Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. Tian Ge Interactive Holdings Limited (Incorporated in the Cayman Islands with limited liability) (Stock code: 1980) ANNOUNCEMENT OF UNAUDITED 2015 THIRD QUARTER RESULTS The board of directors (the Directors ) (the Board ) of Tian Ge Interactive Holdings Limited (the Company or Tian Ge ) hereby announces the unaudited consolidated results of the Company and its subsidiaries (collectively, the Group ) for the three and nine months ended 2015, respectively. These quarterly results have been reviewed by (i) the Company s audit committee (the Audit Committee ), comprising solely the independent non-executive Directors, one of whom chairs the Audit Committee, and (ii) the Company s external auditors, PricewaterhouseCoopers. FINANCIAL HIGHLIGHTS (in RMB 000) Unaudited Three months ended Year-on- Year* Unaudited Nine months ended Year-on- Year* 2015 2014 Change % 2015 2014 Change % Revenue 158,478 173,086-8.4% 530,315 517,343 2.5% Gross Profit 119,262 153,100-22.1% 423,716 443,303-4.4% Gross Margin 75.3% 88.5% 79.9% 85.7% Profit/(Loss) attributable to equity holders of the Company 29,963 20,582 45.6% 144,874 (153,771) Net Profit/(Loss) 29,601 20,859 41.9% 146,441 (153,317) Net Profit/(Loss) Margin 18.7% 12.1% 27.6% -29.6% EPS (expressed in RMB per share) basic 0.024 0.018 33.3% 0.117 (0.190) diluted 0.023 0.016 43.8% 0.110 (0.190) Non-IFRS Adjusted Net Profit** 44,892 71,637-37.3% 196,795 203,338-3.2% Non-IFRS Adjusted EBITDA*** 58,454 80,677-27.5% 248,585 239,385 3.8% 1
Notes: * Year-on-Year change represents a comparison between the current reporting period and the corresponding period last year. ** Non-IFRS adjusted net profit was derived from the unaudited profit for the period excluding the effect of noncash share-based compensation expenses, non-cash fair value change of convertible redeemable preferred shares and listing expenses. *** Non-IFRS adjusted EBITDA represents operating profit, adjusted to exclude share-based compensation expenses, listing expenses, depreciation and amortization. This announcement is made pursuant to the disclosure obligation under Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Hong Kong Listing Rules ) and the Inside Information Provisions (as defined under the Hong Kong Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). 2
The unaudited condensed consolidated statement of comprehensive income, unaudited condensed consolidated statement of financial position and unaudited condensed consolidated statement of cash flows of the Group are listed below: CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015) Unaudited Unaudited Three months ended Nine months ended 2015 2014 2015 2014 RMB 000 RMB 000 RMB 000 RMB 000 Revenue 158,478 173,086 530,315 517,343 Cost of revenue (39,216) (19,986) (106,599) (74,040) Gross profit 119,262 153,100 423,716 443,303 Selling and marketing expenses (49,098) (61,227) (141,511) (156,051) Administrative expenses (26,041) (36,762) (82,251) (106,376) Research and development expenses (21,945) (22,984) (61,992) (56,961) Other gains, net 14,726 16,378 42,532 30,455 Operating profit 36,904 48,505 180,494 154,370 Finance income 2,037 3,325 3,506 6,318 Finance costs (2,038) (725) (2,711) (2,564) Finance income/(costs), net (1) 2,600 795 3,754 Fair value loss of convertible redeemable preferred shares (23,057) (283,559) Share of loss of investment accounted for using the equity method (350) (723) Profit/(Loss) before income tax 36,553 28,048 180,566 (125,435) Income tax expense (6,952) (7,189) (34,125) (27,882) Profit/(Loss) for the period 29,601 20,859 146,441 (153,317) Other comprehensive income/(loss) Items that may be reclassified to profit or loss Currency translation differences 40,789 (3,001) 40,412 (9,170) Total comprehensive income/(loss) for the period 70,390 17,858 186,853 (162,487) 3
Unaudited Unaudited Three months ended Nine months ended 2015 2014 2015 2014 RMB 000 RMB 000 RMB 000 RMB 000 Profit/(loss) attributable to: Shareholders of the Company 29,963 20,582 144,874 (153,771) Non-controlling interests (362) 277 1,567 454 29,601 20,859 146,441 (153,317) Total comprehensive income/(loss) attributable to: Shareholders of the Company 70,752 17,581 185,286 (162,941) Non-controlling interests (362) 277 1,567 454 70,390 17,858 186,853 (162,487) Earnings/(Loss) per share (expressed in RMB per share) Basic 0.024 0.018 0.117 (0.190) Diluted 0.023 0.016 0.110 (0.190) Dividends 59,573 4
