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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-38751

Tencent Music Entertainment Group

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Unit 3, Building D, Kexing Science Park, Kejizhongsan Avenue,

Hi-TechPark, Nanshan District,

Shenzhen, 518057, the People’s Republic of China

(Address of principal executive offices)

 

Ms. Min Hu, Chief Financial Officer

Unit 3, Building D, Kexing Science Park, Kejizhongsan Avenue,

Hi-Tech Park, Nanshan District,

Shenzhen, 518057, the People’s Republic of China

Tel: +86-755-86013388

E-mail: ir@tencentmusic.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

American depositary shares, each ADS represents

two Class A ordinary shares, par value US$0.000083 per share

TME

The New York Stock Exchange

Class A ordinary shares, par value US$0.000083 per share

 

1698

 

The Stock Exchange of Hong Kong Limited

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

3,432,154,261 ordinary shares, comprised of 1,767,205,006 Class A ordinary shares, par value US$0.000083 per share, and 1,664,949,255 Class B ordinary shares, par value US$0.000083 per share, as of December 31, 2023.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued

Other

        by the International Accounting Standards Board

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No


 

TABLE OF CONTENTS

 

 

 

Page

 

INTRODUCTION

 

i

 

FORWARD-LOOKING INFORMATION

 

iv

 

PART I

 

 

 

1

 

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

1

 

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

 

1

 

ITEM 3.

 

KEY INFORMATION

 

1

 

ITEM 4.

 

INFORMATION ON THE COMPANY

 

64

 

ITEM 4A.

 

UNRESOLVED STAFF COMMENTS

 

109

 

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

109

 

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

125

 

ITEM 7.

 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

136

 

ITEM 8.

 

FINANCIAL INFORMATION

 

139

 

ITEM 9.

 

THE OFFER AND LISTING

 

140

 

ITEM 10.

 

ADDITIONAL INFORMATION

 

141

 

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

150

 

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

151

 

PART II

 

 

 

153

 

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

153

 

ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

153

 

ITEM 15.

 

CONTROLS AND PROCEDURES

 

153

 

ITEM 16.

 

RESERVED

 

154

 

ITEM 16.A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

 

154

 

ITEM 16.B.

 

CODE OF ETHICS

 

154

 

ITEM 16.C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

154

 

ITEM 16.D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

155

 

ITEM 16.E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

155

 

ITEM 16.F.

 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

155

 

ITEM 16.G.

 

CORPORATE GOVERNANCE

 

156

 

ITEM 16.H.

 

MINE SAFETY DISCLOSURE

 

156

 

ITEM 16.I.

 

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

156

 

ITEM 16.J.

 

INSIDER TRADING POLICIES

 

156

 

ITEM 16.K.

 

CYBERSECURITY

 

156

 

PART III

 

 

 

157

 

ITEM 17.

 

FINANCIAL STATEMENTS

 

157

 

ITEM 18.

 

FINANCIAL STATEMENTS

 

157

 

ITEM 19.

 

EXHIBITS

 

157

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-1

 

 


 

INTRODUCTION

Except where the context otherwise indicates and for the purpose of this annual report only:

