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Tencent Music Entertainment Group Announces First Quarter 2022 Unaudited Financial Results – PR Newswire

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May 16, 2022, 16:05 ET
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SHENZHEN, China, May 16, 2022 /PRNewswire/ — Tencent Music Entertainment Group ("TME," or the "Company") (NYSE: TME), the leading online music and audio entertainment platform in China, today announced its unaudited financial results for the first quarter ended March 31, 2022.
Financial and Operational Highlights
In the three months ended March 31, 2022:
"We delivered a healthy 18% year-over-year growth in subscription revenues with paying users exceeding 80 million in the first quarter, as supported by our dual engine content-and-platform strategy. Despite the headwinds in an evolving market landscape, which resulted in a year-over-year decline in total revenues, our efforts to optimize cost structure and improve operating efficiency led to improved profitability quarter-over-quarter," said Mr. Cussion Pang, Executive Chairman of TME. "In an era of increasing entertainment choices, the ability to sustain a competitive advantage is awarded to those who offer users a differentiated experience. We are encouraged by the increasing benefits our original content production investments and Tencent Musician Platform have brought to our users, musicians and the overall content ecosystem. With these initiatives, we continue to make critical investments that align with our long-term strategic goals and create sustainable value for all our music stakeholders."
"In the first quarter, we continued to build an immersive music entertainment ecosystem, bringing music lovers innovative possibilities for how they listen, watch, sing and play. With the goal of creating a sense of belonging that makes our products a must-have, we look for ways to address the multi-faceted needs of diverse user cohorts," said Mr. Ross Liang, CEO of TME. "In the first quarter, we further strengthened our cooperation with Tencent’s ecosystem in content production and promotion, with the rewards becoming increasingly manifest. In addition, our long-form audio continued to gain traction thanks to differentiated content, and we are working on improving its monetization efficiency mainly through memberships. Moving forward, we will continue to make our ecosystem, content, products and services differentiated and highly specialized. This, in turn, will help us better serve hundreds of millions of music lovers, music creators and the music industry as a whole, and unlock the massive opportunity in front of us," concluded Mr. Liang.
Recent Operational Highlights
1Q22
1Q21
YoY %
Mobile MAU – online music (million)
604
615
(1.8%)
Mobile MAU – social entertainment (million)
162
224
(27.7%)
Paying users – online music (million)
80.2
60.9
31.7%
Paying users – social entertainment (million)
8.3
11.3
(26.5%)
Monthly ARPPU – online music (RMB)
8.3
9.3
(10.8%)
Monthly ARPPU – social entertainment (RMB)
161.8
149.7
8.1%
[1] Non-IFRS net profit and Non-IFRS net profit attributable to equity holders of the Company was arrived at after excluding the combined effect of amortization of intangible assets and other assets arising from acquisitions, share-based compensation expenses, net losses/gains from investments and income tax effects.
[2] For the definitions of the cited key operating metrics, please refer to the introduction section in the Company’s 2021 20-F filed on April 26, 2022. The monthly ARPPU of social entertainment services is calculated based on revenues from social entertainment and others, including advertising services provided on our social entertainment platforms.
First Quarter 2022 Financial Results
Revenues
Total revenues for the first quarter of 2022 decreased by RMB1.18 billion, or 15.1%, to RMB6.64 billion (US$1.05 billion) from RMB7.82 billion in the same period of 2021.
Cost of Revenues
Cost of revenues for the first quarter of 2022 decreased by 10.7% to RMB4.78 billion (US$755 million) from RMB5.36 billion in the same period of 2021. The decrease was primarily due to decrease in revenue sharing fees and agency fees resulting from decrease in revenues from social entertainment services and advertising services while the revenue sharing ratio remained stable on a year over year basis. Content costs also decreased as a result of improved efficiency.
Gross Profit and Gross Margin
Gross profit for the first quarter of 2022 decreased by 24.6% to RMB1.86 billion (US$293 million) from RMB2.47 billion in the same period of 2021. Gross margin for the first quarter of 2022 decreased by 3.5% to 28.0% from 31.5% in the same period of 2021. This decrease in gross margin was primarily because revenue from online music accounted for a higher percentage of revenue, which typically has a lower gross margin.
Operating Expenses for the Period
Total operating expenses for the first quarter of 2022 decreased by 13.7% to RMB1.34 billion (US$212 million) from RMB1.56 billion in the same period of 2021. Operating expenses as a percentage of total revenues slightly increased to 20.2% in the first quarter of 2022 from 19.9% in the same period of 2021. After excluding the impact from the post-acquisition awards, share-based compensation expenses and amortization of intangible assets arising from the acquisition of Lazy Audio, operating expenses as a percentage of total revenues would have decreased by 0.4% year-over-year.
Operating Profit for the Period
Operating profit was RMB749 million (US$118 million) in the first quarter of 2022, compared to an operating profit of RMB1.16 billion in the same period of 2021.
Income Tax Expenses
Effective tax rate in the first quarter of 2022 was 12.2%, compared to 11.5% in the same period of 2021. The increase in effective tax rate was mainly because some of our entities are entitled to different tax benefits in 2021 and 2022.
Net Profit and Non-IFRS Net Profit for the Period
