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+Tencent 腾讯
+Media & content: we sustained traffic leadership in multiple online media categories, such as video, sports, music,
+news and literature, via partnering with premium content providers, such as the NBA, HBO, Paramount, Warner
+Music, and Sony Music, and investing in original content. We grew our digital content subscription services via
+leveraging our social platforms and optimizing our premium business models.
+Online games: we reinforced our leadership in the smart phone game market via introducing new titles based on
+proven IP, adding new game genres, leveraging our PC client game operational expertise, and developing player
+communities.
+Social platforms: we sustained user growth of Mobile QQ year-on-year, particularly among young users, via
+promoting entertainment-driven and community-based activities, while expanding the user base of Weixin, via
+connecting a diversified product and service portfolio to a broad range of users. Our performance-based social
+advertising revenues more than doubled year-on-year.
+In 2015, we conducted a series of initiatives to enhance our ongoing businesses in China:
+Company Strategic Highlights
+2.
+China Internet companies in sectors such as ride-hailing, classified listings, group-buying, and online travel services
+competed with heightened intensity in 2015, leading to rapid user growth but reduced or negative profitability.
+Consequently, several leading companies in these sectors consolidated with competitors, creating a wave of merger and
+acquisition activities. Offline-to-Online transaction volumes increased, which, together with the emergence of person-to-
+person payment transactions, contributed to substantial growth in online payment volumes.
+In 2015, the Internet further penetrated everyday life, providing users with new value and additional convenience.
+Messaging and social networking continued to rank as the highest time spent and widest penetration activities on smart
+phones, and evolved into increasingly relevant content discovery media. Search queries moved primarily to mobile, and
+search remained an important content discovery tool, along with application stores. Online shopping became increasingly
+widespread, especially in lower-tier cities, and eCommerce transaction volumes sustained healthy growth rates. Online
+advertising activity shifted decisively from PC to mobile, with particular growth in areas such as performance advertising
+on social networks, pre-roll advertising in video services, and in-feed advertising in news services. Users proved
+increasingly willing to pay for digital content such as movies, TV series, and music. Mid/Hard-core smart phone games,
+including PC game franchises moving to smart phones, boosted game industry revenue.
+Chairman's Statement
+5
+Internet Industry Trends
+BUSINESS REVIEW AND OUTLOOK
+4
+Tencent Holdings Limited
+The Group's non-GAAP profit attributable to equity holders of the Company for the year ended 31 December 2015 was
+RMB32,410 million, an increase of 31% compared with the results for the previous year. Non-GAAP basic and diluted EPS for
+the year ended 31 December 2015 were RMB3.485 and RMB3.437 respectively.
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2015 was
+RMB28,806 million, an increase of 21% compared with the results for the previous year. Basic and diluted earnings per share
+for the year ended 31 December 2015 were RMB3.097 and RMB3.055 respectively.
+RESULTS
+I am pleased to present our annual report for the year ended 31 December 2015 to the shareholders.
+Ma Huateng
+Chairman
+Chairman's Statement
+1.
+Annual Report 2015
+Annual Report 2015
+Chairman's Statement
+Quarter-
+on-quarter
+30 September
+2015
+change
+2014
+2015
+on-year
+31 December
+31 December
+As at
+00
+Year-
+As at
+Operating Information
+Company Divisional and Product Highlights
+3.
+Investing in equity stakes in leading companies in related Internet verticals, such as Internet Plus Holdings, to
+provide best-in-class services to our users.
+Growing our mobile utility services, including security, browser and application store, strengthening infrastructural
+supports to our mobile ecosystem.
+Promoting our online payment services through enriched payment scenarios, increasing MAU of our mobile
+payment services by over 7 times year-on-year.
+Enriching products and services available within our platforms. For example, we introduced personal micro-loan
+products and municipal services, such as visa applications, to Mobile QQ and Weixin.
+During the year, we further executed our “Connection" strategy, bringing our own and our partners' products and
+services to our consumers via cultivating an ecosystem around our core communication and social platforms. Key
+initiatives for our "Internet-Plus" ecosystem included:
+As at
+change
+00
+Comparative figures have been restated retrospectively to conform with the presentation adopted in 2015, whereas, among others, we
+have extended definition of non-GAAP adjustments to cover that of our material associates. We adopted the new presentation in order to
+more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to be industry practice.
+122,100
+82,124
+58,463
+42,148
+29,088
+Total equity
+2,065
+2,111
+518
+Non-current liabilities
+850
+Non-controlling interests
+120,035
+80,013
+57,945
+41,298
+28,463
+Equity attributable to equity holders of the Company
+Equity and liabilities
+306,818
+625
+3
+6,533
+15,505
+306,818
+171,166
+107,235
+75,256
+56,804
+Total equity and liabilities
+184,718
+89,042
+48,772
+12,443
+33,108
+Total liabilities
+124,406
+50,035
+33,267
+20,665
+21,183
+Current liabilities
+60,312
+39,007
+27,716
+171,166
+(in millions, unless specified)
+815.3
+Company Financial Performance
+4.
+Customizing advertising solutions for specific advertiser categories.
+Leveraging new advertising formats, such as auto-play video on Weixin Moments and eCoupons on Official
+Accounts; and
+Enhancing advertiser tools, such as self-service advertising platforms and location-based targeted advertising
+services;
+Looking ahead, we will continue to invest in our brand advertising business, while aiming to grow our performance-based
+advertising business via:
+In 2015, our online advertising business achieved 110% year-on-year revenue growth, mainly reflecting an enlarged
+advertiser base and more traffic on our platforms. Over 65% of our total advertising revenues was generated on mobile
+platforms during the year.
+Online Advertising
+Chairman's Statement
+Year Ended 31 December 2015
+Annual Report 2015
+ས
+00
+Our cloud service business achieved over 100% year-on-year revenue growth as we promoted our services to key
+enterprise customers from a range of verticals such as eCommerce, 020 services, online games, online video and
+Internet finance. We will continue investing in enhancing our cloud services, supporting our private and public sector
+partners in fulfilling their "Internet-Plus" related initiatives.
+Looking forward, we aim to broaden smart phone game activity in China into new game genres, following the precedent
+of our category expansion in PC games.
+For smart phone games, we generated 53% year-on-year revenue growth on a gross-to-gross basis, with
+approximately RMB21.3 billion revenue in 2015. We achieved or retained leadership in multiple genres via utilizing
+proven IPs, extending popular PC game genres to smart phones, and developing player communities.
+For PC client games, we achieved low double-digit year-on-year revenue growth thanks to increased contributions
+from key titles and new games launched in 2015.
+In online games, we extended our market leadership in both PC client game and smart phone game markets.
+In 2015, our social networks business achieved 30% year-on-year revenue growth as we improved our digital content
+subscription services, QQ Membership subscription services, and virtual item sales. Looking forward, we will continue to
+optimize our user experience and add premium content to our subscription services, such as video and music, and to
+our literature service.
+Value-Added Services
+7
+With increasing popularity of Weixin Pay, bank handling fees related to C2C payment transactions via Weixin Pay,
+mainly arising from money transfers, increased significantly, amounting to over RMB300 million (net of related revenue
+we received from users) for the month of January 2016. To manage these cost pressures, we introduced a new policy
+with effect from 1 March 2016. Under this new policy, we charge users Weixin Pay balance withdrawal fees if the
+accumulated amount of money a user withdraws from her Weixin Pay wallet to her bank account exceeds a certain
+amount. In parallel, we no longer charge users on Weixin Pay C2C money transfers. We will continue to promote Weixin
+Pay via encouraging users to consume products and services embedded in Weixin, as well as those provided by our
+online and offline partners.
+In 2015, revenues increased by 30% to RMB102.9 billion. Excluding the eCommerce business, revenues increased by
+38% to RMB102.2 billion.
+Online advertising. Revenues from our online advertising business increased by 110% to RMB17.5 billion.
+Performance-based advertising revenues grew by 172% to RMB8.7 billion, mainly driven by revenue growth from
+Mobile Qzone, the full year impact of advertising revenues from Weixin Official Accounts, as well as contributions
+from newly launched advertising services on Weixin Moments. Brand display advertising revenues grew by 72%
+to RMB8.8 billion, mainly driven by increased traffic and advertising on mobile media platforms such as Tencent
+Video and Tencent News.
+Tencent Holdings Limited
+Chairman's Statement
+Fourth Quarter of 2015
+In the fourth quarter of 2015, revenues increased by 45% year-on-year to RMB30,441 million. Excluding the
+eCommerce transactions business, revenues increased by 47% year-on-year to RMB30,242 million.
+VAS. Revenues from our VAS business increased by 35% year-on-year to RMB23,068 million. Our online game
+business achieved healthy growth in revenues, primarily driven by our expanded smart phone game portfolio,
+our major PC titles and new PC client games launched in 2015. Our social networks revenues grew by 37%
+to RMB7,097 million, reflecting revenue growth from digital content subscription services, QQ Membership
+subscription services, and item sales within our social networking platforms.
+Online advertising. Revenues from our online advertising business increased by 118% year-on-year to RMB5,733
+million. Performance-based advertising revenues grew by 157% to RMB2,916 million, mainly reflecting revenue
+growth from Mobile Qzone, Weixin Official Accounts, and newly launched advertising services on Weixin Moments.
+Brand display advertising revenues grew by 89% to RMB2,817 million, reflecting higher contributions from our
+mobile media platforms such as Tencent Video and Tencent News.
+Profit attributable to equity holders of the Company increased by 22% year-on-year to RMB7, 164 million. Non-GAAP
+profit attributable to equity holders of the Company increased by 28% year-on-year to RMB8,953 million.
+5.
+Company Outlook and Strategies for 2016
+VAS. Revenues from our VAS business increased by 27% to RMB80.7 billion. Our online game business achieved
+healthy growth in revenues, mainly driven by smart phone games, key PC titles and new PC client games
+launched in 2015. Our social networks revenues expanded, reflecting increased contributions from digital content
+subscription services, QQ Membership subscription services, and virtual item sales.
+During 2016, we intend to develop our ongoing businesses and further cultivate our mobile ecosystem via initiatives
+including:
+Developing new and emerging smart phone game genres, via leveraging our PC game experiences, smart phone
+game player communities, and relationships with leading game developers;
+Expanding our advertising business, via enhancing our advertising technologies, such as data-mining and look-
+alike user targeting, enlarging our long-tail advertiser base, and adding more mobile advertising inventory;
+Growing our digital content businesses, including online video, music and literature, via providing exclusive content
+to our users and leveraging our users' social relationships; and
+Enriching our payment services and financial products platform.
+00
+9
+Annual Report 2015
+8
+Tencent Holdings Limited
+Profit attributable to equity holders of the Company increased by 21% to RMB28.8 billion. Non-GAAP profit attributable
+to equity holders of the Company increased by 31% to RMB32.4 billion.
+Investing in and innovating around our core communications and social platforms, especially in areas such as
+group messaging and video-format content;
+853.1
+For Weixin and WeChat together, MAU reached 697 million at the end of 2015, representing year-on-year growth
+of 39%. Official Accounts became a leading platform connecting users to content creators, merchants and
+advertisers. Weixin Pay also became increasingly popular. The volume of red envelopes exchanged via Weixin Pay
+exceeded 32 billion within six days during the Lunar New Year holidays in early 2016, growing by 9 times year-on-
+year.
+Chairman's Statement
+649.5
+39.4%
+500.0
+697.0
+Combined MAU of Weixin and WeChat
+0.8%
+239.1
+10.9%
+217.4
+7.3%
+241.1
+0.4%
+639.1
+11.4%
+576.1
+641.5
+Smart device MAU of QQ
+-0.8%
+859.7
+4.6%
+PCU of QQ (for the quarter)
+For Qzone, smart device MAU increased by 6% year-on-year to 573 million at the end of 2015. User activity
+benefited from enhanced features in areas such as sticker sharing and photo album editing.
+MAU of Qzone
+654.1
+6
+10
+Tencent Holdings Limited
+For QQ, smart device MAU increased by 11% year-on-year to 642 million at the end of 2015, while overall
+PCU increased by 11% year-on-year to 241 million. QQ Group user engagement benefited from a revenue-
+sharing scheme introduced to incentivize group creators. Our QQ Wallet payment service gained popularity with
+approximately 6 billion red envelopes exchanged via QQ Wallet within six days during the Lunar New Year holidays
+in early 2016.
+Key Platforms
+6.9%
+88.5
+13.0%
+83.7
+640.1
+94.6
+-0.7%
+576.8
+6.1%
+539.8
+572.9
+Smart device MAU of Qzone
+-2.0%
+653.1
+-2.1%
+Fee-based VAS registered subscriptions
+107,235
+MAU of QQ
+56,804
+Li Dong Sheng
+lan Charles Stone (Chairman)
+REMUNERATION COMMITTEE
+Charles St Leger Searle
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Ma Huateng (Chairman)
+NOMINATION COMMITTEE
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Lau Chi Ping Martin (Chairman)
+INVESTMENT COMMITTEE
+lan Charles Stone
+lain Ferguson Bruce
+Charles St Leger Searle (Chairman)
+Charles St Leger Searle
+lan Charles Stone
+lain Ferguson Bruce (Chairman)
+AUDIT COMMITTEE
+Ma Huateng
+lan Charles Stone
+AUDITOR
+Certified Public Accountants
+24 Shedden Road, George Town
+4th Floor, Royal Bank House
+Royal Bank of Canada Trust Company
+(Cayman) Limited
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+Hong Kong
+No. 1 Queen's Road East
+Wanchai
+29/F., Three Pacific Place
+IN HONG KONG
+PRINCIPAL PLACE OF BUSINESS
+PricewaterhouseCoopers
+The PRC
+Nanshan District
+Hi-tech Park
+Tencent Building
+Kejizhongyi Avenue
+TENCENT GROUP HEAD OFFICE
+Hutchins Drive, P.O. Box 2681
+Grand Cayman KY1-1111
+Cayman Islands
+Cricket Square
+REGISTERED OFFICE
+The Hongkong and Shanghai Banking
+Corporation Limited
+PRINCIPAL BANKER
+Shenzhen, 518057
+Grand Cayman KY1-1110
+Cayman Islands
+lain Ferguson Bruce
+Independent Non-Executive Directors
+DIRECTORS' REPORT
+27
+Incorporated in the Cayman Islands with limited liability
+75,256
+騰訊控股有限公司
+於開曼群島註冊成立的有限公司
+(Stock Code 股份代號:700)
+2015
+smart communication inspires
+66
+Annual Report
+CONTENTS
+2
+CORPORATE INFORMATION
+3
+FINANCIAL SUMMARY
+4
+CHAIRMAN'S STATEMENT
+11
+MANAGEMENT DISCUSSION AND ANALYSIS
+智慧溝通 靈感無限
+Li Dong Sheng
+CORPORATE GOVERNANCE REPORT
+83
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+Non-Executive Directors
+Lau Chi Ping Martin
+Ma Huateng (Chairman)
+Executive Directors
+DIRECTORS
+Corporate Information
+196 DEFINITION
+81 INDEPENDENT AUDITOR'S REPORT
+NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+90 CONSOLIDATED STATEMENT OF CASH FLOWS
+CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+88
+CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+87
+CONSOLIDATED INCOME STATEMENT
+CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+86
+98
+92
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+CORPORATE GOVERNANCE
+COMMITTEE
+Computershare Hong Kong Investor
+32,410
+24,737
+17,008
+14,287
+10,940
+44,416
+21,891
+13,567
+8,938
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+equity holders of the Company*
+to equity holders of the Company
+Total comprehensive income attributable
+44,723
+21,975
+18,376
+13,619
+8,957
+Total comprehensive income for the year
+28,806
+Non-GAAP profit attributable to
+23,810
+As at 31 December
+2012
+2014
+2015
+RMB'Million
+Assets
+Non-current assets
+Current assets
+Total assets
+21,301
+38,747
+53,549
+2011
+RMB'Million RMB'Million
+151,440
+35,503
+36,509
+53,686
+75,321
+155,378
+RMB'Million
+RMB'Million
+2013
+95,845
+15,502
+18,327
+10,203
+28,496
+Revenues
+2015
+RMB'Million
+Services Limited
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+RMB'Million
+183 Queen's Road East
+Wan Chai, Hong Kong
+COMPANY WEBSITE
+43,894
+www.tencent.com
+700
+12,732
+2014
+2013
+Year ended 31 December
+2012
+RMB'Million RMB'Million
+RMB'Million
+2011
+Financial Summary
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+STOCK CODE
+2
+60,437
+102,863
+Profit attributable to equity holders of the Company
+29,108
+23,888
+15,563
+12,785
+10,225
+Profit for the year
+36,216
+29,013
+78,932
+19,281
+12,099
+Profit before income tax
+61,232
+48,059
+32,659
+25,687
+18,568
+Gross profit
+15,051
+Tencent Holdings Limited
+00
+The notes on pages 92 to 195 are an integral part of these consolidated financial statements.
+91
+Exchange gains/(losses) on cash and cash equivalents
+43,438
+Cash and cash equivalents at end of the year
+(188)
+371
+20,228
+42,713
+Annual Report 2015
+Cash and cash equivalents at beginning of the year
+22,673
+354
+42,713
+Notes to the Consolidated Financial Statements
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable certain foreign companies to
+make investments into the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen)
+Company Limited ("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24
+February 2000. The foreign investors of the Company then subscribed to additional equity interest in the Company.
+Under a series of contractual arrangements (collectively, “Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+1 GENERAL INFORMATION
+GENERAL INFORMATION (Cont'd)
+Net increase in cash and cash equivalents
+1
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+92
+For the year ended 31 December 2015
+Tencent Holdings Limited
+•
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer without
+making any payment; and
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of value-added services ("VAS") and online advertising services to users in the
+People's Republic of China (the "PRC").
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the main board of the Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+the right to control the management and financial and operating policies of Tencent Computer.
+18,350
+Repayment of short-term borrowings
+Net cash flows generated from financing activities
+(2,200)
+Repayment of long-term borrowings
+4,293
+8,581
+Proceeds from long-term borrowings
+(2,372)
+2,549
+8,565
+90
+Proceeds from short-term borrowings
+(1,693)
+Cash flows from financing activities
+2014
+RMB'Million
+2015
+Year ended 31 December
+For the year ended 31 December 2015
+Consolidated Statement of Cash Flows
+(28,388)
+(63,605)
+06
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.2(a) and Note 43)
+and the formation of the Group in 2000 was accounted for as a business combination between entities under common
+control under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor
+carrying amounts. This approach was adopted because in management's belief it best reflected the substance of the
+formation.
+RMB'Million
+Net proceeds from issuance of notes payable
+13,619
+17,842
+(103)
+(4,547)
+non-wholly owned subsidiaries
+Payments for acquisition of non-controlling interests in
+(158)
+(549)
+Dividends paid to non-controlling interests
+(1,761)
+(2,640)
+Dividends paid to the Company's shareholders
+44
+99
+Proceeds from capital injection from non-controlling interests
+(529)
+(652)
+Withholding shares for share award schemes
+(61)
+Payments for repurchase of shares
+299
+169
+Proceeds from issuance of ordinary shares
+(1,917)
+Repayment of notes payable
+18,528
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company.
+If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
+share of the amounts previously recognised in other comprehensive income is reclassified to consolidated income
+statement where appropriate.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+97
+00
+When the Group ceases to have control or significant influence, any retained interest in the entity is re-
+measured to its fair value at the date when control or significant influence is lost, with the change in
+carrying amount recognised in the consolidated income statement. The fair value is the initial carrying
+amount for the purposes of subsequently accounting for the retained interest as an associate, a joint
+venture or financial asset. In addition, any amounts previously recognised in other comprehensive
+income in respect of that entity are accounted for as if the Group had directly disposed of the related
+assets or liabilities. This may mean that amounts previously recognised in other comprehensive income
+in respect of that entity are reclassified to the consolidated income statement.
+(iii) Disposal
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions that is, as transactions with the owners of the subsidiary in their capacity as
+owners. The difference between fair value of any consideration paid and the relevant share acquired of
+the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
+to non-controlling interests are also recorded in equity.
+-
+Changes in ownership interests in subsidiaries without change of control
+(ii)
+For the year ended 31 December 2015
+The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
+and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value
+of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,
+non-controlling interest recognised and previously held interest measured is less than the fair value
+of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
+recognised directly in the consolidated income statement.
+(i) Business combinations (Cont'd)
+For the year ended 31 December 2015
+(a) Consolidation (Cont'd)
+2.2 Subsidiaries (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+2
+96
+96
+Tencent Holdings Limited
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is
+deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent
+consideration that is classified as equity is not re-measured, and its subsequent settlement is
+accounted for within equity.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.2 Subsidiaries (Cont'd)
+(b) Separate financial statements
+Tencent Holdings Limited
+Annual Report 2015
+99
+00
+Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
+Group's interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides
+evidence of an impairment of the asset transferred. A full gain or loss is recognised when a transaction involves
+a business whereas a partial gain or loss is recognised when a transaction involves assets that do not constitute
+a business, even if those assets are in a subsidiary. Accounting policies of the joint ventures have been changed
+where necessary to ensure consistency with the policies adopted by the Group.
+Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures
+depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint
+arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
+Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted
+thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other
+comprehensive income. When the Group's share of losses in a joint venture equals or exceeds its interests in the
+joint ventures (which includes any long-term interests that, in substance, form part of the Group's net investment
+in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made
+payments on behalf of the joint ventures.
+2.4 Joint arrangements
+The Group's investments in associates in the form of redeemable preference shares are accounted for as
+compound financial instruments (Note 2.25).
+Gains or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
+Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's
+interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of
+an impairment of the asset transferred. A full gain or loss is recognised when a transaction involves a business
+whereas a partial gain or loss is recognised when a transaction involves assets that do not constitute a business,
+even if those assets are in a subsidiary. Accounting policies of associates have been changed where necessary to
+ensure consistency with the policies adopted by the Group.
+The Group determines at each reporting date whether there is any objective evidence that investments in
+associates are impaired. If this is the case, the Group calculates the amount of impairment as the difference
+between the recoverable amount of the associate and its carrying value and recognises the amount in "Other gains/
+(losses), net" in the consolidated income statement.
+2.3 Associates (Cont'd)
+For the year ended 31 December 2015
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+98
+Tencent Holdings Limited
+The Group's share of its associates' post-acquisition profit or loss is recognised in the consolidated income
+statement, and its share of post-acquisition movements in other comprehensive income is recognised in other
+comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of
+the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate,
+including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred
+legal or constructive obligations or made payments on behalf of the associate.
+Associates are all entities over which the Group has significant influence but not control, generally accompanying a
+shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the
+equity method of accounting and are initially recognised at cost, and the carrying amount is increased or decreased
+to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's
+investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss. Upon
+the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the
+Group's share of the net fair value of the associate's identifiable assets and liabilities is accounted for as goodwill.
+2.3 Associates
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined in
+Note 43(e)), a controlled structured entity, is stated at cost in "Contribution to Share Scheme Trust" first, and
+then will be transferred to the "Shares held for share award schemes" under equity when the contribution is
+used for the acquisition for the shares of the Company.
+If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+Acquisition-related costs are expensed as incurred.
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities
+assumed in a business combination are measured initially at their fair values at the acquisition date.
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets. All other components of non-controlling interests are measured
+at their acquisition date fair value, unless another measurement basis is required by IFRS.
+Business combinations
+New standards and amendments to standards not yet adopted
+(c)
+In addition, the requirements of Part 9 "Accounts and Audit" of the new Hong Kong Companies Ordinance
+(Cap.622) come into operation during the financial year, as a result, there are changes to presentation and
+disclosures of certain information in the consolidated financial statements.
+New Hong Kong Companies Ordinance (Cap.622)
+Annual improvements to IFRSS 2010-2012 cycle and 2011-2013 cycle
+Defined benefit plans: employee contributions
+IFRSS (amendment)
+IAS 19 (2011) (amendment)
+The following amendments to standards have been adopted by the Group for the first time for the financial
+year beginning on 1 January 2015. The adoption of these amendments to standards does not have any
+significant impact on the consolidated financial statements of the Group.
+(b)
+(a) Amendments to standards adopted by the Group
+2.1 Basis of preparation (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+93
+00
+The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
+estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting
+policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
+estimates are significant to the consolidated financial statements are disclosed in Note 4.
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards ("IFRS"). The consolidated financial statements have been prepared
+under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and
+financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or
+loss, which are carried at fair values.
+2.1 Basis of preparation
+The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+A number of new standards and amendments to standards are not effective for the financial year beginning
+1 January 2015, and have not been early adopted by the Group in preparing the consolidated financial
+statements. None of these is expected to have a significant effect on the consolidated financial statements of
+the Group, except the following:
+2
+IFRS 15 "Revenue from contracts with customers" deals with revenue recognition and establishes
+principles for reporting useful information to users of financial statements about the nature, amount,
+timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.
+Revenue is recognised when a customer obtains control of a good or service and thus has the ability
+to direct the use and obtain the benefits from the good or service. This standard replaces IAS 18
+"Revenue" and IAS 11 “Construction contracts" and related interpretations. This standard is effective
+for annual periods beginning on or after 1 January 2018 and earlier adoption is permitted.
+94
+(i)
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
+controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
+with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
+consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
+date that control ceases.
+(a) Consolidation
+2.2 Subsidiaries
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+95
+00
+The Group is in the process of assessing the impact of the above new standards on the Group's results and
+financial position. There are no other IFRSS or IFRIC interpretations that are not yet effective that would be
+expected to have a material impact on the Group.
+IFRS 16 "Lease" requires lessees to recognise lease liability reflecting future lease payments and a
+"right-of-use-asset" for almost all lease contracts, with an exemption for certain short-term leases and
+leases of low-value assets. This standard is effective for annual periods beginning on or after 1 January
+2019. Early adoption is permitted if IFRS 15 is also applied.
+IFRS 9 "Financial instruments" addresses the classification, measurement and recognition of financial
+assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and
+measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model
+and establishes three primary measurement categories for financial assets: amortised cost, fair value
+through other comprehensive income and fair value through profit or loss. The basis of classification
+depends on the entity's business model and the contractual cash flow characteristics of the financial
+asset. Investments in equity instruments are required to be measured at fair value through profit or
+loss with the irrevocable option at inception to present changes in fair value in other comprehensive
+income not recycling. There is now a new expected credit losses model that replaces the incurred loss
+impairment model used in IAS 39. For financial liabilities there were no changes to classification and
+measurement except for the recognition of changes in own credit risk in other comprehensive income,
+for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge
+effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship
+between the hedged item and hedging instrument and for the "hedged ratio" to be the same as the
+one management actually use for risk management purposes. Contemporaneous documentation is still
+required but is different to that currently prepared under IAS 39. This standard is effective for annual
+periods beginning on or after 1 January 2018 and early adoption is permitted.
+•
+New standards and amendments to standards not yet adopted (Cont'd)
+(c)
+2.1 Basis of preparation (Cont'd)
+For the year ended 31 December 2015
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+94
+Tencent Holdings Limited
+Net cash flows used in investing activities
+Placement of term deposits with initial terms over three months
+290
+Payments for business combinations, net of cash acquired
+(1,349)
+(1,911)
+Net inflows of cash in respect of the disposal of subsidiaries
+82
+Purchase of fixed assets, construction in progress and investment properties
+(5,440)
+187
+(4,296)
+Proceeds from disposals of fixed assets
+70
+40
+Payments for acquisition of investments in associates
+(11,423)
+(31,929)
+Proceeds from disposals of investments in associates
+Cash flows from investing activities
+32,711
+(4,703)
+(5,047)
+Dividends received
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2015
+Cash flows from operating activities
+Cash generated from operations
+Income tax paid
+Net cash flows generated from operating activities
+1,106
+Year ended 31 December
+Note
+RMB'Million
+2014
+RMB'Million
+38(a)
+50,478
+37,414
+2015
+1,027
+45,431
+preference shares of associates
+(4,622)
+Proceeds from disposals of available-for-sale financial assets
+223
+352
+(Payments for)/proceeds from settlement of loan to associates
+(842)
+Receipt from maturity of term deposits with initial terms of over three months
+(13,001)
+61,810
+(87,186)
+(12,428)
+Interest received
+2,274
+1,468
+515
+Payments for acquisition of investments in redeemable
+27,872
+Payments for available-for-sale financial assets
+63
+127
+(2,524)
+Proceeds from disposals of investments in redeemable
+preference shares of associates
+193
+Payments for acquisition of investments in joint ventures
+(500)
+Purchase/prepayment of intangible assets
+(4,620)
+(2,394)
+Proceeds from disposals of intangible assets
+115
+48
+Purchase/prepayment of land use rights
+(3,045)
+(23)
+Proceeds from disposals of land use rights
+(2,320)
+Loans and receivables
+Annual Report 2015
+105
+Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
+not quoted in an active market. They are included in current assets, except for those with maturities
+greater than 12 months after the end of the reporting period which are classified as non-current assets.
+The Group's loans and receivables comprise "Accounts receivable", "Deposits and other receivables",
+"Term deposits", "Restricted cash" and "Cash and cash equivalents" in the consolidated statement of
+financial position.
+Available-for-sale financial assets are non-derivatives that are either designated in this category or not
+classified in any other category. They are included in non-current assets unless management intends
+to dispose of the investment within 12 months after the end of the reporting period.
+(iii) Available-for-sale financial assets
+Notes to the Consolidated Financial Statements
+00
+For the year ended 31 December 2015
+(b) Recognition and measurement
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.14 Financial assets (Cont'd)
+Regular way purchases and sales of investments are recognised on trade-date - the date on which the Group
+commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction
+costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair
+value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the
+consolidated income statement. Financial assets are derecognised when the rights to receive cash flows from
+the investments have expired or have been transferred and the Group has transferred substantially all risks
+and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit
+or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised
+cost using the effective interest method.
+Changes in the fair value of monetary and non-monetary securities classified as available-for-sale financial
+assets are recognised in other comprehensive income.
+When securities classified as available-for-sale financial assets are sold or impaired, the accumulated fair
+value adjustments recognised in other comprehensive income are included in the consolidated income
+statement as gains and losses from investment securities.
+Dividends on available-for-sale financial assets equity instruments are recognised in the consolidated income
+statement when the Group's right to receive payments is established.
+2.15 Offsetting financial instruments
+2
+(ii)
+Other intangible assets
+(i) Financial assets at fair value through profit or loss
+Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
+position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle
+on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right must
+not be contingent on future events and must be enforceable in the normal course of business and in the event of
+default, insolvency or bankruptcy of the company or the counterparty.
+Other intangible assets mainly include game licenses, copyrights, computer software and technology and
+non-compete agreements. They are initially recognised and measured at cost or estimated fair value of
+intangible assets acquired through business combinations.
+Other intangible assets are amortised over their estimated useful lives (generally three to ten years) using the
+straight-line method reflects the pattern in which the intangible asset's future economic benefits are expected
+to be consumed.
+2.12 Shares held for share award schemes
+The consideration paid by the Share Scheme Trust (see Note 43(e)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as “Shares held for share award
+schemes" and the amount is deducted from total equity.
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium".
+2.13 Impairment of non-financial assets
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances
+indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
+which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
+asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped
+at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial
+assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each
+reporting date.
+Tencent Holdings Limited
+104
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+2.14 Financial assets
+(a) Classification
+The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans
+and receivables and available-for-sale financial assets. The classification depends on the purpose for which
+the financial assets were acquired, management's intentions and whether the assets are quoted in an active
+market. Management determines the classification of its financial assets at initial recognition.
+Financial assets at fair value through profit or loss are financial assets held for trading. A financial
+asset is classified in this category if acquired principally for the purpose of selling in the short term.
+Derivatives are classified as held for trading unless they are designated as hedges. Assets in this
+category are classified as current assets if expected to be settled within 12 months, otherwise they are
+classified as non-current.
+Tencent Holdings Limited
+00
+Notes to the Consolidated Financial Statements
+108
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.17 Derivative financial instruments and hedging activities (Cont'd)
+Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the
+consolidated income statement, together with any changes in the fair value of the hedged asset or liability that are
+attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated
+and qualified as cash flow hedges is recognised in other comprehensive income within "Other fair value gain
+recognised". The gain or loss relating to the ineffective portion is recognised immediately in the consolidated
+income statement within ‘other gains/(losses), net'. When the forecast transaction that is hedged results in the
+recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from
+equity and included in the initial measurement of the cost of the asset. Changes in the fair value of any derivative
+instruments that do not qualify for hedge accounting are recognised immediately in the consolidated income
+statement in "Other gains/(losses), net".
+2.18 Inventories
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average
+method and are stated at the lower of cost and net realisable value.
+2.19 Accounts receivable
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. If collection of accounts receivable is expected in one year or less, they are classified
+as current assets. Otherwise, they are presented as non-current assets.
+Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method, less provision for impairment.
+2.20 Cash and cash equivalents
+Cash and cash equivalents include cash in hand, deposits held at call with banks, money market funds and other
+short-term highly liquid investments with initial maturities of three months or less.
+(c)
+109
+Annual Report 2015
+Tencent Holdings Limited
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on
+whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The
+Group designates certain derivatives as either (i) hedges of the fair value of recognised assets or liabilities or a firm
+commitment (fair value hedge); (ii) hedges of a particular risk associated with a recognised asset or liability or a
+highly probable forecast transaction (cash flow hedge); or (iii) hedges of a net investment in a foreign operation (net
+investment hedge).
+2.17 Derivative financial instruments and hedging activities
+For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also
+evidence that the assets are impaired. If any such evidence exists, the cumulative loss - measured as the
+difference between the acquisition cost and the current fair value, less any impairment loss on that financial
+asset previously recognised in the consolidated income statement - is removed from equity and recognised
+in the consolidated income statement. Impairment losses recognised in the consolidated income statement
+on equity instruments are not reversed through the consolidated income statement.
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+2.16 Impairment of financial assets
+The Group assesses at the end of each reporting period whether there is objective evidence that a financial
+asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired
+and impairment losses are incurred only if there is objective evidence of impairment as a result of one or
+more events that occurred after the initial recognition of the asset (a “loss event") and that loss event (or
+events) has an impact on the estimated future cash flows of the financial asset or group of financial assets
+that can be reliably estimated.
+Evidence of impairment may include indications that the debtors or a group of debtors is experiencing
+significant financial difficulty, default or delinquency in interest or principal payments, the probability that
+they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a
+measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions
+that correlate with defaults.
+For loans and receivables category, the amount of the impairment loss is measured as the difference
+between the asset's carrying amount and the present value of estimated future cash flows (excluding future
+credit losses that have not been incurred) discounted at the financial asset's original effective interest rate.
+The carrying amount of the asset is reduced and the amount of the impairment loss is recognised in the
+consolidated income statement. If a loan has a variable interest rate, the discount rate for measuring any
+impairment loss is the current effective interest rate determined under the contract. As a practical expedient,
+the Group may measure impairment on the basis of an instrument's fair value using an observable market
+price.
+If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
+objectively to an event occurring after the impairment was recognised (such as an improvement in the
+debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the
+consolidated income statement.
+106
+00
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.16 Impairment of financial assets (Cont'd)
+(b) Assets classified as available-for-sale financial assets
+The Group assesses at the end of each reporting period whether there is objective evidence that a financial
+asset or a group of financial assets is impaired.
+For debt securities, if any such evidence exists, the cumulative loss - measured as the difference between
+the acquisition cost and the current fair value, less any impairment loss on that financial asset previously
+recognised in the consolidated income statement - is removed from equity and recognised in the
+consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified
+as available for sale increases and the increase can be objectively related to an event occurring after the
+impairment loss was recognised in the consolidated income statement, the impairment loss is reversed
+through the consolidated income statement.
+107
+The licensed online contents mainly include video and music contents. They are initially recognised and
+measured at cost. Licensed online contents are amortised using an accelerated method or straight-line
+method reflect the estimated consumption patterns.
+(a) Assets carried at amortised cost
+2.11 Intangible assets (Cont'd)
+(b) Transactions and balances (Cont'd)
+Changes in the fair value of debt securities denominated in foreign currency classified as available-for-sale
+financial assets are analysed between translation differences resulting from changes in the amortised cost
+of the securities, and other changes in the carrying amount of the securities. Translation differences related
+to changes in the amortised cost and interest income are recognised in the consolidated income statement,
+and other changes in carrying amount are recognised in other comprehensive income.
+Translation differences on non-monetary financial assets and liabilities such as equities held at fair value
+through profit or loss are recognised in the consolidated income statement as part of the fair value gain or
+loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-
+sale financial assets, are included in other comprehensive income.
+(c)
+Group companies
+The results and financial position of all the group entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+(i)
+(ii)
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+(iii) All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other currency instruments designated as hedges of such investments,
+are taken to other comprehensive income.
+Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
+liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are
+recognised in other comprehensive income.
+00
+101
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+(b) Licensed online contents
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.4 Joint arrangements (Cont'd)
+The Group determines at each reporting date whether there is any objective evidence that investments in joint
+ventures are impaired. If this is the case, the Group calculates the amount of impairment as the difference between
+the recoverable amount of the joint ventures and its carrying value and recognises the amount in "Other gains/
+(losses), net" in the consolidated income statement.
+2.5 Investments in associates/joint ventures achieved in stages
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint
+venture; is measured as the sum of the fair value of the interest previously held plus the fair value of any additional
+consideration transferred as of the date when it becomes associate/joint venture. A gain or loss on re-measurement
+of the previously held interest is taken to the consolidated income statement. Any other comprehensive income
+recognised in prior periods in relation to the previously held interest is also taken to the consolidated income
+statement. Any acquisition-related costs are expensed in the period in which the costs are incurred.
+For the year ended 31 December 2015
+2.6 Segment reporting
+2.7 Foreign currency translation
+(a) Functional and presentation currency
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the "functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the PRC, the Group presents its consolidated financial statements
+in Renminbi ("RMB"), unless otherwise stated.
+(b)
+Transactions and balances
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised in the consolidated income statement.
+Tencent Holdings Limited
+100
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+decision-makers, who are responsible for allocating resources and assessing performance of the operating
+segments and making strategic decisions. The chief operating decision-makers mainly include the executive
+directors.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.7 Foreign currency translation (Cont'd)
+All fixed assets are stated at historical costs less accumulated depreciation and accumulated impairment charge.
+Historical cost includes expenditure that is directly attributable to the acquisition of the items.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+2.9 Investment properties
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+Depreciation is calculated on the straight-line method to allocate their costs to their residual values over their
+estimated useful lives of 50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts.
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease or
+capitalised in construction in progress upon completion of construction.
+2.11 Intangible assets
+2
+(a) Goodwill
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUs"), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within
+the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the
+operating segment level.
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable
+amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised
+immediately as an expense and is not subsequently reversed.
+103
+Annual Report 2015
+00
+Notes to the Consolidated Financial Statements
+2.8 Fixed assets
+For the year ended 31 December 2015
+Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred over
+the Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the
+acquiree and the fair value of the non-controlling interests in the acquiree.
+Notes to the Consolidated Financial Statements
+2.10 Land use rights
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
+of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the financial period in which they are
+incurred.
+102
+Buildings
+Computer equipment
+Furniture and office equipment
+Motor vehicles
+Leasehold improvements
+20 - 50 years
+2 - 5 years
+Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their
+estimated useful lives, as follows:
+5 years
+the shorter of their useful lives and the lease terms
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+Construction in progress represents buildings under construction, which is stated at actual construction cost less
+any impairment loss. Construction in progress is transferred to fixed assets when completed and ready for use.
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.13).
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+Tencent Holdings Limited
+5 years
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+113
+00
+From the perspective of the Company, the Company grants its equity instruments to employees of its
+subsidiaries to exchange for their services related to the subsidiaries. Accordingly, the share-based
+compensation expenses, which are recognised in the financial statements, are treated as part of the
+"Investments in subsidiaries" in the Company's statement of financial position.
+Non-market performance and services conditions are included in assumptions about the number of options
+that are expected to become vested.
+For grant of share options, the total amount to be expensed is determined by reference to the fair value
+of the options granted by using option-pricing models - Black-Scholes valuation model (the "BS Model”)
+and "Enhanced FAS 123" binomial model (the "Binomial Model”), which include the impact of market
+performance conditions (such as the Company's share price) but exclude the impact of service condition
+and non-market performance conditions. For grant of award shares, the total amount to be expensed is
+determined by reference to the market price of the Company's shares at the grant date. The Group also
+adopts valuation technique to assess the fair value of other equity instruments of the Group granted under
+the share-based compensation plans as appropriate.
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees as consideration for equity
+instruments (including share options and awarded shares) of the Group. The fair value of the employee
+services received in exchange for the grant of equity instruments of the Group is recognised as an expense
+over the vesting period, which is the period over which all of the specified vesting conditions are to be
+satisfied, and credited to share premium under equity.
+(b) Pension obligations
+(c)
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate entity. The Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee service in the current and prior periods. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the scheme prior to vesting fully in the contributions.
+2.27 Employee benefits (Cont'd)
+For the year ended 31 December 2015
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+For the year ended 31 December 2015
+Share-based compensation benefits
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+The VAS can be paid by way of prepaid cards and tokens (represented a specific amount of payment unit)
+sold by the Group through channels such as sales agents appointed by the Group, telecommunication
+operators, broadband service providers, Internet cafes and banks. The end users can register the prepaid
+cards and tokens to their user accounts in the Group's platforms and then access the Group's paid online
+products or relevant paid services. Receipts from the sales of prepaid cards and tokens are deferred and
+recorded as "Deferred revenue” in the consolidated statement of financial position (see Note 26). The
+amounts are then recognised as revenue based on the actual utilisation of the respective payment units:
+(i) when the payment unit is used to purchase services, revenue is recognised when the related services
+are rendered; (ii) when the payment unit is used to purchase virtual products/items in the Group's Internet/
+mobile platforms, the revenue is recognised over the estimated lifespan of the respective virtual products/
+items or over the expected user relationship.
+(c) Share-based compensation benefits (Cont'd)
+Certain VAS service are directly delivered to the Group's customers through various third parties platforms,
+including certain major telecommunication operators in the PRC. These third party platforms collect the
+relevant service fees (the "Internet and Mobile Service Fees") on behalf of the Group and they are entitled to
+a commission fee determined at certain percentages of the service fees (defined as "Channel costs"). The
+Channel costs are withheld and deducted from the gross Internet and Mobile Service Fees collected by these
+platforms from the users, with the net amounts remitted to the Group. The Group recognises the Internet and
+Mobile Service Fees as revenue on a gross basis and treats the Channel costs as cost of revenues.
+Notes to the Consolidated Financial Statements
+Revenues from VAS are derived principally from the provision of online/mobile games, community value-
+added services and applications across various Internet and mobile platforms.
+(a) VAS
+The Group principally derives revenues from provision of VAS and online advertising services in the PRC.
+2.29 Revenue recognition
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+114
+Tencent Holdings Limited
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to
+the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably
+estimated. Provisions are not recognised for further operating losses.
+2.28 Provisions
+If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the terms
+had not been modified. An additional expense is recognised for any modification that increases the total fair
+value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at
+the date of modification.
+If the Group repurchases vested equity instruments, the payment made to the employee shall be accounted
+for as a deduction from equity, except to the extent that the payment exceeds the fair value of the equity
+instruments repurchased, measured at the repurchase date. Any such excess shall be recognised as an
+expense.
+When the options are exercised, the proceeds received net of any directly attributable transaction costs are
+credited to share capital (nominal value) and share premium.
+At each reporting period end, the Group revise their estimates of the number of options and awarded shares
+that are expected to ultimately vest. They recognise the impact of the revision of original estimates, if any, in
+the consolidated income statement of the Group, with a corresponding adjustment made to equity over the
+remaining vesting period.
+2.27 Employee benefits (Cont'd)
+112
+111
+Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made
+for the estimated liability for annual leave as a result of services rendered by employees up to the end of
+the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time of
+leave.
+110
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+2.24 Borrowings and notes payable
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their period using the
+effective interest method.
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it
+is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down
+occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the
+fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it
+relates.
+Tencent Holdings Limited
+Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
+liability for at least 12 months after the end of the reporting period.
+General and specific finance costs directly attributable to the acquisition, construction of qualifying assets, which
+are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to
+the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. During
+the year ended 31 December 2015, finance cost capitalised was insignificant to the Group.
+2.25 Compound financial instruments
+Compound financial instruments of the Group comprise redeemable preference shares of associates and
+convertible bond of a subsidiary that can be converted to share capital at the option of the holder.