“ADSs” refers to the American depositary shares, each representing two Class A ordinary shares;
“AI” refers to artificial intelligence;
“AIGC” refers to AI-generated content;
“Articles of Association” refers to our amended and restated memorandum and articles of association, as amended from time to time;
“Beijing Gongse” refers to Beijing Gongse Enterprise Management Co., Ltd., one of the VIEs;
“Beijing Kuwo” refers to Beijing Kuwo Technology Co., Ltd., one of the VIEs;
“Beijing Shangqin” refers to Beijing Shangqin Culture Management Partnership (Limited Partnership), one of the VIEs;
“Beijing Yuzhong” refers to Beijing Yuzhong Entertainment Culture Partnership (Limited Partnership), one of the VIEs;
“Beijing Zhizheng” refers to Beijing Zhizheng Music Culture Co., Ltd., one of the VIEs;
“CAC” refers to the Cyberspace Administration of China;
“China” or “PRC” refers to the People’s Republic of China and only when this annual report refers to specific laws and regulations adopted by the PRC, excludes Hong Kong, Macau and Taiwan;
“CMC” refers to China Music Corporation;
“Group” refers to Tencent Music Entertainment Group, its subsidiaries and consolidated variable interest entities, or the VIEs, and their respective subsidiaries;
“Guangxi Hexian” refers to Guangxi Hexian Investment Management Co., Ltd., one of the VIEs;
“Guangxi Qingse” refers to Guangxi Qingse Venture Capital Co., Ltd., one of the VIEs;
“Guangzhou Kugou” refers to Guangzhou Kugou Computer Technology Co., Ltd., one of the VIEs;
“Hong Kong Listing Rules” refers to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended or supplemented from time to time;
“Hong Kong Stock Exchange” refers to The Stock Exchange of Hong Kong Limited;
“HK$” refers to the legal currency of the Hong Kong SAR;
“IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board;
“IoT” refers to Internet of Things, the collective network of connected devices and the technology that facilitates communication between devices and the cloud, as well as between the devices themselves;
“MCSC” refers to the Music Copyright Society of China;
“MIIT” refers to the Ministry of Industry and Information Technology of China;
“Min River” refers to Min River Investment Limited;
“MOFCOM” refers to the Ministry of Commerce of China;
“monthly ARPPU” of each of our online music services and social entertainment services for any given period refers to the monthly average of (i) the revenues of the respective services for that period divided by (ii) the number of paying users of the respective services for that period. The monthly ARPPU of social entertainment services is calculated based on revenue from social entertainment and others, including advertising services provided on our social entertainment platforms;
“NDRC” refers to the National Development and Reform Commission of China;
“NRTA” refers to the National Radio and Television Administration of China;
“ordinary shares” refers to our ordinary shares of par value US$0.000083 per share;
“paying ratio” for a given period is measured by the number of paying users as a percentage of the MAUs for that period;

i


 

“paying users” for our online music services (i) for any given quarter refers to the average of the number of users whose subscription packages remain active as of the last day of each month of that quarter; and (ii) for any given year refers to the average of the total number of paying users of the four quarters in that year. The number of paying users for our online music services for any given period excludes the number of users who only purchase digital music singles and albums during such period because these purchasing patterns tend to reflect specific releases, which may fluctuate from period to period;
“paying users” for our social entertainment services (i) for any given quarter refers to the average of the number of paying users for each month in that quarter; (ii) for any given year refers to the average of the total number of paying users of the four quarters in that year. The number of paying users of our social entertainment services for a given month refers to the number of users who contribute revenues to our social entertainment services (primarily through purchases of virtual gifts or premium memberships) during that month;
“PBOC” refers to the People’s Bank of China;
“PCAOB” refers to the Public Company Accounting Oversight Board;
“publishing rights” refers to the copyrights of music and non-music works for the purpose of this annual report;
“Qianhai Daizheng” refers to Shenzhen Qianhai Daizheng Music Culture Co., Ltd., one of the VIEs;
“RMB” or “Renminbi” refers to the legal currency of the People’s Republic of China;
“SAFE” refers to the State Administration of Foreign Exchange of China;
“SAIC” refers to the State Administration for Industry and Commerce of China;
“SAMR” refers to the State Administration for Market Regulation of China;
“SAT” refers to the State Administration of Taxation of China;
“Shenzhen Lanren” refers to Shenzhen Lanren Online Technology Co., Ltd., which we acquired in March 2021;
“Shenzhen Ultimate Music” refers to Shenzhen Ultimate Music Culture and Technology Co., Ltd., one of the VIEs;
“Spotify” refers to Spotify Technology S.A., one of our principal shareholders;
“Tencent” refers to Tencent Holdings Limited, our controlling shareholder;
“Tencent Affiliate” refers to an entity that is not a natural person over which Tencent directly or indirectly (i) exercises or controls 30% or more of its total voting power or (ii) controls the composition of a majority of the board of directors or similar governing body of such entity;
“US$,” or “U.S. dollars” refers to the legal currency of the United States;
“variable interest entities” or “VIEs” refers to the PRC entities of which, through certain contractual arrangements, we have power to exert control over the management, and financial and operating policies and have the right to recognize and receive substantially all the economic benefits and in which we have an exclusive option to purchase all or part of the equity interests at the minimum price possible to the extent permitted by PRC law, which allows us to be considered the primary beneficiary of the VIEs for accounting purposes, and to consolidate their operating results in our financial statements under IFRS, to the extent the conditions for consolidation of the VIEs under the IFRS are satisfied;
“we,” “us,” “our company” and “our” refer to Tencent Music Entertainment Group (or, where the context requires, its predecessor) and its subsidiaries;
with respect to MAU data used in this annual report:
“MAUs” or “mobile MAUs” for a given month (i) with respect to each of our products (except WeSing) is measured as the number of unique mobile and certain IoT devices, as the case may be, through which such product is accessed at least once in that month; and (ii) with respect to WeSing, is measured as the number of user accounts through which WeSing is accessed at least once in that month;
“MAUs” for any given period refers to the monthly average of the sum of the MAUs for that period; similarly, “mobile MAUs” for any given period refers to the monthly average of the sum of the mobile MAUs for that period;
“MAUs” for our online music services for a given month presented in this annual report refers to the sum of mobile and certain IoT MAUs of our music products, including QQ Music, Kugou Music and Kuwo Music, for that month; duplicate access of different services by the same device is not eliminated from the calculation; starting from the first quarter of 2023, “MAUs” for our online music services began to include unique mobile and certain IoT devices; comparative figures for prior periods were updated to conform to the current presentation, accordingly;