Net profit attributable to equity holders of the Company for the first quarter of 2022 was RMB609 million (US$96 million), compared to a net profit of RMB926 million in the same period of 2021. Non-IFRS net profit attributable to equity holders of the Company was RMB899 million (US$142 million) for the first quarter of 2022, compared to RMB1.18 billion in the same period of 2021. Please refer to the section in this press release titled "Non-IFRS Financial Measure" for details.
Earnings per ADS
Basic and diluted earnings per American Depositary Shares ("ADS") were RMB0.37 (US$0.06) and RMB0.37(US$0.06), respectively, for the first quarter of 2022. Non-IFRS basic and diluted earnings per ADS were RMB0.55 (US$0.09) and RMB0.54 (US$0.09), respectively, for the first quarter of 2022. During the first quarter of 2022, the Company had weighted averages of 1.64 billion basic and 1.65 billion diluted ADSs outstanding, respectively. Each ADS represents two of the Company’s Class A ordinary shares.
Cash, Cash Equivalents, Term Deposits and Short-term Investments
As of March 31, 2022, the combined balance of the Company’s cash, cash equivalents, term deposits and short-term investments amounted to RMB25.93 billion (US$4.09 billion), compared to RMB24.69 billion as of December 31, 2021. The increase in cash, cash equivalents, term deposits and short-term investments was primarily due to cash flows generated from operations of RMB2.49 billion (US$393 million), partially offset by cash used in the purchase of land use right and share repurchases. Such combined balance was also affected by the change in the exchange rate of RMB to USD at different balance sheet dates. The exchange rate was 6.3393 to 1 on March 31, 2022.
Share Repurchase Program
Pursuant to the 2021 Share Repurchase Program announced on March 28, 2021, as of May 13, 2022, we have repurchased approximately 73.3 million ADSs from the open market with cash for a total consideration of approximately US$674 million.
Conference Call Information
TME’s management will hold a conference call on Monday, May 16, 2022, at 8:00 P.M. Eastern Time or 8:00 A.M. Beijing Time on Tuesday, May 17, 2022, to discuss its financial results. Listeners may access the call by dialing the following numbers:
United States Toll Free: 
+1-888-317-6003
International:
+1-412-317-6061
Mainland China Toll Free:
400-120-6115
Hong Kong, China Toll Free: 
800-963-976
Access Code:
­  2636670
The replay will be accessible through May 23, 2022, by dialing the following numbers:
United States Toll Free:
+1-877-344-7529
International:
+1-412-317-0088
Access Code:
­  4475331
A live and archived webcast of the conference call will also be available on the Company’s investor relations website at https://ir.tencentmusic.com/.
Exchange Rate
This announcement contains translations of certain RMB amounts into U.S. dollars ("USD") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB6.3393 to US$1.00, the noon buying rate in effect on March 31, 2022, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.
Non-IFRS Financial Measure
The Company uses non-IFRS net profit for the period, which is a non-IFRS financial measure, in evaluating its operating results and for financial and operational decision-making purposes. TME believes that non-IFRS net profit helps identify underlying trends in the Company’s business that could otherwise be distorted by the effect of certain expenses that the Company includes in its profit for the period. TME believes that non-IFRS net profit for the period provides useful information about its results of operations, enhances the overall understanding of its past performance and future prospects and allows for greater visibility with respect to key metrics used by its management in its financial and operational decision-making.
Non-IFRS net profit for the period should not be considered in isolation or construed as an alternative to operating profit, net profit for the period or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-IFRS net profit for the period and the reconciliation to its most directly comparable IFRS measure. Non-IFRS net profit for the period presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company’s data. TME encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.
Non-IFRS net profit for the period represents profit for the period excluding amortization of intangible and other assets arising from acquisitions, share-based compensation expenses, net losses/gains from investments and income tax effects.
Please see the "Unaudited Non-IFRS Financial Measure" included in this press release for a full reconciliation of Non-IFRS net profit for the period to its net profit for the period.
About Tencent Music Entertainment
Tencent Music Entertainment Group (NYSE: TME) is the leading online music and audio entertainment platform in China, operating the country’s highly popular and innovative music apps: QQ Music, Kugou Music, Kuwo Music and WeSing. TME’s mission is to use technology to elevate the role of music in people’s lives by enabling them to create, enjoy, share and interact with music. TME’s platform comprises online music, online audio, online karaoke, music-centric live streaming and online concert services, enabling music fans to discover, listen, sing, watch, perform and socialize around music. For more information, please visit ir.tencentmusic.com.
Safe Harbor Statement
This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. Further information regarding these and other risks, uncertainties or factors is included in the Company’s filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law.
Investor Relations Contact
Tencent Music Entertainment Group
[email protected]
+86 (755) 8601-3388 ext. 818415
TENCENT MUSIC ENTERTAINMENT GROUP
CONSOLIDATED INCOME STATEMENT
Three Months Ended March 31,
2021
2022
 RMB 
 RMB 
 US$ 
 Unaudited 
 Unaudited 
 Unaudited 
(in millions, except per share data)
Revenues
Online music services
2,749
2,616
413
Social entertainment services and others
5,075
4,028
635
7,824
6,644
1,048
Cost of revenues
(5,358)
(4,784)
(755)
Gross profit
2,466
1,860
293
Selling and marketing expenses
(672)
(330)
(52)
General and administrative expenses
(883)
(1,012)
(160)
Total operating expenses
(1,555)
(1,342)
(212)
Interest income 
154
150
24
Other gains, net
99
81
13
Operating profit
1,164
749
118
Share of net loss of investments accounted for
using equity method