+The Group either (i) accounts for different components of the compound financial instruments separately or (ii)
+designate the entire financial instruments as financial assets/liabilities at fair value through profit or loss. The host
+component is recognised initially at the difference between the fair value of the compound financial instrument
+as a whole and the fair value of the conversion component, and is subsequently measured at amortised cost. For
+financial assets/liabilities at fair value through profit or loss including derivative, they are initially recognised at
+fair value and subsequently carried at fair value with changes in fair value recognised in the consolidated income
+statement.
+00
+The Group also opens its Internet and mobile platforms to third-party game/application developers under
+certain co-operation agreements, of which the Group pays a pre-determined percentage of the fees paid
+by and collected from the users of the Group's Internet and mobile platforms for the virtual products/items
+purchased to the third-party game/application developers. The Group recognises the related revenue on a
+gross or net basis depending on whether the Group is acting as a principal or an agent in the transaction.
+The Group also defers the related revenue, either on gross or net basis, over the estimated lifespan of the
+respective virtual products/items or over the expected user relationship periods, given there is an implicit
+obligation of the Group to maintain and allow access of the users of the games/applications operated by the
+developers through its platforms.
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+Notes payable are classified as non-current liabilities unless the Group has an unconditional obligation to settle the
+liability within 12 months after the end of the reporting period.
+Tencent Holdings Limited
+The put option liabilities are current liabilities unless the put option can only be exercised 12 months after the end
+of the reporting period.
+2.23 Put option liabilities
+(a) Employee leave entitlements
+2.27 Employee benefits
+Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
+assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes
+levied by the same taxation authority on either the taxable entity or different taxable entities where there is an
+intention to settle the balances on a net basis.
+Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates,
+except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by
+the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
+Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
+available against which the temporary differences can be utilised.
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred
+income tax is not accounted for if it arises from initial recognition of goodwill or the initial recognition of an asset or
+liability in a transaction other than a business combination that at the time of the transaction neither accounting
+nor taxable profit or loss is affected. Deferred income tax is determined using tax rates (and laws) that have been
+enacted or substantively enacted by the end of the reporting period and are expected to apply when the related
+deferred income tax asset is realised or the deferred income tax liability is settled.
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
+amounts expected to be paid to the tax authorities.
+The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income
+statement, except to the extent that it relates to items recognised in other comprehensive income or directly in
+equity. In this case, the tax is also recognised in other comprehensive income or in equity, respectively.
+Put option is the financial instrument granted by the Group that the counterparty may have the right to request the
+Group to purchase its own equity instruments for cash or other financial assets when certain conditions are met. If
+the Group does not have the unconditional right to avoid delivering cash or another financial assets under the put
+option, it has to recognise a financial liability at the present value of the estimated future cash outflows under the
+put option. The financial liability is initially recognised at fair value. Subsequently, if the Group revises its estimates
+of payments, the Group will adjust the carrying amount of the financial liability to reflect actual and revised
+estimated cash outflows. The Group will recalculate the carrying amount by computing the present value of revised
+estimated future cash outflows at the financial instrument's original effective interest rate and the adjustments
+will be recognised as income or expenses in the consolidated income statement. If the put option expires without
+delivery, the carrying amount of the liability is reclassified as equity.
+2.26 Current and deferred income tax
+For the year ended 31 December 2015
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.21 Share capital
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
+options are shown in equity as a deduction from the proceeds.
+Where any group company purchases the Company's equity share capital (treasury share), the considerations
+paid, including any directly attributable incremental costs, is deducted from equity attributable to the Company's
+equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any
+consideration received (net of any directly attributable incremental transaction costs) is included in equity
+attributable to the Company's equity holders.
+2.22 Accounts payable
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or
+less. If not, they are presented as non-current liabilities.
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+Notes to the Consolidated Financial Statements
+00
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price
+risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to
+minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out
+by the senior management of the Group.
+Annual Report 2015
+As at 31 December 2014
+Monetary liabilities, current
+Monetary assets, current
+As at 31 December 2015
+RMB'Million
+As at 31 December 2015, the Group's major monetary assets and liabilities which are exposed to
+foreign exchange risk, are listed below:
+For the year ended 31 December 2015
+Foreign exchange risk (Cont'd)
+(i)
+(a) Market risk (Cont'd)
+3.1 Financial risk factors (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+Notes to the Consolidated Financial Statements
+118
+Tencent Holdings Limited
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures and tries to minimise these exposures through natural hedges, wherever possible
+and may enter into forward foreign exchange contracts, when necessary.
+Monetary assets, current
+Monetary liabilities, current
+Denomination currency
+RMB
+For the year ended 31 December 2015
+Annual Report 2015
+119
+00
+During the year ended 31 December 2015, the Group reported exchange losses of approximately
+RMB108 million (2014: RMB316 million). Such losses were recorded in "Finance costs, net” in the
+consolidated income statement.
+(270)
+2,773
+(1,319)
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to RMB, Hong Kong Dollars ("HKD"), and USD. Foreign
+exchange risk arises when future commercial transactions or recognised assets and liabilities are
+denominated in a currency that is not the group entities' functional currency. The functional currency
+of the Company and majority of its overseas subsidiaries is USD whereas functional currency of the
+subsidiaries which operate in the PRC is RMB.
+(302)
+3,075
+983
+29
+(2,186)
+(7)
+3,169
+36
+USD
+1,049
+115
+Foreign exchange risk
+Market risk
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+116
+Tencent Holdings Limited
+Interest income is recognised on a time proportion basis, taking into account of the principal outstanding and the
+effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group.
+2.30 Interest income
+Commissions payable to advertising agencies are recognised as a component of the cost of revenues.
+For the year ended 31 December 2015
+Online advertising revenues comprise mainly display based and performance based advertisements.
+Revenue from displaying advertisements to the users of instant messaging, portals, social networks, video
+streaming and other online and mobile platforms operated by the Group is recognised ratably over the
+contracted period, with advertisers and their advertising agencies, in which the advertisements are displayed.
+Revenue from performance based advertisements is recognised based on actual performance measurement.
+The Group recognise the revenue from the delivery of pay-for click or pay-for instant display advertisements
+for advertisers to users of the Group based on a per-click basis when the users click on the content, or on a
+per-display basis, when the advertising contents are displayed to users.
+(b)
+Determining whether revenue of the Group should be reported gross or net is based on a continuing
+assessment of various factors. The primary factor is whether the Group is acting as the principal in offering
+services to the customer or whether the Group is acting as an agent in the transaction. The Group has
+determined that it is acting as the principal in offering services, given the Group (i) is the primary obligor in
+the arrangement; (ii) has latitude in establishing the selling price; (iii) has discretion in suppliers selection;
+and (iv) has involvement in the determination of product specifications. Therefore, the Group adopted
+different revenue recognition method based on its specific responsibilities in different VAS offerings.
+Revenues derived from these arrangements are presented as revenue derived from VAS in the consolidated
+income statement.
+VAS (Cont'd)
+(a)
+2.29 Revenue recognition (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Online advertising
+(i)
+2.31 Dividend income
+2.32 Government grants/subsidies
+(a)
+3.1 Financial risk factors
+FINANCIAL RISK MANAGEMENT
+3
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+117
+Dividend income is recognised when the right to receive payment is established.
+00
+Research expenditure is recognised as an expense as incurred.
+2.35 Research and development expenses
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or board of
+directors where appropriate.
+2.34 Dividends distribution
+Leases in which a significant portion of the risks and rewards of ownership are retained by lessors are classified
+as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
+charged to the consolidated income statement on a straight-line basis over the period of the lease.
+2.33 Leases
+Under these circumstances, the grants/subsidies are recognised as income or matched with the associated costs
+which the grants/subsidies are intended to compensate.
+Grants/subsidies from government are recognised at their fair value where there is a reasonable assurance that the
+grants/subsidies will be received and the Group will comply with all attached conditions.
+Costs incurred on development projects (relating to the design and testing of new or improved products) are
+capitalised as intangible assets when recognition criteria are fulfilled and tests for impairment are performed
+annually. Other development expenditures that do not meet those criterias are recognised as expenses as incurred.
+Development costs previously recognised as expenses are not recognised as assets in subsequent periods.
+Capitalised development costs are amortised from the point at which the assets are ready for use on a straight-line
+basis over their estimated useful lives, not exceeding five years.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+As at 31 December
+The Group has policies in place to ensure that revenues of on credit terms are made to counterparties with
+an appropriate credit history and the management performs ongoing credit evaluations of its counterparties.
+Notes payable
+121
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.1 Financial risk factors (Cont'd)
+(b) Credit risk (Cont'd)
+A large portion of Internet and Mobile Service Fees is derived from the co-operative arrangements with
+certain third party platform providers, including certain telecommunications operators in the PRC. They
+usually settle the amounts by them within a period of 30 to 120 days. If the strategic relationship with these
+providers are terminated or scaled-back; or if they experience financial difficulties in paying us, the Group's
+VAS might be adversely affected in terms of recoverability of the related receivable balances. To manage
+this risk, the Group maintains frequent communication with these providers to ensure the co-operation
+is effective. In view of the history of co-operation with these providers and the sound collection history of
+receivables due from them, management believes that the credit risk inherent in the Group's outstanding
+accounts receivable balances from these counterparties is low (see Note 13 for details).
+The Group does not expose to significant credit risk arising from customers of its performance based
+advertisements as full advances from most of the customers are received before delivery of the
+advertisements according to the Group's policies. For other advertising customers, mainly advertising
+agencies, the credit quality of each customer is assessed, which takes into account its financial position, past
+experience and other factors. In addition, prepayments representing a certain percentage of the total service
+fees for each advertising service are required. Provisions are made for past due balances when management
+considers the loss from non-performance by the customers is likely. The Group's historical experience in
+collection of receivables falls within the recorded allowances.
+Tencent Holdings Limited
+122
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2015
+3.1 Financial risk factors (Cont'd)
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Over 5 years
+00
+2 and 5 years
+1 year
+Between
+Between
+Less than
+The Group aims to maintain sufficient cash and cash equivalents and marketable securities. Due to the
+dynamic nature of the underlying businesses, the Group maintains flexibility in funding by maintaining
+adequate cash and cash equivalents.
+(c) Liquidity risk
+1 and 2 years
+The Group is exposed to credit risk in relation to its cash and deposits (including restricted cash) placed with
+banks and financial institutions, other investments, as well as accounts and other receivables. The carrying
+amount of each class of these financial assets represents the Group's maximum exposure to credit risk in
+relation to the corresponding class of financial assets. To manage this risk, deposits are mainly placed with
+state-owned financial institutions in the PRC and reputable international financial institutions outside of the
+PRC. There has been no recent history of default in relation to these financial institutions.
+Credit risk
+(b)
+The sensitivity analysis is determined based on the exposure to equity price risks of available-for-sale
+financial assets at the end of the reporting period. If equity prices of the respective instruments held by
+the Group had been 5% (2014: 5%) higher/lower as at 31 December 2015, the other comprehensive
+income would have been approximately RMB2,067 million (2014: RMB642 million) higher/lower.
+The Group is exposed to price risk mainly arising from the investments that classified as available-
+for-sale financial assets held by the Group (Note 12). To manage its price risk arising from the
+investments, the Group diversifies its portfolio. The investments made by the Group are either for
+strategic purposes, or for the purpose of improving investment yield and maintaining high liquidity level
+simultaneously. Each investment is managed by senior management on a case by case basis.
+Price risk
+At 31 December 2015, management considers that any reasonable changes in foreign exchange rates
+of the above currencies against the two major functional currencies of the Group's entities would not
+result in a significant change in the Group's results as the net carrying amounts of financial assets and
+liabilities denominated in a currency other than the respective Group's entities' function currency are
+considered to be insignificant. Accordingly, no sensitivity analysis is presented for foreign exchange
+risk (2014: Nil).
+(ii)
+Foreign exchange risk (Cont'd)
+(iii)
+(i)
+3.1 Financial risk factors (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Adjusted EBITDA (Note)
+(a) Market risk (Cont'd)
+RMB'Million
+Interest rate risk
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 24 and 25. Borrowings and notes payable
+carry at floating rates expose the Group to cash flow interest-rate risk whereas those carry at fixed rates
+expose the Group to fair value interest-rate risk.
+For the year ended 31 December 2015, if the average interest rate on variable interest-bearing
+borrowings had been increased/decreased by 50 basis points (2014: 50 basis points) the Group's
+profit before income tax for the year would have been approximately RMB42 million (2014: RMB43
+million) lower/higher.
+The Group regularly monitors its interest rate risk to ensure there are no undue exposures to significant
+interest rate movements and regular reporting is provided to the management for the Group's debt and
+interest rates exposure. The Group may consider to use any interest rate swaps to hedge its exposure
+to interest rates risk, however, no interest rate swaps have been entered as at 31 December 2015 and
+2014.
+The Group's borrowings were carried at floating rates and expose the Group to cash flow interest-rate
+risk whereas the notes payable, which representing the larger portion of the Group's debts, were all
+carried at fixed rates which do not expose the Group to cash flow interest-rate risk.
+For the year ended 31 December 2015
+Interest rate risk (Cont'd)
+(iii)
+The Group's income and operating cash flows are substantially independent from changes in market
+interest rates and the Group has no significant interest-bearing assets except for loans to investees
+and investees' shareholders, term deposits with initial terms of over three months and cash and cash
+equivalents, details of which have been disclosed in Notes 14, 16 and 17.
+(a) Market risk (Cont'd)
+3.1
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+Notes to the Consolidated Financial Statements
+120
+Tencent Holdings Limited
+Financial risk factors (Cont'd)
+Total debts
+At 31 December 2015
+5,271
+287
+2,164
+Borrowings
+3,362
+702
+5,008
+9,072
+Accounts payable, other
+payables and accruals
+(excluding prepayments
+received from customers, staff
+costs and welfare accruals)
+21,563
+21,563
+27,641
+6,591
+25,965
+Borrowings
+The Group monitors capital by regularly reviewing debts to adjusted earnings before interest, tax, depreciation and
+amortisation ("EBITDA”) (Note) ratio, being the measure of the Group's ability to pay off all debts that reflecting
+financial health and liquidity position. The debts/adjusted EBITDA ratio is calculated by dividing the debts by
+adjusted EBITDA is as follows:
+Capital referred to the equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+The Group's objectives on managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+3.2 Capital risk management
+FINANCIAL RISK MANAGEMENT (Cont'd)
+505
+3
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+123
+00
+62,088
+1,891
+For the year ended 31 December 2015
+1,372
+Long-term payables
+29,289
+25,015
+6,415
+6,826
+11,774
+Borrowings
+3,724
+Accounts payable, other
+95
+1,282
+Long-term payables
+47,378
+7,951
+29,747
+4,409
+2,347
+Notes payable
+payables and accruals
+received from customers, staff
+1,604
+20,452
+4,517
+2,716
+Notes payable
+At 31 December 2014
+(excluding prepayments
+154,032
+38,509
+12,517
+94,960
+77,915
+77,915
+costs and welfare accruals)
+8,046
+Debts/Adjusted EBITDA Ratio
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date.
+126
+As at 31 December 2015
+Available-for-sale financial assets
+9,435
+Other financial assets
+7,419
+736
+27,485
+44,339
+462
+1,198
+Convertible bonds
+588
+588
+As at 31 December 2014
+Available-for-sale financial assets
+3,631
+3,370
+6,276
+The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining
+the worldwide provision for income taxes. The Group recognises liabilities for anticipated tax audit issues based on
+estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from
+the amounts that were initially recorded, such differences will impact current income tax and deferred income tax
+liabilities in the period in which such determination is made.
+Were the actual final outcome (on the judgement areas) to differ by 5% from management's estimates, the Group
+would need to:
+Increase the income tax liabilities by RMB80 million (2014: RMB23 million) and the deferred tax liabilities by
+RMB183 million (2014: RMB147 million), if unfavourable; or
+Decrease the income tax liabilities by RMB80 million (2014: RMB23 million) and the deferred tax liabilities
+by RMB183 million (2014: RMB147 million), if favourable.
+00
+129
+RMB'Million
+Annual Report 2015
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in level 2.
+The fair value of financial instruments traded in active markets is determined based on quoted market prices at
+the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available
+from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
+actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for
+financial assets held by the Group is the current bid price. These instruments are included in level 1.
+489
+489
+Convertible bonds
+13,277
+00
+(c) Income taxes
+Total
+RMB'Million
+2014
+RMB'Million
+RMB'Million
+24,351
+8,722
+40,978
+26,862
+65,329
+35,584
+45,805
+32,710
+1.43
+1.09
+Note: Adjusted EBITDA represents operating profit less interest income and other gains/losses, net, and plus depreciation of
+fixed assets and investment properties and amortisation of intangible assets and equity-settled share-based compensation
+expenses.
+The movement in the ratio is mainly the result of additional debts issued by the Group for the year.
+Tencent Holdings Limited
+RMB'Million
+Level 2
+Level 1
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
+(level 3).
+Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
+Level 3
+RMB'Million
+•
+3.3 Fair value estimation
+For the year ended 31 December 2015
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+Notes to the Consolidated Financial Statements
+124
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2015 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+2015
+The Group will continue to monitor the average lifespan of the virtual products/items (provided and to be provided),
+which may differ from the historical period, and any change in the estimates may result in the revenue being
+recognised on a different basis than in prior periods.
+As mentioned in Note 2.29(a), the end users purchase certain virtual products/items provided in the Group's
+Internet and mobile platforms and the relevant revenue is recognised based on the lifespan of the virtual products/
+items or the expected user relationship periods. The Group uses the available information, including the historical
+user pattern and behavior and the stipulated period of validity of the relevant virtual products/items, to estimate the
+lifespan of these products/items. The Group has adopted policy of assessing the estimated lives of the permanent
+1,061
+Currency translation differences
+(369)
+(65)
+Impairment provision
+1,257
+5,939
+Changes in fair value
+2,682
+14,736
+2,775
+6,276
+Additions
+Opening balance
+RMB'Million
+RMB'Million
+2014
+For the year ended 31 December 2015
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.3 Fair value estimation (Cont'd)
+If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
+Specific valuation techniques used to value financial instruments include:
+(69)
+.
+The fair value of forward foreign exchange contracts is determined using forward exchange rates at the end
+of the reporting period, with the resulting value discounted back to present value; and
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+instruments.
+There were no transfers of financial assets between level 1 and level 2 fair value hierarchy classifications.
+The following table presents the changes in level 3 instruments for the year ended 31 December 2015:
+Financial assets
+2015
+Dealer quotes for similar instruments;
+life virtual products/items on a timely basis.
+Closing balance
+6,276
+(b) The estimates of the lifespan of virtual products/items provided in the Group's Internet and mobile
+platforms
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+128
+Tencent Holdings Limited
+If the Expected Retention Rate of Grantees had been increased/decreased by 5% (2014: 5%), the amount of
+share-based compensation expenses would be increased/decreased by RMB154 million (2014: RMB73 million).
+In addition, during the year ended 31 December 2015, the Group repurchased certain vested equity interests in a
+non-wholly owned subsidiary and exchanged certain unvested equity interests in a non-wholly owned subsidiary for
+the unvested awarded shares of the Company, which have been accounted for as a deduction from equity.
+The Group has to estimate the expected yearly percentage of grantees of share options/awarded shares who
+will stay within the Group at the end of the vesting periods ("Expected Retention Rate of Grantees") in order to
+determine the amount of share-based compensation expenses charged into the consolidated income statement.
+As at 31 December 2015, the Expected Retention Rate of Grantees was assessed to be 85% (2014: 85%).
+The Group also granted awarded shares to its employees at an aggregate fair value of HKD4,287 million (equivalent
+to approximately RMB3,395 million) in 2015 (2014: HKD3,907 million (equivalent to approximately RMB3,094
+million)).
+The fair value of share options granted to employees determined using the Valuation Models was approximately
+HKD76 million (equivalent to approximately RMB60 million) in 2015 (2014: HKD508 million (equivalent to
+approximately RMB403 million)).
+As mentioned in Note 2.27(c), the Group has granted share options to its employees. The directors have used the
+BS Model and the Binomial Model ("Valuation Models") to determine the total fair value of the options granted,
+which is to be expensed over the vesting period. Significant judgement on parameters, such as risk free rate,
+dividend yield and expected volatility, is required to be made by the directors in applying the Valuation Models (Note
+20).
+(a) Share-based compensation arrangements
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk
+of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
+addressed below:
+Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
+expectations of future events that are believed to be reasonable under the circumstances.
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
+4
+For the year ended 31 December 2015
+Tencent Holdings Limited
+125
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2015
+27,947
+3.3 Fair value estimation (Cont'd)
+The Group has a team that manages the valuation logistics of level 3 instruments for financial reporting purposes.
+The team manages the valuation logistics at least once every quarter, in line with the Group's quarterly reporting
+dates. On an annual basis, the team would also manage the valuation logistics, and use valuation techniques
+to determine the fair value of the Group's level 3 instruments. External valuation experts will be involved when
+necessary.
+The valuation of the level 3 instruments mainly included investments in private funds and unlisted companies,
+other financial instruments and convertible bonds. As these instruments are not traded in an active market,
+their fair value have been determined using various applicable valuation techniques, including discounted cash
+flows, comparable transactions approaches, and other option pricing models etc. Major assumptions used in the
+valuation include historical financial results, assumptions about future growth rates, estimate of weighted average
+cost of capital (WACC), recent market transactions, estimate discount for marketing and other exposure etc.
+00
+127
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+No significant change in the financial liabilities that in level 3 instruments for the year ended 31 December 2015.
+Valuation processes of the Group (Level 3)
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+Opening net book amount
+(63)
+(532)
+(1,142)
+(2,324)
+(360)
+(273)
+(4,694)
+Currency translation differences
+(139)
+(21)
+(3)
+(2)
+(165)
+Net book amount
+6,356
+1,118
+566
+609
+226
+429
+9,304
+Year ended 31 December 2015
+Opening net book amount
+6,356
+1,118
+566
+609
+and impairment
+Accumulated amortisation
+14,163
+704
+The land use rights are all related to land in the PRC with remaining lease period of 40 to 50 years. For the year ended
+31 December 2015, all of the amortisation was charged to general and administrative expenses.
+Tencent Holdings Limited
+136
+9
+INTANGIBLE ASSETS
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+Computer
+software and
+Licensed
+online
+Goodwill
+technology
+RMB'Million
+226
+RMB'Million
+RMB'Million
+contents
+RMB'Million
+Copyrights
+RMB'Million
+Others
+RMB'Million
+Total
+RMB'Million
+At 1 January 2015
+Cost
+6,558
+1,671
+1,711
+2,933
+586
+Game licences
+751
+26
+9,304
+Currency translation differences
+150
+13
+12
+2
+(3)
+174
+Closing net book amount
+7,155
+1,219
+697
+3,665
+259
+444
+13,439
+At 31 December 2015
+Cost
+7,306
+2,087
+2,196
+8,598
+754
+54
+836
+21,777
+Accumulated amortisation
+and impairment
+(174)
+(1)
+(30)
+(44)
+Business combinations
+845
+231
+132
+1,208
+Additions
+450
+300
+5,665
+175
+6
+6,596
+Disposals
+429
+(97)
+(53)
+(6)
+(193)
+Amortisation
+(281)
+(329)
+(2,611)
+(136)
+(119)
+(3,476)
+Impairment provision
+(99)
+666
+(37)
+2,293
+(17)
+(39)
+339
+5,092
+2,052
+Net book amount
+(68)
+(9)
+4
+(63)
+Currency translation differences
+(8,508)
+(529)
+(13)
+(338)
+(7,106)
+(522)
+Accumulated depreciation
+16,494
+961
+25
+673
+12,261
+2,574
+Disposals
+At 31 December 2014
+7,918
+423
+12
+12
+423
+7,918
+For the year ended 31 December 2015, depreciation of RMB2,191 million (2014: RMB2,115 million), RMB118 million
+(2014: RMB102 million) and RMB844 million (2014: RMB772 million) were charged to cost of revenues, selling and
+marketing expenses and general and administrative expenses, respectively.
+LAND USE RIGHTS
+8
+As at 31 December 2015, construction in progress mainly comprised new buildings under construction located in the
+PRC.
+3,830
+4,248
+2
+(100)
+(1,783)
+1,894
+2,199
+2,041
+3,830
+RMB'Million
+339
+RMB'Million
+2015
+Closing net book amount
+Currency translation differences
+Disposals
+Transfer to fixed assets
+Additions
+Opening net book amount
+7 CONSTRUCTION IN PROGRESS
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+135
+00
+2014
+5,092
+(179)
+Closing net book amount
+23
+1
+Business combinations
+8,693
+512
+29
+29
+334
+5,415
+2,403
+Opening net book amount
+Year ended 31 December 2014
+8,693
+1
+512
+334
+5,415
+Amortisation
+Closing net book amount
+2015
+2014
+RMB'Million
+RMB'Million
+751
+871
+1,581
+27
+(130)
+29
+Additions
+4
+Additions
+(25)
+(8)
+3
+(20)
+Currency translation differences
+(272)
+(272)
+Transfer to investment properties
+(2,989)
+(190)
+(9)
+(125)
+(2,537)
+29
+(128)
+(134)
+(41)
+(16)
+(11)
+(4,935)
+(66)
+Disposals
+2,616
+146
+7
+115
+2,299
+49
+Depreciation
+Cost
+(1,508)
+2,403
+2014
+2015
+As at 31 December
+Others
+Mainland China
+Operating assets
+The Group also conducts operations in United States, Europe and other regions, and holds investments (including
+investments in associates, investments in redeemable preference shares of associates, investments in joint ventures and
+available-for-sale financial assets) which are traded in other territories. The geographical information on the total assets is
+as follows:
+78,932
+102,863
+6,470
+6,612
+72,462
+96,251
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+150,608
+80,975
+- Others
+1,619
+2,462
+- Europe
+7,235
+9,036
+- Asia excluding Mainland China and Hong Kong
+2014
+7,422
+- North America
+51,067
+85,282
+Mainland China and Hong Kong
+Investments
+22,779
+44,925
+14,412
+93
+2015
+Mainland China
+38
+158
+1,919
+Depreciation
+48,059
+1,720
+3,648
+42,691
+Gross profit
+78,932
+7,314
+8,308
+63,310
+Segment revenues
+RMB'Million
+2,115
+Amortisation
+232
+1,374
+Revenues
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in Mainland China. For
+the year ended 31 December 2015, the geographical information on the total revenues is as follows:
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+SEGMENT INFORMATION (Cont'd)
+5
+132
+- Others
+Tencent Holdings Limited
+(347)
+(155)
+(166)
+(26)
+joint ventures
+Share of losses of associates and
+1,606
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+69
+306,818
+171,166
+423
+12
+339
+5,092
+2,052
+Opening net book amount
+Year ended 31 December 2015
+7,918
+423
+12
+39
+339
+5,092
+2,052
+Net book amount
+7,918
+Business combinations
+1
+3
+Depreciation
+(36)
+(15)
+(2)
+(13)
+(4)
+Disposals
+(68)
+5,212
+3
+167
+3,498
+753
+Additions
+6
+2
+791
+(9)
+4
+(63)
+Motor Leasehold
+and office
+Computer
+equipment
+RMB'Million RMB'Million
+RMB'Million
+Buildings
+Furniture
+FIXED ASSETS
+equipment
+6
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+133
+00
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues for the year
+ended 31 December 2015.
+in Mainland China and other areas were RMB77,704 million (2014: RMB60,752 million) and RMB16,897million (2014:
+RMB13,211 million), respectively.
+As at 31 December 2015, the total non-current assets other than financial instruments and deferred tax assets located
+For the year ended 31 December 2015
+RMB'Million
+vehicles improvements
+RMB'Million RMB'Million RMB'Million
+Currency translation differences
+(8,508)
+(529)
+(13)
+(338)
+(7,106)
+(522)
+Total
+Accumulated depreciation
+961
+25
+673
+12,261
+2,574
+Cost
+At 1 January 2015
+16,494
+RMB'Million
+RMB'Million
+Total
+Accumulated depreciation
+(699)
+(9,160)
+(432)
+(16)
+(694)
+(11,001)
+Currency translation differences
+(46)
+10
+ཁ།
+'
+25
+(11)
+Net book amount
+20,985
+1,696
+25
+25
+17
+6
+34
+57
+Closing net book amount
+2,594
+5,959
+2,594
+384
+1,027
+9,973
+At 31 December 2015
+Cost
+3,293
+15,165
+806
+9
+5,959
+384
+9
+10,494
+541
+47
+873
+14,755
+Accumulated depreciation
+(397)
+2,800
+(5,036)
+(18)
+(360)
+(6,019)
+Currency translation differences
+(43)
+(43)
+Net book amount
+(208)
+Currency translation differences
+Cost
+RMB'Million
+1,027
+9,973
+Tencent Holdings Limited
+134
+6
+FIXED ASSETS (Cont'd)
+Notes to the Consolidated Financial Statements
+At 1 January 2014
+For the year ended 31 December 2015
+Computer
+Buildings equipment
+RMB'Million
+and office
+equipment
+RMB'Million RMB'Million
+Motor Leasehold
+vehicles improvements
+Total
+RMB'Million RMB'Million
+Furniture
+(162)
+(31)
+Transfer to investment properties
+61,232
+458
+8,527
+52,247
+Gross profit
+102,863
+4,726
+17,468
+80,669
+Segment revenues
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Depreciation
+1,983
+171
+37
+Others
+advertising
+VAS
+Online
+Year ended 31 December 2014
+(2,793)
+(2,419)
+Others
+164
+joint ventures
+Share of (losses)/profits of associates and
+3,068
+2,437
+631
+Amortisation
+2,191
+(538)
+Online
+advertising
+VAS
+Year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+130
+Tencent Holdings Limited
+The assessment of the fair values for the investment classified as "available-for-sale financial assets" required
+significant estimates, which includes estimating the future cash flows, determining appropriate discount rates
+and other assumptions. Changes in these assumptions and estimates could materially affect the respective fair
+value of these investments. We monitor our investments for other-than-temporary impairment by considering
+factors including, but not limited to, current economic, market conditions and recent fund raising transactions
+undertaken, the operating performance of the companies including current earnings trends and other company-
+specific information.
+(e) Fair value measurement of available-for-sale financial assets
+Judgment is required to determine key assumptions adopted in the valuation models for impairment review
+purpose. Changing the assumptions selected by management in assessing impairment could materially affect the
+result of the impairment test and as a result affect the Group's financial condition and results of operations. If there
+is a significant adverse change in the key assumptions applied, it may be necessary to take additional impairment
+charge to the consolidated income statement.
+The Group tests annually whether goodwill has suffered any impairment. Other non-financial assets, mainly
+including fixed assets, construction in progress, other intangible assets, investment properties, land use rights,
+and investments in associates and joint ventures etc., are reviewed for impairment whenever events or changes
+in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts have been
+determined based on value-in-use calculations or fair value less costs to sell. These calculations require the use of
+judgments and estimates.
+For the year ended 31 December 2015
+(d) Recoverability of non-financial assets
+4
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+(115)
+(4)
+(208)
+(3,153)
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+(31)
+5
+The chief operating decision-makers mainly include executive directors of the Company. They review the Group's internal
+reporting in order to assess performance and allocate resources, and determine the operating segments based on these
+reports.
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2015 and 2014 is as follows:
+5 SEGMENT INFORMATION (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+131
+00
+SEGMENT INFORMATION
+Other information, together with the segment information, provided to the chief operating decision-makers, is measured
+in a manner consistent with that applied in these consolidated financial statements. There were no segment assets and
+segment liabilities information provided to the chief operating decision-makers.
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit/(losses) of each operating segment. The selling and marketing expenses and general and
+administrative expenses are common costs incurred for these operating segments as a whole and therefore they are not
+included in the measure of the segments' performance which is used by the chief operating decision-makers as a basis
+for the purpose of resource allocation and assessment of segment performance. Interest income, other gains/(losses),
+net, finance costs, net and income tax expense are also not allocated to individual operating segment.
+"Others" segment of the Group comprise trademark licensing, software development services, software sales and other
+services.
+Others.
+Online advertising; and
+VAS;
+The Group has following reportable segments for the years ended 31 December 2015 and 2014:
+In light of the reduction in size of the Group's eCommerce business, the segment information previously presented under
+the "eCommerce transactions" segment has been reclassified to the "Others" segment from 1 January 2015 onwards,
+both in the internal management reports adopted by the chief operating decision-makers, and in the consolidated
+financial statements of the Group. The comparative figures have also been reclassified to conform to the new
+presentation. The above changes in segment information were taken to better reflect the current operations of the Group,
+as well as the resource allocation and future business developments of the Group.
+There were no material inter-segment sales during the years ended 31 December 2015 and 2014. The revenues from
+external customers reported to the chief operating decision-makers are measured in a manner consistent with that
+applied in the consolidated income statement.
+(860)
+2,052
+(2,647)
+Impairment provision
+(64)
+(13)
+(77)
+Currency translation differences
+7
+(14)
+(7)
+(1,808)
+Closing net book amount
+1,118
+566
+609
+226
+429
+9,304
+At 31 December 2014
+Cost
+6,356
+6,558
+(3)
+(1,374)
+325
+5,123
+Additions
+187
+346
+1,492
+89
+5
+(25)
+2,119
+(68)
+(56)
+(22)
+(3)
+(149)
+Amortisation
+(184)
+(222)
+Disposals
+4,103
+1,671
+2,933
+226
+429
+9,304
+For the year ended 31 December 2015, amortisation of RMB3,068 million (2014: RMB1,606 million) and RMB408
+million (2014: RMB202 million) were charged to cost of revenues and general and administrative expenses, respectively.
+Tencent Holdings Limited
+138
+6
+Notes to the Consolidated Financial Statements
+609
+For the year ended 31 December 2015
+Impairment tests for goodwill
+Goodwill is allocated to the Group's CGUS identified according to operating segments. Most of the goodwill related to
+the operating segment of VAS. Goodwill is monitored by the management at each CGU level within VAS, such as online
+game business, online literature business and others. The recoverable amount of a CGU is the higher of its value-in-use
+and fair value less costs to sell.
+For online game business, management calculates fair value less costs to sell based on ratios of EV (enterprise value)/
+EBITDA (earnings before interest, tax, depreciation and amortisation) of several public comparable companies multiplied
+by the EBITDA (ranging from 8.07-14.11x) of the related CGU and discounted for the lack of marketability at the rate
+of 15%. The public comparable companies are chosen based on factors such as industry similarity, company size,
+profitability and financial risk.
+For online literature business, management calculates value-in-use based on discounted cash flows calculations. The
+discounted cash flows calculations use cash flow projections based on financial budgets approved by management for
+the purposes of impairment reviews covering a five-year period. Cash flows beyond the five-year period are extrapolated
+using an estimated annual growth of not more than 3%. Discount rate used of 25% is pre-tax and reflects market
+assessments of time value and the specific risks relating to the industry the Group operates. The financial projection was
+determined by the management based on past performance and its expectation for market development.
+Based on the assessment made by management, the carrying amount of goodwill and other identifiable intangible assets
+recognised for the investment in a subsidiary had been reduced to their expected recoverable amount by recognising
+an impairment loss amounting to RMB174 million and related tax impact. The loss and related tax impact had been
+included in "Other gains, net" and "Income tax expense" in the consolidated income statement for the year ended 31
+December 2015.
+00
+139
+Annual Report 2015
+INTANGIBLE ASSETS (Cont'd)
+1,711
+566
+6,356
+586
+704
+Accumulated amortisation
+and impairment
+(63)
+(532)
+(1,142)
+(2,324)
+1,118
+(360)
+(4,694)
+Currency translation differences
+(139)
+(21)
+(3)
+(2)
+(165)
+Net book amount
+(273)
+102
+14,163
+ཝུ¥
+For the year ended 31 December 2015
+9
+INTANGIBLE ASSETS (Cont'd)
+Computer
+Licensed
+software and
+online
+Goodwill
+Notes to the Consolidated Financial Statements
+technology
+RMB'Million
+RMB'Million
+RMB'Million
+contents
+RMB'Million
+Copyrights
+RMB'Million
+Others
+Total
+RMB'Million
+Game licences
+RMB'Million
+Annual Report 2015
+13,439
+24
+(495)
+(387)
+(8,347)
+Currency translation differences
+11
+(8)
+9
+00
+2
+9
+Net book amount
+7,155
+1,219
+697
+3,665
+259
+444
+(5)
+At 1 January 2014
+137
+2,698
+470
+464
+491
+24
+102
+4,103
+Year ended 31 December 2014
+2,552
+2,552
+470
+64
+491
+161
+Business combinations
+3,929
+728
+Cost
+141
+464
+Net book amount
+Opening net book amount
+(919)
+(158)
+1,125
+1,441
+Accumulated amortisation
+(648)
+(950)
+¥ཊུ
+45
+1,386
+375
+7,070
+(21)
+(271)
+(2,809)
+Currency translation differences
+(146)
+(7)
+(3)
+(2)
+Non-current assets
+Current assets
+Current liabilities
+Summarised consolidated balance sheet
+2015
+Online direct sales and online
+marketplace businesses/the PRC
+18.03%
+Non-current liabilities
+Cayman Islands
+Set out below are the summarised financial information of JD.com extracted from its financial statements prepared under
+generally accepted accounting principles in the United States.
+Shareholders' equity
+There are no contingent liabilities relating to the Group's interest in the associates.
+Net Revenues
+Loss from operations
+Loss before tax
+Net loss
+Other comprehensive income/(loss)
+Total comprehensive loss
+As at 31 December
+2014
+JD.com Inc. ("JD.com")
+Summarised consolidated statements of operations and comprehensive loss
+Principal activities/place of operation
+40
+Place of incorporation
+3,460
+RMB'Million
+4,439
+(530)
+(490)
+64,788
+13,657
+24,244
+(346)
+81
+(265)
+Management has assessed the level of influence that the Group has on certain associates, with a total carrying amount of
+RMB31,207 million as at 31 December 2015 (2014: RMB29,311 million), and determined that it has significant influence
+even though the respective shareholding is below 20% because of the board representation or other arrangements made.
+Consequently, these investments have been classified as associates.
+Tencent Holdings Limited
+142
+Notes to the Consolidated Financial Statements
+10 INTERESTS IN ASSOCIATES (Cont'd)
+Note: (Cont'd)
+For the year ended 31 December 2015
+(a) Investments in associates (Cont'd)
+Particulars of a material associate of the Group, as determined by the directors, are set out below:
+Name of entity
+Interest
+held indirectly
+RMB'Million
+The revenues recorded by the Group from the aforesaid co-operation arrangements during the years ended 31 December
+2015 and 2014 were considered to be insignificant.
+49,942
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+10 INTERESTS IN ASSOCIATES (Cont'd)
+Note: (Cont'd)
+(b)
+Investments in redeemable preference shares of associates
+The Group held certain redeemable preference shares of the associates, which are principally engaged in online community
+services, online games development and other Internet-related businesses. The redemption prices of the relevant shares are
+agreed at not less than their original subscription prices.
+The Group acquired several redeemable preference shares of the associates or made additional investments in existing
+redeemable preference shares of associates for an aggregate consideration of RMB3,021 million during the year ended 31
+December 2015. These investments in redeemable preference shares of associates are principally engaged in online automotive
+purchase financing business, online gaming businesses and other Internet-related businesses.
+During the year ended 31 December 2015, the Group made an impairment provision of approximately RMB47 million (2014:
+RMB321 million) for the investments in redeemable preference shares of certain associates based on the impairment assessment
+made with reference to the business performance and recoverable amount of these investments.
+(c)
+Transactions with associates
+The Group also provided/purchased online traffic and other Internet value-added services to/from certain of its associates.
+Revenues/costs recorded by the Group from such transactions were summarised as below:
+(i) Transactions with JD.com
+On 10 March 2014, the Group entered into a strategic co-operation agreement and formed a strategic partnership with
+JD.com, an associate of the Group. As part of the strategic partnership arrangement, the Group agreed to offer JD.com
+level 1 access points in the mobile applications Weixin and Mobile QQ and provide Internet traffic and other support from
+other key platforms to JD.com. The strategic partnership represents a deferred revenue arrangement, and the fair value
+of this arrangement, at the inception date, was recorded as "deferred revenue" in the consolidated statement of financial
+position, and has subsequently credited to the consolidated income statement over a period of five years.
+Tencent Holdings Limited
+144
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+10 INTERESTS IN ASSOCIATES (Cont'd)
+22,959
+143
+58,468
+00
+(8,229)
+26,698
+16,551
+49,029
+28,995
+5,459
+37,498
+Year ended 31 December
+2015
+RMB'Million
+2014
+RMB'Million
+181,287
+115,002
+(6,459)
+(5,802)
+(9,402)
+(4,977)
+(9,388)
+(4,996)
+1,159
+(108)
+(5,104)
+Non-listed companies
+(278)
+225
+For the year ended 31 December 2015
+10 INTERESTS IN ASSOCIATES (Cont'd)
+Note: (Cont'd)
+(a) Investments in associates (Cont'd)
+Note:
+(i)
+(ii)
+(iii)
+(iv)
+(v)
+(vi)
+In April 2015, the Group subscribed for newly issued shares of 58.com Inc. ("58.com"), an existing associate, at a
+subscription price equivalent to USD52 per American Depositary Share ("ADS"), totalling approximately USD400 million
+(equivalent to approximately RMB2,457 million).
+In December 2015, the Group further subscribed for newly issued shares of 58.com at USD62 per ADS, totalling USD132
+million (equivalent to approximately RMB846 million), after these transactions, the Group's equity interests in 58.com was
+increased to approximately 22.9%.
+In December 2015, the Group invested in an entertainment and media group in the PRC at a consideration of
+approximately RMB2,508 million.
+The Group acquired interests in associates, made additional investments in existing associates and recategorized from
+available-for-sale financial assets or subsidiaries for an aggregate consideration of RMB7,097 million during the year
+ended 31 December 2015. These associates are principally engaged in online gaming businesses and other Internet-
+related businesses.
+During the year ended 31 December 2015, the Group re-designated several investments from associates, including
+Dianping Holdings Ltd. ("Dianping") of RMB3, 130 million (Note 12(b)), to available-for-sale financial assets as a result of
+change in the nature of these investments.
+During the year ended 31 December 2015, the Group made an aggregate impairment provision of RMB1,591 million (2014:
+RMB1,638 million) against the carrying amounts of its investments in certain associates, of which RMB1, 128 million was
+provided for an associate, based on the results of impairment assessment performed on the carrying amounts of these
+investments with reference to their recoverable amounts.
+The associates of the Group have been accounted by using equity method based on the financial information of the
+associates prepared under the accounting policies generally consistent with the Group.
+00
+141
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+140
+51,131
+2,402
+Share of losses of associates
+(2,802)
+(346)
+Share of other comprehensive income of associates
+329
+81
+Dividends from associates
+(237)
+(148)
+Disposals and transfers (iv)
+(4,386)
+Note: (Cont'd)
+Impairment provision (v)
+(1,591)
+(1,638)
+Currency translation differences
+At end of the year
+2,888
+(437)
+60,171
+Tencent Holdings Limited
+For the year ended 31 December 2015
+10 INTERESTS IN ASSOCIATES (Cont'd)
+Note: (Cont'd)
+88,090
+Non-listed companies
+31,566
+7,435
+6,215
+(1,038)
+6
+(1,032)
+87,123
+26,952
+42,364
+(2,802)
+329
+(2,473)
+2014
+Listed companies
+41,829
+10,197
+19,805
+184
+41
+(1,441)
+323
+(1,764)
+36,149
+(a)
+Investments in associates (Cont'd)
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates, as well
+as the fair value of the associates which are listed companies, are shown in aggregate as follows:
+Fair value
+Profits/
+(losses)
+Other
+Total
+of listed
+companies as
+from continuing_comprehensive comprehensive at 31 December
+Assets
+RMB'Million
+56,552
+Liabilities
+RMB'Million
+operation
+RMB'Miilion
+income
+RMB'Miilion
+income
+RMB'Miilion
+2015
+RMB'Million
+2015
+Listed companies
+55,557
+19,517
+Revenues
+RMB'Million
+(c)
+RMB'Million
+(ii) Transactions with other associates
+RMB'Million
+RMB'Million
+9,646
+6,270
+14,298
+2,682
+9,688
+1,146
+(65)
+(369)
+1,337
+(83)
+34,904
+9,646
+(c)
+(i)
+(ii)
+In October 2015, the Group's equity interests in Dianping was exchanged to that of Internet Plus Holdings. As a result
+of the exchange, the Group recognised the investment in Internet Plus Holdings as available-for-sale financial assets.