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (AS AT SEPTEMBER 30, 2015) Unaudited 2015 RMB 000 Audited December 31, 2014 RMB 000 Assets Non-current assets Property and equipment 184,571 142,280 Intangible assets 124,261 49,002 Investment in associates 46,729 3,863 Deferred income tax assets 26,682 32,466 Available-for-sale financial assets 75,745 26,776 Prepayments and other receivables 82,537 40,744 Term deposits with initial term over 3 months 479,869 540,525 775,000 Current assets Inventories 13,238 Trade receivables 25,419 14,049 Prepayments and other receivables 353,851 159,032 Available-for-sale financial assets 275,954 313,029 Financial assets at fair value through profit or loss 136,319 109,481 Term deposits with initial term over 3 months 643,754 602,917 Cash and cash equivalents 441,303 289,083 1,889,838 1,487,591 Total assets 2,430,363 2,262,591 Equity Equity attribute to shareholders of the Company Share capital 792 779 Share premium 2,305,143 2,381,529 Shares held for RSU Scheme (14) (19) Other reserves 215,052 122,473 Accumulated deficits (278,435) (421,073) 2,242,538 2,083,689 Non-controlling interests 24,755 4,799 Total equity 2,267,293 2,088,488 5
Unaudited 2015 RMB 000 Audited December 31, 2014 RMB 000 Liabilities Non-current liabilities Deferred income tax liabilities 5,213 361 Other non-current liabilities 1,357 1,389 6,570 1,750 Current liabilities Trade payables 20,676 24,278 Other payables and accruals 64,653 52,530 Income tax liabilities 45,254 51,523 Customer advance and deferred revenue 25,917 44,022 156,500 172,353 Total liabilities 163,070 174,103 Total equity and liabilities 2,430,363 2,262,591 Net current assets 1,733,338 1,315,238 Total assets less current liabilities 2,273,863 2,090,238 6
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015) Unaudited Nine months ended 2015 2014 RMB 000 RMB 000 Cash flows from operating activities Cash generated from operations 148,180 202,059 Income tax paid (35,058) (26,565) Net cash generated from operating activities 113,122 175,494 Net cash provided/(used) by investing activities 115,115 (1,150,893) Net cash provided/(used) by financing activities (74,415) 1,189,319 Net increase in cash and cash equivalents 153,822 213,920 Cash and cash equivalents at beginning of period 289,083 171,896 Exchange gain/(loss) on cash and cash equivalents (1,602) 996 Cash and cash equivalents at end of period 441,303 386,812 7
A. BUSINESS REVIEW In the third quarter of 2015, our business was affected by a sluggish economy, as well as the continuous challenge arising from mobile monetization, we saw a decline in our financial results in the third quarter despite our efforts to promptly adjust our operation and marketing strategies. In the third quarter of 2015, our Quarterly Average Revenue Per User ( QARPU ) decreased by 31.1% year-over-year to RMB184, while our quarterly paying users continued to increase by 26.1% to 811,000. Meanwhile, we have successfully launched and operated several new mobile games and applications, completed several acquisitions and entered into several cooperation alliances. Going forward, we will focus on leveraging Tian Ge s unique ecosystem and strategic partnership with new vertical leaders as well as strategic investments to diversify product offerings, accelerate user base growth and capitalize on emerging monetization opportunities on PC, mobile and Online to Offline ( O2O ). To date, we have several major initiatives to grow our business: Mobile Amid the challenge in mobile monetization for all internet products including live social video, we believe that the increasing mobile penetration rate in China offers a lucrative opportunity to expand our current product lines to mobile audiences, as well as tapping into our mobile monetization opportunities through our incubation, diversification, and vertical integration strategy through cross-industry partnership, joint-venture and merger and acquisition with leading vertical partners. Recognizing the trend towards mobile for the future generation, we plan to facilitate complete multi-platform usability and functionality, as we leverage our brand, user base and technology to give users