending on online games, cloud and business services, as well as the consolidation of HUYA.
General and administrative expenses . General and administrative expenses increased by 17% to RMB16,499 million for the second quarter of 2020 on a quarter-on-quarter basis. The increase was mainly driven by greater R&D expenses and staff costs, including those associated with the consolidation of HUYA.
Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 15% to RMB33,107 million for the second quarter of 2020 on
- quarter-on-quarterbasis. Non-IFRS profit attributable to equity holders of the Company increased by 11% to RMB30,153 million.
Other Financial Information | |||||
Unaudited | Unaudited | ||||
Three months ended | Six months ended | ||||
30 June | 31 March | 30 June | 30 June | 30 June | |
2020 | 2020 | 2019 | 2020 | 2019 | |
(RMB in millions, unless specified) | |||||
EBITDA (a) | 40,525 | 42,228 | 32,649 | 82,753 | 66,215 |
Adjusted EBITDA (a) | 43,742 | 45,190 | 35,102 | 88,932 | 70,700 |
Adjusted EBITDA margin (b) | 38% | 42% | 40% | 40% | 41% |
Interest and related expenses | 1,822 | 2,006 | 1,757 | 3,828 | 3,256 |
Net cash/(debt) (c) | 7,212 | (5,716) | (15,766) | 7,212 | (15,766) |
Capital expenditures (d) | 9,466 | 6,151 | 4,362 | 15,617 | 8,868 |
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Note:
- 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. Adjusted EBITDA is calculated as EBITDA plus equity-settledshare-based compensation expenses.
- Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
- Net cash/(debt) represents period end balance and is calculated as cash and cash equivalents, plus term deposits and others, minus borrowings and notes payable.
- Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress, investment properties, land use rights and intangible assets (excluding video and music content, game licences and other content).
The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
Unaudited | Unaudited | ||||||||||
Three months ended | Six months ended | ||||||||||
30 June | 31 March | 30 June | 30 June | 30 June | |||||||
2020 | 2020 | 2019 | 2020 | 2019 | |||||||
(RMB in millions, unless specified) | |||||||||||
Operating profit | 39,311 | 37,260 | 27,521 | 76,571 | 64,263 | ||||||
Adjustments: | |||||||||||
Interest income | (1,749) | (1,636) | (1,652) | (3,385) | (3,060) | ||||||
Other gains, net | (8,607) | (4,037) | (4,038) | (12,644) | (15,127) | ||||||
Depreciation of property, | |||||||||||
plant and equipment and | |||||||||||
investment properties | 4,257 | 3,889 | 2,989 | 8,146 | 5,793 | ||||||
Depreciation of right-of-use assets | 899 | 874 | 748 | 1,773 | 1,350 | ||||||
Amortisation of intangible assets | 6,414 | 5,878 | 7,081 | 12,292 | 12,996 | ||||||
EBITDA | 40,525 | 42,228 | 32,649 | 82,753 | 66,215 | ||||||
Equity-settledshare-based | |||||||||||
compensation | 3,217 | 2,962 | 2,453 | 6,179 | 4,485 | ||||||
Adjusted EBITDA | 43,742 | 45,190 | 35,102 | 88,932 | 70,700 | ||||||
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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 announcement. 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.
The following tables set forth the reconciliations of the Group's non-IFRS financial measures for the second quarter of 2020 and 2019, the first quarter of 2020, as well as the first half of
2020 and 2019 to the nearest measures prepared in accordance with IFRS:
Unaudited three months ended 30 June 2020 | ||||||||||
Adjustments | ||||||||||
Net (gains)/ | ||||||||||
losses from | Amortisation | Impairment | ||||||||
Share-based | investee | of intangible | provisions/ | Income tax | ||||||
As reported | compensation | companies | assets | (reversals) | effects | Non-IFRS | ||||
(a) | (b) | (c) | (d) | (e) | ||||||
(RMB in millions, unless specified) | ||||||||||
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 | |||
EPS (RMB per share) | ||||||||||
- basic | 3.491 | 3.180 | ||||||||
- diluted | 3.437 | 3.130 | ||||||||
Operating margin | 34% | 33% | ||||||||
Net margin | 28% | 27% |
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Unaudited three months ended 31 March 2020 | |||||||||
Adjustments | |||||||||
Net (gains)/ | |||||||||
losses from | Amortisation | Impairment | |||||||
Share-based | investee | of intangible | provisions/ | Income tax | |||||
As reported | compensation | companies | assets | (reversals) | effects | Non-IFRS | |||
(a) | (b) | (c) | (d) | (e) | |||||
(RMB in millions, unless specified) | |||||||||
Operating profit | 37,260 | 3,435 | (5,272) | 639 | (487) | - | 35,575 | ||
Profit for the period | 29,403 | 4,198 | (6,992) | 1,572 | (18) | (179) | 27,984 | ||
Profit attributable to | |||||||||
equity holders | 28,896 | 3,957 | (6,976) | 1,338 | (18) | (118) | 27,079 | ||
EPS (RMB per share) | |||||||||
- basic | 3.049 | 2.858 | |||||||
- diluted | 2.999 | 2.817 | |||||||
Operating margin | 34% | 33% | |||||||
Net margin | 27% | 26% | |||||||
Unaudited three months ended 30 June 2019 | |||||||||
Adjustments | |||||||||
Net (gains)/ | |||||||||
losses from | Amortisation | Impairment | |||||||
Share-based | investee | of intangible | provisions/ | Income tax | |||||
As reported | compensation | companies | assets | (reversals) | effects | Non-IFRS | |||
(a) | (b) | (c) | (d) | (e) | |||||
(RMB in millions, unless specified) | |||||||||
Operating profit | 27,521 | 2,453 | (4,950) | 118 | 2,139 | - | 27,281 | ||
Profit for the period | 24,684 | 2,373 | (6,523) | 1,486 | 2,492 | (321) | 24,191 | ||
Profit attributable to | |||||||||
equity holders | 24,136 | 2,296 | (6,522) | 1,432 | 2,492 | (309) | 23,525 | ||
EPS (RMB per share) | |||||||||
- basic | 2.550 | 2.486 | |||||||
- diluted | 2.520 | 2.456 | |||||||
Operating margin | 31% | 31% | |||||||
Net margin | 28% | 27% |
16
Unaudited six months ended 30 June 2020 | ||||||||||
Adjustments | ||||||||||
Net (gains)/ | ||||||||||
losses from | Amortisation | Impairment | ||||||||
Share-based | investee | of intangible | provisions/ | Income tax | ||||||
As reported | compensation | companies | assets | (reversals) | effects | Non-IFRS | ||||
(a) | (b) | (c) | (d) | (e) | ||||||
(RMB in millions, unless specified) | ||||||||||
Operating profit | 76,571 | 6,942 | (19,944) | 1,509 | 8,126 | - | 73,204 | |||
Profit for the period | 61,857 | 8,423 | (23,100) | 3,458 | 9,250 | (684) | 59,204 | |||
Profit attributable to | ||||||||||
equity holders | 62,003 | 7,976 | (22,412) | 2,841 | 7,292 | (468) | 57,232 | |||
EPS (RMB per share) | ||||||||||
- basic | 6.541 | 6.038 | ||||||||
- diluted | 6.440 | 5.945 | ||||||||
Operating margin | 34% | 33% | ||||||||
Net margin | 28% | 27% | ||||||||
Unaudited six months ended 30 June 2019 | ||||||||||
Adjustments | ||||||||||
Net (gains)/ | ||||||||||
losses from | Amortisation | Impairment | ||||||||
Share-based | investee | of intangible | provisions/ | Income tax | ||||||
As reported | compensation | companies | assets | (reversals) | effects | Non-IFRS | ||||
(a) | (b) | (c) | (d) | (e) | ||||||
(RMB in millions, unless specified) | ||||||||||
Operating profit | 64,263 | 4,486 | (15,496) | 232 | 2,266 | - | 55,751 | |||
Profit for the period | 52,540 | 5,241 | (16,897) | 2,570 | 3,081 | (671) | 45,864 | |||
Profit attributable to | ||||||||||
equity holders | 51,346 | 5,078 | (16,873) | 2,465 | 3,081 | (642) | 44,455 | |||
EPS (RMB per share) | ||||||||||
- basic | 5.427 | 4.699 | ||||||||
- diluted | 5.362 | 4.643 | ||||||||
Operating margin | 37% | 32% | ||||||||
Net margin | 30% | 26% |
17
Note:
- 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
- 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
- Amortisation of intangible assets resulting from acquisitions
- Impairment provisions/(reversals) for associates, joint ventures, goodwill and intangible assets arising from acquisitions
- Income tax effects of non-IFRS adjustments
Liquidity and Financial Resources
Our cash positions as at 30 June 2020 and 31 March 2020 were as follows:
Unaudited | Unaudited | |||
30 June | 31 March | |||
2020 | 2020 | |||
(RMB in millions) | ||||
Cash and cash equivalents | 173,718 | 135,270 | ||
Term deposits and others | 107,368 | 85,314 | ||
281,086 | 220,584 | |||
Borrowings | (147,089) | (140,566) | ||
Notes payable | (126,785) | (85,734) | ||
Net cash/(debt) | 7,212 | (5,716) | ||
Fair value of our stakes in listed investee | ||||
726,244 | ||||
companies (excluding subsidiaries) | 410,299 | |||
As at 30 June 2020, the Group had net cash of RMB7,212 million, compared to net debt of RMB5,716 million as at 31 March 2020. The sequential improvement mainly reflected strong free cash flow generation, and the consolidation of HUYA's net cash balance, partly offset by payments for M&A initiatives.