ii


 

“Mobile MAUs” for our social entertainment services for a given month presented in this annual report refers to the sum of mobile MAUs that have accessed the social entertainment services offered by (i) WeSing; (ii) Kugou’s Live Streaming services; (iii) Kuwo’s Live Streaming services; (iv) Kugou Changchang; and (v) QQ Music’s Live Streaming services; duplicate access of different services by the same user account or device is not eliminated from the calculation;
“Mobile MAUs” for our social entertainment services for a given period refers to the monthly average of the sum of the mobile MAUs for our social entertainment services for that period;
our MAUs are calculated using internal company data, treating each distinguishable user account or device as a separate MAU even though some users may access our services using more than one user account or device and multiple users may access our services using the same user account or device; and
“WOFEs,” or “wholly-owned foreign enterprises,” refer to the Company’s wholly-owned subsidiaries incorporated in the PRC.

This annual report on Form 20-F includes our audited balance sheets as of December 31, 2022 and 2023 and our audited consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the years ended December 31, 2021, 2022 and 2023.

Substantially all of our operations are conducted in China and all of our revenues are denominated in Renminbi. Our reporting currency is the Renminbi. This annual report on Form 20-F also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at RMB7.0999 to US$1.00, the noon buying rate on December 29, 2023 set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC regulators impose control over the foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

We completed an initial public offering of the ADSs on December 14, 2018. The ADSs, each representing two Class A ordinary shares, are traded on the New York Stock Exchange under the symbol “TME.” In September 2022, we completed the secondary listing, by way of introduction, of our Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange. On September 21, 2022, our Class A ordinary shares commenced trading on the Main Board of the Hong Kong Stock Exchange in board lots of 100 Class A ordinary shares under the stock code “1698,” and the stock short name is “TME-SW.”

iii


 

FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements that involve risks and uncertainties. These statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategies and financial needs. These forward-looking statements include, but are not limited to, statements about:

our growth strategies;
our future business development, financial condition and results of operations;
our ability to retain, grow and engage our user base and expand our music and audio entertainment content offering;
our ability to retain and grow our paying users and drive their spending on our services;
expected changes in our revenues, content-related costs and operating margins;
our ability to retain key personnel and attract new talent;
competition landscape in China’s online music and audio entertainment industry;
general economic, political, demographic and business conditions in China and globally; and
the regulatory environment in which we operate.

We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information — 3.D. Risk Factors.” Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this annual report and the documents that we reference in this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

iv


 

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Contractual Arrangements and Corporate Structure