the flexibility to enjoy our content anytime and anywhere. Our mobile monthly active users ( MAU ) in the third quarter of 2015 represents 20.9% of our total MAU, while the percentage in the third quarter of 2014 was only 10.0%. In addition to our rapid mobile MAU growth, we are also developing and exploring investment opportunities on new mobile applications, extending into new verticals, and testing new emerging businesses that can leverage our large audience and establish capabilities in live social ecosystem. Games In addition to the three mobile games we launched and operated with test feature on live social integration in the first half of 2015, we have initiated the soft launch of a licensed new 3D interactive games Dark Throne. The initial testing result of these games is highly anticipated. Both were Diablo-style ARPG games with unique 3D visual features and interactive motion control technology. Moreover, we are actively exploring the development of our new web and mobile game publishing platform with leading game publishing partners. 8
O2O Entertainment Our live social ecosystem goes beyond the online services we provide. It also includes how we create additional live social experiences with our users in the offline world. Our cloudbased software solution has successfully expanded the user demographic and increased the offline asset s yield through the introduction of online to offline promotions, gamification, virtual gifting and virtual economies, host economy and other innovative features. Moreover, our O2O entertainment strategy goes beyond the mass karaoke market. We have diversified our product offering by extending into smart entertainment devices that further expands our user base and online experience into other offline venues, such as bars, pubs, clubs and restaurants, etc. Currently, we offered O2O karaoke system, as well as several smart devices in over a thousand physical entertainment venues, which includes android gaming table for users to entertain themselves in waiting area and inside entertainment venues, as well as an android device that serves as a seat booking and customer relationship management tool for different entertainment venues. Going forward, we plan to leverage our well-established distributor ecosystem and management know-how to franchise or promote our products on a national scale. We believe the addressable market for our O2O entertainment products is massive, and could potentially generate outsized shareholder returns. Healthcare Management As part of our strategic plan, we have already expanded our business into the healthcare industry and are now in the process of creating an O2O healthcare-oriented live social ecosystem on a larger scale, supported by our internal technology incubation team and strategic investment divisions. The future plan of the Group is to expand our investment reach in partnership with our strategic partners in the field of medical, healthcare and beauty industries. International Expansion As we established our first oversea subsidiary in Japan-Dimensional Media, we increased our global presence and at the same time introduced new premium international contents to our live social platforms. Our Japanese subsidiary is about to go online and our platform will begin to offer Japanese and Korean contents and hosts as part of our internationalization strategy in the fourth quarter of 2015. We aim to leverage our strong technological capabilities and infrastructure, large and loyal user base and established social ecosystem to advance our penetration and global presence in countries and regions outside Mainland China with large number of Chinese speakers and similar cultural background in the karaoke and entertainment area. 9