For the second quarter of 2020, the Group had free cash flow of RMB28,451 million. This was a result of net cash flow generated from operating activities of RMB44,064 million, offset by payments for capital expenditures of RMB8,796 million, payments for media content of RMB5,864 million, and payments for lease liabilities of RMB953 million.
18
FINANCIAL INFORMATION
CONSOLIDATED INCOME STATEMENT
FOR THE THREE AND SIX MONTHS ENDED 30 JUNE 2020
Unaudited | Unaudited | ||||||||||
Three months ended 30 June | Six months ended 30 June | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
Note | RMB'Million | RMB'Million | RMB'Million | RMB'Million | |||||||
Revenues | 65,002 | 127,431 | |||||||||
Value-added Services | 48,080 | 97,054 | |||||||||
FinTech and Business Services | 29,862 | 22,888 | 56,337 | 44,677 | |||||||
Online Advertising | 18,552 | 16,409 | 36,265 | 29,786 | |||||||
Others | 1,467 | 1,444 | 2,915 | 2,769 | |||||||
114,883 | 88,821 | 222,948 | 174,286 | ||||||||
Cost of revenues | 4 | (61,673) | (49,695) | (116,944) | (95,340) | ||||||
Gross profit | 53,210 | 39,126 | 106,004 | 78,946 | |||||||
Interest income | 1,749 | 1,652 | 3,385 | 3,060 | |||||||
Other gains, net | 3 | 8,607 | 4,038 | 12,644 | 15,127 | ||||||
Selling and marketing expenses | 4 | (7,756) | (4,718) | (14,805) | (8,962) | ||||||
General and administrative expenses | 4 | (16,499) | (12,577) | (30,657) | (23,908) | ||||||
Operating profit | 39,311 | 27,521 | 76,571 | 64,263 | |||||||
Finance costs, net | (2,005) | (1,982) | (3,689) | (3,099) | |||||||
Share of (loss)/profit of associates and | (295) | (576) | |||||||||
joint ventures | 2,370 | (587) | |||||||||
Profit before income tax | 37,011 | 27,909 | 72,306 | 60,577 | |||||||
Income tax expense | 5 | (4,557) | (3,225) | (10,449) | (8,037) | ||||||
Profit for the period | 32,454 | 24,684 | 61,857 | 52,540 | |||||||
Attributable to: | |||||||||||
33,107 | 62,003 | ||||||||||
Equity holders of the Company | 24,136 | 51,346 | |||||||||
Non-controlling interests | (653) | 548 | (146) | 1,194 | |||||||
32,454 | 24,684 | 61,857 | 52,540 | ||||||||
Earnings per share for profit | |||||||||||
attributable to equity holders of | |||||||||||
the Company | |||||||||||
(in RMB per share) | 3.491 | 6.541 | |||||||||
- basic | 6(a) | 2.550 | 5.427 | ||||||||
- diluted | 6(b) | 3.437 | 2.520 | 6.440 | 5.362 | ||||||
19
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED 30 JUNE 2020
Unaudited | Unaudited | |||||||
Three months ended 30 June | Six months ended 30 June | |||||||
2020 | 2019 | 2020 | 2019 | |||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | |||||
Profit for the period | 32,454 | 24,684 | 61,857 | 52,540 | ||||
Other comprehensive income, net of tax: | ||||||||
Items that may be subsequently reclassified to profit or loss | ||||||||
Share of other comprehensive income/(loss) | ||||||||
of associates and joint ventures | 159 | (2) | 129 | (28) | ||||
Transfer of share of other comprehensive | ||||||||
income to profit or loss upon deemed | ||||||||
disposal of an associate | (2) | - | (2) | - | ||||
Currency translation differences | 2,358 | 3,059 | 3,673 | 1,060 | ||||
Other fair value losses | (687) | (1,388) | (2,044) | (2,036) | ||||
Items that will not be subsequently reclassified to profit or loss | ||||||||
Net gains from changes in fair value | ||||||||
of financial assets at fair value through | ||||||||
other comprehensive income | 56,797 | 2,582 | 48,947 | 16,847 | ||||
Other fair value gains/(losses) | 102 | (70) | 48 | (71) | ||||
58,727 | 4,181 | 50,751 | 15,772 | |||||
Total comprehensive income for the period | 91,181 | 28,865 | 112,608 | 68,312 | ||||
Attributable to: | ||||||||
Equity holders of the Company | 89,242 | 28,080 | 110,262 | 66,571 | ||||
Non-controlling interests | 1,939 | 785 | 2,346 | 1,741 | ||||
91,181 | 28,865 | 112,608 | 68,312 | |||||
20
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Unaudited | Audited | |||
30 June | 31 December | |||
2020 | 2019 | |||
Note | RMB'Million | RMB'Million | ||
ASSETS | ||||
Non-current assets | ||||
Property, plant and equipment | 52,565 | 46,824 | ||
Land use rights | 15,822 | 15,609 | ||
Right-of-use assets | 10,622 | 10,847 | ||
Construction in progress | 5,217 | 3,935 | ||
Investment properties | 635 | 855 | ||
Intangible assets | 135,260 | 128,860 | ||
Investments in associates | 8 | 224,753 | 213,614 | |
Investments in joint ventures | 7,053 | 8,280 | ||
Financial assets at fair value | ||||
through profit or loss | 9 | 162,391 | 128,822 | |
Financial assets at fair value | ||||
through other comprehensive income | 10 | 139,021 | 81,721 | |
Prepayments, deposits and other assets | 22,588 | 23,442 | ||
Deferred income tax assets | 20,974 | 18,209 | ||
Term deposits | 21,210 | 19,000 | ||
818,111 | 700,018 | |||
Current assets | ||||
Inventories | 988 | 718 | ||
Accounts receivable | 11 | 40,384 | 35,839 | |
Prepayments, deposits and other assets | 36,233 | 27,840 | ||
Other financial assets | 1,585 | 375 | ||
Financial assets at fair value | ||||
through profit or loss | 9 | 6,327 | 7,114 | |
Term deposits | 79,920 | 46,911 | ||
Restricted cash | 2,278 | 2,180 | ||
Cash and cash equivalents | 173,718 | 132,991 | ||
341,433 | 253,968 | |||
Total assets | 1,159,544 | 953,986 | ||
21
Unaudited | Audited | ||||
30 June 2020 31 December 2019 | |||||
Note | RMB'Million | RMB'Million | |||
EQUITY | |||||
Equity attributable to equity holders | |||||
of the Company | - | ||||
Share capital | - | ||||
Share premium | 41,701 | 35,271 | |||
Shares held for share award schemes | (3,959) | (4,002) | |||
Other reserves | 61,056 | 16,786 | |||
Retained earnings | 436,611 | 384,651 | |||
535,409 | 432,706 | ||||
Non-controlling interests | 70,864 | 56,118 | |||
Total equity | 606,273 | 488,824 | |||
LIABILITIES | |||||
Non-current liabilities | 131,988 | ||||
Borrowings | 14 | 104,257 | |||
Notes payable | 15 | 126,785 | 83,327 | ||
Long-term payables | 4,675 | 3,577 | |||
Other financial liabilities | 7,016 | 5,242 | |||
Deferred income tax liabilities | 13,434 | 12,841 | |||
Lease liabilities | 8,143 | 8,428 | |||
Deferred revenue | 6,638 | 7,334 | |||
298,679 | 225,006 | ||||
Current liabilities | 86,433 | ||||
Accounts payable | 13 | 80,690 | |||
Other payables and accruals | 43,675 | 45,174 | |||
Borrowings | 14 | 15,101 | 22,695 | ||
Notes payable | 15 | - | 10,534 | ||
Current income tax liabilities | 10,813 | 9,733 | |||
Other tax liabilities | 1,133 | 1,245 | |||
Other financial liabilities | 5,746 | 5,857 | |||
Lease liabilities | 3,474 | 3,279 | |||
Deferred revenue | 88,217 | 60,949 | |||
254,592 | 240,156 | ||||
Total liabilities | 553,271 | 465,162 | |||
Total equity and liabilities | 1,159,544 | 953,986 | |||
22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2020
Unaudited | ||||||||||||||||
Attributable to equity holders of the Company | ||||||||||||||||
Shares held for | ||||||||||||||||
Share | share award | Other | Retained | Non-controlling | Total | |||||||||||
Share capital | premium | schemes | reserves | earnings | Total | interests | equity | |||||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | |||||||||
Balance at 1 January 2020 | - | 35,271 | (4,002) | 16,786 | 384,651 | 432,706 | 56,118 | 488,824 | ||||||||
Comprehensive income | ||||||||||||||||
- | - | - | - | 62,003 | 62,003 | (146) | 61,857 | |||||||||
Profit for the period | ||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
- share of other comprehensive | - | - | - | 128 | - | 128 | 1 | 129 | ||||||||
income of associates and joint ventures | ||||||||||||||||
- transfer of share of other comprehensive | ||||||||||||||||