Tencent Music Entertainment Group is a Cayman Islands holding company. It does not engage in operations itself but rather conducts its operations through its PRC subsidiaries and consolidated variable interest entities, or the VIEs. The VIEs hold key operating licenses, provide certain key services to customers, and enter into contracts with certain major suppliers. The Group operates its businesses this way because PRC laws and regulations restrict or prohibit foreign investment in companies that engage in value-added telecommunication services, internet cultural services, internet audio-video program services and certain other businesses. As a result, we depend on certain contractual arrangements with the VIEs to operate a significant portion of our business. These contractual arrangements entered into with the VIEs allow us to (i) direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in the VIEs when and to the extent permitted by PRC law. The VIE structure is used to provide investors with exposure to foreign investment in China-based companies where PRC law restricts direct foreign investment in such operating companies in the PRC. These contractual arrangements include equity interests pledge agreement(s), exclusive option agreement(s), exclusive technical service agreement(s) or business cooperation agreement(s), loan agreement(s), debt assignment and offset agreement(s), voting trust agreement(s) or power of attorney, spouse consent(s), as the case may be. As a result of these contractual arrangements, we are considered the primary beneficiary of the VIEs for accounting purposes and are able to consolidate their operating results in our financial statements under IFRS. As used in this annual report, “we,” “us,” “our company,” “our,” or “TME” refers to Tencent Music Entertainment Group and its subsidiaries, and “the Group” refers to Tencent Music Entertainment Group, its subsidiaries and the VIEs and their respective subsidiaries.

1


 

The following diagram illustrates the Group’s corporate structure as of the date of this annual report, including our significant subsidiaries and the VIEs.

 

img4068703_0.jpg

 

Notes:

(1)
Shareholders of Guangzhou Kugou and their respective shareholdings and relationship with our company are as follows: (i) Linzhi Lichuang Information Technology Co., Ltd. (99.47%), an entity controlled by Tencent; (ii) Shenzhen Litong Industry Investment Fund Co., Ltd. (0.08%), an entity controlled by Tencent; and (iii) Qianhai Daizheng (0.45%). Guangzhou Kugou operates Kugou Music and Kugou Live.
(2)
Shareholders of Beijing Kuwo and their respective shareholdings and relationship with our company are as follows: (i) Linzhi Lichuang Information Technology Co., Ltd. (61.64%), an entity controlled by Tencent; and (ii) Qianhai Daizheng (38.36%). Beijing Kuwo operates Kuwo Music and Kuwo Live.
(3)
Shareholders of Beijing Gongse and their respective shareholdings and relationship with our company are as follows: (i) Mr. Qihu Yang (20%), our General Counsel; (ii) Mr. Dejun Gu (20%), the head of our human resources department; and (iii) Ms. Xing Chen (20%), Ms. Yueting Luo (20%) and Mr. Yunheng Liang (20%), all of whom are employees of our company.
(4)
Partners of Beijing Shangqin are Beijing Gongse (0.0005%) (the general partner), Mr. Qihu Yang (19.9999%), Mr. Dejun Gu (19.9999%), Ms. Xing Chen (19.9999%), Ms. Yueting Luo (19.9999%) and Mr. Yunheng Liang (19.9999%).
(5)
Partners of Beijing Yuzhong are Beijing Gongse (0.0005%) (the general partner), Mr. Qihu Yang (19.9999%), Mr. Dejun Gu (19.9999%), Ms. Xing Chen (19.9999%), Ms. Yueting Luo (19.9999%) and Mr. Yunheng Liang (19.9999%).
(6)
Shareholders of Beijing Zhizheng are Beijing Shangqin (50%) and Beijing Yuzhong (50%).
(7)
Tencent Music Shenzhen operates QQ Music and WeSing.

2


 