+In December 2015, the Group further subscribed for the newly issued shares of Internet Plus Holdings at a total
+consideration of USD1,000 million (equivalent to approximately RMB6,396 million). As at 31 December 2015, the Group's
+aggregate equity interests in Internet Plus Holdings was approximately 13.6%, on an outstanding basis.
+The Group acquired certain unlisted interests or made additional investments in existing unlisted interests or transfer from
+investments in associates for an aggregate consideration of RMB7,902 million during the year ended 31 December 2015.
+They are principally engaged in the provision of online-to-offline and other Internet-related businesses.
+During the year ended 31 December 2015, the Group made an impairment provision of RMB586 million (2014: RMB478
+million) against the carrying amounts of certain available-for-sale financial assets, with reference to their respective market
+values, business performance and assessed recoverable amounts.
+Tencent Holdings Limited
+2014
+148
+2015
+At end of the year
+3,631
+(i)
+(ii)
+(iii)
+Fair value gains recognised for the listed equity interests for during the year ended 31 December 2015 of RMB3,357
+million (2014: fair value losses of RMB2,866 million) were recognised in the other comprehensive income.
+During 2015, the Group entered into a series of agreements with a third party company, which is a company listed on
+the New York Stock Exchange and provides Internet content and marketing services of the automobile industry in the
+PRC, to subscribe for 5.06% of its shares, on an outstanding basis, at a consideration of USD176.5 million (equivalent to
+approximately RMB1,090 million).
+In November 2014, the Group signed a share purchase agreement with a company engaged in entertainment and
+film production, an existing available-for-sale financial asset, to purchase its newly issued shares at consideration of
+approximately RMB1,280 million. The transaction was completed in August 2015.
+00
+147
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+12 AVAILABLE-FOR-SALE FINANCIAL ASSETS (Cont'd)
+Note: (Cont'd)
+(b)
+Movement in the unlisted interests is analysed as follows:
+At beginning of the year
+Additions (Note (i) and (ii))
+Changes in fair value
+Impairment provision
+Currency translation differences
+Note:
+13 ACCOUNTS RECEIVABLE
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+3,340
+1,528
+1,500
+1,066
+815
+1,116
+1,406
+878
+7,061
+4,588
+Online advertising customers, which are mainly advertising agencies related to brand display advertising business,
+are usually granted with a credit period of 90 days after full execution of the contracted advertisement orders.
+Telecommunication operators and third party platform providers usually settle the amounts due by them within a period
+of 30 to 120 days and 60 days, respectively.
+As at 31 December 2015, insignificant amounts of accounts receivable were past due and related impairment provision
+was recognised after assessment on the financial condition and credit quality with reference to historical counterparty
+default rates.
+The directors of the Company considered that the carrying amounts of the receivable balances approximated to their fair
+value as at 31 December 2015.
+00
+149
+Annual Report 2015
+Others
+Telecommunications operators
+Third party platform providers
+Online advertising customers
+Accounts receivable and their ageing analysis are as follows:
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+0-30 days
+31 - 60 days
+61 - 90 days
+Over 90 days
+9,435
+3,616
+2,209
+1,464
+798
+667
+438
+425
+7,061
+4,588
+Accounts receivable were mainly denominated in RMB.
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+2,032
+Transactions with associates (Cont'd)
+Note:
+Equity interests - Listed in Japan
+4,691
+Term deposits (Note 16)
+41,005
+15,629
+Restricted cash (Note 17)
+54,731
+9,174
+Cash and cash equivalents (Note 17)
+43,438
+42,713
+160,174
+79,736
+Financial liabilities at amortised cost:
+Notes payable (Note 25)
+40,978
+26,862
+Long-term payables
+3,626
+1,121
+Accounts payable (Note 21)
+15,700
+7,709
+8,683
+Deposits and other receivables
+7,061
+During the years ended 31 December 2015 and 2014, the Group entered into co-operation agreements with certain
+associates, pursuant to which the associates operate their games/applications on the Group's Internet platforms, which are
+available to the users of the Group. The Group pays these associates a pre-determined percentage of the fees paid by and
+collected from end users for the virtual products/items utilised in their games/applications.
+In addition, as part of certain investment arrangements, the Group also entered into certain similar strategic co-operation
+arrangements and formed strategic partnership with certain other associates as stated in Note (b) above.
+The revenues recorded by the Group from the aforesaid co-operation arrangements during the years ended 31 December
+2015 and 2014 were considered to be insignificant.
+The Group was entitled to certain call options/warrants and conversion options of the Group's investments in certain associates.
+As at 31 December 2015, fair values of these call options/warrants and conversion options of approximate RMB1,198 million
+(2014: Nil) were recognised in the consolidated financial statements.
+00
+145
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+11 FINANCIAL INSTRUMENTS BY CATEGORY
+As at 31 December 2015, the financial instruments of the Group is analysed as follows:
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+Financial assets classified as loan and receivables:
+Investments in redeemable preference shares of associates (Note 10)
+6,230
+2,941
+Accounts receivable (Note 13)
+4,588
+Other payables and accruals (excluding prepayments received
+from customers, staff costs and welfare accruals)
+61,627
+34,879
+9,646
+25
+44,339
+13,277
+As at 31 December
+2015
+2014
+1,931
+RMB'Million
+Equity interests - Listed in Mainland China
+6,198
+1,735
+Equity interests - Listed in Hong Kong
+179
+277
+Equity interests - Listed in United Kingdom
+2,376
+1,619
+Equity interests - Listed in United States of America
+553
+3,631
+9,435
+RMB'Million
+2014
+12,801
+Borrowings (Note 24)
+24,351
+8,722
+146,282
+58,189
+As at 31 December 2015, financial assets classified as available-for-sale was RMB44,339 million (2014: RMB13,277
+million) (Note 12).
+As at 31 December 2015, financial assets and liabilities at fair value include other financial assets (Note 15) and
+convertible bonds (Notes 22 and 23) of RMB1,198 million (2014: Nil) and RMB588 million (2014: RMB489 million),
+respectively.
+Tencent Holdings Limited
+146
+129
+Notes to the Consolidated Financial Statements
+Available-for-sale financial assets include the following:
+Listed equity interests (Note (a))
+Unlisted equity investments (Note (b))
+Other unlisted investments (Note (b))
+Note:
+(a)
+Listed equity interests include:
+For the year ended 31 December 2015
+As at 31 December
+2015
+RMB'Million
+12 AVAILABLE-FOR-SALE FINANCIAL ASSETS
+Deemed disposal gains (Note 29 (b) (i))
+30,678
+6,230
+10 INTERESTS IN ASSOCIATES
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+Investments in associates (Note (a))
+Listed shares
+- Unlisted shares
+36,040
+19,067
+24,131
+32,064
+60,171
+51,131
+Investments in redeemable preference shares of associates (Note (b))
+2,941
+66,401
+54,072
+Note:
+(a) Investments in associates
+2015
+2014
+RMB'Million
+RMB'Million
+At beginning of the year
+51,131
+10,867
+Additions (i), (ii) and (iii)
+For the year ended 31 December 2015
+12,908
+Notes to the Consolidated Financial Statements
+40,628
+2014
+2015
+As at 31 December
+initial terms within three months
+Term deposits and highly liquid investments with
+Bank balances and cash
+(a) Cash and cash equivalents
+17 BANK BALANCES AND CASH
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+151
+00
+Other currencies
+Term deposits with initial terms of over three months were neither past due nor impaired. The directors of the Company
+considered that the carrying amount of the term deposits with initial terms of over three months approximated their fair
+value as at 31 December 2015.
+2015
+41,005
+2014
+RMB'Million
+RMB'Million
+3,611
+4,831
+58
+As at 31 December
+5
+4,831
+36,569
+762
+10,777
+21
+37,331
+10,798
+3,674
+15,629
+185
+RMB'Million
+9,013
+16,877
+7,804
+11,397
+1,389
+1,550
+Note:
+Others
+167
+Rental deposits and other deposits
+303
+254
+Refundable value-added tax
+1,339
+461
+USD term deposits
+As at 31 December 2015, the amounts represented loans to investees and investees' shareholders. These balances are repayable in the
+period of three to ten years (included in non-current assets), or within one year (included in current assets) and majority of the balances
+are interest-bearing at rates of 0.28% to 10.0% per annum (2014: 0.3% to 8.0% per annum).
+Tencent Holdings Limited
+RMB term deposits
+Included in current assets:
+Other currencies
+USD term deposits
+RMB term deposits
+Included in non-current assets:
+The directors of the Company considered that the carrying amounts of deposits and other assets approximated their
+respective fair values as at 31 December 2015. Deposits and other assets (excluding financial instrument associated with
+investee companies) were neither past due nor impaired. Their recoverability was assessed with reference to the credit
+status of the counterparties and credit history.
+An analysis of the Group's term deposits by currencies are as follows:
+16 TERM DEPOSITS
+As at 31 December 2015, other financial assets represents call option rights held by the Group which entitle it to acquire
+additional equity interests in certain investee companies of the Group. They were presented at their fair value.
+15 OTHER FINANCIAL ASSETS
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+150
+The effective interest rate for the term deposits of the Group with initial terms of over three months for the year ended 31
+December 2015 was 4.00% (2014: 4.30%).
+RMB'Million
+19,845
+15,235
+HKD31.70
+1,250,000
+10,094,117
+00
+159
+Annual Report 2015
+Employee share award schemes:
+- value of employee services
+Employee share option schemes:
+At 1 January 2014 (Note (a))
+8,844,117
+18 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (Cont'd)
+Notes to the Consolidated Financial Statements
+00
+Annual Report 2015
+153
+10,350
+(1,817)
+12,167
+9,403,923,992
+4,788
+4,788
+For the year ended 31 December 2015
+144
+HKD56.85
+30,697,305
+Granted (Note (2))
+At 1 January 2015 (Note (2))
+options
+options
+No. of
+No. of
+Average
+exercise price
+No. of
+options
+Total
+Post-IPO Option Scheme III
+Exercisable as at 31 December 2015 (Note (2))
+Post-IPO Option Scheme II
+Average
+exercise price
+No. of
+Post-IPO Option Scheme I
+Average
+exercise price
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+(i) Movements in share options
+(717,138)
+At 31 December 2015 (Note (2))
+HKD80.59
+25,697,305
+HKD31.70
+5,000,000
+options
+(144)
+(652)
+(652)
+RMB'Million
+Total
+for share
+award schemes
+Share capital Share premium
+RMB'Million
+Number of
+ordinary shares
+Shares held
+18 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+152
+RMB'Million
+Tencent Holdings Limited
+The par value of the ordinary shares of the Company was initially at HKD0.0001 per share. With effect from 15 May
+2014, each of the then existing issued and unissued shares of the Company was subdivided into five subdivided shares
+of HKD0.00002 each (each defined as “Subdivided Share"), after an ordinary resolution was passed at the annual
+general meeting of the Company held on 14 May 2014 and with an approval obtained from the Stock Exchange (the
+"Share Subdivision"). Upon the Share Subdivision became effective, the authorised capital of the Company became
+HKD1,000,000, divided into 50,000,000,000 Subdivided Shares of HKD0.00002 each. The other rights and terms of the
+shares remain unchanged as at 31 December 2015 (2014: 50,000,000,000 shares at HKD0.00002 per share).
+18 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES
+As at 31 December 2015, restricted deposits held at bank of RMB54,731 million (2014: RMB9,174 million)
+mainly represents prepayments received from users via online/mobile platforms. These restricted cash are mainly
+denominated in RMB.
+(b) Restricted cash
+Approximately RMB22,150 million (2014: RMB24,343 million) and RMB6,995 million (2014: RMB10,593 million)
+of the total balance of the Group's cash and cash equivalents was denominated in RMB, which placed with banks
+in Mainland China and Hong Kong, respectively.
+The effective interest rate of the term deposits of the Group with initial terms within three months for the year
+ended 31 December 2015 was 3.08% (2014: 3.55%).
+42,713
+43,438
+27,478
+23,593
+As at 31 December 2015, the total number of issued ordinary shares of the Company was 9,403,923,992 shares (2014:
+9,370,678,830 shares), which included 58,379,035 shares (2014: 88,686,054 shares) held under the Share Award
+Schemes. They were all fully paid up.
+RMB'Million
+At 1 January 2015 (Note (b))
+9,370,678,830
+2,058
+2,058
+169
+165
+At 31 December 2015 (Note (b))
+non-wholly owned subsidiaries (Note 19(d))
+Acquisition of additional equity interests in
+transferred to the grantees (Note (g))
+- shares vested from share award schemes and
+21,756,730
+- shares allotted for the share award schemes (Note (f))
+- shares withheld for share award schemes (Note (e))
+- value of employee services
+Employee share award schemes:
+169
+11,488,432
+- shares issued and proceeds received (Note (d))
+165
+- value of employee services
+Employee share option schemes:
+3,822
+(1,309)
+5,131
+1,392
+Interest receivables
+857
+2,507
+Put option granted to owners of the
+non-controlling interests lapsed
+357
+Profit appropriations to PRC statutory reserves
+Net losses from changes in fair value of
+available-for-sale financial assets
+Share of other comprehensive income of associates
+Currency translation differences
+Balance at 31 December 2014
+(1,705)
+18
+81
+125
+125
+135
+135
+(1,224)
+20
+230
+non-wholly owned subsidiaries
+68
+reserve
+Others
+Total
+RMB'Million RMB'Million
+RMB'Million
+RMB'Million
+(Note (a))
+(Note (b))
+468
+(Note (c))
+4,236
+48
+(68)
+662
+310
+3,746
+(1,224)
+468
+(1,442)
+868
+230
+20
+(a)
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+(b)
+(c)
+(d)
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries
+with limited liabilities in the PRC, appropriation of net profits (after offsetting accumulated losses from prior years) should be
+made by these companies to their respective Statutory Surplus Reserve Funds and the Discretionary Reserve Funds before
+distributions are made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount
+to be transferred to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance
+of the Statutory Surplus Reserve Fund reaches 50% of the registered capital, such transfer needs not to be made. Both the
+Statutory Surplus Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the
+remaining Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly owned foreign subsidiaries in the PRC, appropriation from net profits (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, such transfer needs not be made.
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+Note:
+Share-based compensation reserve arises from share option schemes and restricted share award schemes adopted by
+subsidiaries (Note 20 (d)).
+Tencent Holdings Limited
+158
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+20 SHARE-BASED PAYMENTS
+(a) Share option schemes
+The Company has adopted four share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II and the Post-IPO Option Scheme III, under which the directors may, at
+their discretion, grant options to any qualifying participants to subscribe for shares in the Company, subject to the
+terms and conditions stipulated therein.
+The Pre-IPO Option Scheme expired on 31 December 2011. The Post-IPO Option Scheme I was terminated upon
+the adoption of the Post-IPO Option Scheme II.
+During the year ended 31 December 2015, the Group acquired additional equity interests (including the outstanding equity
+settled and cash settled share options and restricted shares under the relevant employees incentive plans) in certain non-wholly
+owned subsidiaries of the Group at aggregate considerations of RMB9,860 million, which were settled in cash and in the form of
+awarded shares of the Company. The excess of considerations over the aggregate carrying amounts of acquired non-controlling
+interests and the carrying amounts of the liabilities for the cash settled share options and restricted shares of RMB8,160 million
+was recognised directly in equity.
+reserves
+19 OTHER RESERVES (Cont'd)
+Notes to the Consolidated Financial Statements
+357
+211
+211
+(295)
+(1,611)
+2,531
+129
+(363)
+For the year ended 31 December 2015
+873
+(1,705)
+81
+(295)
+2,129
+།
+00
+157
+Annual Report 2015
+570
+differences
+in associates
+RMB'Million RMB'Million
+RMB'Million
+Others
+Loan to investees and investees' shareholders (Note)
+Running royalty fees for online games
+Prepayment for licensed contents
+Prepayments for land use rights
+Included in non-current assets:
+14 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+For the year ended 31 December 2015
+Included in current assets:
+(1,195)
+216
+Net gains from changes in fair value of
+available-for-sale financial assets
+12,575
+Share of other comprehensive income of associates
+329
+29
+Currency translation differences
+216
+1,970
+As at 31 December
+RMB'Million
+Loan to investees and investees' shareholders (Note)
+2,028
+3,275
+Prepaid expenses
+1,596
+2,252
+Running royalty fees for online games
+1,209
+2015
+5,480
+1,025
+999
+357
+656
+Exercised (Note (2))
+2,242
+RMB'Million
+2014
+553
+688
+910
+Balance at 31 December 2015
+diluted in relation to business combinations
+Disposal of equity interests in
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+Available-
+Share-
+for-sale
+Currency
+Equity interests in non-wholly owned subsidiaries
+PRC
+Capital
+financial
+Investments
+translation
+statutory compensation
+reserve
+assets
+RMB'Million
+based
+Other fair value gain recognised
+in non-wholly owned subsidiaries
+- Employee share award schemes
+(11,338)
+15,106
+458
+1,607
+1,089
+2,015
+*། *|
+12,575
+Acquisition of additional equity interests
+329
+736
+9,673
+Tencent Holdings Limited
+156
+19 OTHER RESERVES (Cont'd)
+Balance at 1 January 2014
+Value of employee services:
+- Employee share option schemes
+1,970
+HKD57.36 36,432,000
+HKD149.22 1,470,875
+HKD18.28 (11,488,432)
+In respect of Post-IPO Option Scheme II and Post-IPO Option Scheme III, the exercise price must be at least the
+higher of: (1) the closing price of the Company's shares as stated in the Stock Exchange's daily quotations sheet on
+the date of grant, which must be a business day; (2) the average closing price of the Company's shares as stated
+in the Stock Exchange's daily quotations sheets for the five business days immediately preceding the date of grant;
+and (3) the nominal value of the Company's shares. In addition, the option vesting period is determined by the
+Board provided that it is not later than the last day of a 7-year or 10-year period after the date of grant of option.
+41,432,000
+statutory compensation
+reserve
+assets
+in associates
+differences
+reserves
+translation
+reserve
+Total
+RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+RMB'Million
+Others
+Investments
+financial
+Capital
+(h)
+During the year ended 31 December 2015, the Share Scheme Trust transferred 57,811,262 ordinary shares of the Company
+(2014: 33,778,133 ordinary shares) to the share awardees upon vesting of the awarded shares.
+As at 31 December 2015, included in "Shares held for share award schemes", 12,818,261 ordinary shares of the Company
+(2014: 6,650,532 ordinary shares) held by the Share Scheme Trust had not yet been granted to the participants.
+00
+155
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+19 OTHER RESERVES
+Available-
+Share-
+for-sale
+Currency
+PRC
+based
+RMB'Million
+RMB'Million
+(Note (a))
+(Note (b))
+982
+Acquisition of additional equity interests in
+non-wholly owned subsidiaries (Note (d))
+(8,160)
+(8,160)
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+(372)
+Recognition of financial liabilities in respect of the
+put options granted to non-controlling interests
+(1,195)
+Upon the Share Subdivision became effective, pro-rata adjustments have been made to the exercise prices and
+the number of outstanding share options, so as to give the participants the same proportion of the equity capital as
+that they were entitled to before the effect of the Share Subdivision.
+Profit appropriations to PRC statutory reserves
+Notes to the Consolidated Financial Statements
+HKD31.70 5,000,000
+982
+(g)
+payments of a subsidiary
+273
+(Note (c))
+Balance at 1 January 2015
+(1,611)
+2,531
+129
+(363)
+873
+570
+2,129
+Value of employee services:
+- Employee share option schemes
+- Employee share award schemes
+190
+190
+273
+Tax benefit from share-based
+During the year ended 31 December 2015, the Company allotted 21,756,730 ordinary shares (2014: 19,520,635 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the share award
+schemes.
+(372)
+During the year ended 31 December 2015, 11,488,432 Post-IPO options (2014: 41,368,995 Post-IPO options) with exercise
+prices ranging from HKD8.53 to HKD124.30 (2014: HKD0.733 to HKD49.76) were exercised.
+2,846
+1,862,110,840
+RMB'Million
+Total
+Shares held
+for share
+award schemes
+RMB'Million
+Share capital Share premium
+RMB'Million RMB'Million
+Number of
+ordinary shares
+- shares issued and proceeds received before
+- value of employee services
+- shares withheld for share award schemes (Note (e))
+1,350
+1,350
+(529)
+(529)
+- shares allotted for share award schemes after
+(871)
+the Share Subdivision (Note (b), (f))
+1,975
+160
+HKD39.44
+During the year ended 31 December 2015, the Share Scheme Trust withheld 5,747,513 ordinary shares (2014: 5,435,277
+ordinary shares) of the Company for an amount of approximately HKD800 million (equivalent to approximately RMB652 million)
+(2014: HKD668 million (equivalent to approximately RMB529 million)), which had been deducted from shareholders' equity.
+Lapsed (Note (2))
+(11,488,432)
+(717,138)
+85
+22,790,915
+1,470,875
+Share Subdivision (Note (b), (d))
+- shares issued and proceeds received after the
+114
+114
+3,715,616
+the Share Subdivision (Note (a), (d))
+60
+160
+19,520,635
+185
+(91)
+154
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+18 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (Cont'd)
+Note:
+(a)
+Tencent Holdings Limited
+The numbers of shares were presented as before the effect of the Share Subdivision.
+The numbers of shares were presented as after the effect of the Share Subdivision.
+(c)
+- shares vested from share award schemes and
+transferred to the grantees (Note (g))
+It represented the effects of adjustments made to the number of shares as a result of the Share Subdivision.
+(d)
+(e)
+(b)
+3,822
+(f)
+5,131
+Share Subdivision (Note (a))
+Acquisition of additional equity interests in
+Repurchase and cancellation of shares before the
+(153,000)
+(61)
+619
+91
+(1,309)
+non-wholly owned subsidiaries
+(61)
+28
+628
+Effect of Share Subdivision (Note (c))
+7,462,693,824
+At 31 December 2014 (Note (b))
+9,370,678,830
+628
+HKD90.82
+(286,350)
+(57,811,262)
+At 31 December 2015 (Note (ii))
+Granted before the Share Subdivision (Note (i))
+Vested but not transferred as at 31 December 2015 (Note (ii))
+8,574,117
+At 1 January 2014 (Note (i))
+18,065,996
+1,183,445
+91,786,907
+(600,042)
+(22,790,915)
+HKD116.38
+2,307,500
+2,307,500
+Granted after the Share Subdivision (Note (ii))
+2,213,700
+2,213,700
+HKD11.25
+(600,000)
+(819,224)
+(2,896,392)
+(3,715,616)
+HKD10.18
+(22,790,915)
+HKD14.53
+(42)
+HKD46.54
+HKD123.67
+28,160
+Lapsed before the Share Subdivision (Note (i))
+The weighted average fair value of awarded shares granted during the year ended 31 December 2015 was
+HKD147.94 per share (equivalent to approximately RMB120.86 per share) (2014: HKD120.15 per share
+(equivalent to approximately RMB95.15 per share)).
+HKD572.60
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date. The expected dividends during the vesting period have been taken into account when
+assessing the fair value of these awarded shares.
+During the year ended 31 December 2015, 75,000 awarded shares (after the effect of the Share Subdivision) were
+granted to three independent non-executive directors of the Company (2014: 25,000 awarded shares (before the
+effect of the Share Subdivision) were granted to three independent non-executive directors of the Company).
+(iii)
+It represented the effects of adjustments made to the numbers of shares as a result of the Share Subdivision.
+The numbers of shares were presented as after the effect of the Share Subdivision.
+(ii)
+The numbers of shares were presented as before the effect of the Share Subdivision.
+(i)
+Note:
+(b) Share award schemes (Cont'd)
+20 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+163
+00
+Vested but not transferred as at 31 December 2014 (Note (ii))
+82,035,522
+At 31 December 2014 (Note (ii))
+74,245,696
+(32,644,148)
+Vested and transferred after the Share Subdivision (Note (ii))
+Effect of Share Subdivision (Note (iii))
+(226,797)
+Vested and transferred before the Share Subdivision (Note (i))
+(4,730,292)
+Lapsed after the Share Subdivision (Note (ii))
+(461,220)
+26,602,842
+Granted before the Share Subdivision (Note (1))
+Granted after the Share Subdivision (Note (2))
+Exercised before the Share Subdivision (Note (1))
+Exercised after the Share Subdivision (Note (2))
+Lapsed before the Share Subdivision (Note (1))
+Lapsed after the Share Subdivision (Note (2))
+RMB'Million
+1,000,000
+Between 4 and 5 years
+Over 5 years
+Between 3 and 4 years
+Between 2 and 3 years
+Between 1 and 2 years
+Within 1 year
+The notes payable were repayable as follows:
+The aggregate principal amounts of USD notes payable and HKD notes payable were USD5,800 million (31 December 2014: USD4,000
+million) and HKD4,200 million (31 December 2014: HKD3,200 million), respectively. The interest rate range of the notes payable is
+from 2.000% to 4.700% (31 December 2014: 1.860% to 4.625%) per annum.
+Note:
+25 NOTES PAYABLE (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+168
+Tencent Holdings Limited
+26,862
+40,978
+1,834
+3,886
+74,308,983
+The outstanding awarded shares as of 31 December 2015 were divided into two to five tranches on an equal basis
+as at their grant dates. The first tranche can be exercised immediately or after a specified period ranging from two
+months to four years from the grant date, and the remaining tranches will become exercisable in each subsequent
+year.
+(6,746,336)
+Vested and transferred (Note (ii))
+RMB'Million
+Non-current portion of long-term USD notes payable
+Non-current portion of long-term HKD notes payable
+As at 31 December
+33,583
+3,509
+2,517
+37,092
+25,028
+Included in current liabilities:
+Current portion of long-term USD notes payable
+22,511
+14,467,271
+2015
+RMB'Million
+HKD158.50
+12,648,005
+HKD75.69
+819,266
+HKD11.25
+At 1 January 2014 (Note (1))
+options
+options
+exercise price
+options
+exercise price
+options
+exercise price
+No. of
+No. of
+Average
+No. of
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+20
+SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+(i)
+2014
+Movements in share options (Cont'd)
+Post-IPO Option Scheme II
+Post-IPO Option Scheme III
+Total
+Average
+No. of
+Average
+Post-IPO Option Scheme |
+(c) Employee incentive scheme
+164
+Wholly-owned subsidiaries of the Company act as general partner of these EISs administer and in essence, control
+the EISs. These EISS are therefore consolidated by the Company.
+HKD31.70
+5,000,000
+5,000,000
+30,697,305
+41,432,000
+The outstanding share options as of 31 December 2015 were divided into three to five tranches on an equal
+basis as at their grant dates. The first tranche can be exercised after a specified period ranging from one to
+five years from the grant date, and then the remaining tranches will become exercisable in each subsequent
+year.
+00
+161
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+20 SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+(iii)
+10 years commencing from the
+date of grant of options
+(Post-IPO Option Scheme III)
+Fair value of options
+Other than the exercise price mentioned above, significant judgment on parameters, such as risk free rate,
+dividend yield and expected volatility, are required to be made by the directors in applying the Valuation
+Models, which are summarised as below.
+Weighted average share price at the grant date (Note (1))
+Risk free rate
+Note:
+As at 31 December
+2015
+2014
+HKD149.22
+0.36%-1.54%
+HKD113.30
+1.56%-1.91%
+0.36%
+0.34%
+40.00%-41.00% 42.00%-44.50%
+Expected volatility (Note (2))
+Note:
+The directors of the Company have used the Valuation Models to determine the fair value of the options as at
+the respective grant dates, which is to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2015 was HKD51.92 per share (equivalent
+to approximately RMB41.01 per share (2014: HKD36.97 per share (equivalent to approximately RMB29.28
+per share)).
+(1)
+36,432,000
+25,061,100
+(1)
+The numbers of shares and average exercise price were presented as before the effect of the Share Subdivision.
+(2)
+The numbers of shares and average exercise price were presented as after the effect of the Share Subdivision.
+(3)
+It represented the effects of adjustments made to the numbers of shares as a result of the Share Subdivision.
+During the year ended 31 December 2015, no share options were granted to any director of the Company
+(2014: 1,000,000 share options (before the effect of the Share Subdivision) were granted to an executive
+director of the Company).
+As a result of the options exercised during the year ended 31 December 2015, 11,488,432 ordinary shares
+(2014: 41,368,995 ordinary shares) were issued by the Company (Note 18). The weighted average price of
+the shares at the time these options were exercised was HKD142.75 per share (equivalent to approximately
+RMB114.57 per share) (2014: HKD109.88 per share (equivalent to approximately RMB87.00 per share)).
+Tencent Holdings Limited
+160
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+20 SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+25,697,305
+(ii) Outstanding share options
+Expiry Date
+7 years commencing from the
+date of grant of options
+(Post-IPO Option Scheme II)
+Number of share options
+31 December
+31 December
+Range of exercise price
+2015
+2014
+HKD6.35-HKD8.70
+405,950
+HKD9.10-HKD18.06
+2,851,000
+10,964,950
+HKD25.68-HKD149.80
+22,846,305
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2015 and 2014 are as follows:
+The weighted average share price at the grant date was presented as after the effect of the Share Subdivision.
+(2)
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on
+the average daily trading price volatility of the shares of the Company.
+3,042
+12,930
+3,649
+9,778
+12,169
+6,435
+2,517
+40,978
+26,862
+In April 2015, the Company updated the Global Medium Term Note Programme (the "Programme") and increased the limit on the
+aggregate principal amount from USD5 billion to USD10 billion.
+During the year ended 31 December 2015, the Company issued four tranches of notes payable under the Programme with aggregate
+principal amounts of USD1,100 million, USD900 million, USD100 million and HKD1,000 million, respectively.
+In September 2015, the notes payable with an aggregate principal amount of USD300 million which were issued in September 2013
+reached their maturity and they were repaid in full by the Group.
+There is no security or pledge offered by the Group for issuing these notes.
+As at 31 December 2015, the fair value of the notes payable amounted to RMB41,372 million (2014: RMB27,528 million). The
+respective fair values are assessed based on the active market price of these notes on the reporting date or by making reference to
+similar instruments traded in the observable market.
+4,713
+26 DEFERRED REVENUE
+00
+169
+Annual Report 2015
+13,636
+6,761
+(b)
+The aggregate principal amount of short-term USD bank borrowings was USD1,650 million (2014: USD300 million). Applicable
+interest rates are at LIBOR plus 0.75% to 0.85% or an interest rate of 1.125% (2014: LIBOR plus 0.85% to 1.00%) per annum.
+The carrying amounts of borrowings approximated their fair values as at 31 December 2015.
+25 NOTES PAYABLE
+Included in non-current liabilities:
+As at 31 December
+2015
+2014
+RMB'Million
+Deferred revenue mainly represents service fees prepaid by customers for certain VAS in the form of pre-paid tokens or
+cards, virtual items and subscription, for which the related services had not been rendered as at 31 December 2015. It
+also includes customer loyalty incentives offered by the Group to its customers which were valued at their respective fair
+values at the inception date. As at 31 December 2015, deferred revenue also included fair value of internet traffic and
+other support to be offered to JD.com and other investee companies in the future periods measured at inception date, as
+mentioned in Note 10(c).
+3,651
+3,236
+1,834
+Tencent Holdings Limited
+(a)
+The aggregate principal amount of long-term USD bank borrowings was USD2,100 million (2014: USD1, 105 million). Applicable
+interest rates are at LIBOR plus 1.02% to 1.52% (2014: LIBOR plus 1.35% to 1.75%) per annum.
+The long-term USD bank borrowings were repayable as follows:
+Within 1 year
+Between 1 and 2 years
+Between 2 and 5 years
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+714
+6,623
+1,254
+612
+6,299
+4,895
+3,886
+82,035,522
+Lapsed (Note (ii))
+Granted (Note (ii))
+At 1 January 2015 (Note (ii))
+Number of
+awarded shares
+Note:
+Movements in the number of awarded shares for the years ended 31 December 2015 and 2014 are as follows:
+The Company has adopted two share award schemes (the "Share Award Schemes"), both of which are
+administered by an independent trustee appointed by the Group (the "Trustee") as of 31 December 2015. The
+vesting period of the awarded shares is determined by the Board.
+(b) Share award schemes
+20 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+162
+Upon the Share Subdivision became effective, pro-rata adjustments have been made to the number of outstanding
+awarded shares, so as to give the participants the same proportion of the equity capital as that they were entitled to
+before the effect of the Share Subdivision.
+12,527,595
+HKD18.07 12,527,595
+Exercisable as at 31 December 2014 (Note (2))
+8,683
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+Deposits received from customers
+54,108
+8,949
+Staff costs and welfare accruals
+7,719
+6,019
+Selling and marketing expense accruals
+1,628
+15,700
+1,409
+966
+407
+Purchase of land use rights
+773
+Convertible bonds of a subsidiary (Note)
+588
+Interests payable
+386
+208
+Liabilities in relation to the put options granted to
+non-controlling shareholders of a subsidiary
+Others
+314
+3,717
+General and administrative expenses accruals
+1,354
+2,389
+618
+The related share-based compensation expenses incurred for the year ended 31 December 2015 and 2014 were
+insignificant to the Group.
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+20 SHARE-BASED PAYMENTS (Cont'd)
+(d) Share options and restricted share award schemes adopted by subsidiaries
+Certain subsidiaries of the Group operate their own share-based compensation plans (share option and/or
+restricted share award schemes). Their exercise prices of the share options, as well as the vesting periods of the
+share options and awarded shares are determined by the board of directors of these subsidiaries at their sole
+discretion. Similar to the share option/award schemes adopted by the Company, the share options or restricted
+shares of the subsidiaries granted are normally vested by several tranches. Participants of some subsidiaries have
+the right to request the Group to repurchase their vested equity interests of the respective subsidiaries ("Repurchase
+Transaction"). For certain participants, the Group have discretion to settle the Repurchase Transaction by using
+either equity instruments of the Company or by cash. For the Repurchase Transaction which the Group have
+settlement options, there are certain portions that the directors of the Company are currently of the view, that they
+would be settled by equity instruments of the Company. As a result, they are accounted for using the equity-settled
+share-based payment method. In addition, in connection with the acquisition of the addition equity interests in a
+non-wholly owned subsidiary in 2015, the unvested share options and unvested restricted awarded shares of that
+subsidiary are exchanged for the unvested awarded shares of the Company upon their vesting at a pre-determined
+conversion formula. As the fair values of unvested share options and unvested restricted awarded shares of that
+subsidiary and the fair values of the unvested awarded shares of the Company to be exchanged are the same at
+the relevant contract date, no additional share-based payments costs were recognised by the Group in 2015.
+(e) Expected retention rate of grantees
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate") in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2015, the Expected Retention Rate for the grantees from the Group's wholly-owned subsidiaries was
+assessed to be 85% (2014: 85%).
+00
+165
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+21 ACCOUNTS PAYABLE
+Accounts payable and their ageing analysis are as follows:
+0-30 days
+1,518
+936
+1,774
+5,775
+10,019
+RMB'Million
+2,131
+RMB'Million
+2015
+As at 31 December
+22 OTHER PAYABLES AND ACCRUALS
+Over 90 days
+61 - 90 days
+31 - 60 days
+2014
+For aligning the interests of key employees with the Group, the Group established three employees' investment
+plans in the form of limited liability partnerships in 2011, 2014 and 2015 (the "EISS”), respectively. According to
+the term of the EISs, the Board may, at its absolute discretion, select any employee of the Group, excluding any
+director of the Company, to participate in the EISS by subscribing for the partnership interest at cash consideration.
+The participating employees are entitled to all the economic benefits generated by the EISS, if any, after a specified
+vesting period under the respective EISs, ranging from up to four to seven years.
+70,199
+Note: Convertible bonds of a subsidiary related to the convertible bonds assumed in a business combination in 2014 (Note 23).
+Included in current liabilities:
+RMB bank borrowings, unsecured
+125
+USD bank borrowings, unsecured (Note (b))
+10,715
+1,836
+Current portion of long-term USD bank borrowings, unsecured (Note (a))
+714
+1,254
+11,429
+3,215
+24,351
+8,722
+00
+5,507
+167
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+24 BORROWINGS (Cont'd)
+(286,350)
+Effect of Share Subdivision (Note (3))
+45,836,452
+4,000,000
+49,836,452
+At 31 December 2014 (Note (2))
+HKD57.36
+36,432,000
+HKD31.70
+5,000,000
+41,432,000
+Annual Report 2015
+12,922
+RMB'Million
+RMB'Million
+Tencent Holdings Limited
+166
+23 LONG-TERM PAYABLES
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+Payables to the licensed online contents and running royalty fee for online games
+Present value of liabilities in relation to the put options granted to
+non-controlling shareholders of subsidiaries
+Purchase consideration payables for business combinations
+Convertible bonds assumed in business combination
+Others
+24 BORROWINGS
+Included in non-current liabilities:
+Non-current portion of long-term USD bank borrowings, unsecured (Note (a))
+As at 31 December
+2015
+2014
+2014
+2015
+As at 31 December
+2,052
+3,626
+390
+19,123
+778
+93
+1,080
+487
+2,361
+RMB'Million
+RMB'Million
+489
+Dividend yield
+(22)
+Training expenses
+226
+(19)
+(Charge)/Credit to consolidated income statement
+322
+24
+209
+17
+72
+At 1 January 2015
+(Note (ii))
+(Note (i))
+RMB'Million
+RMB'Million
+20
+Total
+tax losses
+RMB'Million
+RMB'Million
+RMB'Million
+assets
+sales
+assets
+arising from
+of intangible
+technology
+amortisation
+software and
+accelerated
+income tax
+Deferred
+Others
+(11)
+228
+424
+72
+At 31 December 2014
+1
+(1)
+2
+Currency translation differences
+(134)
+(3)
+(30)
+(101)
+Charge to consolidated income statement
+24
+24
+Business combinations
+431
+213
+47
+47
+171
+At 1 January 2014
+757
+252
+209
+243
+53
+At 31 December 2015
+11
+11
+Currency translation differences
+arising from
+tax assets
+intra-group
+arising from
+(2,058)
+(2,713)
+322
+757
+116
+314
+206
+443
+RMB'Million
+RMB'Million
+2014
+2015
+As at 31 December
+170
+Tencent Holdings Limited
+At end of the year
+Currency translation differences
+Business combinations
+Disposal of a subsidiary
+(Charge)/credit to other comprehensive income
+Charge to consolidated income statement (Note 34)
+Withholding tax paid relating to remittance of dividends
+At beginning of the year
+The movements of the deferred income tax assets/liabilities account were as follows:
+- to be recovered within 12 months
+― to be recovered after more than 12 months
+Deferred income tax liabilities:
+- to be recovered within 12 months
+― to be recovered after more than 12 months
+Deferred income tax assets:
+(955)
+17
+(884)
+(2,942)
+tax assets
+For the year ended 31 December 2015
+income
+income
+Deferred
+Deferred
+The movements of deferred income tax assets were as follows:
+27 DEFERRED INCOME TAXES (Cont'd)
+Notes to the Consolidated Financial Statements
+(2,620)
+(2,911)
+1
+7
+(256)
+2
+11
+5
+15
+(459)
+575
+326
+(1,956)
+(172)
+(1,010)
+(2,620)
+RMB'Million
+RMB'Million
+2014
+2015
+(3,668)
+209
+24
+322
+Employee benefits expenses (Note (a) and Note 31)
+Content costs and agency fees (excluding amortisation of intangible assets)
+18,475
+15,451
+17,094
+(280)
+(280)
+Business combinations
+(1,441)
+(57)
+(187)
+(1,128)
+(69)
+At 1 January 2014
+(3,668)
+(550)
+(198)
+(631)
+(1,975)
+(314)
+(4)
+(2)
+(459)
+(459)
+326
+326
+At 31 December 2015
+Currency translation differences
+Charge to other comprehensive income
+RMB'Million
+remittance of dividends
+RMB'Million
+2015
+(300)
+(470)
+144
+272
+392
+331
+86
+462
+5,111
+3,813
+1,886
+2,759
+The impairment provision for investee companies and intangible assets from acquisition recognised in “Other gains, net” mainly
+comprised impairment provision for investments in associates and redeemable preference shares of associates of RMB1,638
+million (2014: RMB1,959 million), impairment provision for available-for-sale financial assets of RMB586 million (2014: RMB478
+million) and impairment provision for intangible assets arising from acquisition of RMB148 million (2014: RMB73 million).
+00
+173
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+29 OTHER GAINS, NET (Cont'd)
+Note: (Cont'd)
+(b)
+The disposal gains/deemed disposal gains recognised in "Other gains, net" mainly comprised the following:
+(i)
+(ii)
+During the year ended 31 December 2015, the Group recognised total net gains of deemed disposals of a number of
+investments in associates of RMB1,931 million (Note 10(a)) mainly due to new equity interests issued by these associates
+for additional financing or investment considerations. As a result, the Group's equity interests in these associates were
+diluted, and dilution gains had been recognised accordingly. These associates are principally engaged in online insurance,
+online classified listing platform services, online gaming and other Internet-related business.
+As described in Notes 10(a) (iv) and 12(b), the Group recognised gains from investment in Dianping of RMB868 million
+during the year ended 31 December 2015.
+(iii) During the year ended 31 December 2015, the Group also recognised total net gains of RMB1,014 million from a number
+of investees as a result of disposal, re-designation of investments, et cetera.
+30 EXPENSES BY NATURE
+2015
+2014
+There was no offsetting of deferred income tax assets and liabilities in 2015 and 2014.
+Withholding tax paid in relation to the
+(596)
+fair value of
+available-for-
+anticipated
+in business
+earnings
+acquired
+liabilities
+change in
+tax on the
+assets
+income tax
+arising from
+Withholding
+Intangible
+Deferred
+liabilities
+income tax
+Deferred
+The movements of deferred income tax liabilities were as follows:
+27 DEFERRED INCOME TAXES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+171
+00
+The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will
+be available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future
+reporting periods. As at 31 December 2015, the Group did not recognise deferred income tax assets of RMB1,017 million (2014:
+RMB866 million) in respect of cumulative tax losses amounting to RMB4,125 million (2014: RMB3,525 million). These tax losses
+will expire from 2016 to 2020.
+The deferred income tax assets recognised are mainly related to the temporary differences arising from certain intra-group
+software and technology transfer transactions.
+(ii)
+(i)
+Note:
+arising from
+5
+deemed
+sale financial
+(173)
+(198)
+2
+(2,942)
+(377)
+5
+Disposal of a subsidiary
+(266)
+41
+Credit/(charge) to consolidated income statement
+2
+Business combinations
+(172)
+(2,033)
+(360)
+At 1 January 2015
+(Note)
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Others
+investees
+assets
+at fair value by subsidiaries
+disposals of
+combinations to be remitted
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+27 DEFERRED INCOME TAXES
+For the year ended 31 December 2015
+HKD255,000,001 – HKD315,000,000
+HKD105,000,001 – HKD135,000,000
+HKD195,000,001 – HKD255,000,000
+HKD75,000,001 – HKD105,000,000
+HKD45,000,001 – HKD60,000,000
+HKD30,000,001 – HKD45,000,000
+HKD15,000,001 – HKD30,000,000
+HKD800,000 - HKD15,000,000
+Emolument bands
+The emoluments of the senior management fell within the following bands:
+to consolidated income statement
+Share-based compensation expenses charged
+Contributions to pension plans
+Salaries, bonuses, allowances and benefits in kind
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services excluding the directors and the
+CEO whose details have been reflected in Note 44(a) is as follows:
+(a) Senior management's emoluments
+31 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+175
+00
+10.0 - 12.0%
+0.8-2.0%
+6.0 -11.5%
+12.0-21.0%
+Percentage
+Housing fund
+Unemployment insurance
+Medical insurance
+Tencent Holdings Limited
+Pension insurance
+176
+2014
+195,792
+503
+RMB'000
+2014
+2015
+RMB'000
+Estimated money value of other benefits
+to consolidated income statement
+Share-based compensation expenses charged
+Contributions to pension plans
+Salaries, bonuses, allowances and benefits in kind
+The five individuals whose emoluments were the highest in the Group include one director during the year 2015
+(2014: one). The emoluments paid/payable to the remaining four (2014: four) individuals during the year were as
+follows:
+(b) Five highest paid individuals
+31 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+21431|--
+253 ||
+1
+1
+2014
+2015
+Number of individuals
+357,242
+702,039
+220,186
+535,733
+697
+136,359
+165,607
+699
+RMB'000
+2015
+RMB'000
+195,896
+Majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred. The
+applicable percentages used to provide for insurance premium and welfare benefit funds for the years ended 31 December 2015 and
+2014 are listed below:
+15,451
+Interest income mainly represents interest income from bank deposits, including current term deposits and non-current
+term deposits.