income to profit or loss upon deemed | - | - | - | (2) | - | (2) | - | (2) | ||||||||
disposal of an associate | ||||||||||||||||
- net gains from changes in fair value of | ||||||||||||||||
financial assets at fair value through | - | - | - | 47,206 | - | 47,206 | 1,741 | 48,947 | ||||||||
other comprehensive income | ||||||||||||||||
- currency translation differences | - | - | - | 2,863 | - | 2,863 | 810 | 3,673 | ||||||||
- other fair value losses, net | - | - | - | (1,936) | - | (1,936) | (60) | (1,996) | ||||||||
Total comprehensive income | ||||||||||||||||
for the period | - | - | - | 48,259 | 62,003 | 110,262 | 2,346 | 112,608 | ||||||||
Transfer of gains on disposal and deemed | ||||||||||||||||
disposal of financial assets at fair value | ||||||||||||||||
through other comprehensive income to | - | - | - | (346) | 346 | - | - | - | ||||||||
retained earnings | ||||||||||||||||
Share of other changes in net assets of | - | - | - | 1,456 | - | 1,456 | (5) | 1,451 | ||||||||
associates and joint ventures | ||||||||||||||||
Transfer of share of other changes in net | ||||||||||||||||
assets of associates to profit or loss | - | - | - | (154) | - | (154) | - | (154) | ||||||||
upon deemed disposal of associates | ||||||||||||||||
Transactions with equity holders | - | - | - | - | - | - | 222 | 222 | ||||||||
Capital injection | ||||||||||||||||
Employee share option schemes: | - | 933 | - | 31 | - | 964 | 32 | 996 | ||||||||
- value of employee services | ||||||||||||||||
- proceeds from shares issued | - | 542 | - | - | - | 542 | - | 542 | ||||||||
Employee share award schemes: | - | 4,714 | - | 141 | - | 4,855 | 163 | 5,018 | ||||||||
- value of employee services | ||||||||||||||||
- shares withheld for share award | - | - | (411) | - | - | (411) | - | (411) | ||||||||
schemes | ||||||||||||||||
- vesting of awarded shares | - | (336) | 336 | - | - | - | - | - | ||||||||
Tax benefit from share-based payments | - | - | - | 214 | - | 214 | - | 214 | ||||||||
Profit appropriations to statutory reserves | - | - | - | (60) | 60 | - | - | - | ||||||||
Dividends | - | - | - | - | (10,449) | (10,449) | (324) | (10,773) | ||||||||
Non-controlling interests arising from | - | - | - | - | - | - | 8,685 | 8,685 | ||||||||
business combinations | ||||||||||||||||
Deemed disposal of a subsidiary | - | - | - | - | - | - | 5 | 5 | ||||||||
Acquisition of additional equity interests in | - | - | - | 35 | - | 35 | (270) | (235) | ||||||||
non-wholly owned subsidiaries | ||||||||||||||||
Dilution of interests in subsidiaries | - | - | - | (139) | - | (139) | 273 | 134 | ||||||||
Changes in put option liability with | - | - | - | (75) | - | (75) | (35) | (110) | ||||||||
non-controlling interests | ||||||||||||||||
Recognition of financial liabilities in | - | - | - | (686) | - | (686) | - | (686) | ||||||||
respect of non-controlling interests | ||||||||||||||||
Transfer of equity interests of subsidiaries | - | 577 | 118 | (4,406) | - | (3,711) | 3,654 | (57) | ||||||||
to non-controlling interests | ||||||||||||||||
Total transactions with equity holders | ||||||||||||||||
at their capacity as equity holders | ||||||||||||||||
for the period | - | 6,430 | 43 | (4,945) | (10,389) | (8,861) | 12,405 | 3,544 | ||||||||
Balance at 30 June 2020 | - | 41,701 | (3,959) | 61,056 | 436,611 | 535,409 | 70,864 | 606,273 | ||||||||
23
Unaudited | |||||||||||||||||
Attributable to equity holders of the Company | |||||||||||||||||
Shares held for | |||||||||||||||||
Share | share award | Other | Retained | Non-controlling | Total | ||||||||||||
Share capital | premium | schemes | reserves | earnings | Total | interests | equity | ||||||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | ||||||||||
Balance at 1 January 2019 | - | 27,294 | (4,173) | 729 | 299,660 | 323,510 | 32,697 | 356,207 | |||||||||
Comprehensive income | |||||||||||||||||
Profit for the period | - | - | - | - | 51,346 | 51,346 | 1,194 | 52,540 | |||||||||
Other comprehensive income, net of tax: | |||||||||||||||||
- share of other comprehensive loss of | |||||||||||||||||
associates and joint ventures | - | - | - | (27) | - | (27) | (1) | (28) | |||||||||
- net gains from changes in fair value of | |||||||||||||||||
financial assets at fair value through | |||||||||||||||||
other comprehensive income | - | - | - | 16,373 | - | 16,373 | 474 | 16,847 | |||||||||
- currency translation differences | - | - | - | 986 | - | 986 | 74 | 1,060 | |||||||||
- other fair value losses, net | - | - | - | (2,107) | - | (2,107) | - | (2,107) | |||||||||
Total comprehensive income | |||||||||||||||||
for the period | - | - | - | 15,225 | 51,346 | 66,571 | 1,741 | 68,312 | |||||||||
Share of other changes in net assets of | |||||||||||||||||
associates | - | - | - | 881 | - | 881 | - | 881 | |||||||||
Transactions with equity holders | |||||||||||||||||
Capital injection | - | - | - | - | - | - | 237 | 237 | |||||||||
Employee share option schemes: | |||||||||||||||||
- value of employee services | - | 1,090 | - | 22 | - | 1,112 | 22 | 1,134 | |||||||||
- proceeds from shares issued | - | 110 | - | - | - | 110 | - | 110 | |||||||||
Employee share award schemes: | |||||||||||||||||
- value of employee services | - | 3,018 | - | 209 | - | 3,227 | 144 | 3,371 | |||||||||
- shares withheld for share award | |||||||||||||||||
schemes | - | - | (369) | - | - | (369) | - | (369) | |||||||||
- vesting of awarded shares | - | (606) | 606 | - | - | - | - | - | |||||||||
Profit appropriations to statutory reserves | - | - | - | 14 | (14) | - | - | - | |||||||||
Dividends | - | - | - | - | (8,305) | (8,305) | (23) | (8,328) | |||||||||
Non-controlling interests arising from | |||||||||||||||||
business combination | - | - | - | - | - | - | 51 | 51 | |||||||||
Acquisition of additional equity interests in | |||||||||||||||||
non-wholly owned subsidiaries | - | 273 | - | (258) | - | 15 | (628) | (613) | |||||||||
Dilution of interests in subsidiaries | - | - | - | (212) | - | (212) | 267 | 55 | |||||||||
Transfer of equity interests of subsidiaries | |||||||||||||||||
to non-controlling interests | - | 488 | - | (572) | - | (84) | 68 | (16) | |||||||||
Total transactions with equity holders | |||||||||||||||||
at their capacity as equity holders | |||||||||||||||||
for the period | - | 4,373 | 237 | (797) | (8,319) | (4,506) | 138 | (4,368) | |||||||||
Balance at 30 June 2019 | |||||||||||||||||
- | 31,667 | (3,936) | 16,038 | 342,687 | 386,456 | 34,576 | 421,032 | ||||||||||
24
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2020
Unaudited | |||||
Six months ended 30 June | |||||
2020 | 2019 | ||||
RMB'Million | RMB'Million | ||||
Net cash flows generated from operating activities | 98,725 | 53,804 | |||
Net cash flows used in investing activities | (92,927) | (36,300) | |||
Net cash flows generated from financing activities | 34,498 | 7,252 | |||
Net increase in cash and cash equivalents | 40,296 | 24,756 | |||
Cash and cash equivalents at beginning of the period | 132,991 | 97,814 | |||
Exchange gains on cash and cash equivalents | 431 | 268 | |||
Cash and cash equivalents at end of the period | 173,718 | 122,838 | |||
Analysis of balances of cash and cash equivalents: | |||||
Bank balances and cash | 68,699 | 53,244 | |||
Term deposits and highly liquid investments with | |||||
initial terms within three months | 105,019 | 69,594 | |||
173,718 | 122,838 | ||||
25
Note:
1 General information, basis of preparation and presentation
The Company was incorporated in the Cayman Islands with limited liability. The shares of the Company have been listed on the Main Board of the Stock Exchange since 16 June 2004.