In 2021, 2022 and 2023, the amount of revenues generated by the VIEs accounted for 99.1%, 96.8% and 96.5%, respectively, of our total net revenues. As of December 31, 2022 and 2023, total assets of the VIEs equaled to 26.5% and 24.1% of our consolidated total assets as of the same dates, respectively. It is important to note that investors in the ADSs and our Class A ordinary shares are purchasing equity securities of a Cayman Islands holding company rather than equity securities issued by our subsidiaries or the VIEs. More specifically, investors in the ADSs and our Class A ordinary shares would not be holding any ownership interest, directly or indirectly, in the VIEs under current PRC laws and regulations as investors would only have the contractual relationship with the operating entities in the PRC. Neither such investors nor the holding company itself have an equity ownership in, direct investment in, or control of, through such ownership or investment, the VIEs. Investors who are non-PRC residents may never directly hold equity interests in the VIEs under current PRC laws and regulations. We do not have any equity interests in the VIEs who are owned by certain nominee shareholders or partners. Any of such nominee shareholders or partners could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. In the event that the shareholders of the VIEs breach the terms of these contractual arrangements and voluntarily liquidate the VIEs, or the VIEs declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all business operations or otherwise benefit from the assets held by the VIEs and their shareholders, which could have a material adverse effect on our and the VIEs’ business, financial condition and results of operations. As a result, the contractual arrangements may be less effective than direct ownership, and we could face heightened challenges, risks and costs in enforcing these contractual arrangements because uncertainties remain as to the interpretation and application of current and future PRC laws, regulations and rules relating to the legality and enforceability of these contractual arrangements, neither have our contractual arrangements with the VIEs been tested in court. If the PRC regulators deem that our contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we and the VIEs could be subject to material penalties or be forced to relinquish our interests in those operations or otherwise significantly change the Group’s corporate structure. We and our investors face certain uncertainty about potential future actions by the PRC regulators that could affect the legality and enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect our ability to consolidate the financial results of the VIEs and the financial performance of the Group as a whole. The ADSs and our Class A ordinary shares may decline in value or become worthless if we are unable to effectively enforce our contractual control rights over the assets and operations of the VIEs that conduct a significant portion of the Group’s business in China. See “— 3.D. Risk Factors — Risks Related to the Group’s Corporate Structure” for detailed discussion.

In addition, the Group faces various legal and operational risks and uncertainties as the Group bases in and primarily operates in China. The PRC regulators have significant authority to exert influence on the ability of a China-based company, like us, to conduct its business, accept foreign investments or be listed on a U.S. stock exchange. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy, as well as the uncertainty on whether the PCAOB will continue to be able to satisfactorily inspect or investigate completely registered public accounting firms headquartered in the Chinese mainland and Hong Kong. The PRC regulators may also exert influence on the Group’s operations as the government deems appropriate to further regulatory, political and societal goals. The PRC regulators have recently published new policies that significantly affected our industry and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our industry that could adversely affect the Group’s business, financial condition and results of operations. Any such action, once taken by the PRC regulators, could cause the value of such securities to significantly decline or in extreme cases, become worthless.

Transfer of Funds and Other Assets

Under relevant PRC laws and regulations, we are permitted to remit funds to the VIEs through loans rather than capital contributions. The VIEs fund their operations primarily using cash generated from operating and financing activities.

As of December 31, 2023, Tencent Music Entertainment Group had made cumulative capital contributions of RMB1,177 million (US$166 million) to our PRC subsidiaries through an intermediate holding company and were accounted as long-term investments of Tencent Music Entertainment Group. These funds have been used by our PRC subsidiaries for their operations. As of December 31, 2023, the loan balance owed by VIE from WOFE was RMB11 million (US$2 million). Our PRC subsidiaries maintained certain personnel for content production, sales and marketing, research and development, and general and administrative functions to support the operations of the VIEs. In 2021, 2022 and 2023, the VIEs transferred RMB17,743 million, RMB16,415 million and RMB16,610 million (US$2,339 million), respectively, to our PRC subsidiaries as payment of services fees (the “Service Charges”). In 2021, 2022 and 2023, the net intercompany fund transfers from the WOFEs to the VIEs amounted to RMB3,524 million, RMB395 million and RMB49 million (US$7 million), respectively for treasury management purpose.

As advised by our PRC legal counsel, for any amounts owed by the VIEs to our PRC subsidiaries under the VIE agreements, unless otherwise required by PRC tax authorities, we are able to settle such amounts without limitations under the current effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so. Tencent Music Entertainment Group has not previously declared or paid any cash dividend or dividend in kind on its Class A ordinary shares or the ADSs representing such

3


 

ordinary shares. The determination to make dividend distributions in any particular year will be made at the discretion of our board of directors based upon factors such as future operations and earnings, cash flow, financial conditions, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. Our profits may be reinvested by our subsidiaries and the VIEs into their PRC operations. As of December 31, 2023, the total amount of undistributed profits from the PRC subsidiaries and the VIEs for which no withholding tax had been accrued was RMB21,289 million (US$2,998 million), and the unrecognized tax liabilities were RMB2,129 million (US$300 million). See “Item 8. Financial Information — 8.A. Consolidated Statements and Other Financial Information — Dividend Policy.”