+28 INTEREST INCOME
+As at 31 December 2015, the Group recognised the relevant deferred income tax liabilities of RMB1,975 million
+(2014: RMB2,033 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable future. No
+withholding tax had been provided for the earnings of approximately RMB37,344 million (2014: RMB10,607 million)
+expected to be retained by the PRC subsidiaries and not to be remitted to a foreign investor in the foreseeable future
+based on management's estimation of overseas funding requirements.
+27 DEFERRED INCOME TAXES (Cont'd)
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+172
+Tencent Holdings Limited
+Withholding tax will be levied on the dividends distributed by a company established in certain jurisdictions, including the PRC, to an
+investor outside the jurisdiction of that company established ("foreign investor").
+Note:
+(2,942)
+(377)
+(172)
+(2,033)
+(360)
+At 31 December 2014
+15
+15
+Credit to other comprehensive income
+575
+575
+the remittance of dividends
+Withholding tax paid in related to
+11
+11
+Disposal of a subsidiary
+(1,822)
+(320)
+(1,480)
+Charge to consolidated income statement
+Note:
+29 OTHER GAINS, NET
+2014
+18,475
+49
+69
+820
+1,112
+2,497
+2,841
+862
+1,076
+11,223
+13,377
+RMB'Million
+RMB'Million
+2014
+(a)
+Note:
+Others
+Donation to Tencent Charity Funds
+Dividend income
+Subsidies and tax rebates
+Fair value gains on other financial instruments
+and businesses (Note (b), Note 12(b))
+Gains on disposals/deemed disposals of investees
+(2,510)
+(2,373)
+from acquisition (Note (a))
+Impairment provision for investee companies and intangible assets
+RMB'Million
+RMB'Million
+2015
+(149)
+471
+49
+35
+23
+2
+15
+13
+15
+Research and development expenses for the year ended 31 December 2015 were RMB9,039 million (2014: RMB7,581 million),
+which included employee benefits expenses of RMB7,134 million (2014: RMB6,022 million) and depreciation of fixed assets
+of RMB718 million (2014: RMB639 million). No development expenses had been capitalised for the year ended 31 December
+2015 (2014: Nil).
+Included the amortisation charge for intangible assets in respect of licenses and licensed online contents.
+Tencent Holdings Limited
+174
+31 EMPLOYEE BENEFITS EXPENSES
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+Wages, salaries and bonuses
+Welfare, medical and other expenses (Note)
+Share-based compensation expenses
+Contributions to pension plans (Note)
+Annual Report 2015
+179
+00
+United States CIT provision was provided for the years ended 31 December 2015 and 2014 for the entities
+within the Group which were incorporated in the United States with estimated assessable profits, at
+applicable tax rate of 36%.
+(iv) United States corporate income tax
+In addition, according to relevant tax circulars issued by the PRC tax authorities, certain subsidiaries of the
+Company are entitled to other tax concessions and they are exempt from CIT for two years, followed by a
+50% reduction in the applicable tax rates for the next three years, commencing either from the first year of
+commercial operation or from the first year of profitable operation, after offsetting tax losses generated in
+prior year.
+Certain subsidiaries of the Group in the PRC were approved as High and New Technology Enterprise, and
+accordingly, they were subject to a reduced preferential CIT rate of 15% for the years ended 31 December
+2015 and 2014 according to the applicable CIT Law.
+CIT provision was made on the estimated assessable profits of entities within the Group incorporated in
+the PRC for the years ended 31 December 2015 and 2014, calculated in accordance with the relevant
+regulations of the PRC after considering the available tax benefits from refunds and allowances. The general
+PRC CIT rate is 25% in 2015.
+(iii) PRC corporate income tax
+(a) Income tax expense (Cont'd)
+34 TAX EXPENSE (Cont'd)
+(b)
+For the year ended 31 December 2015
+(a)
+- Non-audit services
+Notes to the Consolidated Financial Statements
+10,963
+Cost of merchandises sold
+193
+4,334
+Bandwidth and server custody fees
+5,492
+4,255
+Channel costs
+4,691
+2,031
+Promotion and advertising expenses
+5,814
+5,833
+Depreciation of fixed assets (Note (a) and Note 6)
+3,153
+2,989
+Amortisation of intangible assets (Note (b) and Note 9)
+3,476
+1,808
+Operating lease rentals in respect of office buildings
+896
+997
+594
+480
+Travelling and entertainment expenses
+Auditor's remuneration
+- Audit services
+- Audit-related services
+Note:
+516,582
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+32 FINANCE COSTS, NET
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+177
+00
+Employees of a foreign subsidiary of the Group. The respective emolument amounts are mainly comprised of charges
+related to the vesting of share-based compensation and the re-measurement appreciation of cash-settled share-based
+award grants.
+1
+2*
+1
+2*
+1
+- 1
+2014
+2015
+Number of individuals
+559,263
+36
+362,860
+*
+HKD274,000,001 – HKD274,500,000
+HKD249,000,001 – HKD249,500,000
+HKD210,000,001 – HKD210,500,000
+HKD183,000,001 – HKD183,500,000
+HKD129,000,001 – HKD129,500,000
+HKD81,000,001 – HKD81,500,000
+Emolument bands
+The emoluments of the above four individuals (2014: four) fell within the following bands:
+712,926
+Interest and related expenses
+178
+Exchange losses
+2014
+Hong Kong profits tax provision has been provided at the rate of 16.5% on the estimated assessable profits
+for the years ended 31 December 2015 and 2014.
+Hong Kong profits tax
+(ii)
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2015 and 2014.
+(i) Cayman Islands and British Virgin Islands corporate income tax ("CIT")
+347
+2,793
+1
+(9)
+346
+2,802
+RMB'Million
+RMB'Million
+2014
+2015
+(a) Income tax expense
+34 TAX EXPENSE
+Share of (profit)/losses of joint ventures
+Share of losses of associates (Note 10(a))
+33 SHARE OF LOSSES OF ASSOCIATES AND JOINT VENTURES
+Interest expenses mainly arose from the borrowings and notes payable mentioned in Notes 24 and 25, respectively.
+1,182
+1,618
+316
+108
+866
+1,510
+RMB'Million
+RMB'Million
+2015
+(164)
+(377)
+189
+(a) Reconciliation of net profit to cash inflow from operating activities:
+2015
+2014
+RMB'Million
+RMB'Million
+29,108
+23,888
+Profit for the year
+Adjustments for:
+Income tax expense
+7,108
+5,125
+Gains on disposals/deemed disposals of investees and businesses
+(3,813)
+(5,111)
+Loss on liquidation of an investee
+12
+Dividend income
+(272)
+(144)
+Depreciation of fixed assets and investment properties
+3,159
+2,993
+Amortisation of intangible assets and land use rights
+3,515
+38 CONSOLIDATED CASH FLOW STATEMENT
+1,825
+For the year ended 31 December 2015
+Annual Report 2015
+Weighted average number of ordinary shares in issue (million shares)
+Adjustments for share options and awarded shares (million shares)
+Weighted average number of ordinary shares for
+the calculation of diluted EPS (million shares)
+Diluted EPS (RMB per share)
+For the year ended 31 December 2015
+2015
+2014
+28,806
+23,810
+9,300
+130
+9,231
+126
+9,430
+9,357
+3.055
+2.545
+36 DIVIDENDS
+The dividends amounted to RMB2,640 million (2014: RMB1,761 million) was paid during the year ended 31 December
+2015.
+A final dividend in respect of the year ended 31 December 2015 of HKDO.47 per share (2014: HKD0.36 per share)
+was proposed pursuant to a resolution passed by the Board on 17 March 2016 and subject to the approval of the
+shareholders at the annual general meeting to be held on 18 May 2016. This proposed dividend is not reflected as
+dividend payable in the consolidated financial statements.
+37 BUSINESS COMBINATIONS
+During the year ended 31 December 2015, the Group acquired and obtained control of certain entities engaging in
+online game, films production and literature related business. The aggregate consideration for these acquisitions was
+RMB1,109 million, fair value of net assets acquired (including identifiable intangible assets), non-controlling interests
+and goodwill recognised were RMB514 million, RMB262 million and RMB857 million, respectively.
+The acquisition related costs of the business combinations were not significant and had been charged to general and
+administrative expenses in the consolidated income statement for the year ended 31 December 2015.
+The revenue and the results contributed by these acquisitions of the Group for the period since the date of acquisitions
+were insignificant to the Group. The Group's revenue and results for the period would not be materially different if these
+acquisitions had occurred on 1 January 2015.
+00
+183
+Notes to the Consolidated Financial Statements
+Profit attributable to equity holders of the Company (RMB'Million)
+Net losses on disposals of land used rights, intangible assets, fixed assets
+43
+1,300
+Prepayments, deposits and other receivables
+(5,081)
+(1,751)
+Accounts payable
+5,969
+1,788
+Other payables and accruals
+3,654
+2,975
+Other tax liabilities
+(106)
+(25)
+Deferred revenue
+4,439
+2,687
+Cash generated from operating activities
+50,478
+37,414
+Tencent Holdings Limited
+184
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+38 CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
+(b) Major non-cash transactions
+(17)
+and construction in progress
+Inventories
+(2,469)
+57
+Interest income
+(2,327)
+(1,676)
+Equity-settled share-based compensation expenses
+2,756
+1,802
+Share of losses of associates and joint ventures
+2,793
+347
+Impairment provision for available-for-sale financial assets,
+associates and joint ventures
+2,225
+2,437
+Fair value gains on other financial assets
+(462)
+(86)
+Impairment of intangible assets
+148
+73
+Exchange losses
+108
+316
+Changes in working capital:
+Accounts receivable
+(1,418)
+Notes to the Consolidated Financial Statements
+(b) Diluted (Cont'd)
+35 EARNINGS PER SHARE (Cont'd)
+The tax on the Group's profit before income tax differs from the theoretical amount that would arise using the tax
+rate of 25% for the years ended 31 December 2015 and 2014, being the tax rate of the major subsidiaries of the
+Group before enjoying preferential tax treatments. The difference is analysed as follows:
+2015
+2014
+RMB'Million
+RMB'Million
+Profit before income tax
+Share of losses of associates and joint ventures
+36,216
+2,793
+29,013
+347
+39,009
+29,360
+Tax calculated at a tax rate of 25%
+9,752
+7,340
+Effects of different tax rates applicable to different subsidiaries of the Group
+(3,775)
+(4,038)
+Effects of tax holiday on assessable profits of subsidiaries
+(508)
+(828)
+Income not subject to tax
+(14)
+Expenses not deductible for tax purposes
+906
+(a) Income tax expense (Cont'd)
+698
+34 TAX EXPENSE (Cont'd)
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+34 TAX EXPENSE (Cont'd)
+(a)
+Income tax expense (Cont'd)
+(v) Corporate income tax in other countries
+CIT provision has been provided for the years ended 31 December 2015 and 2014 for the entities within
+the Group which were incorporated in Europe, East Asia and South America to the extent that there were
+estimated assessable profits under these jurisdictions, at applicable tax rates ranging from 12.5 % to 35%.
+(vi) Withholding tax
+According to applicable PRC tax regulations, dividends distributed by a company established in the PRC
+to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to a 10%
+withholding tax. If a foreign investor is incorporated in Hong Kong and meets the conditions or requirements
+under the double taxation arrangement entered into between the Mainland China and Hong Kong, the
+relevant withholding tax rate will be reduced from 10% to 5%. Hence, the Group used 5% to accrue the
+withholding tax for certain Hong Kong intermediate holding companies which are expected to fulfill the
+aforesaid conditions.
+Similar tax regulations are also applicable to certain countries and regions.
+The income tax expense of the Group for the years ended 31 December 2015 and 2014 are analysed as follows:
+Current tax
+Deferred income tax (Note 27)
+Tencent Holdings Limited
+180
+2015
+2014
+RMB'Million
+RMB'Million
+6,936
+3,169
+172
+1,956
+7,108
+5,125
+For the year ended 31 December 2015
+Withholding tax on earnings expected to be remitted
+by subsidiaries (Note 27)
+Unrecognised deferred income tax assets
+Construction fee for cultural undertakings
+3%
+Advertising income
+Educational surcharge
+5%
+Net VAT and BT payable amount
+35 EARNINGS PER SHARE
+(a) Basic
+Basic EPS is calculated by dividing the profit attributable to equity holders of the Company by the weighted average
+number of ordinary shares in issue during the year.
+2015
+2014
+Profit attributable to equity holders of the Company (RMB'Million)
+28,806
+23,810
+Weighted average number of ordinary shares in issue (million shares)
+9,300
+9,231
+Basic EPS (RMB per share)
+3.097
+2.579
+(b) Diluted
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption
+of the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted
+by the Company (collectively forming the denominator for computing the diluted EPS). No adjustment is made to
+earnings (numerator).
+In addition, the share options and restricted shares granted by the Company's non-wholly owned subsidiaries and
+associates, and the convertible bonds of the subsidiaries should also have potential dilutive effect on the EPS.
+During the year ended 31 December 2015, these share options and restricted shares, and the convertible bonds
+had either anti-dilutive effect or insignificant dilutive effect to the Group.
+Tencent Holdings Limited
+182
+Net VAT and BT payable amount
+7%
+City construction tax
+income, offsetting by VAT on purchases
+Services fee income
+Others
+Income tax expense
+266
+1,480
+421
+470
+60
+3
+7,108
+5,125
+00
+181
+Other than the transaction with non-controlling interests described in Note 19(d), there were no material non-cash
+transactions for the year ended 31 December 2015.
+Annual Report 2015
+For the year ended 31 December 2015
+34 TAX EXPENSE (Cont'd)
+(b) Value-added tax, business tax and related taxes
+The operations of the Group are also subject to the following taxes in the PRC:
+Category
+Value-added tax ("VAT")
+Tax rate
+Basis of levy
+6-17%
+Sales value of goods sold and services fee
+Business tax ("BT")
+3-5%
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+39 COMMITMENTS
+Capital commitments as at 31 December 2015 are analysed as follows:
+25,028
+Current liabilities
+Amounts due to subsidiaries
+6,024
+4,742
+Other payables and accruals
+347
+170
+Notes payable
+3,886
+1,834
+10,257
+6,746
+Total liabilities
+Total equity and liabilities
+47,349
+31,774
+57,723
+39,425
+The financial position of the Company was approved by the Board of Directors on 17 March 2016 and was signed
+on its behalf:
+Ma Huateng
+Director
+Tencent Holdings Limited
+188
+37,092
+Lau Chi Ping Martin
+7,651
+4,206
+For the year ended 31 December 2015
+42 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+(a) Financial position of the Company (Cont'd)
+EQUITY
+Equity attributable to equity holders of the Company
+Share capital
+Share premium
+Shares held for share award schemes
+Other reserves (Note (c))
+Retained earnings (Note (c))
+Total equity
+LIABILITIES
+Non-current liabilities
+Notes payable
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+12,167
+(1,817)
+5,131
+(1,309)
+(448)
+(377)
+472
+10,374
+Notes to the Consolidated Financial Statements
+Director
+For the year ended 31 December 2015
+RMB'Million
+RMB'Million
+At 1 January 2014
+2,295
+Profit for the year
+3,672
+Dividends paid relating to 2013
+(1,761)
+Currency translation differences
+At 31 December 2014
+4,206
+(377)
+At 1 January 2015
+Losses for the year
+Dividends paid relating to 2014
+Currency translation differences
+At 31 December 2015
+4,206
+(377)
+(1,094)
+(2,640)
+(71)
+472
+(448)
+00
+reserves
+Notes to the Consolidated Financial Statements
+earnings
+Retained
+42 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+(b) Investments in subsidiaries
+The amount represents investments in equity interests in subsidiaries of the Company. Details are as follows:
+Investments in subsidiaries:
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+- Investments in equity interests - at cost, unlisted
+119
+67
+- Deemed investments arising from share-based compensation (Note (i))
+- Advance to subsidiaries (Note (ii))
+7,381
+5,158
+38,147
+24,315
+45,647
+29,540
+Note:
+(i)
+The amount represents share-based compensation expenses arising from grants of share options and awarded shares of
+the Company to employees of subsidiaries in exchange for their services provided to the subsidiaries, which were deemed
+to be investment made by the Company into these subsidiaries.
+(ii)
+All these balances are unsecured and interest-free and their repayments are neither planned nor likely to occur in the
+foreseeable future.
+(c) Reserve movement of the Company
+Other
+Annual Report 2015
+187
+00
+(b) Operating lease commitments
+The future aggregate minimum lease payments under non-cancellable operating leases in respect of buildings are
+as follows:
+Contracted:
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+Not later than one year
+428
+746
+Later than one year and not later than five years
+827
+1,347
+Later than five years
+1,198
+1,200
+2,453
+3,293
+(c) Other commitments
+The future aggregate minimum payments under non-cancellable bandwidth and server custody leases and online
+game licensing agreements are as follows:
+Contracted:
+As at 31 December
+2015
+2014
+39 COMMITMENTS (Cont'd)
+RMB'Million
+For the year ended 31 December 2015
+Annual Report 2015
+As at 31 December
+2015
+2014
+RMB'Million
+RMB'Million
+Contracted:
+Construction/purchase of buildings and purchase of land use rights
+Purchase of other fixed assets
+Capital investment in investees
+2,239
+2,496
+631
+494
+2,249
+912
+5,119
+3,902
+Authorised but not contracted:
+Construction/purchase of building and purchase of land use rights
+8,376
+3,242
+13,495
+7,144
+00
+185
+Notes to the Consolidated Financial Statements
+RMB'Million
+Not later than one year
+2,090
+RMB'Million
+38
+45,647
+36
+29,540
+1,278
+426
+48
+21
+47,437
+29,597
+Current assets
+Amounts due from subsidiaries
+10,056
+9,272
+Prepayments, deposits and other receivables
+131
+388
+Cash and cash equivalents
+99
+168
+Total assets
+10,286
+9,828
+57,723
+39,425
+RMB'Million
+2014
+2015
+As at 31 December
+1,778
+Later than one year and not later than five years
+3,363
+1,566
+Later than five years
+540
+5
+5,993
+3,349
+Tencent Holdings Limited
+186
+Notes to the Consolidated Financial Statements
+(a) Capital commitments
+For the year ended 31 December 2015
+Except as disclosed in Note 10(c) (Transactions with associates), Note 14 (Loan to investees and investees'
+shareholders), Note 20 (Share-based payments), Note 31(a) (Senior management's emoluments), Note 31(b) (Five
+highest paid individuals) and Note 44 (Benefits and interests of directors) to the consolidated financial statements,
+the Group had no other material transactions with related parties for the year ended 31 December 2015, and no other
+material related parties' balances as at 31 December 2015.
+41 SUBSEQUENT EVENTS
+There were no material subsequent events during the period from 31 December 2015 to the approval date of these
+financial statements by the Board of Directors on 17 March 2016.
+42 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+(a) Financial position of the Company
+ASSETS
+Non-current assets
+Intangible assets
+Investments in subsidiaries (Note (b))
+Investments in associates
+Prepayments, deposits and other receivables
+Contribution to Share Scheme Trust
+40 RELATED PARTIES TRANSACTIONS
+Annual Report 2015
+Income tax expense. Income tax expense increased by 39% to RMB7, 108 million for the year ended 31 December 2015 on a
+year-on-year basis. The increase primarily reflected higher profit before income tax, partially offset by a decrease in withholding
+taxes.
+DIVIDEND
+30,441
+6%
+1,214
+5%
+1,640
+12%
+2,627
+19%
+100%
+5,733
+17,137
+76%
+23,068
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+82%
+20,978
+100%
+In light of the reduction in size of our eCommerce business, we include eCommerce in the "Others" business segment in our financial
+statements from the first quarter of 2015 onwards. Comparative figures have been reclassified to conform with the new presentation.
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+% of segment
+% of segment
+31 December 2014
+31 December 2015
+Unaudited
+Three months ended
+Total cost of revenues
+Online advertising
+Others*
+VAS
+Cost of revenues. Cost of revenues increased by 52% year-on-year to RMB12,661 million for the fourth quarter of 2015. The
+increase mainly reflected greater sharing and content costs, channel costs, and bank handling fees on C2C money transfers.
+As a percentage of revenues, cost of revenues increased to 42% for the fourth quarter of 2015 from 40% for the fourth quarter
+of 2014. The following table sets forth our cost of revenues by line of business for the fourth quarter of 2015 and the fourth
+quarter of 2014:
+Management Discussion and Analysis
+16
+Tencent Holdings Limited
+Revenues from our online advertising business increased by 118% year-on-year to RMB5,733 million for the fourth
+quarter of 2015. Performance-based advertising revenues increased by 157% to RMB2,916 million, mainly reflecting
+revenue growth from Mobile Qzone and Weixin Official Accounts, as well as contributions from newly launched
+advertising services on Weixin Moments. Brand display advertising revenues grew by 89% to RMB2,817 million,
+primarily reflecting higher contributions from our mobile media platforms such as Tencent Video and Tencent News.
+Revenues from our VAS business increased by 35% year-on-year to RMB23,068 million for the fourth quarter of 2015.
+Online games revenues grew by 33% to RMB15,971 million. The increase was primarily driven by revenue growth from
+smart phone games, mainly due to our expanded game portfolio, as well as higher revenues from PC client games,
+primarily due to our key titles and new games launched in 2015. Social networks revenues increased by 37% to
+RMB7,097 million. The increase was mainly driven by growth in subscription revenues from digital content subscription
+services and QQ Membership, as well as higher revenues from virtual item sales.
+% of total
+% of total
+31 December 2014
+31 December 2015
+Equity holders of the Company
+5,954
+7,198
+Profit for the period
+(892)
+(1,998)
+Income tax expense
+6,846
+9,196
+Profit before income tax
+(275)
+(1,329)
+Share of losses of associates and joint ventures
+(273)
+(363)
+Finance costs, net
+7,394
+10,888
+Operating profit
+Non-controlling interests
+8,383
+Non-GAAP profit attributable to equity holders of the Company*
+7,164
+Three months ended
+Total revenues
+Others*
+Online advertising
+VAS
+Unaudited
+Revenues. Revenues increased by 45% to RMB30,441 million for the fourth quarter of 2015 on a year-on-year basis.
+Excluding the eCommerce business, revenues increased by 47% to RMB30,242 million. The following table sets forth our
+revenues by line of business for the fourth quarter of 2015 and the fourth quarter of 2014:
+Management Discussion and Analysis
+Annual Report 2015
+15
+00
+In 2015, we have included relevant non-GAAP adjustments for our material associates in our non-GAAP adjustments. We adopted the
+new presentation in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to
+be industry practice. Comparative figures have been adjusted to conform with the new presentation.
+6,981
+8,953
+5,954
+7,198
+94
+34
+5,860
+*
+(3,975)
+36%
+36%
+(702)
+(1,329)
+Share of losses of associates and joint ventures
+(481)
+(363)
+Finance costs, net
+10,888
+Operating profit
+Profit before income tax
+(4,380)
+General and administrative expenses
+(2,042)
+(3,024)
+Selling and marketing expenses
+614
+249
+Other gains, net
+559
+(4,766)
+9,196
+9,148
+Income tax expense
+19
+199
+8,280
+8,953
+Non-GAAP profit attributable to equity holders of the Company
+7,584
+7,198
+139
+34
+7,445
+7,164
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+7,584
+7,198
+Profit for the period
+(1,564)
+(1,998)
+649
+15,580
+17,780
+(11,014)
+Other gains, net. Other gains, net decreased by 27% to RMB249 million for the fourth quarter of 2015 on a year-on-year basis.
+During the fourth quarter of 2015, net disposal/deemed disposal gains arising from certain investee companies decreased.
+Partly offsetting this decrease, fair value gains on options we own in an investee company were recognised in the fourth quarter
+of 2015 and impairment provision charges for certain investee companies decreased.
+Management Discussion and Analysis
+Annual Report 2015
+17
+00
+Cost of revenues for our other businesses increased by 153% to RMB1,484 million for the fourth quarter of 2015 on a
+year-on-year basis. The increase was mainly driven by greater bank handling fees on C2C money transfers.
+Cost of revenues for our online advertising business increased by 77% to RMB2,794 million for the fourth quarter of
+2015 on a year-on-year basis. The increase was primarily driven by higher investment in video content, commissions
+payable to advertising agencies, as well as traffic acquisition costs.
+Cost of revenues for our VAS business increased by 36% to RMB8,383 million for the fourth quarter of 2015 on a year-
+on-year basis. The increase was mainly driven by higher sharing and content costs (especially for licensed smart phone
+games) and channel costs, as well as bandwidth and server custody fees.
+Cost of revenues for "Others" business segment include cost of merchandise sold of principal eCommerce transactions and other
+eCommerce costs of revenue since the first quarter of 2015. Comparative figures have been reclassified to conform with the new
+presentation.
+8,332
+12,661
+48%
+587
+90%
+1,484
+60%
+1,577
+49%
+2,794
+Selling and marketing expenses. Selling and marketing expenses increased by 47% to RMB3,024 million for the fourth quarter
+of 2015 on a year-on-year basis. The increase mainly reflected greater marketing spending on products and platforms such
+as online games, online literature, mobile utilities and online media, as well as higher staff costs. As a percentage of revenues,
+selling and marketing expenses were 10% for the fourth quarter of 2015, broadly stable compared to the fourth quarter of
+2014.
+6,168
+General and administrative expenses. General and administrative expenses increased by 20% to RMB4,766 million for the
+fourth quarter of 2015 on a year-on-year basis. The increase was primarily driven by greater research and development
+expenses as well as staff costs. As a percentage of revenues, general and administrative expenses decreased to 16% for the
+fourth quarter of 2015 from 19% for the fourth quarter of 2014.
+Share of losses of associates and joint ventures. Share of losses of associates and joint ventures increased to RMB1,329 million
+for the fourth quarter of 2015. The year-on-year increase was mainly attributable to share of losses arising from impairment
+provisions recognised by a listed associate engaging in the eCommerce business in the fourth quarter of 2015.
+(12,661)
+26,594
+30,441
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2015
+2015
+31 December 30 September
+Three months ended
+Unaudited
+FOURTH QUARTER OF 2015 COMPARED TO THIRD QUARTER OF 2015
+Management Discussion and Analysis
+18
+Tencent Holdings Limited
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 22% to
+RMB7,164 million for the fourth quarter of 2015 on a year-on-year basis. Non-GAAP profit attributable to equity holders of the
+Company increased by 28% to RMB8,953 million for the fourth quarter of 2015 on a year-on-year basis.
+Income tax expense. Income tax expense increased by 124% to RMB1,998 million for the fourth quarter of 2015 on a year-
+on-year basis. The increase primarily reflected greater profit before income tax and higher applicable CIT rate for certain
+subsidiaries in China.
+Finance costs, net. Finance costs, net increased by 33% to RMB363 million for the fourth quarter of 2015 on a year-on-year
+basis. The increase mainly reflected higher interest expense driven by higher amount of indebtedness.
+Chairman's Statement
+(4,766)
+(2,063)
+24,737
+32,410
+23,888
+29,108
+78
+23,810
+28,806
+302
+Non-GAAP profit attributable to equity holders of the Company*
+In 2015, we have included relevant non-GAAP adjustments for our material associates in our non-GAAP adjustments. We adopted the
+new presentation in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to
+be industry practice. Comparative figures have been adjusted to conform with the new presentation.
+Non-controlling interests
+Attributable to:
+23,888
+29,108
+Profit for the year
+(5,125)
+(7,108)
+Income tax expense
+29,013
+Equity holders of the Company
+00
+11
+Annual Report 2015
+17,468
+Online advertising
+80%
+63,310
+78%
+80,669
+VAS(1)
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+% of total
+% of total
+2014
+2015
+Year ended 31 December
+Revenues. Revenues increased by 30% to RMB102.9 billion for the year ended 31 December 2015 on a year-on-year basis.
+Excluding the eCommerce business, revenues increased by 38% to RMB102.2 billion. The following table sets forth our
+revenues by line of business for the years ended 31 December 2015 and 2014:
+Management Discussion and Analysis
+36,216
+Profit before income tax
+(347)
+(2,793)
+102,863
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2014
+2015
+Year ended 31 December
+YEAR ENDED 31 DECEMBER 2015 COMPARED TO YEAR ENDED 31 DECEMBER 2014
+Management Discussion and Analysis
+10
+10
+Tencent Holdings Limited
+Hong Kong, 17 March 2016
+Ma Huateng
+Chairman
+On behalf of the Board, I would like to express our sincere gratitude to our hard-working employees and management team
+to carry out the Group's strategy with outstanding professionalism, integrity and dedication. I would also like to thank all our
+shareholders and stakeholders for their continued trust and confidence. We will strive to continue to enhance people's quality
+of life through products and services provided by us and our partners.
+APPRECIATION
+The Board has recommended the payment of a final dividend of HKD0.47 per share (2014: HKD0.36 per share) for the year
+ended 31 December 2015, subject to the approval of the shareholders at the 2016 AGM. Such proposed dividend will be
+payable on 2 June 2016 to the shareholders whose names appear on the register of members of the Company on 25 May
+2016.
+78,932
+17%
+(41,631)
+61,232
+Share of losses of associates and joint ventures
+(1,182)
+(1,618)
+Finance costs, net
+30,542
+40,627
+Operating profit
+(14,155)
+(16,825)
+General and administrative expenses
+(7,797)
+(7,993)
+Selling and marketing expenses
+2,759
+1,886
+Other gains, net
+1,676
+2,327
+48,059
+(30,873)
+General and administrative expenses
+8,308
+Others (2)
+FOURTH QUARTER OF 2015 COMPARED TO FOURTH QUARTER OF 2014
+Management Discussion and Analysis
+14
+Tencent Holdings Limited
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 21% to
+RMB28,806 million for the year ended 31 December 2015 on a year-on-year basis. Non-GAAP profit attributable to equity
+holders of the Company increased by 31% to RMB32,410 million for the year ended 31 December 2015 on a year-on-year
+basis.
+00
+Finance costs, net. Finance costs, net increased by 37% to RMB1,618 million for the year ended 31 December 2015 on a
+year-on-year basis. The increase mainly reflected greater interest expense due to higher amount of indebtedness.
+General and administrative expenses. General and administrative expenses increased by 19% to RMB16,825 million for
+the year ended 31 December 2015 on a year-on-year basis. The increase was primarily driven by greater research and
+development expenses as well as staff costs. As a percentage of revenues, general and administrative expenses decreased to
+16% for the year ended 31 December 2015 from 18% for the year ended 31 December 2014.
+Unaudited
+Selling and marketing expenses. Selling and marketing expenses increased by 3% to RMB7,993 million for the year ended
+31 December 2015 on a year-on-year basis. The increase mainly reflected greater staff costs, partly offset by lower fulfillment
+expenses due to a decrease in revenues from principal eCommerce transactions. Promotion and advertising expenses were
+broadly stable, primarily reflecting higher marketing spending on products and platforms such as online games, online
+literature and mobile utilities, largely offset by reduced subsidies to Weixin Pay users for ride-hailing and decreased marketing
+expenses for WeChat. As a percentage of revenues, selling and marketing expenses decreased to 8% for the year ended 31
+December 2015 from 10% for the year ended 31 December 2014.
+Cost of revenues for our online advertising business increased by 92% to RMB8,941 million for the year ended 31
+December 2015 on a year-on-year basis. The increase primarily reflected greater traffic acquisition costs, investment in
+video content, as well as commissions payable to advertising agencies.
+Management Discussion and Analysis
+Annual Report 2015
+13
+00
+Cost of revenues for our VAS business increased by 38% to RMB28,422 million for the year ended 31 December 2015
+on a year-on-year basis. The increase mainly reflected: (1) greater sharing and content costs (especially for licensed
+smart phone games) and channel costs; (2) the impact of the aforementioned adoption of gross revenue recognition; and
+(3) higher bandwidth and server custody fees. If gross revenue recognition for smart phone games had been adopted for
+the year ended 31 December of 2014, cost of revenues for our VAS business would have increased by 27%.
+Cost of revenues for "Others" business segment include cost of merchandise sold of principal eCommerce transactions and other
+eCommerce costs of revenue since the first quarter of 2015. Comparative figures have been reclassified to conform with the new
+presentation.
+30,873
+Cost of revenues for our other businesses decreased by 24% to RMB4,268 million for the year ended 31 December
+2015 on a year-on-year basis. The decrease was mainly driven by a decline in cost of merchandise sold due to lower
+revenues from principal eCommerce transactions, partly offset by greater bank handling fees on C2C money transfers.
+Other gains, net. Other gains, net decreased by 32% to RMB1,886 million for the year ended 31 December 2015 on a year-
+on-year basis. The decrease mainly reflected a decline in net disposal/deemed disposal gains arising from certain investee
+companies, partly offset by fair value gains on options we own in an investee company, which we recognised in the fourth
+quarter of 2015.
+Three months ended
+31 December 31 December
+2015
+(3,024)
+Selling and marketing expenses
+343
+249
+Other gains, net
+443
+649
+12,646
+17,780
+(8,332)
+(12,661)
+20,978
+30,441
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2014
+41,631
+76%
+5,594
+90%
+Revenues from our online advertising business increased by 110% to RMB17,468 million for the year ended 31
+December 2015 on a year-on-year basis. Performance-based advertising revenues grew by 172% to RMB8,693
+million, mainly driven by revenue growth from Mobile Qzone, the full year impact of advertising revenues from Weixin
+Official Accounts, as well as contributions from newly launched advertising services on Weixin Moments. Brand display
+advertising revenues increased by 72% to RMB8,775 million, primarily driven by higher revenues from our mobile media
+platforms such as Tencent Video and Tencent News, which benefited from more traffic.
+Management Discussion and Analysis
+12
+Tencent Holdings Limited
+Revenues from our VAS business increased by 27% to RMB80,669 million for the year ended 31 December 2015 on a
+year-on-year basis. Online games revenues increased by 26% to RMB56,587 million. The increase primarily reflected
+growth in revenues from smart phone games, mainly driven by our diversified game portfolio and, to a lesser extent, the
+impact of the aforementioned adoption of gross revenue recognition. Revenues from PC client games also contributed
+to the increase, primarily driven by our key titles and new games launched in 2015. Social networks revenues grew by
+30% to RMB24,082 million. The increase mainly reflected higher subscription revenues from digital content subscription
+services and QQ Membership, as well as revenue growth from virtual item sales. If gross revenue recognition for smart
+phone games had been adopted for the year ended 31 December 2014, revenues from our VAS business would have
+increased by 24%, of which online games revenues would have increased by 23% and social networks revenues would
+have increased by 27% for the year ended 31 December 2015.
+In light of the reduction in size of our eCommerce business, we include eCommerce in the "Others" business segment in our financial
+statements from the first quarter of 2015 onwards. Comparative figures have been reclassified to conform to the new presentation.
+We recognise revenues from smart phone games we publish exclusively on a gross basis from the fourth quarter of 2014 onward,
+primarily to reflect changes in our co-operation models that qualify us the principal, rather than agent, for certain licensed titles.
+Correspondingly, we record revenue sharing with third-party developers and channel costs of these titles in costs of revenues, instead of
+treating them as contra-revenue items. Net versus gross revenue recognition does not impact the Group's profits.
+(2)
+(1)
+Note:
+100%
+78,932
+100%
+102,863
+Total revenues
+9%
+7,314
+5%
+4,726
+Cost of revenues. Cost of revenues increased by 35% to RMB41,631 million for the year ended 31 December 2015 on a year-
+on-year basis. The increase primarily reflected greater sharing and content costs, channel costs, as well as bank handling fees
+on C2C money transfers, partially offset by a decline in cost of merchandise sold due to decreased revenues from principal
+eCommerce transactions. As a percentage of revenues, cost of revenues increased to 40% for the year ended 31 December
+2015 from 39% for the year ended 31 December 2014. The following table sets forth our cost of revenues by line of business
+for the years ended 31 December 2015 and 2014:
+11%
+VAS
+Total cost of revenues
+4,268
+56%
+4,660
+51%
+8,941
+33%
+20,619
+35%
+28,422
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+% of segment
+% of segment
+2014
+2015
+Year ended 31 December
+Online advertising
+Others*
+10,331
+Attributable to:
+Annual Report 2015
+No significant transactions, arrangements and contracts in relation to the group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+00
+195
+Annual Report 2015
+Definition
+In this annual report, unless the context otherwise requires, the following expressions shall have the following meanings:
+Term
+"2007 Share Award Scheme'
+"2013 Share Award Scheme"
+"2016 AGM"
+"Account I"
+(e) Directors' material interests in transactions, arrangements or contracts
+"Account II"
+"Adoption Date II"
+"Articles of Association"
+"Audit Committee"
+"Auditor"
+"Awarded Shares'
+"Beijing BIZCOM"
+"Beijing Starsinhand"
+"Board"
+"C2C"
+"CG Code"
+"CIT"
+"Adoption Date I"
+"Company"
+No loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate by and connected
+entities with such directors subsisted at the end of the year or at any time during the year.
+No consideration provided to third parties for making available directors' services subsisted at the end of the year
+or at any time during the year.
+(Koos) Bekker
+Charles St Leger Searle
+2,797
+58,731
+131
+59,398
+54
+121,111
+Tencent Holdings Limited
+194
+Notes to the Consolidated Financial Statements
+(d) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate
+by and connected entities with such directors
+44 BENEFITS AND INTERESTS OF DIRECTORS
+Note:
+(i)
+Other benefits include leave pay, insurance premium and club membership.
+(ii)
+For the year ended 31 December 2015
+(iii)
+During the year ended 31 December 2015, no share option was granted to any director of the Company, and 75,000
+awarded shares were granted to three independent non-executive directors of the Company (2014: 1,000,000 share
+options (before the effect of the Share Subdivision) were granted to an executive director of the Company, Mr Lau Chi
+Ping, Martin, and 25,000 awarded shares (before the effect of the Share Subdivision) were granted to three independent
+non-executive directors of the Company).
+No director received any emolument from the Group as an inducement to join or leave the Group or compensation for
+loss of office. No director waived or has agreed to waive any emoluments during the years ended 31 December 2015 and
+2014.
+(b) Directors' termination benefits
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(c) Consideration provided to third parties for making available directors' services
+(a) Directors' and the chief executive's emoluments (Cont'd)
+Definition
+the share award scheme adopted by the Company on Adoption Date I, as amended
+the share award scheme adopted by the Company on Adoption Date II, as amended
+"Guangzhou Yunxun"
+"Hainan Network"
+"HBO"
+"HKD"
+“Hong Kong”
+For the year ended 31 December 2015, the Company contributed approximately RMB652 million (2014: RMB529 million) to the
+Share Scheme Trust for financing its acquisition of the Company's shares.
+"IC"
+"IFRS"
+"IM"
+"Internet Plus Holdings"
+"Investment Committee"
+"Group"
+Definition
+the corporate governance committee of the Company
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+Tencent Cyber (Tianjin) Company Limited
+earnings before interest, tax, depreciation and amortisation
+a person who is eligible to participate in the respective Share Award Schemes
+earnings per share
+Generally Accepted Accounting Principles
+in relation to any Awarded Share, the date on which the Awarded Share is, was or is to be
+granted
+the Company and its subsidiaries
+Guangzhou Yunxun Technology Company Limited
+Hainan Tencent Network information Technology Company Limited
+the website of the Company at www.tencent.com
+"Grant Date"
+"GAAP"
+"EPS"
+the annual general meeting of the Company to be held on 18 May 2016 or any
+adjournment thereof
+the bank account opened in the name of the Company to be operated solely for the
+purposes of operating the 2007 Share Award Scheme and the funds thereof to be held
+on trust by the Company for the Selected Participants
+the bank account opened in the name of the trust pursuant to Trust Deed II, managed
+by the Trustee, and operated solely for the purposes of operating the 2013 Share Award
+Scheme, which is held on trust for the benefit of Selected Participants and can be funded
+by the Company or any of its subsidiaries
+13 December 2007, being the date on which the Company adopted the 2007 Share
+Award Scheme
+13 November 2013, being the date on which the Company adopted the 2013 Share
+Award Scheme
+the articles of association of the Company
+the audit committee of the Company
+PricewaterhouseCoopers, the auditor of the Company
+the shares of the Company awarded under the Share Award Schemes
+Beijing BIZCOM Technology Company Limited
+Beijing Starsinhand Technology Company Limited
+the board of directors of the Company
+customer-to-customer (or person-to-person)
+the corporate governance code provisions set out in Appendix 14 to the Listing Rules
+corporate income tax
+Tencent Holdings Limited, a limited liability company organised and existing under the
+laws of the Cayman Islands and the shares of which are listed on the Stock Exchange
+Tencent Holdings Limited
+196
+Definition
+Term
+"Company Website"
+"Corporate Governance
+Committee"
+"COSO Framework"
+"Cyber Tianjin❞
+"EBITDA"
+"Eligible Person"
+Jacobus Petrus
+1,112
+678
+434
+19
+32,828
+Lau Chi Ping Martin
+1,169
+199
+19,940
+53,842
+19
+74,970
+lain Ferguson Bruce
+838
+84
+2,778
+lan Charles Stone
+670
+2,717
+3,387
+Li Dong Sheng
+545
+1,267
+1,812
+Jacobus Petrus
+(Koos) Bekker
+Charles St Leger Searle
+3,616
+32,725
+Ma Huateng (CEO)
+(Note (i))
+Tencent Holdings Limited
+192
+Notes to the Consolidated Financial Statements
+44 BENEFITS AND INTERESTS OF DIRECTORS
+(a) Directors' and the chief executive's emoluments
+The remuneration of every director and the CEO is set out below:
+For the year ended 31 December 2015:
+For the year ended 31 December 2015
+Salaries,
+bonuses,
+allowances and
+Contributions to
+Share-based
+compensation
+Estimated
+money value of
+Name of director
+Fees
+benefits in kind
+pension plans
+RMB'000
+RMB'000
+RMB'000
+expenses
+RMB'000
+other benefits
+Total
+RMB'000
+RMB'000
+3,222
+Home Box Office, Inc.
+52,665
+60,604
+75
+Zhang Zhidong
+16,062
+56
+16
+18
+27,566
+18
+16,136
+Lau Chi Ping Martin
+1,101
+27,473
+15,196
+18
+71,579
+lain Ferguson Bruce
+710
+1,781
+2,491
+lan Charles Stone
+552
+1,675
+2,227
+Li Dong Sheng
+55,264
+Ma Huateng (CEO)
+(Note (i))
+RMB'000
+38
+116,613
+00
+193
+Annual Report 2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2015
+44 BENEFITS AND INTERESTS OF DIRECTORS
+(a) Directors' and the chief executive's emoluments (Cont'd)
+For the year ended 31 December 2014 (Restated):
+Certain of the comparative information of directors' emoluments for the year ended 31 December 2014 previously
+disclosed in accordance with the predecessor Companies Ordinance have been restated in order to comply with
+the new scope and requirements by the Hong Kong Companies Ordinance (Cap.622).
+Salaries,
+bonuses,
+allowances and
+Name of director
+Fees
+benefits in kind
+Contributions to
+pension plans
+Share-based
+compensation
+Estimated
+RMB'000
+RMB'000
+RMB'000
+expenses
+RMB'000
+money value of
+other benefits
+Total
+RMB'000
+84
+the lawful currency of Hong Kong
+"IA"
+internal audit department of the Company
+Established in the PRC,
+Tencent Cyber (Shenzhen)
+Company Limited
+by the Group (%) Principal activities
+capital
+and nature of legal entity
+Name
+Proportion of
+equity interest held
+issued/paid-in
+Place of establishment
+Particulars of
+43 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+USD30,000,000
+For the year ended 31 December 2015
+190
+Tencent Holdings Limited
+value-added services
+(note a)
+Provision of mobile and telecommunications
+100%
+RMB10,000,000
+Established in the PRC, limited
+liability company
+Beijing Starsinhand Technology Company
+Limited
+Provision of mobile and telecommunications
+value-added services
+100%
+Notes to the Consolidated Financial Statements
+100%
+Development of computer software
+wholly foreign owned enterprise
+100%
+USD1,239
+Established in the United States,
+limited liability company
+Riot Games, Inc.