B. OPERATIONAL INFORMATION The following table sets forth certain quarterly operating statistics relating to the Company s internet platforms as of the dates and for the periods presented below: 2015 June 30, 2015 Three months ended Quarteron-quarter Change 2014 Yearon-Year Change Monthly Active Users (in 000) 18,552 18,880-1.7% 14,697 26.2% Online Platforms 17,712 17,834-0.7% 14,352 23.4% Games 840 1,046-19.7% 345 143.5% Quarterly Paying Users (in 000) 811 810 0.1% 643 26.1% Quarterly Average Revenue Per User (RMB) 184 222-17.1% 267-31.1% Number of Rooms 26,354 29,374-10.3% 29,676-11.2% Number of Hosts 37,225 39,264-5.2% 39,309-5.3% The following is a summary of the comparative figures for the periods presented above: The number of MAU for Tian Ge s online platforms was approximately 17.7 million for the three months ended 2015, representing an increase of approximately 23.4% from the three months ended 2014 and representing a decrease of 0.7% from the three months ended June 30, 2015. The number of Quarterly Paying Users for Tian Ge s online platforms remained stable at approximately 811,000 for the three months ended 2015 as compared to the previous quarter, representing an increase of approximately 26.1% from the three months ended 2014. The Quarterly Average Revenue Per User of Tian Ge s online business decreased by 31.1% to RMB184 from the three months ended 2014 and representing a decrease of approximately 17.1% from the three months ended June 30, 2015, mainly due to the current mobile migration with relatively weak monetization. The number of hosts on the online platforms was 37,225 as at 2015, representing a decrease of approximately 5.3% from 39,309 in the corresponding period of the year 2014 and a decrease of approximately 5.2% from the previous quarter. The number of rooms on the online platforms was 26,354 as at 2015, representing a decrease of approximately 11.2% from 29,676 in the corresponding period of the year 2014 and a decrease of approximately 10.3% from 29,374 in the previous quarter. Number of users on air on our online platforms slightly decreased to approximately 628,000 for the three months ended 2015 from approximately 638,000 in the corresponding period of the year 2014. 10
The percentage users on air over total MAU on the online platforms decreased to 3.4% for the three months ended 2015, as compared to 3.7% in the immediately preceding quarter. The total registered users of Tian Ge as at 2015 were 288.4 million, as compared to 283.2 million as at June 30, 2015. C. FINANCIAL INFORMATION Revenue Revenue decreased by 8.4% to RMB158.5 million for the three months ended September 30, 2015 from the corresponding period in 2014. This was primarily due to the decrease of income from online platforms as a result of decreasing ARPU, which is affected by industry trend and shifting user trends from PCs to mobile devices. The Company currently does not break down revenue into segments, as it currently evaluates the business as one segment. Cost of Revenue and Gross Margins Cost of revenue experienced an increase of 96.2% for the three months ended 2015 as compared with the corresponding period in 2014. The increase was primarily due to the higher costs related to the launch and operation of our mobile games and other valueadded services. The gross margin for the three months ended 2015 was 75.3%, compared with 88.5% in the corresponding period in 2014. Selling and Marketing Expenses Selling and marketing expenses decreased by 19.8% to RMB49.1 million for the three months ended 2015 from the corresponding period in 2014. The decrease was primarily due to the cost control policy we adopted this year. Administrative Expenses Administrative expenses decreased by 29.2% to RMB26.0 million for the three months ended 2015 from the corresponding period in 2014. The decrease was primarily due to the decrease in share-based compensation expense and listing expense. Research and Development Expenses Research and development expenses decreased by 4.5% to RMB21.9 million for the three months ended 2015 from the corresponding period in 2014, primarily due to the decrease in share-based compensation expenses. 11
Gain attributable to equity holders of the Company We recorded gain attributable to equity holders of the Company for the three months ended 2015 of RMB30.0 million, which increased by 45.6% from RMB20.6 million for the corresponding period of 2014. The increase was mainly attributable to (i) the absence of fair value loss of convertible redeemable preferred shares as all such shares were automatically converted into ordinary shares upon completion of the initial public offering (the IPO ) on July 9, 2014 (the Listing Date ); and (ii) the absence of listing expense. Share Option Schemes The Company has adopted the Pre-IPO Share Option Scheme, the Pre-IPO RSU Scheme, the Post-IPO Share Option Scheme and the Post-IPO RSU Scheme (the Schemes ). The purposes of the Schemes are to reward the participants defined under the Schemes for their past contribution to the success of the Group and to provide incentives to them to further contribute to the Group. The share-based compensation expenses for the three months ended 2015 were RMB15.3 million, as compared to RMB19.5 million for the corresponding period in 2014. As of 2015, options representing a total of 59,141,930 shares were outstanding. If all such options under the Pre-IPO Share Option Scheme are exercised, there would be a dilution effect on the shareholdings of our shareholders of approximately 4.6% as of 2015. However, as the options are exercisable over a 10-year period from the date of grant, any such dilutive effect on earnings per share may be staggered over several years. As of 2015, the total number of shares underlying the Pre-IPO RSU Scheme represented approximately 5.1% of the total ordinary shares. On April 20, 2015 and September 15, 2015, the Company has granted restricted share units in respect of a total of 3,499,000 and 2,720,000 ordinary shares of the Company of US$0.0001 each to the grantees under the Post-IPO RSU Scheme, respectively, which represented approximately 0.5% of the total ordinary shares as of 2015. On September 22, 2015, the Company has granted share options in respect of a total of 4,000,000 ordinary shares of US$0.0001 each of the Company to the grantees under the Post- IPO Share Options Scheme, which represented approximately 0.3% of the total ordinary shares as of 2015. Non-IFRS Measures To supplement our consolidated financial statements which are presented in accordance with IFRS, adjusted net profit, adjusted earnings per share and adjusted EBITDA are used as additional financial measures. These financial measures are presented because they are used by management to evaluate operating performance. The Company also believes that these non-ifrs measures provide useful information to help investors and others understand and evaluate the Company s consolidated results of operations in the same manner as management and in comparing financial results across accounting periods and to those of our peer companies. 12
The following table sets forth the Company s non-ifrs financial data for the periods presented: Three months ended September September 30, 2015 30, 2014 Year-on- Year change Nine months ended September September 30, 2015 30, 2014 Year-on- Year change (in RMB 000) Non-IFRS Financial Data Non-IFRS adjusted EBITDA 58,454 80,677-27.5% 248,585 239,385 3.8% Non-IFRS EBITDA margin 36.9% 46.6% 46.9% 46.3% Non-IFRS Net Income 44,892 71,637-37.3% 196,795 203,338-3.2% * Non-IFRS EBITDA margin is calculated by dividing adjusted EBITDA by revenue. Adjusted EBITDA Adjusted EBITDA decreased by 27.5% to RMB58.5 million for the three months ended 2015 from the corresponding period of 2014. Adjusted EBITDA margin was 36.9% for the three months ended 2015, compared to 46.6% for the corresponding period of 2014. Adjusted EBITDA represents operating profit adjusted to exclude non-cash share-based compensation expenses, listing expenses, depreciation and amortization. The following table reconciles our net profit to our adjusted EBITDA for the periods presented: Three months ended 2015 2014 Nine months ended 2015 2014 (in RMB 000) Operating Profit 36,904 48,505 180,494 154,370 Share-based compensation expense 15,291 19,530 50,354 33,040 Listing expense (Note i) 8,191 40,056 Depreciation and amortization expense 6,259 4,451 17,737 11,919 Non-IFRS EBITDA 58,454 80,677 248,585 239,385 Note: (i) Listing expenses related to those legal and professional services fees associated with our global offering. As a result, the listing expenses are no longer effective from the fourth quarter of 2014 and onwards. 13