For the purpose of illustration, the below table reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:

 

 

Taxation Scenario

 

Statutory Tax and Standard Rates

Hypothetical pre-tax earnings

100%

Tax on earnings at statutory rate of 25%

-25%

Net earnings available for distribution

75%

Withholding tax at standard rate of 10%*

-7.5%

Net distribution to Parent/Shareholders

67.5%

Note:

* The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or FIE, to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.

The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If in the future, the accumulated earnings of the VIEs exceed the fees paid to our PRC subsidiaries, or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities, we have other tax-planning strategies that can be deployed on a tax neutral basis.

Should all tax planning strategies fail, the VIEs could, as a matter of last resort, make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIEs. This would result in the double taxation of earnings: one at the VIE level (for non-deductible expenses) and one at the PRC subsidiary level (for presumptive earnings on the transfer). Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. Our management is of the view that the likelihood that this scenario would happen is remote.

Condensed Consolidating Schedule

The following tables present the summary statements of operations for the VIEs and other entities for the periods presented.

 

 

 

For the Year Ended December 31, 2021

 

 

 

 

Parent

 

 

VIE and its
consolidated
subsidiaries

 

 

WOFEs

 

 

Subsidiaries (other than the WOFEs)

 

 

Eliminating
adjustments

 

 

Consolidated
totals

 

 

 

(RMB in millions)

 

 

Revenues

 

 

 

30,949

 

 

15,393

 

 

1,920

 

 

(17,018

)d

 

31,244

 

 

Cost of revenues

 

 

 

(25,278

)

 

(10,258

)

 

(992

)

 

14,688

d

 

(21,840

)

 

Gross profit

 

 

 

5,671

 

 

5,135

 

 

928

 

 

(2,330

)

 

9,404

 

 

Operating (loss)/profit

 

(201

)

 

(56

)

 

3,354

 

 

713

 

 

(10

)

 

3,800

 

 

(Loss)/profit before income tax

 

(298

)

 

(34

)

 

3,337

 

 

634

 

 

(7

)

 

3,632

 

 

Income/(loss) from subsidiaries and VIEs

 

3,526

 

 

 

 

(206

)

 

2,903

 

 

(6,223

)

 

 

 

Profit/(loss) for the year

 

3,257

 

 

(209

)

 

2,903

 

 

3,494

 

 

(6,230

)

 

3,215

 

 

 

4


 

 

 

 

For the Year Ended December 31, 2022

 

 

 

 

Parent

 

 

VIE and its
consolidated
subsidiaries

 

 

WOFEs

 

 

Subsidiaries (other than the WOFEs)

 

 

Eliminating
adjustments

 

 

Consolidated
totals

 

 

 

(RMB in millions)

 

 

Revenues

 

 

 

27,426

 

 

14,460

 

 

1,704

 

 

(15,251

)d

 

28,339

 

 

Cost of revenues

 

 

 

(22,852

)

 

(8,006

)

 

(910

)

 

12,202

d

 

(19,566

)

 

Gross profit

 

 

 

4,574

 

 

6,454

 

 

794

 

 

(3,049

)

 

8,773

 

 

Operating (loss)/profit

 

(181

)

 

(404

)

 

4,453

 

 

558

 

 

17

 

 

4,443

 

 

(Loss)/profit before income tax

 

(282

)

 

(337

)

 

4,454

 

 

520

 

 

18

 

 

4,373

 

 

Income/(loss) from subsidiaries and VIEs

 

4,094

 

 

 

 

(415

)

 

3,606

 

 

(7,285

)

 

 

 

Profit/(loss) for the year

 

3,839

 

 

(432

)

 

3,605

 

 

4,094

 

 

(7,267

)

 

3,839

 

 

 

 

 

For the Year Ended December 31, 2023

 

 

 

 

Parent

 

 

VIE and its
consolidated
subsidiaries

 

 

WOFEs

 

 

Subsidiaries (other than the WOFEs)

 

 

Eliminating
adjustments

 

 

Consolidated
totals

 

 

 

(RMB in millions)

 

 

Revenues

 

 

 

26,770

 

 

15,846

 

 

1,889

 

 

(16,753

)d

 

27,752

 

 

Cost of revenues

 

 

 

(23,023

)

 

(8,487

)

 

(874

)

 

14,427

d

 