+integration services
+Provision of information system
+100%
+RMB120,000,000
+Established in the PRC,
+limited liability company
+Tencent Cloud Computing (Beijing)
+Company Limited
+Development of computer software and
+provision of Internet information services
+100%
+USD30,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Wuhan)
+Company Limited
+Development of computer software and
+provision of information technology services
+100%
+USD120,000,000
+the Hong Kong Special Administrative Region, the PRC
+Tencent Technology (Chengdu)
+Company Limited
+Development of computer software and
+provision of Internet information services
+100%
+USD5,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Shanghai)
+Company Limited
+RMB16,500,000
+Development and operation of online games
+Established in the PRC, limited
+liability company
+value-added services
+wholly foreign owned enterprise
+Development of computer software
+100%
+USD2,000,000
+Established in the PRC,
+Tencent Technology
+eCommerce transactions business
+Internet advertisement services and
+telecommunications value-added services,
+100% (Note (a)) Provision of Internet and mobile and
+RMB65,000,000
+and provision of information
+technology services
+Established in the PRC,
+limited liability company
+by the Group (%) Principal activities
+capital
+and nature of legal entity
+Name
+Proportion of
+equity interest held
+Particulars of
+issued/paid-in
+Place of establishment
+The following is a list of principal subsidiaries of the Company as at 31 December 2015:
+43 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+For the year ended 31 December 2015
+Notes to the Consolidated Financial Statements
+Tencent Computer
+Shenzhen Shiji Kaixuan Technology
+Company Limited
+Established in the PRC,
+limited liability company
+RMB11,000,000
+Provision of mobile and telecommunications
+100%
+RMB10,290,000
+Established in the PRC, limited
+liability company
+Nanjing Wang Dian Technology Limited
+information technology services
+software and provision of
+Development and sale of computer
+100%
+USD1,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Beijing)
+Company Limited
+Asset management
+100%
+USD100
+Established in BVI,
+limited liability company
+Tencent Asset Management Limited
+technology services
+and provision of information
+Development of computer software
+100%
+USD90,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Cyber (Tianjin) Company Limited
+100% (Note (a)) Provision of Internet advertisement services
+Beijing BIZCOM Technology Company
+Limited
+China Reading Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD66,683
+initial public offering
+the Rules Governing the Listing of Securities on the Stock Exchange
+mergers and acquisitions
+monthly active user accounts
+MIH TC Holdings Limited
+the Model Code for Securities Transactions by Directors of Listed Issuers set out in
+Appendix 10 to the Listing Rules
+Established in the Cayman Islands,
+limited liability company
+NASDAQ Global Select Market
+the National Basketball Association
+the nomination committee of the Company
+online-to-offline, or offline-to-online
+intellectual property
+Paramount Pictures, Inc.
+peak concurrent user accounts
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the People's Republic of China
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+in respect to a Selected Participant, the date of final approval by the Board of the total
+number of shares of the Company to be awarded to the relevant Selected Participant on a
+single occasion pursuant to the 2007 Share Award Scheme
+"Remuneration Committee"
+the remuneration committee of the Company
+Tencent Holdings Limited
+198
+Definition
+Term
+"RMB"
+personal computer
+Definition
+"Reference Date"
+"Pre-IPO Option Scheme"
+internal control department of the Company
+International Financial Reporting Standards
+Instant messaging
+Internet Plus Holdings Ltd., a limited liability company incorporated under the laws of the
+Cayman Islands
+the investment committee of the Company
+00
+197
+Annual Report 2015
+Definition
+Term
+"IP"
+"IPO"
+"Listing Rules'
+"M&A"
+"MAU"
+"MIH TC"
+"Model Code"
+"NASDAQ"
+"NBA"
+"Nomination Committee'
+"020"
+"Paramount"
+"PC"
+"PCU"
+"Post-IPO Option Scheme I"
+"Post-IPO Option Scheme II"
+"Post-IPO Option Scheme III"
+"PRC" or "China"
+"Selected Participant(s)"
+"SFO"
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+"Share Subdivision"
+For the year ended 31 December 2015
+43 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+Note: (Cont'd)
+(c)
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings
+held directly by the parent company do not differ from its proportion of ordinary shares held. The parent company further does
+not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+(d)
+Significant restrictions
+As at 31 December 2015, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to RMB105,151
+million are held in Mainland China and are subject to local exchange control and other financial and treasury regulations. The
+local exchange control and other financial and treasury regulations provide for restrictions on payment of dividends, share
+repurchase and offshore investments, other than through normal activities. In addition, the restricted cash, mainly arising from
+the prepayments received from users via online/mobile platforms operated by the Group, of a subsidiary of the Group's structured
+entity is subject to certain treasury regulations in the PRC.
+(e)
+Consolidation of structured entities
+As mentioned in Note (a) above, the Company has consolidated the operating entities within the Group without any legal interests.
+In addition, due to the implementation of the share award schemes of the Group mentioned in Note 20 (b), the Company has
+also set up a structured entity ("Share Scheme Trust”), and its particulars are as follows:
+Structured entity
+Share Scheme Trust
+Principal activities
+Administering and holding the Company's shares acquired for share award schemes
+which are set up for the benefits of eligible persons of the Schemes
+00
+Tencent Information Technology (Shanghai) Company Limited
+"Share Award Schemes"
+Tencent Information Technology (Chongqing) Company Limited
+"Tencent Information Shanghai"
+"Tencent Information Chongqing"
+Shenzhen Tencent Computer Systems Company Limited
+Tencent Technology (Chengdu) Company Limited
+Tencent Technology (Beijing) Company Limited
+charity funds established by the Group
+Notes to the Consolidated Financial Statements
+Annual Report 2015
+191
+00
+"Shiji Kaixuan"
+"SKT CFC"
+"Sony Music"
+"Stock Exchange"
+"TCS CFC"
+"TCS Co-operation Committee"
+"Tencent Beijing"
+"Tencent Charity Funds"
+"Tencent Chengdu"
+"Tencent Computer"
+Definition
+the lawful currency of the PRC
+any Eligible Persons selected by the Board to participate in the respective Share Award
+Schemes
+the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong) as amended,
+supplemented or otherwise modified from time to time
+the share award scheme adopted by the Company on 13 December 2007, as amended,
+and the share award scheme adopted by the Company on 13 November 2013, as
+amended
+with effect from 15 May 2014, each existing issued and unissued share of HKD0.0001
+each in the share capital of the Company was subdivided into five subdivided shares of
+HKD0.00002 each, after passing of an ordinary resolution at the annual general meeting
+of the Company held on 14 May 2014 and granting by the Stock Exchange of the listing
+of, and permission to deal in, the subdivided shares
+the co-operation framework contract dated 28 February 2004 entered into between Cyber
+Tianjin and Shiji Kaixuan
+Sony Music Entertainment
+The Stock Exchange of Hong Kong Limited
+the co-operation framework contract dated 28 February 2004 entered into between
+Tencent Technology and Tencent Computer
+the co-operation committee established under the TCS CFC
+66.44%
+Provision of online literature services
+Note:
+(a)
+(b)
+As described in Note 1, the Company does not have legal ownership in equity of these subsidiaries. Nevertheless, under certain
+contractual agreements entered into with the registered owners of these subsidiaries, the Company and its other legally owned
+subsidiaries control these companies by way of controlling the voting rights, governing their financial and operating policies,
+appointing or removing the majority of the members of their controlling authorities, and casting the majority of votes at meetings
+of such authorities. In addition, such contractual agreements also transfer the risks and rewards of these companies to the
+Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled structured entities of the
+Company.
+The directors of the Company considered that any non-wholly owned subsidiaries that has non-controlling interests are not
+significant to the Group, therefore, no summarised financial information of these non-wholly owned subsidiaries is presented
+separately.
+Shenzhen Shiji Kaixuan Technology Company Limited
+Facsimile: 852-25201148
+Telephone: 852-21795122
+Tencent 腾讯
+No.1 Queen's Road East
+"Warner Music"
+"Wang Dian"
+"VAS"
+"USD"
+"United States"
+"Trustee"
+"Trust Deed II"
+"Tencent Wuhan'
+Tencent Technology (Shanghai) Company Limited
+Tencent Information Technology (Shenzhen) Company Limited
+Definition
+"Tencent Technology"
+"Tencent Shanghai"
+"Tencent Information Shenzhen"
+Term
+"WFOES"
+Tencent Technology (Shenzhen) Company Limited
+Tencent Technology (Wuhan) Company Limited
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of the
+Trustee for the administration of the 2013 Share Award Scheme
+29/F., Three Pacific Place
+Tencent Holdings Limited Hong Kong Office
+Telephone: 86-755-86013388
+Zipcode : 518057
+Tencent Building, Kejizhongyi Avenue, Hi-tech Park
+Nanshan District, Shenzhen, the PRC
+Tencent Group Head Office
+Website: www.tencent.com
+Wanchai, Hong Kong
+200
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Information Shenzhen,
+Tencent Chengdu, Tencent Information Chongqing, Tencent Information Shanghai,
+Tencent Shanghai, Tencent Wuhan and Hainan Network
+Warner Music Group Corp., a limited liability company incorporated under the laws of the
+State of Delaware, United States
+Nanjing Wang Dian Technology Company Limited
+value-added services
+the lawful currency of the United States
+the United States of America
+an independent trustee appointed by the Company for managing the Share Award
+Schemes
+Tencent Holdings Limited
+Definition
+Facsimile: 86-755-86013399
+share-based
+(a)
+(b)
+In 2015, we have included relevant non-GAAP adjustments for our material associates in our non-GAAP adjustments. We adopted the
+new presentation in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to
+be industry practice. Comparative figures have been adjusted to conform with the new presentation.
+Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives
+Net (gains)/losses on deemed disposals, disposals of investee companies and businesses, and fair value changes on options we own in
+investee companies
+(c)
+Amortisation of intangible assets resulting from acquisitions, net of related deferred tax
+(d)
+Impairment provision for associates, available-for-sale financial assets, and intangible assets arising from acquisitions
+45
+25
+Annual Report 2015
+00
+Management Discussion and Analysis
+Liquidity and Financial Resources
+Our net cash positions as at 31 December 2015 and 30 September 2015 are as follows:
+Cash and cash equivalents
+41,005
+46,714
+43,438
+(RMB in millions)
+2015
+2015
+Note:
+30 September
+Unaudited
+Audited
+Net cash
+Notes payable
+Borrowings
+Term deposits
+31 December
+28,650
+34%
+0.744
+39%
+Net margin
+30%
+2.680
+2.644
+39%
+32%
+00
+23
+23
+Annual Report 2015
+Management Discussion and Analysis
+Unaudited three months ended 31 December 2015
+Adjustments
+Net (gains)/
+Equity-settled
+Cash-settled
+0.752
+28%
+35%
+0.625
+0.632
+Net margin
+38%
+Operating margin
+- basic
+EPS (RMB per share)
+6,981
+1,213
+Amortisation
+losses from
+- diluted
+84,443
+75,364
+(24,351)
+DONATION
+The donation made by the Group in the year was RMB470 million to the Tencent Charity Funds.
+FINANCIAL SUMMARY
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's shares during the year
+ended 31 December 2015.
+Tencent Holdings Limited
+88
+28
+Directors' Report
+SHARE OPTION SCHEMES
+The Company has adopted four share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme
+I, the Post-IPO Option Scheme II and the Post-IPO Option Scheme III. No further options will be granted under the Pre-IPO
+Option Scheme and the Post-IPO Option Scheme I.
+As at 31 December 2015, there were a total of 10,000,000 (after the effect of the Share Subdivision) outstanding share options
+granted to the directors of the Company, details of which are as follows:
+Number of share options
+Exercised
+As at
+Name of director
+Date of grant
+3.
+2.
+1.
+Note:
+5,000,000
+24 March 2010
+Particulars of the Group's borrowings and notes payable are set out in Note 24 and Note 25 to the consolidated financial
+statements respectively.
+Lau Chi Ping Martin
+price
+HKD
+Exercise
+during 31 December
+the year
+2015
+As at
+Granted
+during
+the year
+1 January
+2015
+Exercise period
+BORROWINGS
+Particulars of the Company's principal subsidiaries as at 31 December 2015 are set out in Note 43 to the consolidated
+financial statements.
+SUBSIDIARIES
+The principal activity of the Company is investment holding. The activities of the principal subsidiaries are set out in Note 43 to
+the consolidated financial statements.
+PRINCIPAL ACTIVITIES
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31
+December 2015.
+Directors' Report
+26
+Tencent Holdings Limited
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations are set out in Note 5 to the consolidated financial statements.
+For the fourth quarter of 2015, the Group had free cash flow of RMB16, 169 million. This was a result of net cash generated
+from operating activities of RMB18,191 million, offset by payments for capital expenditure of RMB2,022 million.
+As at 31 December 2015, the Group had net cash of RMB19,114 million, representing a 10% decline quarter-on-quarter
+mainly due to payments for investments in investee companies and licensed content, partially offset by free cash flow
+generated during the quarter. Fair value of our stakes in listed investee companies (both associates and available-for-sale
+financial assets) totalled RMB97,525 million as at 31 December 2015.
+21,239
+19,114
+(40,130)
+(40,978)
+(13,995)
+As at 31 December 2015, RMB11,617 million of our financial resources (cash and cash equivalents and term deposits) were
+denominated in non-RMB currencies.
+2.545
+RESULTS AND APPROPRIATIONS
+The directors have recommended the payment of a final dividend of HKDO.47 per share for the year ended 31 December
+2015. The dividend is expected to be payable on 2 June 2016 to the shareholders whose names appear on the register of
+members of the Company on 25 May 2016. The total dividend for the year under review is HKDO.47 per share.
+Details of the movements in the share capital of the Company during the year are set out in Note 18 to the consolidated
+financial statements.
+SHARE CAPITAL
+Details of the business review of the Group and the proposed dividend for the year ended 31 December 2015 are set out
+under the "Chairman's Statement".
+BUSINESS REVIEW AND DIVIDEND
+Directors' Report
+Annual Report 2015
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 87 of this
+annual report.
+27
+Details of the movements in fixed assets of the Group during the year are set out in Note 6 to the consolidated financial
+statements.
+FIXED ASSETS
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 88 to 89, Note 18, Note 19 and Note 42 to the consolidated financial statements
+respectively.
+As at 31 December 2015, the Company had distributable reserves amounting to RMB10,374 million (2014: RMB7,651
+million).
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+RESERVES
+00
+- diluted
+2.579
+- basic
+39%
+Operating margin
+3.055
+- diluted
+3.097
+- basic
+EPS (RMB per share)
+32,410
+10,331
+763
+17
+(1,020)
+46
+379
+10,516
+Profit for the period
+7,584
+8,280
+375
+267
+(783)
+17
+959
+Net margin
+7,445
+8,450
+375
+275
+(783)
+18
+981
+Profit attributable to equity holders
+28%
+3.485
+3.437
+30,542
+1,802
+695
+(5,197)
+59
+2,510
+Operating profit
+30,411
+23,888
+2,184
+695
+(5,163)
+776
+share-based
+Profit for the year
+EPS (RMB per share)
+(RMB in millions, unless specified)
+provision
+41%
+32%
+Year ended 31 December 2014
+Adjustments
+Net (gains)/
+Equity-settled Cash-settled
+share-based
+losses from
+Non-GAAP*
+Amortisation
+As reported compensation compensation
+(a)
+investee
+companies
+(b)
+of intangible
+Impairment
+assets
+share-based
+5,000,000
+- basic
+- diluted
+495
+149
+(1,153)
+13
+1,170
+8,068
+Profit for the period
+5,954
+637
+149
+(1,154)
+300
+1,213
+7,099
+Profit attributable to equity holders
+5,860
+630
+EPS (RMB per share)
+24,737
+2,549
+768
+(5,179)
+637
+7,394
+2,152
+Profit attributable to equity holders
+24,933
+2,553
+299
+(1,157)
+136
+23,810
+Operating profit
+(RMB in millions, unless specified)
+(c)
+Unaudited three months ended 31 December 2014
+Management Discussion and Analysis
+24
+24
+Tencent Holdings Limited
+32%
+Adjustments
+40%
+0.890
+29%
+Net margin
+39%
+Operating margin
+0.792
+0.881
+0.800
+Net (gains)/
+Cash-settled
+Non-GAAP*
+provision
+assets
+companies
+compensation
+compensation
+Equity-settled
+As reported
+of intangible
+investee
+share-based
+share-based
+Amortisation
+losses from
+Impairment
+31.70
+Operating margin
+23 March 2020
+(Note 1)
+7,929
+10,806
+12,040
+30,908
+43,049
+EBITDA (a)
+(RMB in millions, unless specified)
+2014
+2015
+2015
+2014
+2015
+31 December
+30 September
+31 December
+31 December
+Three months ended
+Revenues. Revenues increased by 14% to RMB30,441 million for the fourth quarter of 2015 on a quarter-on-quarter basis.
+Revenues from our VAS business increased by 12% to RMB23,068 million for the fourth quarter of 2015 on a quarter-
+on-quarter basis. Online game revenues increased by 11% to RMB15,971 million. The increase was primarily driven by
+new smart phone games such as The Legend of MIR 2 and Honor of Kings launched in the third quarter of 2015, as well
+as Six Dragons Hegemony 3D launched in the fourth quarter of 2015. PC client games also registered revenue growth.
+Social networks revenues increased by 14% to RMB7,097 million. The increase was mainly driven by revenue growth
+from virtual item sales, as well as from subscription services due to enhanced digital content and mobile privileges.
+Revenues from our online advertising business increased by 16% to RMB5,733 million for the fourth quarter of 2015 on
+a quarter-on-quarter basis. Performance-based advertising revenues increased by 22% to RMB2,916 million quarter-
+on-quarter, primarily driven by higher revenues from social advertising on mobile devices. Brand display advertising
+revenues increased by 10% to RMB2,817 million quarter-on-quarter, as revenue growth from Tencent News more than
+offset a slight revenue decline from Tencent Video.
+Cost of revenues for our VAS business increased by 14% to RMB8,383 million for the fourth quarter of 2015 on a
+quarter-on-quarter basis. The increase primarily reflected greater sharing and content costs (especially for licensed smart
+phone games) and channel costs.
+Cost of revenues for our online advertising business increased by 11% to RMB2,794 million for the fourth quarter of
+2015 on a quarter-on-quarter basis. The increase mainly reflected greater investments in video content and traffic
+acquisition costs.
+Cost of revenues for our other businesses increased by 32% to RMB1,484 million for the fourth quarter of 2015 on a
+quarter-on-quarter basis. The increase was primarily driven by greater bank handling fees on C2C money transfers.
+Selling and marketing expenses. Selling and marketing expenses increased by 48% to RMB3,024 million for the fourth quarter
+of 2015 on a quarter-on-quarter basis. The increase primarily reflected seasonal marketing and promotion activities for our
+online games, mobile utilities, and online media products.
+Adjusted EBITDA (a)
+General and administrative expenses. General and administrative expenses increased by 9% to RMB4,766 million for the
+fourth quarter of 2015 on a quarter-on-quarter basis. Staff costs as well as research and development expenses increased.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 4% to
+RMB7,164 million for the fourth quarter of 2015 on a quarter-on-quarter basis. Non-GAAP profit attributable to equity holders
+of the Company increased by 8% to RMB8,953 million for the fourth quarter of 2015 on a quarter-on-quarter basis.
+20
+20
+OTHER FINANCIAL INFORMATION
+Management Discussion and Analysis
+Unaudited
+Year ended
+Tencent Holdings Limited
+45,805
+32,710
+12,831
+21,239
+22,758
+Capital expenditures (d)
+7,709
+4,718
+1,883
+19,114
+1,653
+Note:
+(a)
+EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of fixed assets and
+investment properties and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-settled share-based
+compensation expenses.
+(b)
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+(c)
+1,603
+Management Discussion and Analysis
+22,758
+Net cash (c)
+11,569
+8,424
+Adjusted EBITDA margin (b)
+45%
+41%
+42%
+19,114
+44%
+Interest expense
+1,510
+866
+409
+373
+264
+40%
+(d)
+Operating profit
+(b)
+Profit attributable to equity holders
+9,017
+1,525
+313
+(995)
+17
+959
+11,533
+719
+46
+(929)
+18
+១៖
+7,198
+Profit for the period
+791
+10,888
+of intangible
+investee
+24 March 2015 to
+Impairment
+As reported
+compensation
+7,164
+compensation
+assets
+provision
+Non-GAAP
+(c)
+(RMB in millions, unless specified)
+Operating profit
+companies
+939
+16
+(995)
+Net (gains)/
+Equity-settled
+share-based
+Cash-settled
+losses from
+Amortisation
+share-based
+Adjustments
+As reported compensation compensation
+of intangible
+Impairment
+assets
+provision
+Non-GAAP
+(a)
+investee
+companies
+(RMB in millions, unless specified)
+Unaudited three months ended 30 September 2015
+38%
+304
+1,525
+8,953
+EPS (RMB per share)
+- basic
+0.769
+30%
+- diluted
+Operating margin
+36%
+Net margin
+24%
+0.961
+0.949
+0.759
+Net cash represents period end balance and is calculated as cash and cash equivalents, term deposits, minus borrowings and notes
+payable.
+Cost of revenues. Cost of revenues increased by 15% to RMB12,661 million for the fourth quarter of 2015 on a quarter-on-
+quarter basis. The increase primarily reflected greater sharing and content costs, channel costs, and bank handling fees on
+C2C money transfers. As a percentage of revenues, cost of revenues increased to 42% for the fourth quarter of 2015 from
+41% for the third quarter of 2015.
+21
+As reported
+compensation compensation
+companies
+assets
+provision
+Non-GAAP*
+Impairment
+(a)
+(c)
+(RMB in millions, unless specified)
+Operating profit
+40,627
+2,756
+85
+(b)
+(4,275)
+of intangible
+share-based share-based
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain non-GAAP financial measures,
+including non-GAAP operating profit, non-GAAP operating margin, non-GAAP profit for the period, non-GAAP net margin,
+non-GAAP profit attributable to equity holders of the Company, non-GAAP basic EPS and non-GAAP diluted EPS, have been
+presented in this annual report. These unaudited non-GAAP financial measures should be considered in addition to, not as a
+substitute for, measures of the Company's financial performance prepared in accordance with IFRS. In addition, these non-
+GAAP financial measures may be defined differently from similar terms used by other companies.
+The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact
+of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material
+associates based on available published financials of the relevant material associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+Tencent Holdings Limited
+22
+22
+Management Discussion and Analysis
+investee
+The following tables set forth the reconciliations of the Company's non-GAAP financial measures for the years ended 31
+December 2015 and 2014, the fourth quarters of 2015 and 2014, and the third quarter of 2015 to the nearest measures
+prepared in accordance with IFRS:
+Adjustments
+Net (gains)/
+Equity-settled
+Cash-settled
+losses from
+Amortisation
+Year ended 31 December 2015
+Non-GAAP Financial Measures
+198
+41,764
+00
+No options were granted, exercised, cancelled or lapsed during the year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and 20% each of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 5 years after the grant date, and 25% each of the total options will become exercisable in each subsequent year.
+10,000,000
+10,000,000
+29
+Total:
+24 March 2021
+25 March 2015 to
+114.52
+Capital expenditures consist of additions (excluding business combinations) to fixed assets, construction in progress, land use rights
+and intangible assets (excluding game and other content licenses).
+5,000,000
+25 March 2014
+(Note 2)
+2,373
+29
+3,169
+Profit for the year
+29,108
+3,304
+85
+(4,016)
+1,186
+Annual Report 2015
+3,185
+Profit attributable to equity holders
+28,806
+3,221
+81
+(4,016)
+1,149
+32,852
+8,424
+- 5,000,000
+12,831
+Other (gains)/losses, net
+(443)
+(559)
+(649)
+(1,676)
+(2,327)
+Interest income
+Adjustments:
+Operating profit
+7,394
+10,331
+10,888
+11,569
+40,627
+(RMB in millions, unless specified)
+2014
+2015
+00
+21
+Annual Report 2015
+Management Discussion and Analysis
+The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
+Year ended
+(1,886)
+Unaudited
+Three months ended
+31 December
+30 September
+31 December
+2015
+2014
+2015
+31 December
+(2,759)
+30,542
+(614)
+32,710
+(249)
+45,805
+Adjusted EBITDA
+495
+763
+791
+1,802
+2,756
+Equity-settled share-based
+7,929
+10,806
+12,040
+30,908
+43,049
+compensation
+555
+(343)
+EBITDA
+and investment properties
+3,159
+2,993
+826
+781
+Depreciation of fixed assets
+Amortisation of
+intangible assets
+3,476
+1,808
+1,224
+766
+867
+12 Aug 2017 (Note 3)
+13 Aug 2012 to
+30.14
+12,500
+12,500
+25,000
+5 Jul 2013 to
+4 Jul 2017 (Note 4)
+26.08
+400,000 1,557,500
+652,600
+2,610,100
+24 Mar 2011
+13 Aug 2010
+1,043,750
+12,500
+876,250
+38.88
+24 Mar 2014 to
+23 Mar 2018 (Note 4)
+24 Mar 2011
+250,000
+250,000
+38.88
+24 Mar 2015 to
+23 Mar 2018 (Note 5)
+15 Aug 2011
+202,625
+61,325
+128,800
+167,500
+05 Jul 2010
+1,250,000
+5 Jul 2012 to
+24 Mar 2010
+23 Mar 2017 (Note 3)
+24 Mar 2012 to
+31.70
+25,000
+100,000
+500,000
+125,000
+23 Nov 2016 (Note 4)
+24 Nov 2012 to
+29.32
+-- - 1,250,000
+37.80
+24 Nov 2009
+24 Mar 2010
+4 Jul 2017 (Note 3)
+133,333
+31.70
+26.08
+95,625 1,800,500
+1,196,250
+3,092,375
+05 Jul 2010
+4 Jul 2017 (Note 1)
+366,667
+5 Jul 2011 to
+137,250
+144,000
+281,250
+05 Jul 2010
+23 Mar 2017 (Note 5)
+24 Mar 2014 to
+26.08
+15 Aug 2012 to
+1 January
+2015
+15 Aug 2011
+the year
+during 31 December
+2015
+Exercise
+price
+Exercise period
+HKD
+25 Mar 2014
+2,562,500
+- - 2,562,500
+1,724,813
+114.52
+25 Mar 2015 to
+24 Mar 2021 (Note 6)
+25 Mar 2014
+3,975,000
+125,000
+3,850,000
+9 Jul 2016 (Note 4)
+86,463
+70,524
+1,881,800
+10 July 2014
+21 May 2021 (Note 6)
+year
+22 May 2015 to
+62,500
+62,500
+22 May 2014
+24 Mar 2021 (Note 1)
+25 Mar 2015 to
+114.52
+112.30
+14 Aug 2018 (Note 1)
+the year
+during
+1,181,050
+255,500
+97,550
+828,000
+37.80
+15 Aug 2013 to
+14 Aug 2018 (Note 3)
+15 Aug 2011
+125,000
+25,000
+100,000
+37.80
+15 Aug 2014 to
+14 Aug 2018 (Note 4)
+13 Sep 2012
+812,500
+50,000
+Date of grant
+As at
+Lapsed
+Exercised
+Granted
+As at
+during the
+Directors' Report
+31
+00
+12 Sep 2019 (Note 1)
+13 Sep 2013 to
+49.76
+762,500
+Annual Report 2015
+10 Jul 2012 to
+Directors' Report
+2,003,750
+-- 9.99
+18 Feb 2009 to
+17 Feb 2015 (Note 1)
+25 Mar 2008
+277,050
+277,050
+-- 8.53
+25 Mar 2009 to
+24 Mar 2015 (Note 1)
+11 Apr 2008
+54,650
+54,650
+9.54
+11 Apr 2009 to
+10 Apr 2015 (Note 1)
+11 Apr 2008
+20,390
+12.12
+200,300
+200,300
+03 Jul 2008
+2 Jul 2015 (Note 1)
+3 Jul 2009 to
+131,350
+-- 12.12
+2,540,030
+03 Jul 2008
+10 Apr 2015 (Note 4)
+11 Apr 2011 to
+9.54
+20,390
+2,540,030
+131,350
+18 Feb 2008
+28 Jan 2015 (Note 3)
+Exercise period
+price
+2015
+Exercise
+during 31 December
+the year
+As at
+HKD
+Lapsed
+Granted
+during
+the year
+1 January
+2015
+Date of grant
+As at
+Details of movements of share options granted to employees of the Group (apart from directors of the Company) during the
+year ended 31 December 2015 are as follows:
+124.30
+Exercised
+during the
+year
+3 Jul 2010 to
+29 Jan 2008
+1,098,050
+29 Jan 2010 to
+9.30
+70,000
+70,000
+29 Jan 2008
+28 Jan 2015 (Note 2)
+1,098,050
+17 May 2009 to
+362,800
+362,800
+29 Jan 2008
+28 Jan 2015 (Note 1)
+29 Jan 2009 to
+9.30
+-- 9.30
+18.06
+2 Jul 2015 (Note 3)
+57,930
+10 Jul 2010 to
+9 Jul 2016 (Note 1)
+Directors' Report
+As at
+Granted
+Exercised
+Lapsed
+As at
+Date of grant
+1 January
+during
+during the
+2015
+the year
+year
+during 31 December
+the year
+2015
+Exercise
+900,000
+2,903,750
+10 Jul 2009
+9 Jul 2016 (Note 3)
+10 Jul 2011 to
+18.06
+18.06
+664,950
+1,145,950
+1,835,900
+10 Jul 2009
+HKD
+Exercise period
+price
+25,000
+16 Feb 2016 (Note 1)
+17 Feb 2010 to
+9.60
+128,900
+01 Dec 2008
+85,000
+85,000
+10 Oct 2008
+10 Oct 2009 to
+128,900
+9.78
+72,500
+10 Oct 2008
+2 Jul 2015 (Note 4)
+3 Jul 2011 to
+- 12.12
+57,930
+72,500
+03 Jul 2008
+17 Feb 2009
+1,330,000
+30 Nov 2015 (Note 1)
+1 Dec 2009 to
+8.70
+9 Oct 2015 (Note 3)
+10 Oct 2010 to
+9.78
+1,330,000
+9 Oct 2015 (Note 1)
+30
+30
+20,000
+Tencent Holdings Limited
+202,300
+10 Jul 2009
+182,300
+10 Jul 2015 to
+2 April 2016 to
+12 Dec 2014
+22,301,949
+Total:
+36.780
+262,251
+2,762
+265,013
+30 Oct 2015
+36.780
+604,575
+- 28,395
+632,970
+14 Sep 2015
+28.380
+207,787
+- 17,881
+225,668
+26 May 2015
+28.380
+66,068
+66,068
+28.380
+2,830,891
+960,783
+1,031,000
+23,141,057
+participants
+Any eligible
+Qualifying
+2.
+To recognise the contribution that certain individuals have made to the Group, to attract the best
+available personnel and to promote the success of the Group's business
+Option Scheme III
+Post-IPO
+Option Scheme II
+Post-IPO
+Post-IPO
+Option Scheme I
+1,540,856
+Purposes
+Option Scheme
+Details
+Pre-IPO
+SUMMARY OF THE SHARE OPTION SCHEMES
+Directors' Report
+Annual Report 2015
+35
+00
+Following the completion of the acquisition of the entire equity interests in Riot by a wholly-owned subsidiary of the Group on 15 December
+2015, all outstanding share options under Riot's equity plans were cancelled.
+Note:
+1.
+employee,
+98,129
+1,641,172
+27,567
+15,683
+3,957,775
+18 Jun 2013
+8.157
+831,986
+33,003
+16,536
+881,525
+15 May 2013
+8.157
+412,519
+14,208
+17,354
+444,081
+05 Mar 2013
+4.893
+1,900,086
+65,320
+50,013
+2,015,419
+3,914,525
+8.157
+24 Apr 2014
+3,630,667
+11 Mar 2015
+25.850
+712,229
+83,229
+1,562
+797,020
+04 Dec 2014
+25.850
+400,511
+47,289
+2,187
+447,800
+25.060
+666,827
+50,073
+1,750
+718,650
+19 Jun 2014
+25.060
+3,221,533
+388,645
+20,489
+21 Aug 2014
+18 Dec 2012
+including
+of the Company
+of offer
+Acceptance
+6.
+Option Scheme
+Details
+Pre-IPO
+388
+Tencent Holdings Limited
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+10-year period after the
+date of grant of option.
+There is no minimum
+period for which an option
+must be held before it
+can be exercised.
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+7-year period after the
+date of grant of option.
+There is no minimum
+period for which an option
+must be held before it
+can be exercised.
+shall not be less
+than one year from
+the date of grant
+of the options.
+The option period
+is determined
+by the Board
+provided that the
+period during
+which the option
+may be exercised
+periods.
+and exercise
+specific vesting
+determine the
+The Board may
+at their discretion
+securities market.
+has been listed
+in a sizeable
+are exercisable
+in installments
+from the
+commencement
+of the relevant
+vesting period
+until 31 December
+2011, but on the
+condition that
+the Company
+All the options
+Options granted
+must be accepted
+within 15 days of
+the date of grant,
+upon payment of
+RMB1 per grant.
+7.
+Subscription
+price
+Price shall be
+determined by the
+Board.
+9 Jul 2021 (Note 7)
+Annual Report 2015
+39
+00
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Option Scheme III
+Post-IPO
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Option period
+Option Scheme II
+of the share.
+the nominal value
+of grant; and (iii)
+preceding the date
+days immediately
+five business
+Options granted
+must be accepted
+within 28 days of
+the date of grant,
+upon payment of
+HKD1 per grant.
+The exercise price
+must be at least
+the higher of: (i)
+the closing price
+of the securities as
+stated in the Stock
+Exchange's daily
+quotations sheet
+on the date of
+grant, which must
+be a business day;
+(ii) the average
+closing price of
+the securities
+as stated in the
+Stock Exchange's
+daily quotations
+sheets for the
+Option Scheme I
+Post-IPO
+Directors' Report
+Post-IPO
+executive directors
+5.
+issued and
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme II shall
+be 444,518,270 shares
+(after the effect of the
+Share Subdivision), 5%
+of the relevant class of
+securities of the Company
+in issue as at 16 May
+2007. The maximum
+number of shares which
+may be issued upon
+exercise of all outstanding
+options granted and yet
+to be exercised under
+the Post-IPO Option
+Scheme II and any other
+share option schemes,
+including the Pre-IPO
+Option Scheme, the Post-
+IPO Option Scheme |
+and the Post-IPO Option
+Scheme III, must not in
+aggregate exceed 30% of
+the issued share capital of
+the Company from time to
+time (Note).
+Option Scheme II
+Post-IPO
+outstanding. No
+further option
+could be granted
+under the Post-
+IPO Option
+Scheme I.
+As at 16 May
+2007, options
+to subscribe for
+an aggregate
+of 60,413,683
+shares were
+Option Scheme I
+Post-IPO
+outstanding. No
+further option
+could be granted
+under the Pre-IPO
+Option Scheme.
+of 72,386,370
+shares were
+As at 7 June
+2004, options
+to subscribe for
+an aggregate
+Maximum
+number of
+shares
+3.
+Option Scheme
+Details
+Pre-IPO
+Directors' Report
+36
+Tencent Holdings Limited
+Any senior executive or
+senior officer, director
+(including executive,
+non-executive and
+independent non-
+executive directors) of any
+member of the Group or
+any invested entity and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+Any employee (whether
+full time or part time),
+executive or officer,
+director (including
+executive, non-executive
+and independent non-
+executive directors) of
+any member of the Group
+or any invested entity,
+which is any entity in
+which the Group holds
+an equity interest, and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+Any employee,
+consultant or
+director of any
+company within
+the Group
+Post-IPO
+Option Scheme III
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme III shall
+be 180,093,330 shares
+(after the effect of the
+Share Subdivision), 2%
+of the relevant class of
+securities of the Company
+in issue as at 13 May
+2009. The maximum
+number of shares which
+may be issued upon
+exercise of all outstanding
+options granted and yet
+to be exercised under
+the Post-IPO Option
+Scheme III and any other
+share option schemes,
+including the Pre-IPO
+Option Scheme, the Post-
+IPO Option Scheme |
+and the Post-IPO Option
+Scheme II, must not in
+aggregate exceed 30% of
+the issued share capital of
+the Company from time to
+time (Note).
+00
+ordinary shares
+1% of the issued
+share capital of
+the Company from
+time to time within
+any 12-month
+period up to the
+date of the latest
+grant
+of the number of
+to exceed 10%
+is not permitted
+The number of
+ordinary shares
+in respect of
+which options
+may be granted
+Maximum
+entitlement
+of each
+participant
+4.
+Option Scheme
+Details
+issuable under the
+scheme.
+1% of the issued share
+capital of the Company
+from time to time within
+any 12-month period up
+to the date of the latest
+grant
+Post-IPO
+1% of the issued share
+capital of the Company
+from time to time within
+any 12-month period up
+to the date of the latest
+grant
+Option Scheme II
+Post-IPO
+Option Scheme I
+Post-IPO
+Pre-IPO
+Directors' Report
+Annual Report 2015
+37
+Option Scheme III
+4.893
+27 Apr 2015
+60,236
+23 Oct 2008
+0.082
+4,851
+4,851
+25 Sep 2008
+USD
+(Note)
+price
+2015
+Exercise
+15 December
+As at
+Lapsed
+during
+the year
+the year
+the year
+2015
+Date of grant
+during
+Exercised
+Granted
+during
+1 January
+11,460
+11,460
+0.082
+15 Jan 2009
+13,667
+2,122
+15,789
+03 Dec 2009
+0.100
+185,209
+185,209
+30 Oct 2009
+0.100
+231,185
+As at
+10,420
+24 Sep 2009
+0.085
+5,000
+5,000
+10,000
+13 Apr 2009
+0.082
+25,094
+120,627
+145,721
+241,605
+0.100
+Details of movements of share options granted to employees under the equity plans adopted by Riot Games, Inc. ("Riot”), a
+subsidiary of the Group, during the year ended 31 December 2015 are as follows:
+Annual Report 2015
+32
+Tencent Holdings Limited
+717,138 20,697,305
+31,432,000 1,470,875 11,488,432
+Total:
+10 Jul 2016 to
+148.90
+945,875
+1 April 2022 (Notes 7 and 9)
+945,875
+149.80
+-- 525,000
+525,000
+11 Dec 2021 (Note 8)
+10 Jul 2015
+02 Apr 2015
+12 Dec 2016 to
+116.40
+80,650
+80,650
+573,329
+9 Jul 2022 (Notes 7 and 10)
+Directors' Report
+Note:
+1.
+00
+The weighted average closing price immediately before the date on which the options were exercised was HKD142.55.
+11.
+The closing price immediately before the date on which the options were granted on 10 Jul 2015 was HKD146.00.
+10.
+9.
+The closing price immediately before the date on which the options were granted on 2 April 2015 was HKD148.00.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 2 years after the grant date, and 25% each of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and 25% each of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 1 year after the grant date, and 33.33% each of the total options will become exercisable in each subsequent year.
+Directors' Report
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 4 years after the grant date, and 33.33% each of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 2 years after the grant date, and 20% each of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised on or after 17 May 2009, and 20% each of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and 20% each of the total options will become exercisable in each subsequent year.
+8.
+7.
+6.
+5.
+4.
+3.
+2.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 3 years after the grant date, and 20% each of the total options will become exercisable in each subsequent year.
+27 Jan 2010
+33
+28,388
+the year
+the year
+2015
+Date of grant
+Exercise
+15 December
+during
+during
+during
+1 January
+As at
+Lapsed
+Exercised
+Granted
+As at
+Directors' Report
+34
+34
+Tencent Holdings Limited
+4.351
+316,501
+the year
+2015
+price
+(Note)
+20,237
+200,697
+28 Sep 2012
+4.351
+69,742
+13,953
+12,148
+95,843
+11 Jun 2012
+4.351
+10,499
+2,095,000
+53,509
+2,180,334
+01 Jun 2012
+4.351
+74,609
+4,672
+11,832
+91,113
+01 May 2012
+USD
+31,825
+3,129
+653,802
+17 Apr 2012
+27,500
+09 Mar 2011
+3.720
+- 1,455,871
+406,354
+1,862,225
+17 Feb 2011
+0.984
+- 229,866
+238,234
+27,500
+22 Jul 2010
+316,834
+77,000
+393,834
+24 Jun 2010
+0.100
+100,000
+100,000
+26 Feb 2010
+0.100
+330,129
+0.984
+3.720
+8,368
+1,155,927
+172,309
+29 Jun 2011
+4.351
+611,164
+30,975
+3,800
+645,939
+12 Jan 2012
+6,701
+19,630
+26,331
+4.066
+4.066
+21,188
+01 Nov 2011
+1,119,719
+3.720
+24 Oct 2011
+15,020
+15,146
+618
+776,705
+792,469
+8.
+Subject to the satisfaction of all vesting
+conditions as prescribed in the 2013
+Share Award Scheme, the Selected
+Participants will be entitled to receive the
+Awarded Shares.
+The vesting of the Awarded Shares
+is subject to the Selected Participant
+remaining at all times after the Grant
+Date and on the date of vesting, an
+Eligible Person, subject to the rules of
+the 2013 Share Award Scheme.
+2013 Share Award Scheme
+The Trustee does not exercise any voting
+rights in respect of any shares held
+pursuant to the Trustee Deed II or as
+nominee.
+The Trustee shall not exercise the voting
+rights in respect of any shares held by it
+pursuant to the Trustee Deed I (including
+but not limited to the Awarded Shares
+and any bonus shares and scrip shares
+derived therefrom).
+Awarded Shares and the related income
+derived therefrom are subject to a
+vesting scale to be determined by the
+Board at the date of grant of the award.
+Vesting of the shares will be conditional
+on the Selected Participant satisfying all
+vesting conditions specified by the Board
+at the time of making the award until
+and on each of the relevant vesting dates
+and his/her execution of the relevant
+documents to effect the transfer from the
+Trustee.
+2007 Share Award Scheme
+Voting Rights
+Vesting and Lapse
+Directors' Report
+Directors' Report
+42
+Tencent Holdings Limited
+approval from any applicable regulatory
+authorities has not been granted.
+No award may be made by the Board to
+any Selected Participant: (i) where the
+Company has information that must be
+disclosed under Rule 13.09 of the Listing
+Rules or where the Company reasonably
+believes there is inside information which
+must be disclosed under part XIVA of the
+SFO, until such inside information has
+been published on the websites of the
+Stock Exchange and the Company; (ii)
+after any inside information in relation
+to the securities of the Company has
+occurred or has become the subject of
+a decision, until such inside information
+has been published; (iii) within the
+period commencing 60 days (in the case
+of yearly results), or 30 days (in the case
+of results for half-year, quarterly or other
+interim period) immediately preceding
+the earlier of (1) the date of a meeting of
+the Board (as such date is first notified
+to the Stock Exchange) for the approval
+of the Company's results for any year,
+half-year, quarterly or other interim
+period (whether or not required under
+the Listing Rules); and (2) the deadline
+for the Company to publish its quarterly,
+interim or annual results announcement
+for any such period, and ending on the
+date of such announcement; or (iv) in
+any other circumstances where dealings
+by Selected Participant (including
+directors) are prohibited under the Listing
+Rules, SFO or any other applicable law
+or regulation or where the requisite
+2013 Share Award Scheme
+No award shall be made by the Board
+and no instructions to acquire shares
+and allot new shares shall be given by
+the Board or the Trustee under the 2007
+Share Award Scheme where any director
+is in possession of unpublished price-
+sensitive information in relation to the
+Group or where dealings by directors
+are prohibited under any code or
+requirement of the Listing Rules and all
+applicable laws from time to time.
+2007 Share Award Scheme
+6. Restrictions
+Annual Report 2015
+The Company shall comply with the relevant Listing Rules when granting the Awarded Shares. If awards are made to the
+directors or substantial shareholders of the Group, such awards shall constitute connected transaction under Chapter 14A of
+the Listing Rules and the Company shall comply with the relevant requirements under the Listing Rules.
+7.
+During the year, a total of 74,308,983 Awarded Shares were granted under the 2013 Share Award Scheme and out of which,
+75,000 Awarded Shares were granted to the independent non-executive directors of the Company. Details of the movements
+in the Share Award Schemes during the year are set out in Note 20 to the consolidated financial statements.