(27)
20
3
Finance cost
(31)
(30)
(5)
Profit before income tax
1,106
739
117
Income tax expense
(127)
(90)
(14)
Profit for the period
979
649
102
Attributable to:
Equity holders of the Company
926
609
96
Non-controlling interests
53
40
6
Earnings per share for Class A and Class
B ordinary shares

Basic
0.28
0.19
0.03
Diluted
0.27
0.18
0.03
Earnings per ADS (2 Class A shares
equal to 1 ADS)

Basic
0.55
0.37
0.06
Diluted
0.54
0.37
0.06
Shares used in earnings per Class A and
Class B ordinary share computation:

Basic
3,354,845,726
3,273,281,390
3,273,281,390
Diluted
3,403,590,157
3,302,130,101
3,302,130,101
ADS used in earnings per ADS
computation

Basic
1,677,422,863
1,636,640,695
1,636,640,695
Diluted
1,701,795,078
1,651,065,051
1,651,065,051
TENCENT MUSIC ENTERTAINMENT GROUP
UNAUDITED NON-IFRS FINANCIAL MEASURE
Three Months Ended March 31,
2021
2022
 RMB 
 RMB 
 US$ 
(in millions, except per share data)
Profit for the period
979
649
102
Adjustments:
Amortization of intangible and other assets arising
from acquisitions*

110
121
19
Share-based compensation
162
204
32
Losses/(gains) from investments**
21
(2)

Income tax effects***
(37)
(33)
(5)
Non-IFRS Net Profit
1,235
939
148
Attributable to:
Equity holders of the Company
1,182
899
142
Non-controlling interests
53
40
6
Earnings per share for Class A and Class B
ordinary shares