The Company is an investment holding company. The Group is principally engaged in the provision of VAS, FinTech and Business Services and Online Advertising services.
The condensed consolidated interim financial information comprises the consolidated statement of financial position as at 30 June 2020, the consolidated income statement and the consolidated statement of comprehensive income for the three and six months then ended, the consolidated statement of changes in equity and the consolidated statement of cash flows for six months then ended, and a summary of significant accounting policies and other explanatory notes (the "Interim Financial Information"). The Interim Financial Information is presented in RMB, unless otherwise stated.
The Interim Financial Information has not been audited but has been reviewed by the external auditor of the Company.
The Interim Financial Information has been prepared in accordance with IAS 34 "Interim Financial Reporting" issued by the International Accounting Standards Board and should be read in conjunction with the annual consolidated financial statements of the Group for the year ended 31 December 2019, which have been prepared in accordance with IFRS, as set out in the 2019 annual report of the Company dated 18 March 2020 (the "2019 Financial Statements").
Except as described below, the accounting policies and method of computation used in the preparation of the Interim Financial Information are generally consistent with those used in the 2019 Financial Statements in all material aspects, which have been prepared in accordance with IFRS under the historical cost convention, as modified by the revaluation of FVPL, FVOCI, certain other financial liabilities and derivative financial instruments, which are carried at fair value.
Taxes on income for the interim period are accrued using the estimated tax rates that would be applicable to expected total annual assessable profit.
The following standards and amendments have been adopted by the Group for the first time for the financial year beginning on 1 January 2020:
Amendments to IAS 1 and IAS 8 | Definition of material |
Amendments to IFRS 3 | Definition of a business |
Conceptual Framework | Revised Conceptual Framework for Financial Reporting |
Amendments to IFRS 9, IAS 39 and IFRS 7 | Interest Rate Benchmark Reform |
The adoption of these new and amended standards does not have significant impact on the consolidated financial statements of the Group.
26
2 Segment information
The Group has the following reportable segments for the three and six months ended 30 June 2020 and 2019:
- VAS;
- FinTech and Business Services;
- Online Advertising; and
- Others.
The "Others" business segment consists of the financials of investment in, production of and distribution of, films and television programmes for third parties, copyrights licensing, merchandise sales and various other activities.
There were no material inter-segment sales during the three and six months ended 30 June 2020 and 2019. The revenues from external customers reported to the chief operating decision-makers are measured in a manner consistent with that applied in the consolidated income statement.
The segment information provided to the chief operating decision-makers for the reportable segments for the three and six months ended 30 June 2020 and 2019 is as follows:
Unaudited | |||||||||
Three months ended 30 June 2020 | |||||||||
FinTech and | Online | ||||||||
VAS | Business Services | Advertising | Others | Total | |||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | |||||
Segment revenues | 65,002 | 29,862 | 18,552 | 1,467 | 114,883 | ||||
Gross profit | 34,902 | 8,640 | 9,544 | 124 | 53,210 | ||||
Cost of revenues | |||||||||
Depreciation | 1,218 | 2,192 | 794 | 21 | 4,225 | ||||
Amortisation | 3,883 | - | 1,678 | 268 | 5,829 | ||||
27
Unaudited | ||||||||||
Three months ended 30 June 2019 | ||||||||||
FinTech and | Online | |||||||||
VAS | Business Services | Advertising | Others | Total | ||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | ||||||
Segment revenues | 48,080 | 22,888 | 16,409 | 1,444 | 88,821 | |||||
Gross profit | 25,297 | 5,497 | 7,977 | 355 | 39,126 | |||||
Cost of revenues | ||||||||||
Depreciation | 846 | 1,585 | 469 | 28 | 2,928 | |||||
Amortisation | 3,580 | - | 2,896 | 378 | 6,854 | |||||
Unaudited | ||||||||||
Six months ended 30 June 2020 | ||||||||||
FinTech and | Online | |||||||||
VAS | Business Services | Advertising | Others | Total | ||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | ||||||
Segment revenues | 127,431 | 56,337 | 36,265 | 2,915 | 222,948 | |||||
Gross profit/(loss) | 71,754 | 16,022 | 18,254 | (26) | 106,004 | |||||
Cost of revenues | ||||||||||
Depreciation | 2,273 | 4,207 | 1,542 | 47 | 8,069 | |||||
Amortisation | 7,361 | - | 3,128 | 754 | 11,243 | |||||
28
Unaudited | |||||||||||||||||||||
Six months ended 30 June 2019 | |||||||||||||||||||||
FinTech and | Online | ||||||||||||||||||||
VAS | Business Services | Advertising | Others | Total | |||||||||||||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | RMB'Million | |||||||||||||||||
Segment revenues | 97,054 | 44,677 | 29,786 | 2,769 | 174,286 | ||||||||||||||||
Gross profit | 53,490 | 11,705 | 13,578 | 173 | 78,946 | ||||||||||||||||
Cost of revenues | |||||||||||||||||||||
Depreciation | 1,577 | 2,983 | 953 | 53 | 5,566 | ||||||||||||||||
Amortisation | 6,687 | - | 5,133 | 719 | 12,539 | ||||||||||||||||
3 | Other gains, net | ||||||||||||||||||||
Unaudited | Unaudited | ||||||||||||||||||||
Three months ended 30 June | Six months ended 30 June | ||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | ||||||||||||||||||
Net gains on disposals and deemed disposals | |||||||||||||||||||||
of investee companies (a) | 8,325 | 2,850 | 11,972 | 6,517 | |||||||||||||||||
Impairment provision for investee companies, goodwill | |||||||||||||||||||||
and intangible assets arising from acquisitions (b) | (8,613) | (2,139) | (8,126) | (2,266) | |||||||||||||||||
Net fair value gains on FVPL (c) | 3,717 | 1,816 | 5,034 | 6,999 | |||||||||||||||||
Subsidies and tax rebates | 1,657 | 978 | 3,772 | 1,861 | |||||||||||||||||
Net fair value gains on other financial instruments | 2,630 | 284 | 2,938 | 1,980 | |||||||||||||||||
Donations (d) | - | - | (2,600) | (700) | |||||||||||||||||
Dividend income | 386 | 300 | 794 | 542 | |||||||||||||||||
Others (e) | 505 | (51) | (1,140) | 194 | |||||||||||||||||
8,607 | 4,038 | 12,644 | 15,127 | ||||||||||||||||||
29
Note:
- The disposal and deemed disposal gains of approximately RMB11,972 million recognised during the six months ended 30 June 2020 mainly comprised the following:
- net gains of approximately RMB5,585 million (six months ended 30 June 2019: RMB4,011 million) on dilution of the Group's equity interests in certain associates due to new equity interests being issued by these associates (Note 8). These investee companies are principally engaged in eCommerce and Internet-related business; and
- aggregate net gains of approximately RMB6,387 million (six months ended 30 June 2019: RMB2,506 million) on disposals, partial disposals or deemed disposals of various investments of the Group, including step down gains of approximately RMB2,592 million arising from investment in an associate transferred to FVOCI (Note 10(a)), and step up gains of approximately RMB2,189 million arising from the acquisition of HUYA (Note 16).
- The impairment provision for investee companies, goodwill and intangible assets arising from acquisitions, mainly comprises the following:
Unaudited | Unaudited | ||||||||
Three months ended 30 June | Six months ended 30 June | ||||||||
2020 | 2019 | 2020 | 2019 | ||||||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | ||||||
Goodwill and intangible assets | |||||||||
arising from acquisitions | 4,384 | - | 4,384 | - | |||||
Investments in associates (Note 8(c)) | 3,777 | 2,139 | 2,432 | 2,266 | |||||
Investments in joint ventures | 452 | - | 1,310 | - | |||||
8,613 | 2,139 | 8,126 | 2,266 | ||||||
- Net fair value gains on FVPL during the six months ended 30 June 2020 comprised net gains of approximately RMB5,034 million as a result of increases in valuations of certain FVPL.