+40,000
+00
+20,000
+20,000
+41
+17 March 2011
+lain Ferguson Bruce
+Vesting period
+2015
+the year
+the year
+2015
+Date of grant
+During the year, a total of 33,245,162 shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II and the Post-IPO Option Scheme III, and pursuant to the Share Award Schemes.
+Name of director
+during
+As at
+Vested
+Granted
+during
+1 January
+As at
+Number of Awarded Shares
+As at 31 December 2015, there were a total of 210,000 (after the effect of the Share Subdivision) outstanding Awarded Shares
+granted to the directors of the Company, details of which are as follows:
+Directors' Report
+Annual Report 2015
+43
+31 December
+00
+The Company adopted the following two Share Award Schemes with major terms and details set out below:
+The Board may, from time to time, at its
+absolute discretion select any Eligible
+Person to be a Selected Participant
+and grant to such Selected Participant
+Awarded Shares.
+VALUATION OF SHARE OPTIONS
+Details of the movements in the share options during the year are set out in Note 20 to the consolidated financial statements.
+MOVEMENTS IN THE SHARE OPTIONS
+The total number of shares available for issue under the Post-IPO Option Scheme II and the Post-IPO Option Scheme III is 240,921,255 and
+175,093,330 respectively (after the effect of the Share Subdivision), which is approximately 2.56% and 1.86% respectively of the issued share
+capital of the Company as at the date of the annual report.
+ten years commencing on
+13 May 2009.
+It shall be valid and
+effective for a period of
+Option Scheme III
+Post-IPO
+ten years commencing on
+16 May 2007.
+It shall be valid and
+effective for a period of
+Option Scheme II
+Details of the valuation of share options during the year are set out in Note 20 to the consolidated financial statements.
+Post-IPO
+Option Scheme I
+Post-IPO
+It expired on 31
+December 2011.
+Option Scheme
+Pre-IPO
+Note:
+Remaining
+life of the
+scheme
+8.
+Details
+Directors' Report
+17 March 2012 to
+It expired on 23
+March 2014.
+The Board may at any time at its
+discretion, in respect of each Selected
+Participant, cause to be paid the relevant
+amount from the Company's resources
+or any Subsidiary's resources into the
+Account II for the purchase and/or
+subscription of Awarded Shares as soon
+as practicable after the Grant Date.
+Tencent Holdings Limited
+40
+1% of the issued share capital of the
+Company as at the Adoption Date II (i.e.
+92,979,085 shares (after the effect of
+the Share Subdivision))
+3% of the issued share capital of the
+Company as at the Adoption Date II (i.e.
+278,937,260 shares (after the effect of
+the Share Subdivision))
+It shall be valid and effective unless and
+until being terminated on the earlier
+of: (i) the 15th anniversary date of the
+Adoption Date II; and (ii) such date of
+early termination as determined by the
+Board provided that such termination
+does not affect any subsisting rights of
+any Selected Participant.
+The Board shall, in respect of each
+Selected Participant, cause to be paid
+the relevant amount from the Company's
+resources into the Account I or to the
+Trustee to be held on trust for the
+relevant Selected Participant for the
+purchase and/or subscription of the
+Awarded Shares as soon as practicable
+after the Reference Date.
+The Board shall select the Eligible
+Person(s) and determine the number of
+shares to be awarded.
+1% of the issued share capital of the
+Company as at the Adoption Date | (i.e.
+89,388,080 shares (after the effect of
+the Share Subdivision))
+2% of the issued share capital of the
+Company as at the Adoption Date | (i.e.
+178,776,160 shares (after the effect of
+the Share Subdivision))
+Operation
+5.
+of each participant
+Maximum entitlement
+40
+Maximum number of shares
+that can be awarded
+3.
+It shall be valid and effective for a period
+of 15 years from the Adoption Date I.
+Duration and Termination
+2.
+To recognise the contributions and to attract, motivate and retain eligible participants
+(including any director) of the Group
+2013 Share Award Scheme
+2007 Share Award Scheme
+Purpose
+1.
+SHARE AWARD SCHEMES
+Directors' Report
+4.
+17 March 2016
+10,000
+50,000
+2 April 2016 to
+2 April 2019
+Total:
+25,000
+15,000
+5,000
+35,000
+Grand Total:
+195,000
+75,000
+60,000
+210,000
+Tencent Holdings Limited
+44
+Directors' Report
+DIRECTORS AND SENIOR MANAGEMENT
+The directors and senior management of the Company during the year and up to the date of this report were:
+15,000
+Executive Directors
+15,000
+24 March 2019
+24 March 2019
+2 April 2015
+30,000
+30,000
+2 April 2016 to
+2 April 2019
+Total:
+80,000
+30,000
+25,000
+85,000
+Li Dong Sheng
+24 March 2014
+25,000
+5,000
+20,000
+24 March 2015 to
+2 April 2015
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+Non-Executive Directors
+00
+47
+Annual Report 2015
+Directors' Report
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Xu Chenye, age 44, Chief Information Officer, oversees the strategic planning and development for the website properties and
+communities, customer relations and public relations of the Company. Mr Xu is one of the core founders and has been employed by
+the Group since 1999. Prior to that, Mr Xu had experiences in software system design, network administration as well as marketing
+and sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu received a Bachelor of
+Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree in Computer Science from
+Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of the Company.
+Ren Yuxin, age 40, Chief Operating Officer and President of Interactive Entertainment Group and Mobile Internet Group,
+joined the Company in 2000 and had served as General Manager for the Value-Added Services Development Division and
+General Manager for Interactive Entertainment Business Division. Since September 2005, Mr Ren has been responsible
+for the research and development, operations, marketing and sales of gaming products for the Interactive Entertainment
+Business. Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of the Interactive
+Entertainment Group, Mobile Internet Group and Social Network Group. Prior to joining the Company, Mr Ren has worked
+in Huawei Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from
+the University of Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International
+Business School (CEIBS) in 2008. Mr Ren currently serves as a director or officer of certain subsidiaries of the Company.
+James Gordon Mitchell, age 42, Chief Strategy Officer and Senior Executive Vice President, joined the Company in August
+2011. He is responsible for various functions, including the Company's strategic planning and implementation, investor
+relationships, and mergers, acquisitions and investment activity. Prior to joining the Company, Mr Mitchell had worked in
+investment banking for 16 years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading
+the bank's Communications, Media and Entertainment research team, which analysed Internet, entertainment and media
+companies globally. Mr Mitchell received a degree from Oxford University and holds a Chartered Financial Analyst Certification.
+Mr Mitchell currently serves as a director of certain subsidiaries of the Company.
+Lau Seng Yee, age 49, Senior Executive Vice President and President of Online Media Group, joined the Company in 2006 and
+is responsible for overseeing the Company's online media business, and the development of the Company's online advertising
+business model. Mr Lau is a seasoned professional in the media industry with a rare 21 years of on-ground China market
+experience. In 2007, Mr Lau sat in the advisory board for ad:tech, the globally renowned organisation for Online Marketing.
+Mr Lau held the post of Vice President of China Advertising Association since 2007. Mr Lau was appointed as the Adjunct
+Professor of School of Journalism and Communication by Xiamen University in 2010 and also by Fudan University in 2014.
+Prior to joining the Company, Mr Lau was the Managing Partner of Publicis China and Chief Executive Officer for BBDO China,
+as well as a few management positions in other multinations. Mr Lau received an EMBA degree from Rutgers State University
+of New Jersey, USA. He also completed the Advanced Marketing Management program, and the Advanced Management
+Program (AMP) in Harvard Business School. In 2011, Mr Lau was honoured by New York based AdAge publication as one of
+"The World's 21 Most Influential People in Marketing and Media Industry, 2009-2010". In 2015, he is named as Global Media
+Person of the year award by Cannes Lions International Festival of Creativity. Mr Lau currently sits as a board member in the
+Asia Pacific Advisory Board of Harvard Business School.
+Tencent Holdings Limited
+48
+Directors' Report
+Tong Tao Sang, age 42, Senior Executive Vice President and President of Social Network Group, joined the Company in 2005.
+Mr Tong started as a technical architect, and led the product development of the social network platform, Qzone. Since May
+2012, Mr Tong has been responsible for the QQ and Qzone messaging and social networking platforms, the VIP subscriptions
+business, the social and performance advertising and the cloud services. Prior to joining the Company, Mr Tong worked
+for Sendmail, Inc. on managing the product development of operator-scale messaging systems. Mr Tong also worked for
+Oracle on the development and testing of Oracle Server and Oracle Applications. Mr Tong received a Bachelor of Science
+degree in Computer Engineering from University of Michigan, Ann Arbor in 1994 and a Master of Science degree in Electrical
+Engineering from Stanford University in 1997. Mr Tong currently serves as a director of certain subsidiaries of the Company.
+Zhang Xiaolong, age 46, Senior Executive Vice President and President of Weixin Group, joined the Company in March 2005
+and served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail service
+provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has been
+appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail. He
+is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted to
+Senior Executive Vice President, in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received his Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+David A M Wallerstein, age 41, Chief exploration Officer and Senior Executive Vice President, joined the Company in 2001
+and drives the Company's active participation in new and emerging technologies, business areas, and ideas from his base in
+Palo Alto, California. Mr Wallerstein has worked on building Tencent's international footprint and entrance into new business
+areas since 2001. Prior to joining the Company, Mr Wallerstein worked with Naspers in China, responsible for investments and
+strategy. Prior to that, Mr Wallerstein worked as a management consultant in China. Mr Wallerstein received a Master's degree
+from UC Berkeley and a Bachelor's degree from the University of Washington. Mr Wallerstein currently serves as a director of
+certain subsidiaries of the Company.
+49
+49
+00
+Annual Report 2015
+lan Charles Stone, age 65, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 26 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong, China, South East Asia and the Middle East. Mr Stone has more
+than 45 years of experience in the telecom and mobile industries. Mr Stone is a fellow member of The Hong Kong Institute of
+Directors. Mr Stone also serves as an independent non-executive director of a subsidiary of the Company.
+lain Ferguson Bruce, age 75, has been an independent non-executive director since April 2004. Mr Bruce joined KPMG in
+Hong Kong in 1964 and was elected to its partnership in 1971. He was the Senior Partner of KPMG from 1991 until his
+retirement in 1996 and served as Chairman of KPMG Asia Pacific from 1993 to 1997. Since 1964, Mr Bruce has been a
+member of the Institute of Chartered Accountants of Scotland, and is a fellow of the Hong Kong Institute of Certified Public
+Accountants, with over 51 years of international experience in accounting and consulting. He is also a fellow of The Hong
+Kong Institute of Directors and the Hong Kong Securities and Investment Institute (formerly known as Hong Kong Securities
+Institute). Mr Bruce is an independent non-executive director of Citibank (Hong Kong) Limited and MSIG Insurance (Hong
+Kong) Limited. Mr Bruce is currently an independent non-executive director of Goodbaby International Holdings Limited,
+a manufacturer of durable juvenile products, Louis XIII Holdings Limited (formerly known as Paul Y. Engineering Group
+Limited), a construction, engineering services and hotel development company, and Wing On Company International Limited,
+a department store operating and real property investment company; all of these companies are publicly listed on the Stock
+Exchange. Mr Bruce is also an independent non-executive director of Noble Group Limited, a commodity trading company that
+is publicly listed on The Singapore Exchange Securities Trading Limited and of Yingli Green Energy Holding Company Limited,
+a China-based vertically integrated photovoltaic product manufacturer that is listed on the New York Stock Exchange. Mr Bruce
+was an independent non-executive director of Vitasoy International Holdings Limited, a beverage manufacturing company, up
+to 4 September 2014, and of Sands China Ltd., an operator of integrated resorts and casinos, up to 11 March 2016, both of
+these companies are publicly listed on the Stock Exchange.
+Li Dong Sheng, age 58, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Corporation, the Chairman of the Hong Kong listed TCL Multimedia Technology Holdings Limited
+and the Chairman of the Hong Kong listed TCL Communication Technology Holdings Limited, all of which produce consumer
+electronic products. Mr Li is a non-executive director of Fantasia Holdings Group Co., Limited, a leading property developer
+and property related service provider in China that is listed on the Stock Exchange. Mr Li is also an independent director of
+Legrand, the global specialist in electrical and digital building infrastructures, shares of which are listed on New York Stock
+Exchange Euronext. Mr Li graduated from South China University of Technology in 1982 with a Bachelor degree in radio
+technology and has more than 21 years of experience in the information technology field.
+Directors' Report
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Independent Non-Executive Directors
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+In accordance with Article 87 of the Articles of Association, Mr Jacobus Petrus (Koos) Bekker and Mr lan Charles Stone will
+retire at the 2016 AGM and, being eligible, will offer themselves for re-election.
+The Company has received from each independent non-executive director an annual confirmation of his independence
+pursuant to Rule 3.13 of the Listing Rules and the Board considers them independent.
+24 March 2015 to
+00
+Annual Report 2015
+Directors' Report
+BIOGRAPHICAL DETAILS OF DIRECTORS
+Ma Huateng, age 44, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma is a deputy to the 12th National People's Congress. Mr Ma has
+a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen University and
+more than 22 years of experience in the telecommunications and Internet industries. He is a director of Advance Data Services
+Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the Company.
+Lau Chi Ping Martin, age 42, is an executive director and President of the Company. Mr Lau joined the Company in 2005 as
+the Chief Strategy and Investment Officer and was responsible for corporate strategies, investments, merger and acquisitions
+and investor relations. In 2006, Mr Lau was promoted as President of the Company to manage the day-to-day operation of
+the Company. In 2007, he was appointed as an executive director of the Company. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at Mckinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from the University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. On 28 July 2011, Mr Lau was appointed as a non-executive director of Kingsoft Corporation Limited,
+an Internet based software developer, distributor and software service provider listed in Hong Kong. On 10 March 2014, Mr
+Lau was appointed as a director of JD.com, Inc., an online direct sales company in China, which has been listed on NASDAQ
+since May 2014. On 31 March 2014, Mr Lau was appointed as a director of Leju Holdings Limited, an online-to-offline real
+estate services provider in China, which has been listed on New York Stock Exchange since April 2014. Mr Lau also serves as
+a director/corporate representative of certain subsidiaries of the Company.
+Jacobus Petrus (Koos) Bekker, age 63, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers.
+He serves on the boards of other companies within the group and associates, as well as on public bodies. In April 2015, he
+succeeded Mr Vosloo as non-executive chair. Academic qualifications include BA Hons and honorary doctorate in commerce
+(Stellenbosch University), LLB (University of the Witwatersrand) and MBA (Columbia University, New York).
+Charles St Leger Searle, age 52, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, including Mail.ru Group Limited that is listed on the London Stock Exchange. Prior to joining the Naspers Group,
+he held positions at Cable & Wireless plc and at Deloitte & Touche in London and Sydney. Mr Searle is a graduate of the
+University of Cape Town and a member of the Institute of Chartered Accountants in Australia. Mr Searle has more than 22
+years of international experience in the telecommunications and Internet industries. Mr Searle also serves as a director of
+certain subsidiaries of the Company.
+Tencent Holdings Limited
+46
+45
+24 March 2014
+Lu Shan, age 41, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company in
+2000 and had served as General Manager for IM Product Divisions, Vice President for Platform Research and Development
+System and Senior Vice President for Operations Platform System. Since March 2008, Mr Lu has been in charge of
+management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge of management
+of Technical Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming Network Systems Limited. Mr
+Lu received a Bachelor of Science degree in Computer Science and Technology from University of Science and Technology of
+China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of the Company.
+24 March 2014
+40,000
+10,000
+50,000
+17 March 2016
+17 March 2012 to
+15,000
+15,000
+17 March 2011
+lan Charles Stone
+90,000
+30,000
+30,000
+90,000
+40,000
+24 March 2015 to
+30,000
+2 April 2015
+30,000
+24 March 2019
+2 April 2016 to
+2 April 2019
+Total:
+30,000
+69
+0.005%
+Annual Report 2015
+00
+(Note 5)
+445,000
+300,000
+Family+
+145,000
+52
+lan Charles Stone
+(Note 4)
+0.005%
+470,000
+Personal*
+lain Ferguson Bruce
+(Note 3)
+59
+Personal*
+11. Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and one of the WFOES,
+the parties shall cooperate in the provision of communications services. For each agreement, the WFOES shall allow the
+New OPCOS to use its and its affiliates' assets and provide services to the New OPCOs. The New OPCOS shall transfer all
+of its Surplus Cash to the WFOES and its affiliates as consideration. Co-operation committees have also been established
+according to these agreements. During the year, revenue sharing amounting to approximately RMB93,000,000,
+RMB17,000,000, RMB503,000,000, RMB975, and RMB41,982 was paid or payable by Wang Dian to Tencent
+Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu and Tencent Wuhan, respectively. Revenue sharing
+amounting to approximately RMB29,000,000, RMB25,000,000, RMB1,000,000, RMB113,000,000, and RMB143,120
+I was paid or payable by Beijing BIZCOM to Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu and
+Tencent Wuhan respectively. Revenue sharing amounting to approximately RMB2,000,000, RMB3, RMB5,000,000 and
+RMB8,000,000 was paid or payable by Beijing Starsinhand to Tencent Technology, Cyber Tianjin, Tencent Beijing and
+Tencent Chengdu respectively. No revenue sharing amounting was paid or payable by Guangzhou Yunxun to Tencent
+Technology, Cyber Tianjin and Tencent Beijing.
+8.
+10.
+Annual Report 2015
+Directors' Report
+3.
+4.
+5.
+6.
+7.
+0.0004%
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Cooperation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+9.
+Pursuant to the intellectual property transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and
+Shiji Kaixuan, Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future intellectual property rights, free
+from encumbrance (except for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of
+Cyber Tianjin's undertaking to provide certain technology and information services to Shiji Kaixuan. During the year, no
+intellectual property transfer was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+license to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no domain name
+license was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no domain name licence
+was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+Tencent Holdings Limited
+58
+Directors' Report
+Pursuant to the amended and restated intellectual property transfer agreement dated 28 February 2004 entered
+into between Tencent Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its
+principal present and future intellectual property rights, free from encumbrances (except for licences granted in the
+ordinary course of Tencent Computer's business) in consideration of Tencent Technology's undertaking to provide
+certain technology and information services to Tencent Computer. During the year, no intellectual property transfer was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+40,000
+Percentage of
+Li Dong Sheng
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+PERMITTED INDEMNITY PROVISION
+Save as disclosed in this annual report, no transactions or arrangements or contracts of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+DIRECTORS' INTERESTS IN CONTRACTS OF SIGNIFICANCE
+Save as disclosed above, none of the directors who are proposed for re-election at the 2016 AGM has a service contract with
+the Company which is not determinable by the Company within 1 year without payment of compensation, other than statutory
+compensation.
+Mr Lau Chi Ping Martin has entered into a service contract with the Company for a term of 3 years ended 31 December
+2015. The term of the service contract has been extended for another 3 years by way of a supplemental agreement. Mr Lau is
+entitled to an annual bonus based on the performance of the Company in an amount to be determined by the Remuneration
+Committee. Mr Lau is entitled to participate in all employee benefit plans, programs and arrangements of the Company.
+00
+Mr Ma Huateng has entered into a service contract with the Company for a term of less than 3 years from 25 March 2013
+to 31 December 2015. The term of the service contract has been extended for another 3 years by way of a supplemental
+agreement. The term of the service contract can be further extended by agreement between the Company and Mr Ma. The
+Company may terminate the service contract by three months' written notice at any time, subject to paying his salary for the
+shorter of six months and a portion of his annual bonus for the year in which termination occurred pro rata to the portion of the
+year before the termination becomes effective.
+Directors' Report
+50
+Tencent Holdings Limited
+Xi Dan, age 40, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 20 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director of certain subsidiaries of the Company.
+Guo Kaitian, age 43, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of administration, legal affairs, government relations, charity fund, procurement as well as the
+functional management of the branches in Beijing, Shanghai and Chengdu. Mr Guo received a Bachelor of Law degree from
+Zhongnan University of Economics and Law in 1996. Mr Guo currently serves as a director of a subsidiary of the Company.
+John Shek Hon Lo, age 47, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and served as the
+Company's Financial Controller from 2004 to 2008. Mr Lo was appointed as the Company's Vice President and Deputy Chief
+Financial Officer in 2008 and was appointed as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo
+worked in PricewaterhouseCoopers as Senior Manager (audit services). He is a Fellow of the CPA Australia, a Fellow of the
+Hong Kong Institute of Certified Public Accountants and a Fellow of the Chartered Institute of Management Accountants. Mr
+Lo received a Bachelor of Business in Accounting from Curtin University of Technology and an EMBA degree from Kellogg
+Graduate School of Management, Northwestern University and HKUST. Mr Lo currently serves as a director of certain
+subsidiaries of the Company.
+Ma Xiaoyi, age 42, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company
+since November 2008. Prior to joining the Company, Mr Ma served as a General Manager of Games Division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as a General Manager in Shanghai EasyService Technology Development
+Ltd. Mr Ma graduated from Shanghai Jiaotong University, and received an EMBA degree from Fudan University in 2008. Mr
+Ma currently serves as a director of certain subsidiaries of the Company.
+Directors' Report
+DIRECTORS' SERVICE CONTRACTS
+Personal*
+51
+Directors' Report
+(Note 2)
+0.46%
+43,268,000
+Personal*
+Lau Chi Ping Martin
+9.10%
+855,446,400
+Corporate (Note 1)
+Annual Report 2015
+Ma Huateng
+00
+shares/underlying
+shares held
+Nature of interest
+Name of director
+Number of
+(A) Long position in the shares and underlying shares of the Company
+As at 31 December 2015, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+DIRECTORS' INTERESTS IN SECURITIES
+issued share capital
+52
+57
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent Technology
+and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and to provide services to Tencent
+Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates as
+consideration. The parties also established the TCS Co-operation Committee according to this agreement. During the
+year, revenue sharing amounting to approximately RMB29,783,000,000, RMB2,365,000,000, RMB10,659,000,000,
+RMB1,291,000,000, RMB4, 772,000,000, RMB1,169,000,000, RMB625,000,000, RMB530,000,000,
+RMB1,773,000,000 and RMB245,000,000 were paid or payable by Tencent Computer to Tencent Technology, Cyber
+Tianjin, Tencent Beijing, Tencent Chengdu, Tencent Shanghai, Tencent Wuhan, Tencent Information Chongqing, Hainan
+Network, Tencent Information Shenzhen and Tencent Information Shanghai respectively. In addition, during the year,
+Internet data center service fee amounting to approximately RMB410,000,000 was paid or payable by Tencent Computer
+to Cyber Tianjin, and research and development service fee amounting to RMB32,000,000 and RMB53,000,000 were
+paid or payable to Tencent Chengdu and Tencent Shanghai, respectively.
+RMB35,285,705
+54.29%
+(registered capital)
+RMB5,971,427
+54.29%
+(registered capital)
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests or short
+positions in any shares, underlying shares or debentures of the Company and its associated corporations as at 31 December
+2015.
+53
+33
+Annual Report 2015
+00
+Directors' Report
+CONNECTED TRANSACTIONS
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+The reasons for using Structure Contracts
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services in
+China. As foreign-invested enterprises, the WOFEs do not have licenses to provide Internet content or information services and
+other telecommunications value-added services. Accordingly, the value-added telecommunications business of the Group has
+been conducted through Tencent Computer, Shiji Kaixuan and the new operating companies (the "New OPCOS") (collectively,
+the "OPCOS") by itself or through their subsidiaries under the Structure Contracts (as defined in the section "Our History and
+Structure - Structure Contracts" of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group is
+able to recognise and receive the economic benefit of the business and operations of the OPCOs. The Structure Contracts are
+also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to acquire
+the equity interests in and/or assets of the OPCOS.
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed “Our History and Structure”
+and "Structure Contracts" in the IPO prospectus. During the year ended 31 December 2015, there was no material change
+in the Structure Contracts and/or the circumstances under which they were adopted, and none of the Structure Contracts has
+been unwound as none of the restrictions that led to the adoption of Structure Contracts has been removed.
+Tencent Holdings Limited
+54
+54
+Directors' Report
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+2015
+of issued
+share capital
+and class of
+shares held
+Percentage
+Number of shares
+Note:
+Directors' Report
+(1)
+These shares are held by Advance Data Services Limited, a British Virgin Islands company wholly-owned by Ma Huateng.
+(2)
+(3)
+(4)
+(5)
+The interest comprises 33,268,000 shares and 10,000,000 underlying shares in respect of the share options granted pursuant
+to the Post-IPO Option Scheme II and the Post-IPO Option Scheme III. Details of the share options granted to this director are set
+out above under "Share Option Schemes".
+The interest comprises 5,000 shares and 35,000 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 380,000 shares and 90,000 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進
+(the "Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009 provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via wholly
+owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors from
+gaining control over or participating in domestic online game operators through indirect ways such as establishing other joint
+venture companies or entering into contractual or technical arrangements with the Chinese license holders.
+The interest comprises 360,000 shares and 85,000 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+Interests of beneficial owner
+Interests of spouse or child under 18 as beneficial owner
+(B) Long position in the shares of associated corporations of the Company
+Name of director
+Name of
+associated
+corporation
+Nature of interest
+Ma Huateng
+Tencent Computer
+Personal
+Shiji Kaixuan
+Personal
+*
+However, Circular 13 does not provide any interpretation of the term "foreign investors" or make a distinction between foreign
+online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether the State
+General Administration of Press, Publication, Radio, Film and Television will deem the Group's structure and operations to be
+in violation of these provisions.
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the Company indirectly operates the value-added telecommunication service business,
+online and mobile games, online advertising and other Internet and wireless portals in the PRC through affiliated OPCOS that
+hold the necessary licenses for the existing lines of businesses.
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+50% by Tang Yibin
+Guangzhou Yunxun
+50% by Liu Yashan
+50% by Xie Pingzhang
+Provision of mobile and telecommunications
+value-added services
+Provision of mobile and telecommunications
+value-added services
+Provision of mobile and telecommunications
+value-added services
+Provision of mobile and telecommunications
+value-added services
+The above OPCOS are significant to the Group as they hold relevant licenses to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB76 billion for the year ended 31 December 2015 and
+approximately RMB16 billion as at 31 December 2015 respectively.
+Note:
+1.
+50% by Chen Guangyu
+2.
+This OPCO was previously owned by PRC nationals. Pursuant to a restructuring during the year ended 31 December 2015, as at 31
+December 2015, the entire equity interests in this OPCO was transferred to Tencent Computer.
+Tencent Holdings Limited
+56
+99
+Directors' Report
+Review of the transactions carried out under the Structure Contracts during the financial year
+The Company's independent non-executive directors had reviewed the Structure Contracts (as defined in the section "Our
+History and Structure - Structure Contracts" of the IPO prospectus of the Company) and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure Contracts
+and, had been operated so as to transfer by the date of this annual report Tencent Computer's and Shiji Kaixuan's Surplus
+Cash (as defined in the section “Our History and Structure – Structure Contracts" of the IPO prospectus of the Company) as
+at 31 December 2015 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology (Shenzhen)
+Company Limited in the IPO prospectus of the Company), Tencent Beijing, Tencent Information Shenzhen, Tencent Chengdu,
+Tencent Information Chongqing, Tencent Information Shanghai, Tencent Shanghai, Tencent Wuhan and Hainan Network. The
+Company's independent non-executive directors had also confirmed that no dividends or other distributions had been made
+by the OPCOS to the holders of their equity interests and the terms of any new Structure Contracts entered into, renewed and/
+or cloned during the relevant financial period are fair and reasonable so far as the Group was concerned and in the interests
+of the Company's shareholders as a whole. To this extent, similar Structure Contracts were entered into relating to the New
+OPCOS.
+The Auditor had carried out procedures on the transactions pursuant to the Structure Contracts and had provided a letter
+to the Board confirming that such transactions had been approved by the Board and had been entered into, in all material
+respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus Cash of the
+OPCOS as at 31 December 2015 to the WFOEs and that no dividends or other distributions had been made by the OPCOS to
+the holders of their equity interests.
+Transactions carried out during the year ended 31 December 2015, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+1.
+2.
+This OPCO was previously owned by PRC nationals. Pursuant to a restructuring during the year ended 31 December 2015, as at 31
+December 2015, the entire equity interests in this OPCO was transferred to Shiji Kaixuan.
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and to provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established the
+SKT Co-operation Committee according to this agreement. During the year, no services was transacted under such
+arrangements, save as disclosed elsewhere in this section.
+Beijing Starsinhand
+Beijing BIZCOM
+55
+55
+Annual Report 2015
+00
+Directors' Report
+Particulars of the OPCOS
+Set out below is the registered owners and business activities of the OPCOS which had entered into continuing connected
+transactions with the Group under the Structure Contracts during the year ended 31 December 2015:
+Registered owners
+Name of the operating companies
+as at 31 December 2015
+Tencent Computer
+Tencent Computer (Note 2)
+Tencent Holdings Limited
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+Provision of Internet and mobile and
+telecommunications value-added services,
+Internet advertisement services and eCommerce
+transactions business
+Provision of Internet advertisement services
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Wang Dian
+Shiji Kaixuan (Note 1)
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+Business activities
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Tencent Holdings Limited
+•
+approves the Company's financial statements, interim and annual reports
+•
+determines the Group's communication policy
+99
+66
+•
+Corporate Governance Report
+determines director selection, orientation and evaluation
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders
+establishes Board sub-committees with clear terms of reference and responsibilities as appropriate
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned
+defines levels of delegation in respect of specific matters, with required authority to Board sub-committees and
+management
+considers and, if appropriate, declares the payment of dividends to shareholders
+regularly evaluates its own performance and effectiveness
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once every
+two weeks or as frequent as necessary to formulate policies and make recommendations to the Board. The senior management
+team administers, enforces, interprets and supervises compliance with the internal rules and operational procedures of the
+Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate amendments to
+such rules and procedures. The senior management team reports to the Board on a regular basis and communicates with the
+Board whenever required.
+To better serve the long term interests of our stakeholders, the Board dedicates certain matters which require particular
+time, attention and expertise to be devoted to its committees. The Board has determined that these matters are better dealt
+with by the committees as they require independent oversight and specialists input. As such, the Board has established five
+committees to assist the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination
+Committee and Remuneration Committee. Each of the committees has terms of reference which clearly specifies its powers
+and authorities. All committees report back to the Board and make recommendations to the Board if necessary.
+The Company's governance structure of these committees can be summarised as follows:
+Audit Committee
+•
+handles the relationship with the Company's external auditor
+•
+reviews the Company's financial information
+exercises oversight of the Company's financial reporting system and internal control procedures
+•
+00
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual budget and business plan
+By discharging its responsibilities, the Board has defined the business and governance issues for which it needs to be
+responsible, and these matters reserved for the Board have been separately defined, and are reviewed periodically, to ensure
+that the Company maintains the proper level of corporate governance and to ensure they are up to date. In this regard, the
+Board:
+Based on information that is publicly available to the Company and within the knowledge of its directors, the directors confirm
+that the Company has maintained during the year the amount of public float as required under the Listing Rules.
+CLOSURE OF REGISTER OF MEMBERS
+(A) Entitlement to Attend and Vote at the 2016 AGM
+The register of members will be closed from Monday, 16 May 2016 to Wednesday, 18 May 2016, both days inclusive,
+during which period no transfer of shares will be registered. In order to be entitled to attend and vote at the 2016 AGM,
+all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's
+branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell
+Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Friday, 13 May 2016.
+(B) Entitlement to the Proposed Final Dividend
+The register of members will be closed from Tuesday, 24 May 2016 to Wednesday, 25 May 2016, both days inclusive,
+during which period no transfer of shares will be registered. In order to qualify for the proposed final dividend, all duly
+completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's branch
+share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre,
+183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Monday, 23 May 2016.
+AUDITOR
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2016 AGM.
+On behalf of the Board
+Ma Huateng
+Chairman
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans
+approves the annual business plan and budget proposed by management
+Hong Kong, 17 March 2016
+99
+Annual Report 2015
+00
+Corporate Governance Report
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors a
+thorough understanding of the Group's management and how the management oversees and manages different businesses
+of the Group. Our belief is that investors will recognise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will create trust with the public and ultimately create shareholder
+value for the Group.
+CORPORATE GOVERNANCE PRACTICES
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board is of
+the view that throughout the year ended 31 December 2015, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions A.2.1 regarding the segregation of the role of the chairman
+and chief executive and A.4.2 regarding the retirement and re-election of directors.
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes at
+an appropriate time.
+BOARD OF DIRECTORS
+Responsibilities
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategies and monitors management's
+execution of such strategies.
+65
+62
+67
+Annual Report 2015
+Corporate Governance Report
+All directors have full and timely access to all relevant information as well as advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring the Board procedures and all applicable rules and regulations
+are followed. All directors may also obtain independent professional advice at the Company's expenses for carrying out their
+functions.
+We believe ongoing education and training, as well as participation in director education programs, is important for maintaining
+a current and effective Board. In order to ensure the directors are aware of their responsibilities as directors of the Company
+and have a proper understanding of the Group's operations and business, and for the Company to take advantage of their
+rich mix of knowledge and experience, it is our practice that new directors have to undergo an orientation programme and the
+existing directors have to attend a comprehensive, formal and tailored training on their duties and responsibilities as directors
+under statute, common law, the Listing Rules, legal and other regulatory requirements provided by external professional
+advisers. Directors would also regularly meet with senior management team to understand the Group's business, governance
+policies and regulatory environment. New directors would also receive a directors' handbook on their responsibilities under
+the Listing Rules, applicable legal requirements and other regulatory requirements and the business and governance policies
+of the Group. Trainings have been and will continue to be provided by external advisers on a regular basis in relation to any
+updates of laws and regulations (including the Listing Rules) which relate to the director's responsibilities. During the year
+ended 31 December 2015, the Company arranged a briefing on topics relating to corporate governance, legal and regulatory
+environment and business trends which are relevant to the Group's business on 12 August 2015. Below summarises the
+participation of each of the directors in continuous professional development during the year ended 31 December 2015:
+Name of Director
+Executive directors
+Ma Huateng
+Lau Chi Ping Martin
+Non-executive directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Independent non-executive directors
+68
+Li Dong Sheng
+lan Charles Stone
+Participated in
+continuous professional
+development¹
+1
+Attended training/seminar/conference arranged by the Company or other external parties or read relevant material
+00
+69
+59
+Annual Report 2015
+✓
+Directors' Report
+lain Ferguson Bruce
+Tencent Holdings Limited
+The work of the committees during the year 2015 is set out on pages 74 to 77.
+ensures that no director or any of his associates is involved in deciding his own remuneration
+Corporate Governance Report
+Corporate Governance Committee
+•
+reviews the Company's corporate governance matters and makes recommendations to the Board
+reviews and monitors the training and continuous professional development of the directors and senior management
+team of the Company
+reviews and monitors the Company's policies and practices on the compliance with legal and regulatory requirements
+• develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors
+•
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders
+reviews the Company's compliance with the code and disclosure in the Corporate Governance Report
+Investment Committee
+•
+identifies, considers and makes recommendations on mergers, acquisitions and disposals
+ensures compliance of the Listing Rules and any other relevant laws and regulations of any mergers, acquisitions and
+disposals
+Nomination Committee
+. reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy
+•
+•
+identifies suitably qualified individuals and makes recommendations to the Board to be new Board members
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders
+assesses the independence of independent non-executive directors
+reviews and monitors the implementation of the board diversity policy of the Company
+Remuneration Committee
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team
+ensures these remuneration proposals are aligned to corporate goals and objectives
+SUFFICIENCY OF PUBLIC FLOAT
+Directors' Report
+monitors non-financial aspects pertaining to the business of the Group
+Tencent Holdings Limited
+Directors' Report
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+As at 31 December 2015, the following persons, other than the directors or chief executive of the Company, had an interest or
+short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under
+section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the issued share capital of the Company:
+Long/ short position in the shares of the Company
+Number of
+Percentage
+Nature of
+shares/ underlying
+Name of shareholder
+Long/ short position
+interest/capacity
+Annual Report 2015
+shares held
+MIH TC
+Long position
+Corporate (Note 1)
+3,151,201,900
+33.51%
+Advance Data Services Limited Long position
+Corporate (Note 2)
+855,446,400
+9.10%
+JPMorgan Chase & Co.
+Long position
+of issued
+share capital
+61
+00
+19
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOS, decide to implement enforceable remedy
+(including mandatorily requiring OPCOS to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WOFES and OPCOS, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WOFES and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as “High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in the
+PRC, a number of agreements have been entered into between members of the Group whereby the Company and the WOFES
+derive substantially all their revenues from transactions with the OPCOS. The recognition of revenues outlined in these intra-
+group contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and adverse
+impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the tax
+treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimize the risks of adjustment
+in tax treatment.
+For details of the risks associated with the Structure Contracts, please refer to the section headed "Risk factors - Risks relating
+to our structure" in the IPO prospectus.
+Other connected transactions
+Save as the related parties transaction disclosed in Note 10 (transactions with associates), Note 14 (Loans to investees and
+investees' shareholders), Note 20 (Share-based payments), Note 31(a) (Senior management's emoluments), Note 31(b) (Five
+highest paid individuals) and Note 44 (Benefits and interests of directors) to the consolidated financial statements, no related
+parties transactions disclosed in the consolidated financial statements constitutes a discloseable connected transaction as
+defined under the Listing Rules. The Company has complied with the disclosure requirements set out in Chapter 14A of the
+Listing Rules.
+Tencent Holdings Limited
+60
+60
+Directors' Report
+RISKS AND UNCERTAINTIES
+The Company has identified principal risks and uncertainties that the Group faces with respect to economic risks, operational
+risks, regulatory risks, financial risks, and specific risks related to the Group's corporate structure. The Group's business, future
+results of operations and prospects could be materially and adversely affected by those risks and uncertainties. The following
+highlights the principal risks and uncertainties of the Group and it is not meant to be exhaustive. There may be other risks and
+uncertainties which are not known to the Group or which may not be material now but turn out to be material in the future.
+Economic Risks
+64
+Negative effect on our operational, financing or investing activities due to fluctuations in foreign currency exchange rates,
+inflation, fluctuations of interest rates and other measures relating to financial policies in PRC.
+Operational Risks
+Failure to compete in the competitive environment which the Group operates in or to keep up with technological
+developments.
+Unexpected network interruptions or undetected programming errors or defects.
+Regulatory Risks
+Failure to adhere to laws, regulations and rules, or to obtain or maintain all applicable permits and approvals.
+Adverse effects arising from change in laws and regulations affecting our businesses.
+Financial Risks
+Details of financial risks are set out in Note 3.1 to the consolidated financial statements.
+Risks Related to Our Corporate Structure
+Details of risks related to our corporate structure are set out in the paragraph "The risks associated with Structure
+Contracts and the actions taken by the Company to mitigate the risks" under the section headed “Connected
+Transactions".
+Beneficial owner
+191,923,463
+A severe or prolonged downturn of the global or PRC economy.
+95,009,185
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company was entered into or existed during the year.
+MAJOR CUSTOMERS AND SUPPLIERS
+For the year ended 31 December 2015, the five largest customers of the Group accounted for approximately 4.41% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 1.09% of the Group's
+total revenues. In addition, for the year ended 31 December 2015, the five largest suppliers of the Group accounted for
+approximately 19.20% of the Group's total purchases while the largest supplier of the Group accounted for approximately 7.71%
+of the Group's total purchases.
+None of the directors, their associates or any shareholder of the Company (which to the knowledge of the directors owns more
+than 5% of the Company's issued capital) had an interest in any of the major customers or suppliers noted above.
+83
+63
+Annual Report 2015
+00
+Directors' Report
+AUDIT COMMITTEE
+The Audit Committee has reviewed the Group's audited consolidated financial statements for the year ended 31 December
+2015. The Audit Committee has also reviewed the accounting principles and practices adopted by the Company and discussed
+auditing, internal control and financial reporting matters.
+MANAGEMENT CONTRACTS
+COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
+As to the deviation from code provisions A.2.1 and A.4.2 of the CG Code, the Board will continue to review the current
+structure from time to time and shall make necessary changes when appropriate and inform the shareholders accordingly.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+The Group is committed to and has implemented certain policies to minimise the impact on the environment from our business
+activities. As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+PRE-EMPTIVE RIGHTS
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of Cayman Islands, which would
+oblige the Company to offer new shares on a pro rata basis to existing shareholders.
+EMPLOYEE AND REMUNERATION POLICIES
+As at 31 December 2015, the Group had 30,641 employees (2014: 27,690). The number of employees employed by the
+Group varies from time to time depending on needs and the employees are remunerated based on industry practice.
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-
+house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according
+to the assessment of individual performance.
+The total remuneration cost incurred by the Group for the year ended 31 December 2015 was RMB18,475 million (2014:
+RMB15,451 million).
+Investment manager
+Save as disclosed in the corporate governance report in the 2014 annual report, and the 2015 interim report of the Company,
+none of the directors of the Company is aware of any information which would reasonably indicate that the Company has not,
+for any part of the year ended 31 December 2015, complied with the CG Code.
+Save as disclosed above, the Company had not been notified of any other persons (other than a director or chief executive
+of the Company) who, as at 31 December 2015, had an interest or short position in the shares and underlying shares in the
+Company as recorded in the register required to be kept under section 336 of the SFO.
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+Such long position includes derivative interests in 25,267,191 underlying shares of the Company of which 9,070,580 underlying
+shares are derived from listed and physically settled derivatives, 245,300 underlying shares are derived from listed and cash
+settled derivatives, 8,843,251 underlying shares are derived from unlisted and physically settled derivatives and 7,108,060
+underlying shares are derived from unlisted and cash settled derivatives. It also includes 300,211,641 shares in lending pool.
+Trustee (other than
+Such short position includes derivative interests in 32,999,844 underlying shares of the Company of which 9,074,980 underlying
+shares are derived from listed and physically settled derivatives, 11,595,550 underlying shares are derived from listed and cash
+settled derivatives, 3,609,150 underlying shares are derived from unlisted and physically settled derivatives and 8,720,164
+underlying shares are derived from unlisted and cash settled derivatives.
+a bare trustee)
+24,090
+Custodian corporation/
+300,211,641
+Total (Note 3(i)):
+587,168,379
+6.24%
+Short position
+Beneficial owner
+(Note 3(ii))
+83,683,675
+approved lending
+agent
+0.89%
+As Advance Data Services Limited is wholly-owned by Ma Huateng, Mr Ma has interest in these shares as disclosed under the section of
+"Directors' Interests in Securities".
+MIH TC is controlled by Naspers Limited through its wholly-owned intermediary companies, MIH (Mauritius) Limited, MIH Ming He
+Holdings Limited and MIH Holdings Proprietary Limited. As such, Naspers Limited, MIH (Mauritius) Limited, MIH Ming He Holdings
+Limited and MIH Holdings Proprietary Limited are deemed to be interested in the same block of 3,151,201,900 shares under Part XV of
+the SFO.
+(ii)
+(1)
+Note:
+(2)
+Directors' Report
+62
+62
+Tencent Holdings Limited
+(3) (i)
+1/1
+0/1
+4/4
+6/6
+Jacobus Petrus (Koos) Bekker
+Non-executive directors
+1/1
+Charles St Leger Searle
+6/6
+1/1
+6/6
+Board
+Lau Chi Ping Martin
+Ma Huateng
+Executive directors
+6/6
+Governance Nomination Remuneration
+Committee Committee Committee Committee
+==
+8/8
+8/8
+1/1
+1/1
+Name of Director
+2/2
+8/8
+6/6
+lan Charles Stone
+1/1
+1/1
+2/2
+2/2
+lain Ferguson Bruce
+0/1
+3/4
+1/1
+4/6
+Li Dong Sheng
+Independent non-executive directors
+1/1
+6/6
+Audit
+Corporate Governance Report
+General
+Composition
+The Board is therefore of the view that there are adequate balance of power and safeguards in place. Nevertheless, the
+Board will continue to regularly monitor and review the Company's current structure and to make necessary changes at an
+appropriate time.
+10
+70
+Tencent Holdings Limited
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as well
+as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to time
+to make presentations and answer Board's enquiries. In addition, directors are encouraged to participate actively in all Board
+and committee meetings of which they are members, and the Chairman ensures that all issues raised are properly briefed at
+the Board meetings, and together with the senior management team, provide adequate, accurate, clear, complete and reliable
+information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is available for
+discussion for all items at the Board meetings. During the year ended 31 December 2015, the Chairman held a meeting
+with the non-executive directors (including the independent non-executive directors) without the presence of the executive
+directors, presenting diversified perspectives for the Chairman to consider.
