Tencent Holdings Limited

Good day and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2022 third quarter results announcement webinar. I'm Wendy Huang from Tencent IRT. At this time, all participants are in a listen-only mode. After management's presentation, there will be a question and answer session. For participants who dial in by phone, if you wish to ask a question, please press five on your telephone to raise your hand. If you are accessing from the Tencent Meeting or Vue Meeting application, please click the raise hand button at the bottom left. And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes four looking statements, which are underlined by a number of risks and uncertainties, and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance propelled in accordance with IFRS. For a detailed discussion of risk factors in the non-IFRS measures, Please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO Paul Nima will kick off with a short overview. President Martin Lau will discuss strategy review. Chief Strategy Officer James Mitchell will provide a business review. Chief Financial Officer John Lau will conclude with financial discussion before we open the floor for questions. I will now pass it to Tony.

Thank you, Wendy. Good evening, thanks everyone for joining us. During the third quarter, we streamline our costs and activate new revenue-generating services, returning to year-on-year earning growth. We also deliver quarter-on-quarter earning growth, with some tailwind from positive seasonality. Total revenue was 140 billion RMB, down 2% year-on-year, but up 5% quarter-on-quarter. Gross profit was 62 billion RMB, down 1% year-on-year, but up 7% quarter-on-quarter. Non-IFIs operating profit was 41 billion RMB, flat year-on-year, and up 12% quarter-on-quarter. Non-IFRS net profit attributed to equity holders was 32 billion RMB, up 2% year-on-year and 15% quarter-on-quarter. For our key services, we generally retain our first-place positions in activities, including social, games, long-form video, news, music, literature, payment, and mobile browsers. Combined MAU of WeChat and WeChat was $1.3 billion. Mobile devices MAU of QQ was $574 million. I will now hand over to Martin for strategy review.

Thank you, Pony, and good evening and good morning to everybody. In last quarter's strategy review, I discussed how we have positioned ourselves to improve efficiencies, develop new revenue streams, and so revive our profit growth. Today, I will update you on our progress and some early stage results. In addition, I will touch on our latest steps in returning capital to shareholders. Let's start off with the progress of our efficiency initiatives. First, we further tightened our control on marketing costs, pulled back from projects with low cost efficiency, and focused our resources on core products. As a result, selling and marketing expenses decreased by 32% year on year and by 10% quarter on quarter. Second, we achieved significant margin improvement in business services. Gross profit grew both year-on-year and quarter-on-quarter, benefiting from our proactive adjustment to generate high-quality revenue. Third, we optimized bandwidth and server utilization associated with video accounts, bringing down our operating costs per video view significantly. Fourth, with our rationalization in non-core and underperforming businesses, we optimized our workforce and controlled staff cost. At the end of the third quarter, our total headcount was down as compared to the end of the first quarter. Excluding severance pay, total staff costs increased at a low single digit growth rate year on year. While the macro environment is still challenging, our efficiency initiatives enabled us to achieve slightly positive year-on-year growth in profits, representing a significant improvement over the last few quarters. Looking forward, we are making encouraging progress in developing new high-quality revenue streams in the following three key growth areas. Video Accounts In-Feed Ads revenue has been ramping up fast since we made additional inventory available on building basis in mid-August. We are on track to exceed 1 billion RMB in quarterly revenue in the fourth quarter. For international games, we launched new hits, Tower of Fantasy and Goddess of Victory Nikki, demonstrating our strong publishing capabilities. Our new strategic partnership with Ubisoft will enable us to bring more AAA franchises to mobile globally and PC titles to China. Together with the growing pipeline of our group of studios across genres and platforms globally, our international games business is well positioned for significant expansion over time. or SAS, we're currently prioritizing scale expansion, as there are precedents in the rest of the world which demonstrate how these services can be monetized by industry leaders. We have recently launched a subscription bundle combining WeCom, Tencent Meeting, and Tencent Docs together, which is seeing good adoption among larger enterprises. In addition, we're encouraged to see positive signals across the path of macro and regulatory normalization. For fintech services, commercial payment volume growth recovered in the third quarter. On a regulatory front, we received approval for investment in Samsung property and casualty insurance in China. For domestic games, we received approval for a new game publishing license and an amendment to an existing license in September. We believe more licenses will be forthcoming in the future. For advertising, revenue grew quarter and quarter, even excluding new contribution from media accounts infeed ads. We are on track to resume year on year growth in late 2022. Next, I would like to update you on our capital allocation, which we start from a position of both cashflow and asset strength. We operate a diversified portfolio of businesses spending across social networks, games, advertising, and FinTech services, each of which generates robust cashflow even under the current environment. Consequently, we generated operating cashflow of 25 billion US dollars over the past 12 months. After taking into account payments for capital expenditure, media content, and lease liabilities, our free cashflow amounted to 15 billion US dollars. On the asset side, as of the end of September 2022, we have total gross cash of $44 billion, sticks in listed companies with a fair value of $75 billion, and sticks in unlisted companies with a carrying value of $48 billion. This combination of cash flow generation and liquid asset holdings enable us to simultaneously invest in our business while returning capital to shareholders. I believe we are fully supporting organic and strategic investments which benefit our business. For organic investments, we're deploying capital into growth areas we have highlighted namely video accounts, international games, and SaaS products, as well as ecosystem enhancements, such as nurturing a vibrant e-commerce ecosystem for Weixin and upgrading our backend infrastructure. For strategic investments, we continue to invest in companies that are complementary to our core business growth, such as our recent investments in partnership with Ubisoft and Friend Software, to name a couple. At the same time, we are also returning more capital to shareholders. For the past 10 years, we pay out cash dividends, which represented the payout ratio of approximately 10% of our non-IFRS earnings. Since the beginning of the year, we have bought back 3 billion US dollars worth of shares. In March 2022, we paid a dividend in kind through distribution of JD.com shares, which amounted to 13 billion US dollars of value to shareholders. So to date, we have returned a total of over 18 billion US dollars to our shareholders. Today, we are declaring a special interim dividend of Meituan shares worth approximately 20 billion US dollars, which will be distributed to shareholders in March 2023. Qualifying shareholders will receive one Meituan share for every 10 to 10 cent shares they hold. This distribution in kind is equivalent to about 16.6 Hong Kong dollars per 10 cent share based on yesterday's closing price. So with that, I'll pass to James to talk about our business review.