- The donations mainly include emergency funds to offer the support to pandemic-related programs and medical research.
- Others mainly comprises impairment reversal/(provision) on receivables.
30
4 | Expenses by nature | ||||
Unaudited | Unaudited | ||||
Three months ended 30 June | Six months ended 30 June | ||||
2020 | 2019 | 2020 | 2019 | ||
RMB'Million | RMB'Million | RMB'Million | RMB'Million | ||
Transaction costs (a) | 25,570 | 20,210 | 47,303 | 38,673 | |
Employee benefits expenses (b) | 16,821 | 12,643 | 31,964 | 24,259 | |
Content costs (excluding amortisation | |||||
of intangible assets) | 14,600 | 11,295 | 26,862 | 22,552 | |
Amortisation of intangible assets (c) | 6,414 | 7,081 | 12,292 | 12,996 | |
Promotion and advertising expenses | 6,048 | 3,661 | 11,597 | 6,982 | |
Bandwidth and server custody fees | |||||
(excluding depreciation of | |||||
right-of-use assets) | 5,652 | 3,991 | 10,773 | 8,069 | |
Depreciation of property, plant and | |||||
equipment, investment properties and | |||||
right-of-use assets | 5,156 | 3,737 | 9,919 | 7,143 | |
Travelling and entertainment expenses | 146 | 387 | 305 | 721 |
Note:
- Transaction costs primarily consist of bank handling fees, channel and distribution costs.
-
During the three and six months ended 30 June 2020, the Group had incurred expenses for the purpose of R&D of approximately RMB9,880 million and RMB17,885 million, respectively (three and six months ended 30 June 2019: approximately RMB7,117 million and RMB13,606 million, respectively), which mainly comprised employee benefits expenses of approximately RMB7,771 million and RMB14,571 million, respectively (three and six months ended 30 June 2019: approximately RMB5,786 million and RMB11,215 million, respectively).
During the three and six months ended 30 June 2020, employee benefits expenses included the share-based compensation expenses of approximately RMB3,507 million and RMB6,942 million, respectively (three and six months ended 30 June 2019: approximately RMB2,453 million and RMB4,486 million, respectively).
No significant development expenses had been capitalised for the three and six months ended 30 June 2020 and 2019.
31
- Amortisation charges of intangible assets are mainly in respect of media content including video and music content, game licenses and literature copyrights. During the three and six months ended 30 June 2020, amortisation of media content was approximately RMB5,800 million and RMB11,208 million, respectively (three and six months ended 30 June 2019: approximately RMB6,848 million and RMB12,525 million, respectively).
During the three and six months ended 30 June 2020, amortisation of intangible assets included the amortisation of intangible assets resulting from business combinations of approximately RMB870 million and RMB1,509 million, respectively (three and six months ended 30 June 2019: approximately RMB118 million and RMB232 million, respectively).
5 Income tax expense
Income tax expense is recognised based on management's best knowledge of the income tax rates expected for the financial year.
-
Cayman Islands and British Virgin Islands corporate income tax
The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the three and six months ended 30 June 2020 and 2019. - Hong Kong profits tax
Hong Kong profits tax had been provided for at the rate of 16.5% on the estimated assessable profit for the three and six months ended 30 June 2020 and 2019. - PRC CIT
PRC CIT had been provided for at applicable tax rates under the relevant regulations of the PRC after considering the available preferential tax benefits from refunds and allowances, and on the estimated assessable profit of entities within the Group established in the Mainland of China for the three and six months ended 30 June 2020 and 2019. The general PRC CIT rate was 25% for the three and six months ended 30 June 2020 and 2019.
Certain subsidiaries of the Group in the Mainland of China were approved as High and New Technology Enterprises, and accordingly, they were subject to a preferential CIT rate of 15% for the three and six months ended 30 June 2020 and 2019. Moreover, according to announcement and circular issued by relevant government authorities, certain subsidiaries that qualified as national key software enterprises are subject to a preferential CIT rate of 10%.
32
In addition, according to relevant tax circulars issued by the Mainland of China tax authorities, certain subsidiaries of the Company are entitled to other tax concessions, mainly including the preferential policy of "2-year exemption and 3-year half rate concession" and the preferential tax rate of 15% applicable for some subsidiaries located in certain areas of the Mainland of China upon fulfillment of certain requirements of the respective local governments.
-
Corporate income tax in other jurisdictions
Income tax on profit arising from other jurisdictions, including the United States, Europe, East Asia and South America, had been calculated on the estimated assessable profit for the three and six months ended 30 June 2020 and 2019 at the respective rates prevailing in the relevant jurisdictions, ranging from 12.5% to 35%. - Withholding tax
According to applicable tax regulations prevailing in the PRC, dividends distributed by a company established in the Mainland of China to a foreign investor with respect to profit derived after 1 January 2008 are generally subject to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong, under the double taxation arrangement between the Mainland of China and Hong Kong, the relevant withholding tax rate applicable to such foreign investor will be reduced from 10% to 5% subject to the fulfilment of certain conditions.
Dividends distributed from certain jurisdictions that the Group's entities operate in are also subject to withholding tax at respective applicable tax rates.
The income tax expense of the Group for the three and six months ended 30 June 2020 and 2019 are analysed as follows:
Unaudited | Unaudited | |||||||||
Three months ended 30 June | Six months ended 30 June | |||||||||
2020 | 2019 | 2020 | 2019 | |||||||
RMB'Million RMB'Million RMB'Million RMB'Million | ||||||||||
Current income tax | 4,730 | 4,354 | 12,060 | 8,796 | ||||||
Deferred income tax | (173) | (1,129) | (1,611) | (759) | ||||||
4,557 | 3,225 | 10,449 | 8,037 | |||||||
33
6 Earnings per share
-
Basic
Basic EPS is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.
Unaudited | Unaudited | ||||||
Three months | Six months | ||||||
ended 30 June | ended 30 June | ||||||
2020 | 2019 | 2020 | 2019 | ||||
Profit attributable to equity holders | |||||||
of the Company (RMB'Million) | 33,107 | 24,136 | 62,003 | 51,346 | |||
Weighted average number of | |||||||
ordinary shares in issue | |||||||
(million shares) | 9,482 | 9,464 | 9,479 | 9,461 | |||
Basic EPS (RMB per share) | 3.491 | 2.550 | 6.541 | 5.427 | |||
- Diluted
The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption of the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted by the Company (collectively forming the denominator for computing the diluted EPS).
In addition, the profit attributable to equity holders (numerator) has been adjusted by the effect of the share options and restricted shares granted by the Company's non-wholly owned subsidiaries and associates, excluding those which have anti-dilutive effect to the Group's diluted EPS.
34
Unaudited | Unaudited | ||||||
Three months | Six months | ||||||
ended 30 June | ended 30 June | ||||||
2020 | 2019 | 2020 | 2019 | ||||
Profit attributable to equity holders | |||||||
of the Company (RMB'Million) | 33,107 | 24,136 | 62,003 | 51,346 | |||
Dilution effect arising from share-based | |||||||
awards issued by non-wholly owned | |||||||
subsidiaries and associates | |||||||
(RMB'Million) | (49) | - | (86) | - | |||
Profit attributable to equity holders of the | |||||||
Company for the calculation of diluted | |||||||
EPS (RMB'Million) | 33,058 | 24,136 | 61,917 | 51,346 | |||
Weighted average number of ordinary | |||||||
shares in issue (million shares) | 9,482 | 9,464 | 9,479 | 9,461 | |||
Adjustments for share options and | |||||||
awarded shares (million shares) | 136 | 113 | 135 | 114 | |||
Weighted average number of | |||||||
ordinary shares for the calculation | |||||||
of diluted EPS (million shares) | 9,618 | 9,577 | 9,614 | 9,575 | |||
Diluted EPS (RMB per share) | 3.437 | 2.520 | 6.440 | 5.362 | |||
7 Dividends
A final dividend in respect of the year ended 31 December 2019 of HKD1.20 per share (2018: HKD1.00 per share) was proposed pursuant to a resolution passed by the Board on 18 March 2020 and approved by the shareholders at the 2020 AGM. Such dividend amounting to HKD11,378 million (final dividend for 2018: HKD9,463 million) was paid during the three months ended 30 June 2020.
The Board did not declare any interim dividend for the six months ended 30 June 2020 and 2019.
35
8 | Investments in associates | |||
Unaudited | Audited | |||
30 June | 31 December | |||
2020 | 2019 | |||
RMB'Million | RMB'Million | |||
Investments in associates | ||||
- Listed entities (Note) | 145,062 | 141,350 | ||
- Unlisted entities | 79,691 | 72,264 | ||
224,753 | 213,614 | |||
Note: | ||||
As at 30 June 2020, the fair value of the investments in associates which were listed entities was RMB580,055 million (31 December 2019: RMB334,688 million).