Basic
0.35
0.27
0.04
Diluted
0.35
0.27
0.04
Earnings per ADS (2 Class A shares equal to 1
ADS)

Basic
0.70
0.55
0.09
Diluted
0.69
0.54
0.09
Shares used in earnings per Class A and
Class B ordinary share computation:

Basic
3,354,845,726
3,273,281,390
3,273,281,390
Diluted
3,403,590,157
3,302,130,101
3,302,130,101
ADS used in earnings per ADS computation
Basic
1,677,422,863
1,636,640,695
1,636,640,695
Diluted
1,701,795,078
1,651,065,051
1,651,065,051
* Represents the amortization of identifiable assets, including intangible assets and prepayments for music content, resulting
from acquisitions

** Including the net losses/gains on deemed disposals/disposals of investments, fair value changes arising from investments,
impairment provision of investments and other expenses in relation to equity transactions of investments

*** Represents the income tax effects of Non-IFRS adjustments
TENCENT MUSIC ENTERTAINMENT GROUP
CONSOLIDATED BALANCE SHEET
As at December 31, 2021
As at March 31, 2022
 RMB 
 RMB 
 US$ 
 Audited 
 Unaudited 
 Unaudited 
(in millions)
ASSETS
Non-current assets
  Property, plant and equipment
243
247
39
  Land use rights
1,495
2,535
400
  Right-of-use assets
283
268
42
  Intangible assets
2,829
2,692
425
  Goodwill
19,121
19,126
3,017
  Investments accounted for using equity method 
3,599
3,652
576
  Financial assets at fair value through other comprehensive income 
7,302
4,904
774
  Other investments
199
348
55
  Prepayments, deposits and other assets
743
675
106
  Deferred tax assets
346
357
56
  Term deposits
4,303
5,933
936
40,463
40,737
6,426
Current assets
  Inventories
24
23
4
  Accounts receivable
3,610
2,513
396
  Prepayments, deposits and other assets
2,731
2,690
424
  Other investments
37
37
6
  Short-term investments
1,029
1,088
172
  Term deposits
12,769
10,556
1,665
  Cash and cash equivalents
6,591
8,353
1,318
26,791
25,260
3,985
Total assets
67,254
65,997
10,411
EQUITY
Equity attributable to equity holders of the
Company

  Share capital
2
2
0
  Additional paid-in capital
36,238
36,187
5,708
  Shares held for share award schemes
(183)
(186)
(29)
  Treasury shares 
(3,660)
(3,664)
(578)
  Other reserves
3,726
1,290
203
  Retained earnings
14,194
14,803
2,335
50,317
48,432
7,640
Non-controlling interests
738
789
124
Total equity
51,055
49,221
7,764
LIABILITIES
Non-current liabilities
  Notes payables
5,062
5,041
795
  Accounts payable 
93
93
15
  Other payables and other liabilities
32
22
3
  Deferred tax liabilities
271
254
40
  Lease liabilities
205
199
31
  Deferred revenue 
86
105
17
5,749
5,714
901
Current liabilities
  Accounts payable 
4,329
5,179
817
  Other payables and other liabilities
3,832
3,500
552
  Current tax liabilities
363
425
67
  Lease liabilities
92
86
14
  Deferred revenue
1,834
1,872
295
10,450
11,062
1,745
Total liabilities
16,199
16,776
2,646
Total equity and liabilities
67,254
65,997
10,411
TENCENT MUSIC ENTERTAINMENT GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
2021
2022
 RMB 
 RMB 
 US$ 
 Unaudited 
 Unaudited 
 Unaudited 
(in millions)
Net cash provided by operating activities 
1,878
2,494
393
Net cash used in investing activities 
(2,382)
(329)
(52)
Net cash used in financing activities
(372)
(395)
(62)
Net (decrease)/increase in cash and cash equivalents 
(876)
1,770
279
Cash and cash equivalents at beginning of the period
11,128
6,591
1,040
Exchange differences on cash and cash equivalents
22
(8)
(1)
Cash and cash equivalents at end of the period
10,274
8,353
1,318
SOURCE Tencent Music Entertainment Group
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