(17,957

)

 

Gross profit

 

 

 

3,747

 

 

7,359

 

 

1,015

 

 

(2,326

)

 

9,795

 

 

Operating profit/(loss)

 

40

 

 

(131

)

 

5,265

 

 

903

 

 

(18

)

 

6,059

 

 

(Loss)/profit before income tax

 

(66

)

 

(115

)

 

5,341

 

 

906

 

 

(21

)

 

6,045

 

 

Income/(loss) from subsidiaries and VIEs

 

5,267

 

 

 

 

(318

)

 

4,476

 

 

(9,425

)

 

 

 

Profit/(loss) for the year

 

5,220

 

 

(302

)

 

4,480

 

 

5,267

 

 

(9,445

)

 

5,220

 

 

 

5


 

The following tables present the summary balance sheet data for the VIEs and other entities as of the dates presented.

 

As of December 31, 2022

Parent

VIE and its consolidated subsidiaries

WOFEs

Subsidiaries (other than the WOFEs)

Eliminating adjustments

Consolidated totals

(RMB in millions)

ASSETS

Non-current assets

Investments in subsidiaries

29,452

27,037

(56,489

)b

Net assets of VIEs

9,995

(9,995

)b

Intangible assets and goodwill

14,169

5,453

1,692

547

a

21,861

Investments accounted for using equity method

693

49

3,588

4,330

Financial assets at fair value through other comprehensive income

3,168

3,168

Prepayments, deposits and other assets

131

562

16

709

Term deposits

6,530

6,530

Others

1,143

2,472

237

3,852

43,621

7,420

21,300

34,593

(66,484

)

40,450

Current assets

Amounts due from subsidiaries and VIEs

6,847

7,140

3,305

14

(17,306

)c

Prepayments, deposits and other assets

62

904

1,929

63

2,958

Term deposits

3,354

6,190

1,747

11,291

Restricted cash

34

34

Cash and cash equivalents

891

490

7,933

241

9,555

Others

1,783

53

885

2,721

11,154

10,351

19,410

2,950

(17,306

)

26,559

Total assets

54,775

17,771

40,710

37,543

(83,790

)

67,009

LIABILITIES

Non-current liabilities

Notes payable

5,536

5,536

Others

39

329

261

629

5,575

329

261

6,165

Current liabilities

Amounts due to subsidiaries and VIEs

929

138

9,415

6,813

(17,295

)c

Deferred revenue

2,162

5

14

(11

)

2,170

Others

172

4,404

3,916

1,055

9,547

1,101

6,704

13,336

7,882

(17,306

)

11,717

Total liabilities

6,676

7,033

13,597

7,882

(17,306

)

17,882

Total equity

48,099

10,738

27,113

29,661

(66,484

)

49,127

 

6


 

 

 

As of December 31, 2023

Parent

VIE and its consolidated subsidiaries

WOFEs

Subsidiaries (other than the WOFEs)

Eliminating adjustments

Consolidated totals

(RMB in millions)

ASSETS

Non-current assets

Investments in subsidiaries

 38,375

31,175

(69,550

)b

Net assets of VIEs

10,334

(10,334

)b

Intangible assets and goodwill

14,166

5,265

1,614

529

a

21,574

Investments accounted for using equity method

584

534

3,156

4,274

Financial assets at fair value through other comprehensive income

6,540

6,540

Prepayments, deposits and other assets

97

443

540

Term deposits

40

8,679

8,719

Others

1,155

2,568

230

3,953

52,541

7,141

24,172

41,630

(79,884

)

45,600

Current assets

Amounts due from subsidiaries and VIEs

7,855

6,825

3,487

1,259

(19,426

)c

Prepayments, deposits and other assets

98

1,018

1,332

990

3,438

Term deposits

2,344

49

5,926

1,618

9,937

Restricted cash

8

23

31

Cash and cash equivalents

21

538

11,250

1,758

13,567

Others

 

 

 

 

 

2,639

 

 

 

232

 

 

 

92

 

 

 

 

 

2,963

 

 

10,318

 

 

 

11,077

 

 

 

22,250

 

 

 

5,717

 

 

(19,426

)

 

 

29,936

Total assets

62,859

18,218

46,422

47,347

(99,310

)

75,536

LIABILITIES

Non-current liabilities