Movement of investments in associates is analysed as follows: | |||||
Unaudited | |||||
Six months ended 30 June | |||||
2020 | 2019 | ||||
RMB'Million | RMB'Million | ||||
At beginning of period | 213,614 | 219,215 | |||
Additions (a) | 15,521 | 8,459 | |||
Transfers (b) | (8,138) | 823 | |||
Deemed disposal gains (Note 3(a)) | 5,585 | 4,011 | |||
Share of loss of associates | (241) | (538) | |||
Share of other comprehensive income/(loss) of associates | 148 | (22) | |||
Share of other changes in net assets of associates | 1,443 | 881 | |||
Dividends | (71) | (100) | |||
Disposals | (1,621) | (3,549) | |||
Impairment provision (c) | (2,432) | (2,266) | |||
Currency translation differences | 945 | 273 | |||
At end of period | 224,753 | 227,187 | |||
36
Note:
- During the six months ended 30 June 2020, the Group's additions to investments in associates mainly comprised the following:
- a consortium (the "Consortium") formed together with TME, a non-wholly owned subsidiary of the Company, and certain global financial investors to acquire 10% equity interests in Universal Music Group from its parent company, Vivendi S.A.. According to the subscription agreements, the Group has significant influence on the Consortium. The Group's investment in the Consortium amounts to approximately EUR1,178 million (equivalent to approximately RMB9,065 million). As a result, the investment in the Consortium has been accounted for as an associate by the Group; and
- new associates and additional investments in existing associates with an aggregate amount of approximately RMB6,456 million during the six months ended 30 June 2020 are principally engaged in software, digital medical and other Internet-related businesses.
- During the six months ended 30 June 2020, transfers comprised an aggregate amount of approximately RMB8,138 million, which mainly included HUYA, an existing associate of approximately RMB5,221 million transferred to a subsidiary as a result of business combination (Note 16), and an associate of approximately RMB2,349 million transferred to FVOCI as a result of retirement of board representative.
- During the six months ended 30 June 2020, the Group had made an aggregate net impairment provision of approximately RMB2,432 million (six months ended 30 June 2019: RMB2,266 million) against the carrying amounts of certain investments in associates, which included impairment loss of approximately RMB4,916 million recognised and approximately RMB2,484 million reversed. The impairment reversal/provision mainly resulted from revisions of financial/ business outlook of the associates and changes in the market environment.
37
9 Financial assets at fair value through profit or loss FVPL include the following:
Unaudited | Audited | ||||
30 June | 31 December | ||||
2020 | 2019 | ||||
RMB'Million | RMB'Million | ||||
Included in non-current assets: | |||||
Investments in listed entities | 16,594 | 10,408 | |||
Investments in unlisted entities | 137,319 | 111,761 | |||
Treasury investments and others | 8,478 | 6,653 | |||
162,391 | 128,822 | ||||
Included in current assets: | |||||
Investment in a listed entity | - | 15 | |||
Treasury investments and others | 6,327 | 7,099 | |||
6,327 | 7,114 | ||||
168,718 | 135,936 | ||||
Movement of FVPL is analysed as follows: | |||||
Unaudited | |||||
Six months ended 30 June | |||||
2020 | 2019 | ||||
RMB'Million | RMB'Million | ||||
At beginning of period | 135,936 | 97,877 | |||
Additions and transfers (a) | 30,167 | 13,849 | |||
Changes in fair value (Note 3(c)) | 5,034 | 6,999 | |||
Disposals and others | (5,123) | (6,953) | |||
Currency translation differences | 2,704 | 462 | |||
At end of period | 168,718 | 112,234 | |||
38
Note:
- During the six months ended 30 June 2020, the Group's additions and transfers to FVPL mainly comprised the following:
- an additional investment in an online video-sharing services platform of approximately USD1,499 million (equivalent to approximately RMB10,343 million). As at 30 June 2020, the Group's equity interests in this investee company are approximately 19% on an outstanding basis; and
- new investments and additional investments with an aggregate amount of approximately RMB19,159 million in listed and unlisted entities. These companies are principally engaged in eCommerce, online education, Internet platform, technology and other Internet-related businesses.
10 Financial assets at fair value through other comprehensive income FVOCI include the following:
Unaudited | Audited | ||
30 June | 31 December | ||
2020 | 2019 | ||
RMB'Million | RMB'Million | ||
Equity investments in listed entities | 129,595 | 74,707 | |
Equity investments in unlisted entities | 9,426 | 7,014 | |
139,021 | 81,721 | ||
39
Movement of FVOCI is analysed as follows: | ||||
Unaudited | ||||
Six months ended 30 June | ||||
2020 | 2019 | |||
RMB'Million | RMB'Million | |||
At beginning of period | 81,721 | 43,519 | ||
Additions and transfers (a) | 9,091 | 8,130 | ||
Changes in fair value (b) | 49,817 | 16,920 | ||
Disposals | (2,905) | - | ||
Currency translation differences | 1,297 | 499 | ||
At end of period | 139,021 | 69,068 | ||
Note: | ||||
- It comprised transfers of approximately RMB1,846 million, step down gains due to an investee company transferred from investment in an associate of approximately RMB2,592 million and new and additional investments of approximately RMB4,653 million.
- It comprised net gains of approximately RMB49,817 million mainly as a result of increases in share prices of certain listed entities.
11 Accounts receivable
Accounts receivable and their ageing analysis, based on recognition date, are as follows:
Unaudited | Audited | ||
30 June | 31 December | ||
2020 | 2019 | ||
RMB'Million | RMB'Million | ||
0 ~ 30 days | 14,609 | 15,582 | |
31 ~ 60 days | 11,700 | 10,222 | |
61 ~ 90 days | 4,909 | 5,035 | |
Over 90 days | 9,166 | 5,000 | |
40,384 | 35,839 | ||
40
Receivable balances as at 30 June 2020 and 31 December 2019 mainly represented amounts due from online advertising customers and agencies, FinTech and cloud customers and third party platform providers.
Some online advertising customers and agencies are usually granted with a credit period within 90 days immediately following the month-end in which the relevant obligations under the relevant contracted advertising orders are delivered. Third party platform providers usually settle the amounts due by them within 60 days. Other customers, mainly including FinTech and cloud customers, are usually granted with a credit period within 90 days.
12 Share-based payments
-
Share option schemes
The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV.
The Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the Post-IPO Option Scheme II and the Post-IPO Option Scheme III expired on 31 December 2011, 23 March 2014, 16 May 2017 and 13 May 2019, respectively. Upon the expiry of these schemes, no further options would be granted under these schemes, but the options granted prior to such expiry continued to be valid and exercisable in accordance with provisions of the schemes. As at 30 June 2020, there were no outstanding options exercisable of the Pre-IPO Option Scheme, the Post-IPO Option Scheme I and the Post-IPO Option Scheme III.
In respect of the Post-IPO Option Scheme IV which continues to be in force, the Board may, at its discretion, grant options to any qualifying participants to subscribe for shares in the Company, subject to the terms and conditions stipulated therein. The exercise price must be in compliance with the requirement under the Listing Rules. In addition, the option vesting period is determined by the Board provided that it is not later than the last day of a 7-year period for the Post-IPO Option Scheme IV after the date of grant of option.
In 2020, the Company allows certain of the grantees under the Post-IPO Option Scheme II and the Post-IPO Option Scheme IV to surrender their rights to receive a portion of the underlying shares (with equivalent fair value) to set off against the exercise price and/or individual income tax payable when they exercise their options.
41
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Post-IPO Option | Post-IPO Option | ||||||||||
Scheme II | Scheme IV | Total | |||||||||
Average | Average | ||||||||||
exercise price | No. of options | exercise price | No. of options | No. of options | |||||||
At 1 January 2020 | HKD185.86 | 50,358,800 | HKD375.36 | 61,738,193 | 112,096,993 | ||||||
Granted | - | - | HKD360.47 | 7,564,144 | 7,564,144 | ||||||
Exercised | HKD185.92 | (1,513,080) | HKD308.70 | (1,037,103) | (2,550,183) | ||||||
Lapsed/forfeited | HKD174.86 | (4,425) | HKD347.62 | (281,780) | (286,205) | ||||||
At 30 June 2020 | HKD185.86 | 48,841,295 | HKD374.84 | 67,983,454 | 116,824,749 | ||||||
Exercisable as at 30 June 2020 | HKD179.54 | 41,717,167 | HKD384.17 | 17,782,134 | 59,499,301 | ||||||
At 1 January 2019 | HKD185.25 | 51,499,010 | HKD374.52 | 36,277,234 | 87,776,244 | ||||||
Granted | - | - | HKD376.00 | 23,696,575 | 23,696,575 | ||||||
Exercised | HKD168.17 | (509,236) | HKD272.36 | (154,184) | (663,420) | ||||||
Lapsed/forfeited | HKD148.90 | (1,225) | HKD325.28 | (158,662) | (159,887) | ||||||
At 30 June 2019 | HKD185.42 | 50,988,549 | HKD375.50 | 59,660,963 | 110,649,512 | ||||||
Exercisable as at 30 June 2019 | HKD172.04 | 33,919,512 | HKD382.40 | 7,793,394 | 41,712,906 | ||||||
During the six months ended 30 June 2020, 4,399,815 options had been granted to one director of the Company (six months ended 30 June 2019: 3,506,580 options were granted to one director of the Company).