Adjusted Net Profit and Earnings Per Share Adjusted net profit decreased by 37.3% to RMB44.9 million for the three months ended 2015 from the corresponding period of 2014. Adjusted diluted earnings per share was RMB0.034 for the three months ended 2015. Adjusted net profit is not defined under IFRS, and eliminates the effect of non-cash fair value changes of convertible redeemable preferred shares, listing expenses and non-cash share based compensation expenses. Adjusted diluted earnings per share is not defined under IFRS. The denominator for computing the adjusted diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume share options granted to employees under 2008 Global Share Option Plan and Post-IPO Share Option Scheme, restricted share units granted to employees under Pre-IPO Restricted Share Unit Scheme and Post-IPO Restricted Share Unit Scheme have been fully vested and exercised with no impact on the non-ifrs adjusted earnings. The number of ordinary shares outstanding during the corresponding period has been adjusted retroactively for the proportional changes in the number of preferred shares, share options and restricted share units outstanding as a result of the issuance of bonus shares for the corresponding period. The numerator of adjusted diluted EPS is adjusted net profit attributable to the equity holders of the Company. The following table sets forth the reconciliations of the Company s net profit to non-ifrs net income for the periods presented below: Three months ended 2015 2014 Nine months ended 2015 2014 (in RMB 000) Net Profit/(Loss) 29,601 20,859 146,441 (153,317) Share-based compensation expense 15,291 19,530 50,354 33,040 Listing expense 8,191 40,056 Fair value loss of convertible redeemable preferred shares and redeemable ordinary shares 23,057 283,559 Non-IFRS Net Income 44,892 71,637 196,795 203,338 14
Balance Sheet As of 2015, the Company had cash and cash equivalents, term deposits with initial terms over 3 months, principal-protected structured deposits (recorded under current available-for-sale financial assets and current financial assets at fair value through profit or loss) in the aggregate amount of RMB1,497.3 million. The Company adopts conservative treasure policies in cash and financial management, and does not use any financial instruments for hedging purposes. The Company did not have any bank borrowings as at 2015. Capital Expenditures The Company did not have any significant capital expenditures for the three months ended 2015. Significant Investment The Company did not make any significant investments for the three months ended September 30, 2015. Mergers and Acquisitions In September 2015, the Group further increased the equity interest from 10.00% to 31.92% in Zhejiang Sodao Network Technology Co., Ltd., a third party company engaged in business promotion and trading via online female network community in the PRC. The total consideration for 31.92% of equity interest is RMB18,000,000. Dividend The Board did not propose any dividend for the nine months ended 2015. Purchase, Sale or Redemption of Listed Securities During the three months ended 2015, the Company had repurchased a total of 3,289,000 ordinary shares listed on The Stock Exchange of Hong Kong Limited with an aggregate amount of HK$10,156,480. All the repurchased ordinary shares had been cancelled as of 2015. Compliance with the Model Code for Securities Transactions by Directors The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) set forth in Appendix 10 to the Hong Kong Listing Rules as a code of conduct of the Company for Directors securities transactions since the Listing Date. Having made specific enquiries to each Director, each Director has confirmed that they have complied with the required standard set out in the Model Code during the three months ended 2015. 15
This announcement contains forward-looking statements relating to the business outlook, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this announcement. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond the Company s control. These forward-looking statements may prove to be incorrect and may not be realized in future. Underlying the forward-looking statements is a large number of risks and uncertainties. Further information regarding these risks and uncertainties is included in the Company s other public disclosure documents available on the corporate website. Hangzhou, China, November 27, 2015 By order of the Board Tian Ge Interactive Holdings Limited Fu Zhengjun Chairman and Chief Executive Officer As of the date of this announcement, the executive Directors are Mr. Fu Zhengjun and Mr. Mai Shi en; the non-executive Directors are Mr. Mao Chengyu and Mr. Herman Cheng-Chun, Yu; and the independent non-executive Directors are Ms. Yu Bin, Mr. Wu Chak Man and Mr. Chan Wing Yuen Hubert. 16