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be proficient in IT knowledge and be sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the role of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision
+A.2.1 of the CG Code, which provides that the roles of Chairman and chief executive should be separate and should not be
+performed by the same individual. The division of responsibilities between the Chairman and chief executive should be clearly
+established and set out in writing.
+As at the date of this annual report, the Board comprised a total of seven directors, with two executive directors, two non-
+executive directors and three independent non-executive directors. During the year ended 31 December 2015 and up to the
+date of this annual report, there is no change to the composition of the Board.
+Chairman and Chief Executive Officer
+company secretary attends trainings in compliance with the Listing Rules requirements
+trainings have been and will continue to be provided to directors on a timely basis, including briefing the directors on any
+updates to the Listing Rules and the laws
+review of the shareholders communication policy has been and will be conducted on a regular basis
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and in
+compliance with the CG Code.
+Maintaining a high level of corporate governance and integrity cannot depend solely on the Board's efforts, each of the Group's
+employees is also required to contribute to such cause. A code of conduct policy which emphasises on honesty and respect is
+distributed by the Company to all employees and forms part of their service contracts.
+Corporate Governance Report
+4/4
+informal updates and structured monthly updates on the Company's performance, position and prospects are provided
+to the directors
+Meeting
+A list of directors and their respective biographies are set out on pages 46 to 47 of this annual report.
+The Board values the importance of independent judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in an independent, constructive and informed manner, and actively participate in Board and committee
+meetings and to bring independent judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also exercise their independent
+judgment and utilise their expertise to scrutinise the Company's performance in achieving agreed corporate goals, and monitor
+performance reporting.
+Annual
+Corporate
+Attendance/No. of Board, Committee Meetings and Annual General Meeting
+The Board meets four times during the year as a minimum and, during the year of 2015, it met six times. The attendance
+of each director at Board, committee meetings and annual general meeting, whether in person or by means of electronic
+communication, is detailed in the table below:
+Board Activity
+Corporate Governance Report
+72
+Tencent Holdings Limited
+In order to take advantage of the skills, experiences and diversity of perspective of the directors and in order to ensure that the
+directors give sufficient time and attention to the Group's affairs, we request each of the directors to disclose to the Company
+quarterly the number and the nature of offices held in public companies or organisations and other significant commitments.
+The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that the number of
+independent non-executive directors must represent at least one-third of the Board. The Board believes that the balance
+between the executive directors and non-executive directors is reasonable and adequate to provide sufficient checks and
+balances that safeguard the interests of the shareholders and the Group.
+Since the Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by
+rotation nor taken into account in determining the number of directors to retire in each year, code provision A.4.2 of the CG
+Code is deviated. The Chairman is one of the founders of the Group and he plays a key role in the growth and development
+of the Group. At present, the Chairman's continuing presence in the Board is vital to assure sustainable development of the
+Group. Given the importance of the Chairman's role in the development of the Group, the Board considers that the relevant
+provision in the Articles of Association has no material impact on the operation of the Group as a whole.
+The Board is the core of the Group's success, and with the right membership of the Board, we can benefit from the right set
+of skills, experience and diversity of perspective to take the Company forward. Therefore, it is essential for the Company to
+maintain the established formal, considered and transparent procedure for the appointment of new directors to the Board.
+It is our corporate governance practice and in accordance with the Articles of Association that all directors (except for the
+Chairman) should be subject to re-election at regular intervals and the resignation and removal of any director should be
+explained with reasons. In the 2015 annual general meeting, Mr Li Dong Sheng and Mr lain Ferguson Bruce were retired and
+re-elected.
+Appointments, Re-election and Removal
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Corporate Governance Report
+00
+Annual Report 2015
+71
+Further, in compliance with Rule 3.10 of the Listing Rules, one of our independent non-executive directors has the appropriate
+professional qualifications or accounting or related financial management expertise, and provides valuable advice from time to
+time to the Board. The Company has also received from each independent non-executive director a confirmation annually of
+his independence and the Nomination Committee has conducted an annual review and considers that all independent non-
+executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing
+Rules in the context of the length of service of each independent non-executive director.
+Code provision A.4.2 of the CG Code provides that all directors appointed to fill a casual vacancy should be subject to election
+by shareholders at the first general meeting after appointment. Every director, including those appointed for a specific term,
+should be subject to retirement by rotation at least once every three years.
+1/1
+In 2015, the Investment Committee met once and had also considered and passed various resolutions on its decisions on the
+Group's acquisitions and disposals from time to time.
+00
+00
+if there are any variances against the annual budget, these variances will be analysed and appropriate actions will be
+taken if necessary to rectify or mitigate any noted deficiencies
+establishing a distinct organisation structure with defined lines of authority and control responsibilities. Relevant group,
+division or department heads actively participate in the preparation of strategic plans for achieving annual operational
+and financial targets. These plans serve as the foundation for the preparation of the Group's annual budget by which
+resources are allocated in accordance with identified and prioritised business opportunities. The Board approves the
+annual operating plan and budget on an annual basis
+The Board is responsible for overseeing sound risk management and internal control systems on an ongoing basis. The Board
+has established and maintained a set of procedures to provide effective risk management and internal control systems, which
+include:
+Adequate and effective risk management and internal control systems are key to mitigate risk and to safeguard shareholders'
+interests and the Group's assets against any unauthorised use or disposition. The risk management and internal control
+systems should also, among others, ensure the maintenance of proper accounting records for the provision of reliable
+financial information for internal use or for publication and ensure that the Group is in compliance with relevant legislation
+and regulations. However, such systems are designed to manage rather than eliminate the risk of failure to achieve business
+objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.
+As part of the Board's responsibility, the Board ensures that a balanced and clear assessment of the Group's performance and
+prospects is presented. The directors acknowledge that it is their responsibility to prepare the accounts that give a true and
+fair view of the Group's financial position on a going-concern basis and other announcements and financial disclosures. To
+assist the Board in discharging its responsibilities, the senior management team provides updates to the Board from time to
+time, including the Group's business and financial position in sufficient detail, to give the directors a balanced, understandable
+and clear assessment of the performance, position and prospects of the Group. The senior management team also provides
+all necessary and relevant information to the Board, giving the directors sufficient explanation and information they need
+to discharge their responsibilities and make an informed assessment of financial and other information put before them for
+approval. The Company auditor's statement in respect of their reporting responsibilities is set out in the Auditor's Report.
+The Board also has the responsibility to oversee the risks undertaken by the Group, and to actively consider, analyse and
+formulate strategies to control the risks the Group is exposed to, and determine the level of risk the Company wishes to and is
+able to take. The senior management team monitors these risks and develops effective systems and mechanisms to mitigate
+risks to an acceptable level as determined by the Board. The senior management team reports to the Board periodically and
+whenever necessary on the risks the Group faces and the actions taken to mitigate them.
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+77
+Corporate Governance Report
+Tencent Holdings Limited
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual and his associates were involved in determining his own remuneration. It also ensured that
+remuneration awards were determined by reference to the performance of the individual and the Company and were aligned to
+the market practice and conditions, the Company's goals and strategies. They are designed to attract, retain and motivate high
+performing individuals, and reflect the specifics of individual roles.
+reviewed and approved compensation awards granted to senior management team, to recognise their valuable
+contributions to the Company and to provide incentives for future performances
+assessed performance and, reviewed and approved amendments to the remuneration packages for the executive
+directors and members of the senior management team
+reviewed and recommended to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staffs
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration packages of each director.
+During 2015, the Remuneration Committee:
+The Remuneration Committee met four times in 2015. Individual attendance of each Remuneration Committee member is set
+out on page 73.
+The Remuneration Committee comprises only non-executive directors. Its members are Mr lan Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). Mr lan
+Charles Stone chairs the Remuneration Committee.
+76
+Remuneration Committee
+Annual Report 2015
+IA performs independent review of the operational areas and presents its findings and prospective audit plan to the Audit
+Committee on a quarterly basis
+At the Board meetings, the Board discussed on a wide range of matters, including the Group's overall strategies, financial
+and operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary, in
+consultation with the Chairman and the senior management team, prepares the agendas for each meeting and all directors are
+given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all applicable
+rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the Board meeting
+to each of the directors at least fourteen days in advance of each regular Board meeting. The company secretary also sends
+the agendas, board papers and relevant information relating to the Group to each of the directors at least three days in advance
+of each regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial performance
+and latest developments. If any director raises any queries, steps will be taken to respond to such queries as promptly and
+fully as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director, such director
+would declare his interest and will abstain from voting on such matters. The directors may approach the Company's senior
+management team when necessary. The directors may also seek independent professional advice at the Company's expense
+in appropriate circumstances.
+00
+Annual Report 2015
+79
+19
+Apart from participating in the Company's general meetings, the Company's shareholders are provided with contact details of
+the Company, such as telephone number, email address and postal address which are also available on the Company Website,
+in order to enable them to make any query that they may have. Shareholders may send their enquiries to the Board directly
+through these means. Shareholders may also contact the Company's Hong Kong branch share registrar, Computershare Hong
+Kong Investor Services Limited, if they have any enquiries about their shareholdings and entitlements to dividends.
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and
+such meeting shall be held within two months after the deposit of such requisition.
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board. The Chairman, other members of the Board and relevant members of the senior management team, under
+usual circumstances, attend to answer questions raised and discuss matters in relation to the Company in an open manner.
+Save as Mr Jacobus Petrus (Koos) Bekker and Mr Li Dong Sheng, all directors attended the 2015 annual general meeting,
+with a view to understand the views of the Company's shareholders. The company secretary provided the minutes of 2015
+annual general meeting to all directors to have a thorough understanding of the views of the Company's shareholders. The
+Company's external auditor will also attend the annual general meeting to answer questions relating to the conduct of the audit,
+the auditor's report and auditor independence. The Company's shareholders may also propose candidates for election as a
+director of the Company according to the procedures set out in the Company Website.
+Corporate Governance Report
+Corporate Governance Report
+Tencent Holdings Limited
+The Company strives to provide ready, equal, regular and timely disclosure of information that is material to the investor
+community. Therefore, the Company works to maintain effective and on-going communication with shareholders so that
+they, along with prospective investors, can exercise their rights in an informed manner based on a good understanding of
+the Group's operations, business and financial information. The Company also encourages shareholders' active participation
+in annual general meetings and other general meetings or other proper means. As such, the Company sends notice to
+shareholders for annual general meetings at least 20 clear business days before the meeting and at least 10 clear business
+days for all other general meetings. In addition, the Company has developed and maintains the shareholders communication
+policy which is available on the Company Website.
+SHAREHOLDERS
+The Audit Committee reviews the risk management and internal control systems annually on behalf of the Board. The Board
+is satisfied that the Company's accounting and financial reporting function is adequately resourced with staff of appropriate
+qualifications and experience, and that the staff receives appropriate and sufficient training and development. Based on the
+report from the Audit Committee, the Board is satisfied that the Company's internal audit function is adequately resourced
+and competent to manage the Group's risks and safeguard the Group's assets, and that the external audit process has been
+effective. The Board, with the recommendation of the Audit Committee, is satisfied that the Group has complied with the
+provisions regarding internal controls as required under the CG Code and is not aware of any significant issues that would have
+an adverse impact on the effectiveness and adequacy of the risk management and internal control systems.
+The overall risk management and internal control status will be reported to the Audit Committee on quarterly basis.
+In addition to providing advice on setting up and implementing policies and processes to promote effective internal control, IC
+also promotes risk management and internal control awareness to management and employees across the Group.
+The IA and IC provide valuable support to the Company's risk management and internal control systems. The IA reviews
+different business and functional operations and activities of the Group with a special focus on high risk areas. The IA also
+conducts ad hoc reviews in areas of concern identified by the senior management team. If the IA identifies any deficiencies,
+the relevant group, division or department heads will be notified on such deficiencies, and will rectify the deficiencies and
+IA together with management will follow up with the implementations of audit recommendations on timely basis. If the IA
+considers that the deficiency is a significant internal control weakness, such matter will be brought to the attention of the
+Audit Committee and the Board if necessary. The IC facilitates the establishment of the risk management and internal control
+systems with the Company's management and monitors the implementation of effective risk management practices based on
+the COSO Framework.
+IC facilitates the senior management team to ensure controls in operational processes are efficient and effective, and
+regularly communicates with the Audit Committee
+78
+During 2015, the Nomination Committee reviewed board composition and director succession, and the board diversity policy.
+The Nomination Committee has also assessed the independence of the independent non-executive directors and considers
+all of them being independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing Rules
+in the context of the length of service of each independent non-executive director. The Company recognises the benefits
+of having a diverse Board, and views diversity at Board level as a business imperative that will help the Company achieve
+its strategic objectives and maintain a competitive advantage. As such, the Board has set measurable objectives for the
+implementation of the board diversity policy to ensure that the Board has the appropriate balance of skills, experience and
+diversity of perspectives that are required to support the execution of its business strategy and maintain the effectiveness of
+the Board. The Nomination Committee is satisfied that the board diversity policy is successfully implemented with reference to
+the measurable objectives. The Nomination Committee will continue to monitor the implementation of the board diversity policy
+and will review the board diversity policy periodically to ensure its continued effectiveness.
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure the shareholders are familiar with the detailed procedures for conducting a poll,
+detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions from
+shareholders on the voting procedures can be answered before the poll voting starts. An external scrutineer will be appointed
+to monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock Exchange's
+website after each general meeting.
+Annual Report 2015
+in relation to the external auditor, their plans, reports and management letter, fees, involvement in non-audit services,
+and their terms of engagement
+compliance with the CG Code, the Listing Rules and relevant laws
+•
+the 2015 first and third quarters results announcements
+•
+the 2015 interim report and interim results announcement
+•
+the 2014 annual report, including the Corporate Governance Report, Directors' Report and the financial statements, as
+well as the related results announcement
+the plans (including those for 2015), resources and work of the Company's internal auditors
+The Audit Committee's main work during the year 2015 included reviewing:
+The Audit Committee comprises only non-executive directors. Its members are Mr lain Ferguson Bruce, Mr Ian Charles Stone
+(both are independent non-executive directors) and Mr Charles St Leger Searle (non-executive director). Mr lain Ferguson
+Bruce chairs the Audit Committee and together with Mr Charles St Leger Searle, have appropriate professional qualifications
+and experiences in financial matters.
+Audit Committee
+As described above, the Board has established five committees which have delegated responsibilities and report back to the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. The roles and functions of these committees are set out in their respective terms of reference. The terms of
+reference of the Audit Committee, the Nomination Committee and the Remuneration Committee are available on the Company
+Website and the Stock Exchange's website.
+THE COMMITTEES
+Corporate Governance Report
+Annual Report 2015
+Corporate Governance Report
+73
+The Audit Committee meets not less than four times a year; in 2015 the Audit Committee met eight times. Individual
+attendance of each Audit Committee member is set out on page 73. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Head of Internal Audit and the Head of Internal Control, and the
+external auditor at the invitation of the Audit Committee.
+•
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final version of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+•
+the adequacy of resources, qualification and training of the Group's finance department
+The Nomination Committee met once in 2015. Individual attendance of each Nomination Committee member is set out on
+page 73.
+Nomination Committee
+75
+The Investment Committee comprises a majority of executive directors. Its members are Mr Lau Chi Ping Martin, Mr Ma
+Huateng and Mr Charles St Leger Searle. The Investment Committee is chaired by Mr Lau Chi Ping Martin.
+Investment Committee
+During 2015, the Corporate Governance Committee discussed on the arrangements made for directors and senior
+management team to attend training sessions for continuous professional development, reviewed the Company's compliance
+with the code and disclosure in the Corporate Governance Report, as well as reviewed the Company's corporate governance
+policies and practices, and the Company's policies and practices on compliance with legal and regulatory requirements,
+including the insider dealing policy, the disclosure of inside information policy and the shareholders communication policy.
+The Corporate Governance Committee met twice in 2015. Individual attendance of each Corporate Governance Committee
+member is set out on page 73.
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr lain Ferguson Bruce, Mr Ian Charles Stone (all three are independent non-executive directors) and Mr
+Charles St Leger Searle (non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+Corporate Governance Committee
+the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr lain Ferguson Bruce and Mr lan Charles Stone (both are independent non-executive directors).
+The Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+Tencent Holdings Limited
+74
+00
+PricewaterhouseCoopers ("PwC") is the Group's external auditor. The Audit Committee annually reviews the relationship of
+the Company with PwC. Having also reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied about this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2016 AGM.
+In view of the new requirements in respect of risk management and internal control systems of listed issuers under the
+revised CG Code which apply to accounting periods beginning on or after 1 January 2016, the terms of reference of the Audit
+Committee were revised in December 2015 to align with the revised CG Code. The Audit Committee will continue to oversee
+the financial reporting system, risk management and internal control systems of the Company.
+Corporate Governance Report
+(1,705)
+125
+160
+44
+44
+21,975
+84
+21,891
+(1,919)
+6
+(295)
+(295)
+(1,705)
+285
+23,810
+(289)
+- proceeds from shares issued
+310
+135
+(91)
+(1,705)
+Repurchase and cancellation of shares
+Profit appropriations to statutory reserves
+- vesting of awarded shares
+-
+25
+1,350
+- value of employee services
+Employee share award schemes:
+-value of employee services
+Employee share option schemes:
+299
+299
+299
+- shares withheld for share award schemes
+81
+earnings
+RMB'Million
+23,888
+RMB'Million
+capital
+Total
+controlling
+Retained
+Other
+for share
+Share
+Share
+Non-
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2015
+' ་@
+Consolidated Statement of Changes in Equity
+premium award schemes
+RMB'Million RMB'Million
+81
+reserves
+Total
+78
+23,810
+23,810
+81
+58,463
+518
+57,945
+52,224
+3,746
+(871)
+2,846
+equity
+RMB'Million
+RMB'Million
+RMB'Million
+interests
+RMB'Million
+(529)
+non-wholly owned subsidiaries
+7
+(438)
+2,285
+in equity for the year
+Total transactions with owners recognised directly
+357
+357
+357
+interests lapsed
+Put option granted to owners of the non-controlling
+(714)
+(118)
+(596)
+(1,224)
+628
+Acquisition of additional equity interests in
+302
+238.3
+(1,972)
+1,509
+Capital injection
+Annual Report 2015
+00
+89
+69
+The notes on pages 92 to 195 are an integral part of these consolidated financial statements.
+82,124
+2,111
+80,013
+74,062
+2,129
+(1,309)
+5,131
+Balance at 31 December 2014
+1,686
+177
+1,485
+234
+468
+Dividends
+(1,919)
+(158)
+(1,761)
+(1,761)
+(61)
+62
+(61)
+(61)
+(211)
+211
+91
+(529)
+(529)
+1,492
+Total contributions by and distributions to
+4
+owners recognised directly in equity for the year
+(438)
+23330
+230
+468
+468
+Disposal of equity interests in non-wholly owned subsidiaries
+diluted in relation to business combinations
+Equity interests in non-wholly owned subsidiaries
+1,705
+1,705
+Non-controlling interests arising from business combinations
+(364)
+(82)
+(282)
+(1,972)
+471
+1,657
+Transactions with owners
+- proceeds from shares issued
+-currency translation differences
+85
+Lau Chi Ping Martin
+Director
+Director
+Ma Huateng
+The consolidated financial statements on pages 83 to 195 were approved by the Board of Directors on 17 March 2016 and
+were signed on its behalf:
+The notes on pages 92 to 195 are an integral part of these consolidated financial statements.
+171,166
+306,818
+89,042
+184,718
+Total equity and liabilities
+Total liabilities
+50,035
+124,406
+00
+16,153
+26
+Deferred revenue
+566
+462
+34(b)
+Other tax liabilities
+461
+1,608
+Current income tax liabilities
+1,834
+3,886
+25
+3,215
+11,429
+21,122
+24
+Annual Report 2015
+For the year ended 31 December 2015
+2,327
+28
+48,059
+61,232
+(30,873)
+(41,631)
+30
+78,932
+102,863
+58
+Other gains, net
+Interest income
+Gross profit
+Cost of revenues
+Consolidated Income Statement
+7,314
+8,308
+17,468
+63,310
+80,669
+Others
+Online advertising
+Value-added services
+Revenues
+RMB'Million
+2014
+RMB'Million
+Note
+2015
+Year ended 31 December
+4,726
+1,676
+19,123
+22
+37,092
+25
+Notes payable
+5,507
+12,922
+24
+Borrowings
+Non-current liabilities
+LIABILITIES
+82,124
+122,100
+2,111
+2,065
+Total equity
+25,028
+Non-controlling interests
+120,035
+74,062
+100,012
+2,129
+9,673
+19
+(1,309)
+(1,817)
+18
+Retained earnings
+Other reserves
+Shares held for share award schemes
+5,131
+12,167
+80,013
+70,199
+Long-term payables
+3,626
+21
+Notes payable
+Borrowings
+Other payables and accruals
+8,683
+15,700
+21
+Accounts payable
+RMB'Million
+2014
+RMB'Million
+Note
+2015
+As at 31 December
+23
+As at 31 December 2015
+Current liabilities
+84
+Tencent Holdings Limited
+39,007
+60,312
+3,478
+3,004
+26
+Deferred revenue
+2,942
+3,668
+27
+Deferred income tax liabilities
+2,052
+Consolidated Statement of Financial Position
+29
+1,886
+2,759
+Share for share
+premium award schemes
+RMB'Million RMB'Million
+capital
+RMB'Million
+Share
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2015
+Consolidated Statement of Changes in Equity
+Annual Report 2015
+87
+00
+21,975
+44,723
+84
+21,891
+Other
+44,416
+307
+44,723
+(1,913)
+15,615
+736
+The notes on pages 92 to 195 are an integral part of these consolidated financial statements.
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+Total comprehensive income for the year
+Other fair value gain recognised
+Items that may not be subsequently reclassified to profit or loss
+(289)
+1,975
+Currency translation differences
+21,975
+(1,705)
+Retained
+Non-
+- value of employee services
+Employee share option schemes:
+Capital injection
+Transactions with owners
+Total comprehensive income for the year
+- other fair value gain recognised
+-
+-currency translation differences
+available-for-sale financial assets
+- net gains from changes in fair value of
+- share of other comprehensive income of associates
+Other comprehensive income:
+Profit for the year
+Comprehensive income
+controlling
+Balance at 1 January 2015
+2,111
+80,013
+74,062
+2,129
+(1,309)
+5,131
+RMB'Million
+equity
+RMB'Million
+Total
+earnings
+RMB'Million
+RMB'Million
+reserves
+Total
+82,124
+12,575
+Net gains/(losses) from changes in fair value of available-for-sale financial assets
+81
+Attributable to:
+23,888
+29,108
+Profit for the year
+(5,125)
+(7,108)
+34(a)
+Income tax expense
+29,013
+36,216
+Profit before income tax
+(347)
+(2,793)
+33
+Equity holders of the Company
+Share of losses of associates and joint ventures
+(1,618)
+32
+Finance costs, net
+30,542
+40,627
+Operating profit
+(14,155)
+(16,825)
+30
+General and administrative expenses
+(7,797)
+(7,993)
+30
+Selling and marketing expenses
+(1,182)
+Non-controlling interests
+Earnings per share for profit attributable to equity holders
+of the Company (in RMB per share)
+329
+Share of other comprehensive income of associates
+Items that may be subsequently reclassified to profit or loss
+Other comprehensive income, net of tax:
+23,888
+29,108
+RMB'Million
+RMB'Million
+2014
+2015
+Year ended 31 December
+For the year ended 31 December 2015
+Consolidated Statement of Comprehensive Income
+Profit for the year
+86
+98
+Tencent Holdings Limited
+- basic
+- diluted
+28,806
+302
+23,810
+78
+29,108
+18
+23,888
+3.097
+2.579
+35(b)
+3.055
+2.545
+The notes on pages 92 to 195 are an integral part of these consolidated financial statements.
+35(a)
+Share premium
+18
+Share capital
+169
+16
+108
+80
+10
+108
+355
+21
+376
+169
+169
+- value of employee services
+- shares withheld for share award schemes
+-
+90
+- vesting of awarded shares
+Profit appropriations to statutory reserves
+Dividends (Note 36)
+2,058
+273
+23
+(652)
+2,331
+(652)
+60
+60
+2,391
+(652)
+(144)
+144
+Tax benefit from share-based payments of a subsidiary
+982
+190
+44,723
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his appointment.
+Appointment Terms of Non-Executive Directors
+The Company has adopted the Model Code. The Company has also adopted a securities trading code for employees for
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exact than those of the Model Code. The Company has made specific enquiries with the directors and the
+directors have confirmed they have complied with the Model Code throughout 2015.
+Model Code for Securities Transactions by Directors of Listed Issuers
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. We set out these
+information below which has not been covered above.
+DISCLOSURES OF OTHER INFORMATION
+Corporate Governance Report
+329
+29
+28,806
+28,806
+302
+29,108
+329
+165
+329
+12,575
+12,575
+1,970
+1,970
+5
+1,975
+736
+736
+I
+736
+15,610
+28,806
+44,416
+307
+12,575
+982
+982
+216
+the put options granted to non-controlling interests
+(1,195)
+(1,195)
+(1,195)
+Total transactions with owners recognised directly
+in equity for the year
+7,036
+(508)
+(8,066)
+(2,856)
+(4,394)
+(353)
+(4,747)
+Balance at 31 December 2015
+Recognition of financial liabilities in respect of
+12,167
+9,673
+100,012
+120,035
+2,065
+122,100
+Tencent Holdings Limited
+88
+Balance at 1 January 2014
+Comprehensive income
+Profit for the year
+Other comprehensive income:
+- share of other comprehensive income of associates
+– net losses from changes in fair value of
+available-for-sale financial assets
+(1,817)
+372
+32
+(372)
+(216)
+(2,640)
+(2,640)
+(549)
+(3,189)
+Total contributions by and distributions to
+owners recognised directly in equity for the year
+2,248
+(508)
+1,661
+(2,856)
+545
+(360)
+185
+85
+Non-controlling interests arising from business combinations
+278
+(372)
+non-controlling interests
+Transfer of equity interests of subsidiaries to
+(3,971)
+(599)
+(3,372)
+Directors and Officers Liability Insurance
+(8,160)
+non-wholly owned subsidiaries (Note 19)
+Acquisition of additional equity interests in
+(44)
+(44)
+Disposal of equity interests in non-wholly owned subsidiaries
+278
+4,788
+Employee share award schemes:
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors.
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set out
+in the "Independent Auditor's Report" on pages 81 and 82. During the year ended 31 December 2015, the remuneration paid/
+payable to the Company's external auditor, PwC, were RMB35 million, RMB2 million and RMB13 million for audit services,
+audit-related services and non-audit services (2014: RMB23 million, RMB15 million and RMB15 million for audit services,
+audit-related services and non-audit services), respectively. Audit-related services conducted by the external auditor in 2015
+mainly represented professional services rendered in relation to the Company's Global Medium Term Note programme (2014:
+mainly included special audit performed on certain business and subsidiaries of the Group disposed to a strategic business
+partner in 2014). Non-audit services for 2014 and 2015 conducted by the external auditor included providing professional
+service on internal controls, mergers and acquisitions, tax advisory and other relevant services.
+11,397
+14
+Prepayments, deposits and other assets
+4,588
+7,061
+13
+Accounts receivable
+244
+222
+Inventories
+Current assets
+95,845
+151,440
+4,831
+7,804
+3,674
+Term deposits
+1,209
+5,480
+14
+Prepayments, deposits and other assets
+13,277
+44,339
+12
+Available-for-sale financial assets
+322
+757
+27
+Deferred income tax assets
+63
+16
+544
+Other financial assets
+1,198
+Equity attributable to equity holders of the Company
+RMB'Million
+2014
+RMB'Million
+Note
+2015
+As at 31 December
+EQUITY
+As at 31 December 2015
+Consolidated Statement of Financial Position
+Annual Report 2015
+83
+00
+171,166
+15
+306,818
+75,321
+155,378
+42,713
+43,438
+17(a)
+9,174
+54,731
+17(b)
+Cash and cash equivalents
+Restricted cash
+10,798
+37,331
+16
+Term deposits
+Total assets
+Investments in joint ventures
+2,941
+6,230
+82
+Tencent Holdings Limited
+Hong Kong, 17 March 2016
+PricewaterhouseCoopers
+Certified Public Accountants
+This report, including the opinion, has been prepared for and only for you, as a body, and for no other purpose. We do not
+assume responsibility towards or accept liability to any other person for the contents of this report.
+OTHER MATTERS
+In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company
+and its subsidiaries as at 31 December 2015, and of their financial performance and cash flows for the year then ended
+in accordance with International Financial Reporting Standards and have been properly prepared in compliance with the
+disclosure requirements of the Hong Kong Companies Ordinance.
+OPINION
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
+An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
+financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks
+of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
+assessments, the auditor considers internal control relevant to the entity's preparation of consolidated financial statements
+that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the
+purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the
+appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
+evaluating the overall presentation of the consolidated financial statements.
+Independent Auditor's Report
+Annual Report 2015
+81
+00
+ASSETS
+T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com
+Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
+our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical
+requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
+statements are free from material misstatement.
+AUDITOR'S RESPONSIBILITY
+The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and
+fair view in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong
+Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of
+consolidated financial statements that are free from material misstatement, whether due to fraud or error.
+DIRECTORS' RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
+We have audited the consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries set
+out on pages 83 to 195, which comprise the consolidated statement of financial position as at 31 December 2015, and the
+consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes
+in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting
+policies and other explanatory information.
+(incorporated in the Cayman Islands with limited liability)
+To the shareholders of Tencent Holdings Limited
+羅兵咸永道
+Independent Auditor's Report
+pwc
+80
+Tencent Holdings Limited
+The Company has put in place a framework for the disclosure of inside information in compliance with the SFO. The framework
+sets out the procedures and internal controls for the handling and dissemination of inside information in a timely manner
+so as to allow all the shareholders and stakeholders to apprehend the latest position of the Group. The framework and its
+effectiveness are subject to review on a regular basis according to established procedures.
+Framework for Disclosure of Inside Information
+PricewaterhouseCoopers, 22/F Prince's Building, Central, Hong Kong
+Consolidated Statement of Financial Position
+As at 31 December 2015
+As at 31 December
+10(b)
+Investments in redeemable preference shares of associates
+51,131
+60,171
+10(a)
+Investments in associates
+9,304
+13,439
+9
+Intangible assets
+751
+2,293
+8
+Land use rights
+268
+292
+3,830
+2015
+Note
+RMB'Million
+2014
+RMB'Million
+Non-current assets
+External Auditor and Auditor's Remuneration
+Fixed assets
+Investment properties
+16
+9,973
+7,918
+7
+4,248
+Construction in progress
+Total comprehensive income for the year
+interests
+RMB'Million
+42,148
+48,059
+61,232
+84,499
+Profit before income tax
+15,051
+19,281
+29,013
+36,216
+51,640
+Profit for the year
+12,785
+15,563
+23,888
+41,447
+Profit attributable to equity holders of the Company
+12,732
+15,502
+23,810
+28,806
+41,095
+Total comprehensive income for the year
+13,619
+18,376
+32,659
+21,975
+25,687
+151,938
+Kejizhongyi Avenue
+Tencent Holdings Limited
+Hi-tech Park
+Nanshan District
+Shenzhen, 518057
+The PRC
+2
+Financial Summary
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+Year ended 31 December
+2012
+RMB'Million
+2013
+RMB'Million
+2014
+2015
+RMB'Million
+RMB'Million
+2016
+RMB'Million
+Revenues
+43,894
+60,437
+78,932
+102,863
+Gross profit
+44,723
+48,617
+Total comprehensive income attributable
+95,845
+151,440
+246,745
+36,509
+53,686
+75,321
+155,378
+149,154
+75,256
+107,235
+171,166
+306,818
+395,899
+Equity and liabilities
+Equity attributable to equity holders of the Company
+41,298
+57,945
+Non-controlling interests
+850
+518
+80,013
+2,111
+120,035
+174,624
+53,549
+38,747
+Total assets
+Current assets
+to equity holders of the Company
+Non-GAAP profit attributable to
+equity holders of the Company*
+13,567
+18,327
+21,891
+44,416
+48,194
+14,287
+17,008
+24,737
+700
+32,410
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+2012
+RMB'Million
+As at 31 December
+2013
+2014
+2015
+2016
+RMB'Million
+RMB'Million RMB'Million RMB'Million
+Assets
+Non-current assets
+45,420
+Tencent Building
+STOCK CODE
+TENCENT GROUP HEAD OFFICE
+CONSOLIDATED INCOME STATEMENT
+110 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+111
+CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+114 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+116 CONSOLIDATED STATEMENT OF CASH FLOWS
+118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+227 DEFINITION
+Corporate Information
+DIRECTORS
+Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Independent Non-Executive Directors
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+Yang Siu Shun
+(appointed with effect from
+1 July 2016)
+109
+INDEPENDENT AUDITOR'S REPORT
+100
+ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
+Tencent 腾讯
+Tencent Holdings Limited
+Incorporated in the Cayman Islands with limited liability
+騰訊控股有限公司
+於開曼群島註冊成立的有限公司
+(Stock Code 股份代號:700)
+2016
+smart communication inspires
+Annual Report
+智慧溝通 靈感無限
+CONTENTS
+AUDIT COMMITTEE
+2
+3
+FINANCIAL SUMMARY
+4
+CHAIRMAN'S STATEMENT
+11
+MANAGEMENT DISCUSSION AND ANALYSIS
+27
+DIRECTORS' REPORT
+66
+CORPORATE GOVERNANCE REPORT
+86
+CORPORATE INFORMATION
+2,065
+lain Ferguson Bruce (Chairman)
+Charles St Leger Searle
+PRINCIPAL PLACE OF BUSINESS
+IN HONG KONG
+29/F., Three Pacific Place
+No. 1 Queen's Road East
+Wanchai
+Hong Kong
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+Royal Bank of Canada Trust Company
+(Cayman) Limited
+4th Floor, Royal Bank House
+24 Shedden Road, George Town
+Grand Cayman KY1-1110
+Cayman Islands
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+Computershare Hong Kong Investor
+Services Limited
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+183 Queen's Road East
+Wan Chai, Hong Kong
+COMPANY WEBSITE
+www.tencent.com
+lan Charles Stone
+Yang Siu Shun
+(appointed with effect from
+1 July 2016)
+Grand Cayman KY1-1111
+Cayman Islands
+Hutchins Drive, P.O. Box 2681
+Cricket Square
+REGISTERED OFFICE
+Yang Siu Shun
+(appointed with effect from
+1 July 2016)
+CORPORATE GOVERNANCE
+COMMITTEE
+Charles St Leger Searle (Chairman)
+58,463
+lain Ferguson Bruce
+INVESTMENT COMMITTEE
+Lau Chi Ping Martin (Chairman)
+Ma Huateng
+Charles St Leger Searle
+lan Charles Stone
+NOMINATION COMMITTEE
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+Charles St Leger Searle
+REMUNERATION COMMITTEE
+lan Charles Stone (Chairman)
+Li Dong Sheng
+Jacobus Petrus (Koos) Bekker
+AUDITOR
+PricewaterhouseCoopers
+Certified Public Accountants
+PRINCIPAL BANKER
+The Hongkong and Shanghai Banking
+Corporation Limited
+Ma Huateng (Chairman)
+11,623
+29,108
+27.6%
+Smart device MAU of QQ
+-0.9%
+876.7
+1.8%
+853.1
+868.5
+MAU of QQ
+(in millions, unless specified)
+change
+2016
+change
+2015
+652.5
+2016
+30 September
+on-year
+31 December
+31 December
+Quarter-
+As at
+Year-
+As at
+As at
+Operating Information
+Company Product Highlights
+2.
+on-quarter
+82,124
+641.5
+647.2
+Fee-based VAS registered subscriptions
+2.0%
+583.6
+3.9%
+572.9
+595.2
+Smart device MAU of Qzone
+1.0%
+631.9
+-0.3%
+640.1
+638.0
+1.7%
+MAU of Qzone
+846.1
+108,455
+697.0
+889.3
+Combined MAU of Weixin and WeChat
+-2.5%
+250.0
+1.1%
+241.1
+243.7
+PCU of QQ (for the quarter)
+0.8%
+5.1%
+110.2
+122,100
+Non-current liabilities
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2016 was
+RMB41,095 million, an increase of 43% compared with the results for the previous year. Basic and diluted earnings per share
+for the year ended 31 December 2016 were RMB4.383 and RMB4.329, respectively.
+RESULTS
+I am pleased to present our annual report for the year ended 31 December 2016 to the shareholders.
+Ma Huateng
+Chairman
+Chairman's Statement
+Annual Report 2016
+3
+Comparative figures have been restated retrospectively to conform with the presentation adopted in 2015, whereas, among others,
+we have extended the definition of non-GAAP adjustments to cover that of our material associates. We adopted the new presentation
+in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to be industry
+practice.
+395,899
+306,818
+171,166
+107,235
+The Group's non-GAAP profit attributable to equity holders of the Company for the year ended 31 December 2016 was
+RMB45,420 million, an increase of 40% compared with the results for the previous year. Non-GAAP basic and diluted EPS for
+the year ended 31 December 2016 were RMB4.844 and RMB4.784, respectively.
+75,256
+184,718
+89,042
+48,772
+33,108
+Total equity and liabilities
+Total liabilities
+101,197
+124,406
+50,035
+33,267
+20,665
+Current liabilities
+209,652
+186,247
+Tencent Holdings Limited
+BUSINESS REVIEW AND OUTLOOK
+12,443
+15,505
+39,007
+In addition, we are investing in forefront technologies such as artificial intelligence and machine learning to position
+our "Connection" strategy for the future. We intend to use machine learning to personalise recommendations within
+our digital content services, sharpen our advertising targeting capability, enrich social interactions via features such as
+animated face masks, and save costs by optimising our customer service needs.
+Chairman's Statement
+6
+Tencent Holdings Limited
+Cloud services: Through continued investments in cloud services, we made several internally developed
+technologies available to our corporate clients and partners. We established clear leadership in providing game and
+video industry solutions, and strengthened our position in providing 020 and financial services solutions. During
+the year, we made continued investments in technology and infrastructure, grew our sales force and channel
+partners to drive adoption by more small-scale application developers, and strengthened our overseas capability to
+help Chinese enterprises to deploy their services globally. Our cloud services revenue more than tripled year-on-
+year in 2016 as both the number of enterprise accounts and usage of existing accounts increased substantially.
+Payment related services: We surpassed 600 million mobile payment MAU and average daily payment transactions
+in December 2016. Our payment related services provide fast and seamless experience for a widening range of
+offline consumption scenarios such as taxi booking, convenience stores, restaurants, and supermarkets. We drove
+merchant adoption by working with merchant acquirer agencies and simplifying on-boarding procedures. Our fast
+growing commercial payment transaction volume is diversifying from large online merchants to a broad range of
+offline merchants. Our robust payment infrastructure, which made continuous improvements in payment security,
+service reliability and transaction speed, enabled us to process peak volume of 760,000 red packets per second
+during the Lunar New Year.
+Digital content: Our social platforms played an important role in propelling user growth of our digital content
+platforms, accelerating their growth into successful standalone businesses. Paying users grew significantly during
+the year benefiting from enhanced content, easier payment solutions, and the improved copyright protection
+environment in China. For video, we expanded our subscriber base via further investments in premium content, in
+particular exclusive content where we are deeply involved in production. For music, we drove subscription growth
+with premium content, achieved initial success in digital albums sales, and boosted virtual gifting consumption
+on our karaoke platform. For literature, we boosted user acquisition through reading channels on our portfolio
+applications such as QQ Browser and Mobile QQ, strengthened our anti-piracy efforts, and sought to enhance IP
+value via original productions of movies and TV series.
+Brand advertising: For video, we prioritised sponsorship advertising to better capitalise on our premium inventory.
+For our news applications, we further upgraded our targeting capabilities.
+Social and performance advertising: Our social advertising inventory remained as a key attraction to advertisers,
+leveraging our platform's superior targeting capability, unparalleled consumer reach, and premium brand image.
+We innovated around advertisement formats to enable more native and immersive experience for users, hence
+enhancing performance for marketers. We enabled advertisers and Weixin Official Accounts to select each
+other, better matching relevant advertisements with appropriate content. By improving click-through and sell-
+through rates of our existing inventory, we achieved satisfactory revenue growth without dramatically increasing
+advertisement loading rates.
+4
+Chairman's Statement
+5
+Advertising: For key accounts, we increased our penetration by offering integrated solutions across brand and
+performance advertising products. For long-tail accounts, we successfully grew the number of small and regional
+marketers by sharpening our targeting algorithms, and upgrading our self-service tools for campaign management
+and results measuring.
+Smart phone games: Our strategy is to engage a large pool of casual gamers and gradually advance them to mid-
+core and hard-core categories. During the year, we strengthened our leading position in player-versus-player
+games and expanded our presence in role playing games with a series of successful in-house and licensed titles.
+PC client games: We strived to serve hard-core gamers better via attractive new content for existing titles and via
+user behavioural insights gained from data mining. As a result, our paying user ratio increased year over year. We
+broadened user engagement with our major PC game titles via eSports, game video streaming, and game interest
+groups. Our integrated PC game community, Tencent Game Platform, plays an important role in introducing new
+titles to gamers.
+Online games: Our online games business delivered another year of solid growth. Through data mining, we
+improved performance of our existing titles and gained deeper insights into player behaviours. In China, several of
+our self-created games such as Honour of Kings, Legend of YuLong Mobile and Naruto Mobile achieved significant
+success, and we reinforced our position as the preferred China publisher for local and overseas game developers.
+Internationally, we expanded our presence via investments in companies such as Supercell and Paradox; and we
+also published a few of our internally developed smart phone games in Southeast Asia.
+-
+We also sought to deepen "Connection" between our users and our core business engines:
+Weixin focused on providing more convenience to users' daily life. During the year, Weixin enriched its content
+ecosystem around official accounts and boosted merchant and user adoption for Weixin Pay. In January 2017,
+Weixin launched Mini Program that we believe over time should help us broaden and deepen our service offering
+in low-frequency use cases, connect more offline services to online users, and provide more venues for users to
+sample functionalities offered by apps and thus increase the conversion rate for app downloads.
+QQ increasingly catered to a younger user base by enriching and optimising its entertainment-oriented
+functionalities. From a social perspective, QQ introduced a series of features to make chatting and sharing
+experience more entertaining, such as facial beautifying tools, painting-styled photos, and animated video stickers.
+From a content perspective, QQ stimulated user activities with entertainment-oriented content such as literature,
+cartoons, and short videos.
+In 2016, we strengthened our "Connection" strategy by making our social platforms more interactive for users to
+share and communicate, and by connecting our social platforms to a broader range of online and offline services. We
+increasingly sought to differentiate user experience between our QQ and Weixin platforms.
+Chairman's Statement
+Company Strategic Highlights
+1.
+Annual Report 2016
+94.6
+60,312
+105.0
+Chairman's Statement
+Utility Platforms
+Security: Our mobile security application expanded its industry leadership, ranking first in China in terms of MAU
+according to QuestMobile. We won two world-class security vulnerability discovery contests in 2016, ranking
+number 1 in both Pwn2Own and Mobile Pwn2Own. During 2016, we strengthened our mobile security leadership
+in areas such as virus scanning, phony base-station detection, anti-fraudulent phone number library, phone
+memory optimisation, and speed boosting.
+Application Store: Our application store YingYongBao gained notable market share, overtaking the first movers to
+become the clear market leader. YingYongBao was ranked first among all Android application stores in China by
+QuestMobile in terms of MAU. In addition to application discovery, we also drove user activities with entertainment
+oriented content such as videos, cartoons and literature. During the year, YingYongBao has grown into a significant
+distribution platform for our smart phone games on Android and made meaningful contributions to the growth of
+our social and performance advertising.
+Browser: Our mobile browser strengthened its industry leadership, ranking first in China in terms of MAU according
+to QuestMobile. Personalised recommendations drove robust year-on-year growth in page views and video views.
+QQ Browser also made significant contributions to the user growth of our digital literature services.