42
-
Share award schemes
The Company has adopted the Share Award Schemes as of 30 June 2020, which are administered by an independent trustee appointed by the Group. The vesting period of the awarded shares is determined by the Board.
Movements in the number of awarded shares for the six months ended 30 June 2020 and 2019 are as follows:
Number of awarded shares | ||||
Six months ended 30 June | ||||
2020 | 2019 | |||
At beginning of period | 76,615,755 | 50,247,895 | ||
Granted | 13,426,868 | 28,190,873 | ||
Lapsed/forfeited | (1,617,473) | (1,359,202) | ||
Vested and transferred | (8,360,461) | (8,726,893) | ||
At end of period | 80,064,689 | 68,352,673 | ||
Vested but not transferred as at the end of period | 32,554 | 34,630 | ||
During the six months ended 30 June 2020, 59,500 awarded shares had been granted to five independent non-executive directors of the Company (six months ended 30 June 2019: 53,500 awarded shares were granted to four independent non-executive directors of the Company).
13 Accounts payable
Accounts payable and their ageing analysis, based on invoice date, are as follows:
Unaudited | Audited | ||
30 June | 31 December | ||
2020 | 2019 | ||
RMB'Million | RMB'Million | ||
0 ~ 30 days | 72,084 | 67,054 | |
31 ~ 60 days | 7,094 | 2,975 | |
61 ~ 90 days | 1,742 | 1,442 | |
Over 90 days | 5,513 | 9,219 | |
86,433 | 80,690 | ||
43
14 | Borrowings | |||
Unaudited | Audited | |||
30 June | 31 December | |||
2020 | 2019 | |||
RMB'Million | RMB'Million | |||
Included in non-current liabilities: | ||||
Non-current portion of long-term USD bank borrowings, unsecured (a) | 120,387 | 88,354 | ||
Non-current portion of long-term EUR bank borrowings, unsecured (a) | 1,194 | 1,172 | ||
Non-current portion of long-term EUR bank borrowings, secured (a) | 13 | - | ||
Non-current portion of long-term RMB bank borrowings, unsecured (a) | 10,394 | 10,196 | ||
Non-current portion of long-term HKD bank borrowings, unsecured (a) | - | 4,535 | ||
131,988 | 104,257 | |||
Included in current liabilities: | ||||
USD bank borrowings, unsecured (b) | 10,336 | 6,627 | ||
HKD bank borrowings, unsecured (b) | - | 9,298 | ||
RMB bank borrowings, unsecured (b) | 4,049 | 902 | ||
RMB bank borrowings, secured (b) | 190 | 201 | ||
Current portion of long-term USD bank borrowings, unsecured (a) | 142 | 140 | ||
Current portion of long-term RMB bank borrowings, unsecured (a) | 384 | 4,633 | ||
Current portion of long-term HKD bank borrowings, unsecured (a) | - | 894 | ||
15,101 | 22,695 | |||
147,089 | 126,952 | |||
44
Note:
- The aggregate principal amounts of long-term bank borrowings and applicable interest rates are as follows:
Unaudited | Audited | ||||
30 June 2020 | 31 December 2019 | ||||
Amount | Interest rate | Amount | Interest rate | ||
(Million) | (per annum) | (Million) | (per annum) | ||
USD bank borrowings | USD17,025 | LIBOR + 0.70% ~ 1.27% | USD12,685 | LIBOR + 0.70% ~ 1.27% | |
EUR bank borrowings | EUR152 | 0.52% ~ 1.00% | EUR150 | 0.52% | |
HKD bank borrowings | - | - | HKD6,070 | HIBOR + 0.70% | ~ 0.80% |
RMB bank borrowings | RMB10,778 | 4.18% ~ 5.70% | RMB14,829 | 4.18% | ~ 5.70% |
- The aggregate principal amounts of short-term bank borrowings and applicable interest rates are as follows:
Unaudited | Audited | |||||
30 June 2020 | 31 December 2019 | |||||
Amount | Interest rate | Amount | Interest rate | |||
(Million) | (per annum) | (Million) | (per annum) | |||
USD bank borrowings | USD1,460 | LIBOR + 0.45% | ~ 1.10% | USD950 | LIBOR + 0.5% | |
HKD bank borrowings | - | - | HKD10,395 | HIBOR + 0.45% | ~ 0.50% | |
RMB bank borrowings | RMB4,239 | 3.55% | ~ 5.22% | RMB1,103 | 3.60% | ~ 5.22% |
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15 | Notes payable | |||
Unaudited | Audited | |||
30 June | 31 December | |||
2020 | 2019 | |||
RMB'Million | RMB'Million | |||
Included in non-current liabilities: | ||||
Non-current portion of long-term USD notes payable | 126,785 | 83,327 | ||
Included in current liabilities: | ||||
Current portion of long-term USD notes payable | - | 7,672 | ||
Current portion of long-term HKD notes payable | - | 2,862 | ||
- | 10,534 | |||
126,785 | 93,861 | |||
Note: | ||||
The aggregate principal amounts of notes payable were USD18,000 million (31 December 2019: USD13,100 million and HKD3,200 million). Applicable interest rates were at 1.81% to 4.70% and 3-month USD LIBOR + 0.605% to 0.910% (31 December 2019: 2.875% to 4.70% and 3-month USD LIBOR + 0.605% to 0.910%) per annum.
All of these notes payable issued by the Group are unsecured.
On 4 June 2020, the Company issued four tranches of senior notes under the Global Medium Term Note Programme with an aggregate principal amount of USD6 billion as set out below.
Amount | Interest Rate | Due | |
(USD'Million) | (per annum) | ||
January 2026 Notes | 1,000 | 1.810% | 2026 |
2030 Notes | 2,250 | 2.390% | 2030 |
2050 Notes | 2,000 | 3.240% | 2050 |
2060 Notes | 750 | 3.290% | 2060 |
6,000 | |||
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During the six months ended 30 June 2020, the notes payable with an aggregate principal amount of USD1,100 million issued in February 2015, an aggregate principal amount of HKD2,000 million issued in May 2014 and an aggregate principal amount of HKD1,200 million issued in October 2014 reached their maturity and were repaid in full by the Group.
16 Step-up acquisition of HUYA
On 3 April 2020 (the "Acquisition Date"), the Group exercised its call option to acquire additional 16,523,819 Class B ordinary shares in an associate, HUYA for an aggregate purchase price of approximately USD262.6 million in cash from JOYY Inc. (the "Transaction"). HUYA is a leading game live streaming platform in China. After the Transaction, the Group increased its voting power in HUYA to 50.9% and equity interests in HUYA to 36.9% on an outstanding basis, and the Group considers it has sufficient power to control HUYA. As a result, HUYA was accounted for as a subsidiary of the Group upon the completion of the transaction ("Step-up Acquisition"). The equity interest held under investment in an associate was re-measured to fair value and resulted in step up gains of approximately RMB2,189 million.
For the non-controlling interest in HUYA, the Group elected to recognise the non-controlling interests that are present ownership interests measured at its proportionate share of the acquired identifiable net assets, and other components of non-controlling interests measured at the acquisition-date fair value. Goodwill of approximately RMB5,272 million was recognised as a result of the Step-up Acquisition. It was mainly attributable to the operating synergies and economies of scale expected to be derived from integration of the operations with the Company. None of the goodwill is expected to be deductible for income tax purpose.
The following table summarises the purchase consideration, fair value of assets acquired, liabilities assumed and the non-controlling interest recognised as at the Acquisition Date.
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As at 3 April | ||
2020 | ||
RMB'Million | ||
Total consideration: | ||
Cash paid | 1,860 | |
Fair value of the previously held interests | 7,260 | |
9,120 | ||
Recognised amounts of identifiable assets acquired and liabilities assumed: | ||
Intangible assets | 3,864 | |
Term deposits and others | 10,060 | |
Prepayments, deposits and other assets | 534 | |
Cash and cash equivalents | 659 | |
Other assets | 335 | |
Deferred income tax liabilities | (574) | |
Deferred revenue | (862) | |
Accounts payable | (1,088) | |
Other payables and accruals | (442) | |
Other liabilities | (187) | |
Total identifiable net assets | 12,299 | |
Non-controlling interests | (8,451) | |
Goodwill | 5,272 | |
9,120 | ||
Note: | ||
The Group's revenue for the half year would be increased by not more than 5% and results for the half year would not be materially different should the Step-up Acquisition have occurred on 1 January 2020.
The related transaction costs of the Step-up Acquisition are not material to the Group's consolidated financial statements.
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17 Subsequent event
The issuance of preliminary non-binding proposal to HUYA and Douyu International Holdings Limited ("DouYu") and acquisition of additional equity interest in HUYA
On 10 August 2020, the Group issued a preliminary non-binding proposal letter to HUYA and DouYu, an existing subsidiary and associate of the Group respectively, proposing that HUYA and DouYu enter into a stock-for-stock merger to be effected pursuant to applicable laws, as a result of which HUYA or its subsidiary would acquire each the outstanding ordinary shares of DouYu, including those ordinary shares represented by American depositary shares, in exchange for a certain number of newly issued Class A ordinary shares of HUYA to be agreed between the parties, including those ordinary shares represented by American depositary shares.
On 10 August 2020, the Group has also entered into a definitive share transfer agreement with JOYY Inc. and a separate share transfer agreement with Mr. Rongjie Dong ("Mr. Dong"), the chief executive officer of HUYA, pursuant to which the Group will purchase from JOYY Inc. additional 30,000,000 Class B ordinary shares of HUYA, for an aggregate purchase price of approximately USD810 million and from Mr. Dong 1,000,000 Class B ordinary shares of HUYA. After completion of this transaction, the Group will increase its voting power in HUYA to 70.4% and equity interests in HUYA to 51.0% on an outstanding basis.
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OTHER INFORMATION
Purchase, Sale or Redemption of the Company's Listed Securities
Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's shares during the six months ended 30 June 2020.
Employee and Remuneration Policies
As at 30 June 2020, the Group had 70,756 employees (30 June 2019: 56,310). The number of employees employed by the Group varies from time to time depending on needs and employees are remunerated based on industry practice.
The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according to the assessment of individual performance.
The total remuneration cost incurred by the Group for the six months ended 30 June 2020 was RMB31,964 million (for the six months ended 30 June 2019: RMB24,259 million).
Audit Committee
The Audit Committee, together with the Auditor, has reviewed the Group's unaudited Interim Financial Information for the three and six months ended 30 June 2020. The Audit Committee has also reviewed the accounting principles and practices adopted by the Group and discussed auditing, risk management, internal control and financial reporting matters.
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Compliance with the Corporate Governance Code
Code provision A.4.2 of the CG Code provides that every director, including those appointed for a specific term, should be subject to retirement by rotation at least once every three years. According to the Articles of Association, one-third of the directors for the time being (or, if their number is not a multiple of three, the number nearest to but not greater than one- third) shall retire from office by rotation, provided that the chairman of the Board shall not, whilst holding such office, be subject to retirement by rotation or be taken into account in determining the number of directors to retire in each year. In compliance with the provisions in the Articles of Association, at the 2020 AGM, two directors retired and were re-elected while one director who was appointed to the Board in August 2019 was re-elected pursuant to Article 86(3) of the Articles of Association. As the re-election of Yang Siu Shun, who was re-elected in 2017, was not considered at the 2020 AGM, code provision A.4.2 of the CG Code is deviated. Considering that the re-election of Yang Siu Shun will be considered at the subsequent annual general meeting, the Board believes that such deviation from code provision A.4.2 of the CG Code does not have a material impact on the operation of the Company as a whole.
Save as disclosed above and those disclosed in the corporate governance report in the 2019 annual report of the Company, none of the directors of the Company is aware of any information which would reasonably indicate that the Company has not complied with the code provisions as set out in the CG Code during the period from 1 January 2020 to 30 June 2020.
As to the deviation from code provisions A.2.1 and A.4.2 of the CG Code, the Board will continue to review the current structure from time to time and shall make necessary changes when appropriate and inform the shareholders accordingly.
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APPRECIATION
On behalf of the Board, I would like to commend our diligent staff and management team for their relentless efforts and commitment despite the challenges in the first half of 2020. I would also like to express our gratitude to our shareholders and stakeholders for their continued support and trust. With our determination to build a sustainable ecosystem in the Consumer Internet and Industrial Internet sectors, we are confident that we will be able to create long- term value for our shareholders.
By Order of the Board
Ma Huateng
Chairman
Hong Kong, 12 August 2020
As at the date of this announcement, the directors of the Company are:
Executive Directors:
Ma Huateng and Lau Chi Ping Martin;
Non-Executive Directors:
Jacobus Petrus (Koos) Bekker and Charles St Leger Searle; and
Independent Non-Executive Directors:
Li Dong Sheng, Iain Ferguson Bruce, Ian Charles Stone, Yang Siu Shun and Ke Yang.
This announcement contains forward-looking statements relating to the business outlook, estimates of financial performance, forecast business plans and growth strategies of the Group. 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 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 announcement 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.
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DEFINITION
In this announcement, unless the context otherwise requires, the following expressions shall have the following meanings:
Term | Definition |
"2020 AGM" | the annual general meeting of the Company held on 13 May |
2020 | |
"AI" | artificial intelligence |
"Articles of Association" | the second amended and restated articles of association of the |
Company adopted by special resolution passed on 13 May 2020 |
"Audit Committee" "Auditor" "Board"
"CG Code"
the audit committee of the Company
PricewaterhouseCoopers, the auditor of the Company
the board of directors of the Company
the corporate governance code as set out in Appendix 14 to the Listing Rules
"China Literature" China Literature Limited, a non-wholly owned subsidiary of the Company, which is incorporated in the Cayman Islands with limited liability and the shares of which are listed on the Stock Exchange
"CIT"
"Company"
corporate income tax
Tencent Holdings Limited, a limited liability company organised and existing under the laws of the Cayman Islands and the shares of which are listed on the Stock Exchange
"DnF"
"EBITDA" "eCPM" "EPS" "EUR" "FinTech"
Dungeon and Fighter
earnings before interest, tax, depreciation and amortisation
effective cost per mille
earnings per share
the lawful currency of European Union
financial technology
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"FVOCI" | financial assets at fair value through other comprehensive |
income | |
"FVPL" | financial assets at fair value through profit or loss |
"Group" | the Company and its subsidiaries |
"HIBOR" | Hong Kong InterBank Offered Rate |
"HKD" | the lawful currency of Hong Kong |
"Hong Kong" | the Hong Kong Special Administrative Region, the PRC |
"IAS" | International Accounting Standards |
"IFRS" | International Financial Reporting Standards |
"IP" | intellectual property |
"IPO" | initial public offering |
"LIBOR" | London InterBank Offered Rate |
"Listing Rules" | the Rules Governing the Listing of Securities on the Stock |
Exchange | |
"M&A" | mergers and acquisitions |
"MAU" | monthly active user accounts |
"MOBA" | Multiplayer Online Battle Arena |
"mobile RPG" | mobile role-playing games |
"PC" | personal computer |
"Post-IPO Option | the Post-IPO Share Option Scheme adopted by the Company on |
Scheme I" | 24 March 2004 |
"Post-IPO Option | the Post-IPO Share Option Scheme adopted by the Company on |
Scheme II" | 16 May 2007 |
"Post-IPO Option | the Post-IPO Share Option Scheme adopted by the Company on |
Scheme III" | 13 May 2009 |
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"Post-IPO Option
Scheme IV"
"PRC" or "China" "PRC CIT"
"Pre-IPO Option Scheme"
"R&D"
"RMB"
"Share Award Schemes"
"SMEs"
"Stock Exchange" "Supercell" "TME"
"United States" "USD" "VAS"
the Post-IPO Share Option Scheme adopted by the Company on 17 May 2017
the People's Republic of China
PRC corporate income tax as defined in the "Corporate Income Tax Law of the People's Republic of China"
the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
research and development
the lawful currency of the PRC
the share award scheme adopted by the Company on 13 December 2007, the share award scheme adopted by the Company on 13 November 2013, and the share award scheme adopted by the Company on 25 November 2019, as amended from time to time
small and medium enterprises
The Stock Exchange of Hong Kong Limited
Supercell Oy, a private company incorporated in Finland
Tencent Music Entertainment Group, a limited liability company incorporated under the laws of the Cayman Islands and the shares of which are listed on the New York Stock Exchange
the United States of America
the lawful currency of the United States
value-added services
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Tencent Holdings Ltd. published this content on 12 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2020 08:47:12 UTC