+Company Financial Performance
+In fiscal year 2016
+We achieved 48% year-on-year revenue growth. Revenue growth was broad based but particularly driven by smart
+phone games, social and performance advertising, digital content sales, and emerging businesses such as payment
+related services.
+Operating profit grew 38% year-on-year. Operating margin was 37%, down 2 percentage points from the previous year
+due to a mix change in our revenue streams.
+4.
+Company Outlook and Strategies for 2017
+During 2017, we intend to further our "Connection" strategy by expanding our ecosystem around our core social and
+communication platforms via initiatives including:
+Adding more services within our social platforms to bring more convenience to our users, and to create business
+opportunities for our ecosystem partners;
+9
+Annual Report 2016
+Total equity
+16.5%
+3.
+8
+Profit attributable to equity holders of the Company increased by 43% year-on-year. Non-GAAP profit attributable to
+equity holders of the Company increased by 40%. Free cash flow grew 50%. In celebration of the 18th anniversary of the
+Company, to recognise the contributions made by our employees, we granted 300 shares to each employee in November
+2016.
+Including smart phone games revenue attributable to our social networks business.
+5.0%
+Tencent Holdings Limited
+Social and Communication Platforms
+QQ: Smart device MAU increased by 1.7% year-on-year to 652.5 million. PCU including PC and mobile reached
+243.7 million. User activities benefited from our new features such as cmShow, photo beautifying, and animated
+stickers for video. By building AR technology into interactions, QQ attracted 250 million users to open 2 billion
+sponsored red packets during the 5-day Lunar New Year campaign.
+Qzone: Smart device MAU increased by 3.9% year-on-year to 595.2 million. User activities benefited from
+upgraded functionalities such as immersive video streaming, live broadcasting, and upgraded photo features that
+allow family members to maintain joint albums.
+Weixin and WeChat: MAU reached 889.3 million, representing year-on-year growth of 27.6%. During the 24 hours
+of Lunar New Year's Eve, 14 billion red packets were gifted and accepted on Weixin, up 76% from the same period
+last year.
+Annual Report 2016
+Chairman's Statement
+Online Game Platforms
+7
+Online Video: Our video service ranked first in China in terms of mobile video views. The number of paying users
+exceeded 20 million, more than tripled year-on-year. During the year, we gained initial success in original content
+with popular titles such as Candle in the Tomb and When a Snail Falls in Love.
+Online literature: We strengthened our contractual relationships with key authors, and helped long-tail authors to
+achieve better readership via more intelligent content recommendations to readers. The number of daily paying
+readers reached approximately 2.5 million, more than doubled year-on-year, benefiting from reduced piracy.
+Smart phone games: We remained the top smart phone game publisher in China. For iOS, we ranked the number
+1 publisher in the Global Grossing Chart, according to AppAnnie. Our games generally generate more revenue
+on Android than on iOS, because there are more Android users in China, and some of our games appeal more to
+young users who use Android phones more. We achieved approximately RMB10.7 billion revenue¹ in the fourth
+quarter of 2016, representing 51% year-on-year revenue growth, benefiting from portfolio expansion and strong
+operating performance of our major player-versus-player games and role-playing games. As of the end of 2016,
+Honour of Kings surpassed 50 million DAU, setting a new record for smart phone games on our platforms. During
+2016, we continued to gain ground in role playing games with the success of titles such as Fantasy Zhu Xian
+Mobile, JX Mobile, ZhengTu Mobile, and Legend of YuLong Mobile.
+Media and Digital Content Platforms
+-
+News Services: Our news services, including news applications and news plug-ins within our social platforms,
+maintained industry leadership in terms of DAU. Tencent News, the most popular professional news application in
+China, focuses on formal and deep news content. By providing attractive and highly personalised casual reading
+content based on readers' interest graph, Kuaibao established itself as one of the most popular news applications
+in China.
+PC client games: We maintained our leadership as the largest game operator and publishing platform in China,
+operating all three top PC client games in China, namely League of Legends, Dungeon & Fighter and Cross Fire.
+In particular, League of Legends ranked first globally among all PC client games in terms of revenue in 2016,
+according to SuperData. Smart phone games had some negative effect on hours spent on playing PC games,
+especially where we operate both a PC and smart phone game utilising the same IP for example, our shooting
+game Cross Fire. However the combined usage of these IPs across PC and smart phone has generally increased
+substantially.
+Digital music: We expanded our industry-leading music library and strengthened anti-piracy measures. DAU of our
+online karaoke application WeSing reached 35 million in 2016, more than doubled year-on-year, establishing itself
+as the largest online karaoke community in China. Virtual gifting items have gained popularity on WeSing as a tool
+for the audience to interact with the singers.
+When a report of suspected fraudulent activities is received, the anti-fraud investigation team, which consists of professionals
+with profound knowledge in fraud risk management and solid fraud investigation experiences, is assigned to handle the
+investigation independently. After an investigation has been completed, the employee found and proven to have committed
+such fraud shall be subject to immediate dismissal, and corrective actions shall be taken in response to the findings at the
+same time. In the event that any fraudulent activity violates any relevant laws or regulations, such cases shall be reported to
+government authorities.
+95
+Annual Report 2016
+Environmental, Social and Governance Report
+Three lines of defence
+In 2016, the Group strictly abided by all applicable laws and regulations on anti-money laundering and anti-terrorism financing,
+and fulfilled its social responsibilities and legal obligations on anti-money laundering.
+We treat financial security as the lifeline of our business and have implemented sound financial crime control mechanisms in
+our business development. We have robust systems and measures to detect, deter and protect our business from involvement
+in financial crimes such as money laundering and terrorist financing. Our protective measures include, but are not limited to,
+the following:
+Concurrently, in order to protect and safeguard the interests of the Group and to maintain integrity in the Group's business
+dealings, we have adopted an Anti-fraud and Whistleblowing Policy (the "Policy"), which clearly conveys the message of zero-
+tolerance in relation to fraudulent activity to all the employees and suppliers/business partners. All employees and suppliers/
+business partners are encouraged to report genuine concerns about any potential fraudulent activities. The Policy outlines
+the multiple whistleblowing channels and how the Group should deal with such concerns, so that employees and suppliers/
+business partners can report their good faith concerns without fear of reprisal or potential retaliation.
+Our first line of defence is the product team and the business development team. The risk management team and anti-money
+laundering team serve as the second line while the internal audit team acts as the third line of defence.
+Anti-Money Laundering
+In 2005, we formulated the Sunshine Code based on the core value of the Group -“Integrity". All employees of the entire
+Group are required to follow and to strictly comply with the Sunshine Code. It expressly prohibits all kinds of fraudulent activity,
+bribery, and any other activities which are not in compliance with applicable laws and regulations. To ensure our employees
+comply with the requirements stipulated in the Sunshine Code, all employees are required to complete e-learning programmes
+and attend various face-to-face training programmes introducing the rules and standards of the Sunshine Code on a regular
+basis.
+In 2006, some of our employees founded the Tencent Volunteers' Association on their own initiative in response to our
+corporate vision of being “the most respected Internet company". Since then, the Tencent Volunteers' Association has
+contributed more than 100,000 hours of voluntary services. We launch more than 200 volunteering activities with more than
+5,000 participants every year. In 2016, the Tencent Volunteers' Association was awarded a spot in the list of Top 10 Best
+Volunteer Organisations in Guangdong Province.
+Environmental, Social and Governance Report
+94
+94
+Tencent Holdings Limited
+In order to encourage employees to participate in volunteer service, employees, since April 2012, have been granted one day
+of fully-paid volunteer service leave per year.
+The Tencent Volunteers' Association combines its expertise in technology to help the community. For example, it has set up
+an online platform to help search for missing persons with the assistance of our marketing and advertising resources and
+technology. As at the date of this report, more than 40 missing children have been found through our platform.
+There are eight sub-divisions under the Tencent Volunteers' Association in various cities including Beijing, Shanghai, Chengdu
+and Guangzhou. These sub-divisions include poverty support, scholarship, environmental protection, care for children with
+special needs and green network. The Tencent Volunteers' Association works closely with the Tencent Foundation in relation to
+the funding of the projects.
+Volunteering
+The Tencent Foundation has donated approximately RMB13 million in aggregate to help underprivileged children with medical
+conditions (such as autism and cerebral palsy) in developing areas. For example, in 2016, it donated RMB5 million to the
+Ai You Foundation to set up two child focused medical care centres for orphaned patients in Chongqing and Urumqi. It also
+donated RMB200,000 to the Shenzhen Children's Hospital to build an interactive activity room "Vcare" for children patients.
+Medical care
+Anti-money laundering and internal control systems
+The Tencent Foundation has sponsored charitable organisations such as the China Charity Foundation Development Centre,
+the China Foundation for Development of Financial Education and the China Charity Alliance.
+Anti-Corruption
+We have: (i) formulated a set of anti-money laundering policies based on the applicable anti-money laundering laws and
+regulations; (ii) implemented an anti-money laundering monitoring system; and (iii) set up a dedicated anti-money laundering
+team, which is solely responsible for compliance management, anti-money laundering name screening and suspicious
+Environmental, Social and Governance Report
+Other control measures
+Tencent Holdings Limited
+We have been actively implementing various measures to ensure compliance with the relevant laws, regulations and
+policies. For instance, we have already obtained the relevant credentials for operating online games, for example, the
+Telecommunication Business Operation Permit, the Online Publishing Service Licence and the Internet Culture Business
+Permit. To safeguard the physical and mental health of online game users and adolescents, we have implemented the real-
+name system and anti-addiction system in accordance with the regulatory requirements of the PRC and strengthened the
+promotion of healthy gaming and anti-addiction through various channels.
+The laws, regulations and policies relating to online gaming mainly include: (i) "The Regulation on Internet Information
+Service of the People's Republic of China" promulgated by the State Council; (ii) "The Provisions on the Administration of
+Online Publishing Services" promulgated by the State Administration of Press, Publication, Radio, Film and Television and the
+Ministry of Industry and Information Technology; and (iii) "The Interim Provisions on the Administration of Internet Culture"
+and "The Interim Measures for the Administration of Online Games" promulgated by the Ministry of Culture. The aims of such
+laws include the regulation of the qualifications of operating entities of online games, the regulation of the content of online
+games, the protection for the physical and mental health of online game users and adolescents and the privacy protection of
+the personal data of users.
+The government authorities in the PRC which regulate the online gaming business include: (i) the Ministry of Culture; (ii) the
+State Administration of Press, Publication, Radio, Film and Television; (iii) the Ministry of Industry and Information Technology;
+and (iv) the State Administration for Industry & Commerce.
+One of our important businesses is our online gaming business. We need to comply with the laws, regulations and policy
+requirements in relation to online gaming in the PRC.
+Healthy Environment for our Users
+We actively participate in shaping the development of the industry framework on privacy protection and we have been
+accredited with privacy certifications from TRUSTe for WeChat, which is the leading global data privacy management company
+and powers trust in the data economy by enabling businesses to safely collect and use customer data across web, mobile,
+cloud and advertising channels.
+To ensure that our users understand how we protect their personal information and enhance the transparency of how we
+collect and process the data, we publish our privacy protection policies on our product websites and in-app products. We also
+provide communication channels for our users to file complaints and raise enquiries whenever they are in doubt.
+We provide training to our employees to enhance their privacy protection awareness and build up the cultural awareness of the
+importance of privacy protection.
+Community development
+Annual Report 2016
+97
+transaction monitoring.
+We have a dedicated privacy team within the Legal Department which is responsible for handling data protection matters.
+We have devised specific procedures to collect and process user data to ensure that we provide our products and services in
+accordance with applicable legal requirements. We evaluate specific products from the perspective of privacy protection on
+a regular basis and perform privacy risk assessments before the launch of new products to ensure that our products are not
+exposed to the risk of privacy infringement or leakage of user data.
+User Privacy
+We strive to provide the best user experience and pay high attention to the quality of our products and services. We conduct
+strict reviews of our product and service offerings and related sales and marketing strategies and materials to ensure their
+compliance with applicable laws and regulations. We also build in safeguards on user privacy, product safety and IP rights as
+described below.
+PRODUCT RESPONSIBILITY
+During the year ended 31 December 2016, all suppliers which were formally engaged have completed the Self-Assessment
+and signed the Anti-commercial Bribery Declaration. We are not aware of any of our suppliers engaging in commercial bribery,
+or being materially and adversely affected by issues relating to environmental and social responsibility.
+In the course of supplier engagement, potential suppliers are required to conduct self-assessment on their commitment,
+amongst other things, to environmental protection, social responsibility, and health and safety at work (the "Self-Assessment”).
+Suppliers which are formally engaged by us are also required to agree to the terms of a declaration and undertaking in relation
+to anti-commercial bribery in doing business with our Group (the "Anti-commercial Bribery Declaration").
+To enhance the social responsibility awareness of our employees, we have formulated a code of conduct which those
+employees engaging in procurement activities must adhere to. To minimise the ethics risks, such employees are also required
+to declare any relationship they may have with our suppliers in writing.
+Our supply chain management programme attaches supreme importance to managing the ethics risk associated with the
+relationship between our procurement employees and our business partners. It also focuses on teaching those employees who
+are involved in procurement to recognise and mitigate the inherent risks.
+SUPPLY CHAIN MANAGEMENT
+Environmental, Social and Governance Report
+96
+Tencent Holdings Limited
+We have further improved the anti-money laundering compliance and internal risk control mechanisms by: (i) recruiting more
+anti-money laundering professionals for suspicious transaction review and analysis in order to enhance the effectiveness and
+specialisation level of anti-money laundering; (ii) strengthening the requirements for the know-your-customer procedures; (iii)
+enhancing the overall monitoring system of suspicious transaction and manual analysis; (iv) cooperating with regulators and
+law enforcement on anti-money laundering investigation; (v) actively participating in the strike on terrorism and corruption
+internationally, in order to prevent money laundering and upstream criminal activities; and (vi) carrying out various forms of
+training, education, and public relation activities on anti-money laundering.
+To uphold our dedication to value creation for our users, amongst other user specific aims, one of our important missions is to
+protect the privacy of user data and other sensitive information. We comply with all the applicable laws on privacy protection,
+and incorporate applicable legal and regulatory requirements on privacy protection into our internal compliance policies taking
+into account the specific features of our products and services.
+Environmental, Social and Governance Report
+We have been voted as one of the best employers in the PRC for five consecutive years since 2012 in a survey jointly
+conducted by zhaopin.com and the Institute of Social Science Survey, Peking University. We care for the well-being of our
+employees. For example, we celebrate special occasions of our employees (e.g. anniversary of joining us, wedding and
+festivities) by giving them different employee benefits. We strive to create work-life balance and a safe and comfortable work
+environment for employees. Employees have the flexibility to choose the most suitable insurance plans for themselves and their
+families.
+93
+We have a designated team in charge of the physical and mental health of employees. We arrange annual medical checkups
+for employees and organise health seminars, fitness sessions, on-site medical consultations as well as face-to-face and
+telephone counselling from time to time.
+Our contribution to social insurance in the PRC is in compliance with applicable laws and regulations and we offer various
+supplemental insurance benefits to employees and their families (including medical insurance, critical illness insurance,
+accident insurance and life insurance).
+Communication
+We strive to create a casual yet sophisticated communication channel with customised content for our employees. There
+are annual rallies for employees and management, face-to-face discussion forums, featured magazines and social media
+platforms. The corporate strategy and culture are communicated and reinforced through these products and communication
+channels.
+91
+Annual Report 2016
+Ecological conservation and cultural preservation
+The Tencent Foundation has set up scholarships to promote education in the PRC, Hong Kong and other countries throughout
+the years. There are also specific donations for different education initiatives. For example, it donated RMB100 million to
+support the future education reform in a secondary school in Shenzhen. In 2013, it also set up a RMB1 million fund to sponsor
+the five-year development programme of a secondary school in Sichuan after the earthquake of that year. In 2016, it donated
+RMB5.35 million in aggregate in the education related projects.
+Education
+In 2009, the Tencent Foundation donated no less than RMB50 million on an experimental charity project in Yunnan for the
+purpose of rediscovering the value of villages and connecting villagers by increasing Internet penetration in rural areas.
+Rural development
+In response to recent natural disasters in the PRC as well as globally, the Tencent Foundation has created a multifaceted
+disaster relief model by combining our various products including online platforms, instant messengers, online payment and
+Internet search to help the public follow the latest news, participate in rescue efforts and make donations. In addition, the
+Tencent Foundation has made donations to support the rescue missions and post-disaster reconstructions. For example,
+the Tencent Foundation donated RMB2 million for the earthquake in Nepal in 2015 and paid the transportation costs of
+RMB100,000 for the relief supplies. In 2016, it donated approximately RMB4 million to support the emergency rescue
+missions in the PRC floods.
+We strive to provide a safe and comfortable work environment for our employees. There are well-established security and fire
+service systems and food safety monitoring system.
+Disaster relief
+92
+92
+Tencent Holdings Limited
+In addition to operating the online charity platform, the Tencent Foundation is also actively involved in charity work in the
+following areas: (i) disaster relief; (ii) rural development; (iii) education; (iv) ecological conservation and cultural preservation; (v)
+community development; and (vi) medical care.
+As of 31 December 2016, our Group and our employees have donated over RMB1.9 billion and RMB60 million in total to the
+Tencent Foundation respectively since its establishment. During the year 2016, our Group and our employees have donated
+RMB570 million and RMB10.5 million to the Tencent Foundation respectively.
+Over 4,000 charitable organisations have joined our online charity platform and initiated more than 20,000 charity projects in
+different locations with different focuses. The total number of donations made by the Internet users is approximately 91 million
+and the total amount of the funds raised is over RMB1.57 billion.
+In June 2007, the Tencent Foundation leveraged on our Internet technical capabilities and online platforms to build the first
+online public fundraising platform. It is designed, developed and operated by the Tencent Foundation while we provide server,
+broadband and other technical support for free. The platform is open for eligible charitable organisations free of charge.
+It allows charitable works to be performed more conveniently, smoothly and transparently. This is a good example of the
+application of the concept of "Internet+".
+We set up the Tencent Charity Foundation (the "Tencent Foundation") on 26 June 2007. It is a non-public fundraising
+foundation incorporated in the PRC and a separate legal entity. We commit to donating certain portion of our profits to the
+Tencent Foundation every year for the purpose of supporting charitable works including but not limited to developing an online
+charity platform, poverty relief, disaster relief and education development. As the first charity foundation set up by an Internet
+company in the PRC, the Tencent Foundation promotes the idea of "Charity 2.0" (i.e. everyone can participate in the charity
+work anytime and anywhere, and even small donations count).
+Community Investment
+COMMUNITY
+Environmental, Social and Governance Report
+98
+Environmental, Social and Governance Report
+Annual Report 2016
+Occupational Health and Safety
+We have implemented various initiatives such as flexi-time arrangements and volunteer service leave to help employees strike
+a good work-life balance. The leave scheme allows employees to enjoy annual leave, fully-paid sick leave, half-paid leave of
+absence and fully-paid special Chinese New Year leave which are above the statutory standard. Also, female employees are
+entitled to take fully-paid maternity leave, while male employees are also entitled to take fully-paid paternity leave. Employees
+can also apply for one day of fully-paid volunteer service leave per year.
+The Tencent Foundation is keen on environmental protection and cultural preservation. For example, it donated RMB6.1
+million to the Sichuan Western Nature Preservation Foundation in 2015 and RMB12.5 million to the China Foundation for
+Cultural Heritage Conservation for the establishment of "Great Wall Funds" in 2016.
+Annual Report 2016
+99
+Looking forward, we will continue to devote great efforts and resources to observe and protect IP rights.
+Within the past decade, we have several times been awarded “China Patent Gold Awards" by the State Intellectual
+Property Office of the PRC and “China Trademark Awards" jointly by World Intellectual Property Organization and the State
+Administration for Industry & Commerce of the PRC, signifying our contribution to the development of independent innovation
+of the PRC. We have also several times been awarded "National Copyright Demonstration Unit", recognising our outstanding
+performance in management and protection of copyright.
+We actively participate in public affairs and strive to promote the awareness of IP protection in the Internet industry. As
+members of the China National Information Technology Standardisation Committee, the China Intellectual Property Society,
+the Patent Protection Association of China, the World Wide Web Consortium, the International Trademark Association and
+the China Trademark Association, we have participated in the consultations on legislative amendments to the PRC laws and
+regulations relating to patents, trademarks and anti-competition and have made recommendations in the development of
+industry standards.
+We began a comprehensive programme for the management of IP at an early stage. We have consistently applied for the
+registration of IP rights since the early stages of its establishment. With the successful development of our business, we have
+expanded our global IP portfolio to cover more than 100 countries and regions. As of 31 December 2016, we had obtained
+over 10,000 officially registered trademarks and over 5,000 issued patents. Coupled with our creation of a vast amount of
+copyrighted content, we have accumulated IP assets of considerable value. Our IP team has developed a comprehensive
+database for our patents, trademarks and copyrights and our strong data analytical skills enable us to manage and monitor
+our IP rights in a meticulous and efficient manner. To combat infringement of IP rights, our IP team has also established a
+comprehensive and efficient monitoring and maintenance system, and has devised various civil, criminal and administrative
+enforcement measures to enforce our IP rights. Please see further details on the Company Website (https://www.tencent.com/
+legal/html/en-us/property.html).
+We are a technology-oriented company and we stress the importance of the observation and protection of IP rights. We have
+established a dedicated IP team with approximately 80 employees as of 31 December 2016 that is responsible for the day-to-
+day management of legal matters involving trademark, patent, copyright, domain names and other IP rights.
+Intellectual Property Rights
+Environmental, Social and Governance Report
+Equal Opportunities and Diversity
+We have a full-time staff of 38,775 as at 31 December 2016. Our employment practice is in compliance with applicable laws
+and regulations (including but not limited to those which prohibit child and forced labour) and does not discriminate on the
+grounds of gender, ethnicity, race, disability, age, religious belief, sexual orientation or family status. Diversity is well supported
+in our corporate culture.
+We also organise a wide variety of recreational and leisure activities (e.g. running, photography, music, dance, language
+classes) for employees.
+Compensation and Benefits
+We offer competitive pay and employee benefits to attract and retain talent. The remuneration and bonus system is
+performance-based and designed to reward employees with high performance and great potential.
+Benefits
+The basic benefits system was built and is maintained in accordance with relevant laws, regulations and market practice. In
+addition, certain special benefits are created to motivate employees and advance our strategy.
+Promotion
+Employees may apply for promotion during their interim and year-end performance reviews, provided that they satisfy the
+requirements with regards to the length of service and performance. Depending on the practice area, the promotion will be
+reviewed and considered by different internal committees. The promotion review process is fair and open there is a formal
+channel for our employees to provide and receive feedback. The promotion review is conducted in compliance with applicable
+laws and regulations.
+Tencent Holdings Limited
+06
+90
+Environmental, Social and Governance Report
+Employee Departure
+We value our relationship with our employees and handle employee departure (whether by resignation or dismissal) strictly in
+accordance with applicable laws and regulations.
+Work-Life Balance
+Compensation
+Environmental, Social and Governance Report
+84,499
+105
+(7,993)
+General and administrative expenses
+8
+(22,459)
+(16,825)
+Operating profit
+56,117
+40,627
+Finance costs, net
+9
+(1,955)
+(1,618)
+(12,136)
+Share of losses of associates and joint ventures
+(2,522)
+(2,793)
+Profit before income tax
+51,640
+36,216
+Income tax expense
+(10,193)
+(7,108)
+Profit for the year
+41,447
+29,108
+Attributable to:
+10
+8
+1,886
+3,594
+(41,631)
+(67,439)
+8
+102,863
+151,938
+500
+Interest income
+Gross profit
+Cost of revenues
+4,726
+17,158
+17,468
+26,970
+80,669
+107,810
+Others
+Online advertising
+Value-added services
+Revenues
+RMB'Million
+2015
+Other gains, net
+Selling and marketing expenses
+6∞ ∞
+2,619
+2,327
+7
+Equity holders of the Company
+Non-controlling interests
+Earnings per share for profit attributable to equity holders of the Company
+(in RMB per share)
+We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
+audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
+Independent Auditor's Report
+Annual Report 2016
+107
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
+within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
+supervision and performance of the group audit. We remain solely responsible for our audit opinion.
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
+disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
+manner that achieves fair presentation.
+concern.
+61,232
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
+disclosures made by the directors.
+Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal
+control.
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
+or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
+and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
+fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
+misrepresentations, or the override of internal control.
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
+throughout the audit. We also:
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
+from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report
+our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to
+any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee
+that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can
+arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
+influence the economic decisions of users taken on the basis of these consolidated financial statements.
+AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
+Independent Auditor's Report
+106
+Tencent Holdings Limited
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as
+a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
+unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and
+fair view in accordance with IFRSS and the disclosure requirements of the Hong Kong Companies Ordinance, and for such
+internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are
+free from material misstatement, whether due to fraud or error.
+RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
+FINANCIAL STATEMENTS
+If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
+required to report that fact. We have nothing to report in this regard.
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
+in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
+knowledge obtained in the audit or otherwise appears to be materially misstated.
+Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
+assurance conclusion thereon.
+The directors of the Company are responsible for the other information. The other information comprises all of the information
+included in the annual report other than the consolidated financial statements and our auditor's report thereon.
+OTHER INFORMATION
+Independent Auditor's Report
+Annual Report 2016
+We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
+regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
+bear on our independence, and where applicable, related safeguards.
+We involved our internal valuation experts to discuss with
+management and assess the appropriateness of valuation
+methodology and assumptions used. We tested, on a sample
+basis, valuation of Level 3 financial instruments as at 31
+December 2016 by evaluating the underlying assumptions
+including discount rates, projected growth rates, marketability
+discount, market information of comparable companies
+(such as recent transactions and earnings multiples) based
+on our industry knowledge as well as underlying supporting
+documentation. We also tested, on a sample basis, the
+arithmetical accuracy of the valuation computation. We
+found that the valuation methodology of Level 3 financial
+instruments is acceptable and the assumptions made by
+management are supported by available evidence.
+From the matters communicated with those charged with governance, we determine those matters that were of most
+significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
+matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the
+matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
+because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
+communication.
+PricewaterhouseCoopers
+- basic
+- diluted
+41,095
+28,806
+352
+302
+41,447
+29,108
+12(a)
+4.383
+3.097
+12(b)
+4.329
+3.055
+The notes on pages 118 to 226 are an integral part of these consolidated financial statements.
+109
+Annual Report 2016
+RMB'Million
+Note
+2016
+Year ended 31 December
+For the year ended 31 December 2016
+Consolidated Income Statement
+108
+Tencent Holdings Limited
+Hong Kong, 22 March 2017
+Certified Public Accountants
+The engagement partner on the audit resulting in this independent auditor's report is Wilson W. Y. Chow.
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit
+evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
+on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
+to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
+disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
+date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going
+11
+Independent Auditor's Report
+In respect of the impairment assessments of cash generating
+units that containing goodwill, investments in associates and
+investments in redeemable instruments of associates using
+discounted cash flows, we assessed the key assumptions
+adopted including revenue growth rate, discount rate and
+other working capital requirement assumptions by examining
+the approved financial/business forecast models, and
+comparing actual results for the year against the previous
+period's forecasts and the applicable industry/business data
+external to the Group. We assessed certain of these key
+assumptions with the involvement of our internal valuation
+experts. We considered that the key assumptions adopted by
+management are in line with our expectation and evidence
+obtained.
+Management adopted different valuation models, on a case
+by case basis, in carrying out the impairment assessments,
+mainly including discounted cash flows and market approach.
+We assessed, on a sample basis, the basis management
+used to identify separate groups of cash generating units
+that containing goodwill, the impairment approaches and
+the valuation models used in management's impairment
+assessments, which we found them to be appropriate.
+We also tested, on a sample basis, key controls in respect of
+the impairment assessments, including the determination of
+appropriate impairment approaches, valuation models and
+assumptions and the calculation of impairment provisions,
+which we found no material exceptions.
+We tested management's assessment including periodic
+impairment indications evaluation as to whether indicators
+of impairment exist by corroborating with management and
+market information.
+How our audit addressed the Key Audit Matter
+We focused on this area due to the magnitude of the
+carrying amounts of these assets and the fact that significant
+judgements were required by management (i) to identify
+whether any impairment indicators existed for any of these
+assets during the year; (ii) to determine the appropriate
+impairment approaches, i.e. fair value less costs of disposal or
+value in use; and (iii) to select key assumptions to be adopted
+in the valuation models, including discounted cash flows and
+market approach, for the impairment assessments.
+As at 31 December 2016, the Group held significant amounts
+of goodwill, investments in associates and investments
+in redeemable instruments of associates amounting to
+RMB22,927 million, RMB70,042 million and RMB9,627
+million, respectively. Impairment provision of RMB277
+million, RMB2,117 million and RMB1,298 million had been
+recognised during the year ended 31 December 2016 against
+the carrying amounts, respectively.
+Refer to Notes 4(b), 19, 20 and 22 to the consolidated
+financial statements
+Impairment assessments of goodwill, investments in associates
+and investments in redeemable instruments of associates
+Key Audit Matter
+Independent Auditor's Report
+102
+Tencent Holdings Limited
+We found that the results of our procedures performed to
+be materially consistent with management's supporting
+documentation.
+We assessed, on a sample basis, the expected users'
+relationship periods adopted by management by testing
+the data integrity of historical users' consumption pattern
+and calculation of the churn rates. We also evaluated the
+consideration made by management in determining the
+underlying assumptions for expected users' relationship
+periods with reference to historical operating and marketing
+data of the relevant games. We also assessed, on a sample
+basis, the historical accuracy of the management's estimation
+process by comparing the actual users' relationship periods
+for the year against the original estimation for selected virtual
+products/items.
+We tested, on a sample basis, key controls in respect of
+the recognition of revenue from sales of virtual products/
+items, including management's review and approval of
+(i) determination of the estimated lifespan of new virtual
+products/items prior to their launches; and (ii) changes in the
+estimated lifespan of existing virtual products/items based
+on periodic reassessment on any indications triggering such
+changes. We also assessed the data generated from the
+Group's information system supporting the management's
+review, including testing the information system logic for
+generation of reports, and checking, on a sample basis, the
+monthly computation of revenue recognised on selected
+virtual products/items generated directly from the Group's
+information system.
+We discussed with management and evaluated their
+judgements on key assumptions in determining the estimated
+lifespan of the virtual products/items that were based on the
+expected users' relationship periods.
+How our audit addressed the Key Audit Matter
+We focused on this area due to the fact that management
+applied significant judgements in determining the expected
+users' relationship periods for certain virtual products/
+items. These judgements included (i) the determination of
+key assumptions applied in the expected users' relationship
+periods, including but not limited to historical users'
+consumption pattern, churn rates and reactivity on marketing
+activities, games life-cycle, as well as the Group's marketing
+strategy; and (ii) the identification of events that may trigger
+changes in the expected users' relationship periods.
+103
+During the year ended 31 December 2016, a majority of the
+Group's revenue from value added services was contributed
+from online/mobile games and was predominately derived
+from the sales of virtual products/items.
+Annual Report 2016
+Key Audit Matter
+How our audit addressed the Key Audit Matter
+We focused on this area due to the high degree of judgement
+required in determining the respective fair values of Level 3
+financial instruments, which do not have direct open market
+quoted values, with respect to the adoption of applicable
+valuation methodology and the application of appropriate
+assumptions in the valuation.
+As at 31 December 2016, the Group's financial assets
+which were carried at fair value comprised available-for-sale
+financial assets and other derivative financial instruments of
+approximately RMB83,806 million and RMB3,409 million,
+respectively, of which approximately RMB65,599 million of
+these financial assets were measured based on significant
+unobservable inputs and classified as "Level 3 financial
+instruments".
+Refer to Notes 3.3, 23 and 25 to the consolidated financial
+statements
+financial instruments
+Fair value measurement of financial instruments, including
+available-for-sale financial assets and other derivative
+Key Audit Matter
+104
+Tencent Holdings Limited
+We also assessed the terms and conditions of selected
+significant investments, including evaluation of indication
+or evidence of power found in the detailed arrangement of
+these investments, in order to assess whether appropriate
+classification had been adopted by management in relation to
+those investments based on the consideration of the totality of
+facts, which we found no material exceptions.
+We read the contracts and agreements in relation to those
+significant investments made in the current year and
+discussed with management to obtain an understanding on
+the details of such investments, including relevant activities
+of the investee companies and how decisions about those
+activities are made, how the Group and other investors
+participate in the decisions, the rights and power of the
+Group and other investors on the investee companies,
+other arrangements or transactions among the Group, other
+investors and the investee companies and respective returns
+from the investments. We also discussed with management
+and obtained management assessment to understand their
+critical judgements and the classification that they had
+applied.
+We focused on this area due to the magnitude of the
+investments and the fact that significant judgements were
+made by management in determining the appropriate
+classification for certain investments that involved complex
+terms and arrangements.
+During the year ended 31 December 2016, the Group
+made significant amounts of investments under different
+arrangements or in different forms of financial instruments, in
+an aggregate amount of approximately RMB61,525 million.
+Refer to Note 20, 22, 23, 39 and 40 to the consolidated
+financial statements
+Classification of investments
+We independently tested, on a sample basis, the accuracy of
+mathematical calculation applied in the valuation models and
+the calculation of impairment charges. We did not identify any
+material exceptions from our testing.
+In respect of the impairment assessments of cash
+generating units that containing goodwill and investments
+in associates using market approach, we assessed the
+valuation assumptions including the selection of comparable
+companies, recent market transactions, and liquidity
+discount for lack of marketability, etc. We assessed these key
+assumptions adopted by management with the involvement
+of our internal valuation experts based on our industry
+knowledge and independent research performed by us. We
+considered that the key assumptions adopted by management
+are in line with our expectation and evidence obtained.
+How our audit addressed the Key Audit Matter
+Impairment assessments of goodwill, investments in associates
+and investments in redeemable instruments of associates
+(Cont'd)
+Independent Auditor's Report
+The Group has recognised revenue from sales of virtual
+products/items to the users in respect of value added services
+rendered on the Group's Internet and mobile platforms. The
+relevant revenue is recognised over the lifespan of respective
+virtual products/items which was determined by the
+management, on an item by item basis, with reference to the
+expected users' relationship periods or the stipulated period
+of validity of the relevant virtual products/items, depending on
+the terms of the virtual products/items.
+In respect of the fair value measurement of Level 3 financial
+instruments, we tested the key controls, on a sample basis,
+in relation to the valuation process including the adoption
+of applicable valuation methodology and the application
+of appropriate assumptions in different circumstances, by
+inspection of the evidence of management's review, which we
+found no material exceptions.
+items
+the notes to the consolidated financial statements, which include a summary of significant accounting policies.
+•
+the consolidated statement of cash flows for the year then ended; and
+the consolidated statement of changes in equity for the year then ended;
+the consolidated statement of comprehensive income for the year then ended;
+•
+•
+the consolidated income statement for the year then ended;
+•
+the consolidated statement of financial position as at 31 December 2016;
+•
+The consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries (the "Group") set out
+on pages 109 to 226, which comprise:
+羅兵咸永道
+What we have audited
+Refer to Note 4(a) to the consolidated financial statements
+(incorporated in the Cayman Islands with limited liability)
+To the shareholders of Tencent Holdings Limited
+pwc
+Independent Auditor's Report
+Our opinion
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group
+as at 31 December 2016, and of its consolidated financial performance and its consolidated cash flows for the year then ended
+in accordance with International Financial Reporting Standards ("IFRSS") and have been properly prepared in compliance with
+the disclosure requirements of the Hong Kong Companies Ordinance.
+OPINION
+100
+Tencent Holdings Limited
+Revenue recognition on provision of online/mobile games value
+added services estimates of the lifespan of virtual products/
+Key Audit Matter
+Annual Report 2016
+101
+Fair value measurement of financial instruments, including available-for-sale financial assets and other derivative
+financial instruments
+• Classification of investments
+Impairment assessments of goodwill, investments in associates and investments in redeemable instruments of associates
+Revenue recognition on provision of online/mobile games value added services estimates of the lifespan of virtual
+products/items
+•
+Independent Auditor's Report
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
+consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
+these matters.
+KEY AUDIT MATTERS
+We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics
+for Professional Accountants ("IESBA Code"), and we have fulfilled our other ethical responsibilities in accordance with the
+IESBA Code.
+Independence
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
+We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those
+standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
+of our report.
+BASIS FOR OPINION
+Key audit matters identified in our audit are summarised as follows:
+Independent Auditor's Report
+RMB'Million
+Note
+2016
+As at 31 December
+As at 31 December 2016
+Consolidated Statement of Financial Position
+Current liabilities
+108,455
+Tencent Holdings Limited
+60,312
+3,004
+2,038
+36
+2015
+3,668
+Deferred revenue
+112
+RMB'Million
+70,199
+37
+5,153
+Current income tax liabilities
+3,886
+3,466
+34
+Notes payable
+11,429
+Accounts payable
+12,278
+20,873
+15,700
+27,413
+www
+Borrowings
+38
+Other payables and accruals
+33
+26
+Shares held
+2,576
+Non-controlling interests
+120,035
+174,624
+100,012
+136,743
+9,673
+23,693
+Total equity
+(1,817)
+12,167
+17,324
+wwww
+31
+30
+Retained earnings
+5,219
+(3,136)
+Deferred income tax liabilities
+11,623
+186,247
+Other financial liabilities
+3,626
+4,935
+35
+Long-term payables
+37,092
+36,204
+2,065
+34
+12,922
+57,549
+33
+Borrowings
+Non-current liabilities
+LIABILITIES
+122,100
+Notes payable
+1,608
+RMB'Million
+745
+41,447
+352
+41,095
+41,095
+863
+122,100
+2,065
+120,035
+100,012
+9,673
+(1,817)
+12,167
+Other reserves
+Total equity
+interests
+RMB'Million
+863
+863
+- net gains from changes in fair value of available-for-
+sale financial assets
+2,929
+- other fair value gains, net
+356
+356
+356
+4,198
+71
+4,127
+RMB'Million
+4,127
+(1,176)
+(1,176)
+(1,176)
+sale financial assets
+- transfer to profit or loss upon disposal of available-for-
+2,929
+2,929
+-currency translation differences
+Total
+earnings
+RMB'Million
+reserves
+RMB'Million
+Ma Huateng
+Director
+The consolidated financial statements on pages 109 to 226 were approved by the Board of Directors on 22 March 2017 and
+were signed on its behalf:
+The notes on pages 118 to 226 are an integral part of these consolidated financial statements.
+306,818
+395,899
+184,718
+209,652
+Lau Chi Ping Martin
+Total equity and liabilities
+124,406
+101,197
+21,122
+31,203
+36
+Deferred revenue
+462
+Total liabilities
+Other tax liabilities
+Director
+Annual Report 2016
+controlling
+Retained
+Other
+for share
+premium award schemes
+RMB'Million RMB'Million
+Share capital
+RMB'Million
+Share
+Non-
+113
+Shares held
+-share of other comprehensive income of associates
+Other comprehensive income, net of tax:
+Profit for the year
+Comprehensive income
+Balance at 1 January 2016
+For the year ended 31 December 2016
+Consolidated Statement of Changes in Equity
+Attributable to equity holders of the Company
+Shares held for share award schemes
+28
+Share premium
+Property, plant and equipment
+Non-current assets
+ASSETS
+RMB'Million
+2015
+RMB'Million
+Note
+2016
+As at 31 December
+As at 31 December 2016
+Consolidated Statement of Financial Position
+44,723
+48,617
+307
+44,416
+Construction in progress
+Investment properties
+16
+13,900
+20
+Investments in associates
+13,439
+36,467
+19
+Intangible assets
+2,293
+48,194
+423
+5,174
+Land use rights
+292
+854
+4,248
+4,674
+17
+9,973
+18
+44,723
+48,617
+15,615
+Net gains from changes in fair value of available-for-sale financial assets
+Transfer to profit or loss upon disposal of available-for-sale financial assets
+Currency translation differences
+329
+863
+Share of other comprehensive income of associates
+Items that may be subsequently reclassified to profit or loss
+29,108
+41,447
+2,929
+RMB'Million
+RMB'Million
+2016
+Year ended 31 December
+Other comprehensive income, net of tax:
+Profit for the year
+For the year ended 31 December 2016
+Consolidated Statement of Comprehensive Income
+2015
+70,042
+12,586
+(11)
+7,170
+736
+(244)
+110
+Tencent Holdings Limited
+The notes on pages 118 to 226 are an integral part of these consolidated financial statements.
+Non-controlling interests
+(1,176)
+Equity holders of the Company
+Total comprehensive income for the year
+Other fair value (losses)/gains
+Items that may not be subsequently reclassified to profit or loss
+600
+Other fair value gains
+1,975
+4,198
+Attributable to:
+30
+60,171
+22
+71,902
+54,731
+750
+29
+37,331
+50,320
+27
+1,198
+1,649
+11,397
+14,118
+7,061
+10,152
+222222
+29
+43,438
+149,154
+155,378
+Total assets
+30
+Share capital
+Equity attributable to equity holders of the Company
+RMB'Million
+2015
+RMB'Million
+Note
+Cash and cash equivalents
+2016
+EQUITY
+As at 31 December 2016
+Consolidated Statement of Financial Position
+Annual Report 2016
+111
+306,818
+395,899
+As at 31 December
+Restricted cash
+Term deposits
+25
+5,480
+7,363
+24
+44,339
+83,806
+23
+322
+25
+Deferred income tax assets
+Prepayments, deposits and other assets
+Available-for-sale financial assets
+544
+630
+Investments in joint ventures
+6,230
+9,627
+Other financial assets
+Investments in redeemable instruments of associates
+1,760
+7,033
+Other financial assets
+24
+Prepayments, deposits and other assets
+Total comprehensive income for the year
+Accounts receivable
+222
+263
+26
+Inventories
+151,440
+246,745
+3,674
+5,415
+27
+Term deposits
+757
+Current assets
+Transactions with equity holders
+Capital injection
+Employee share option schemes:
+169
+169
+169
+- value of employee services
+- shares withheld for share award schemes
+2,058
+(652)
+23
+-vesting of awarded shares
+(144)
+8¥
+273
+2,331
+60
+2,391
+(652)
+(652)
+144
+Tax benefit from share-based payments of a subsidiary
+982
+982
+376
+982
+21
+190
+- proceeds from shares issued
+Employee share award schemes:
+(11)
+(11)
+(11)
+1,970
+1,970
+5
+1,975
+736
+736
+15,610
+28,806
+44,416
+307
+ཝ། |
+736
+44,723
+108
+108
+1665
+165
+355
+Profit appropriations to statutory reserves
+216
+(216)
+(1,195)
+(1,195)
+Total transactions with equity holders at their capacity as
+equity holders for the year
+7,036
+(508)
+(8,066)
+(2,856)
+(4,394)
+(353)
+(4,747)
+Balance at 31 December 2015
+12,167
+(1,817)
+9,673
+100,012
+120,035
+2,065
+122,100
+The notes on pages 118 to 226 are an integral part of these consolidated financial statements.
+115
+(1,195)
+granted to non-controlling interests
+Recognition of financial liabilities in respect of the put options
+372
+1
+Dividends (Note 15)
+(2,640)
+(2,640)
+(549)
+(3,189)
+Non-controlling interests arising from business combinations
+278
+278
+Acquisition of additional equity interests in non-wholly
+-value of employee services
+owned subsidiaries (Note 31)
+(8,160)
+Disposal of subsidiaries
+Transfer of equity interests of subsidiaries to non-controlling interests
+(3,372)
+(599)
+(3,971)
+(44)
+(44)
+(372)
+(372)
+4,788
+Annual Report 2016
+Employee share option schemes:
+Transactions with equity holders
+as equity holders for the year
+Total transactions with equity holders at their capacity
+516
+99
+516
+516
+option granted to non-controlling interests
+Write-back of financial liabilities upon termination of the put
+927
+(927)
+(927)
+8,142
+300
+7,842
+7,842
+(3)
+(3)
+(1,232)
+(494)
+(738)
+(2,523)
+Balance at 31 December 2016
+1,785
+5,157
+6,921
+Attributable to equity holders of the Company
+For the year ended 31 December 2016
+Consolidated Statement of Changes in Equity
+-share of other comprehensive income of associates
+Other comprehensive income, net of tax:
+Profit for the year
+Comprehensive income
+Balance at 1 January 2015
+114
+Tencent Holdings Limited
+186,247
+11,623
+174,624
+136,743
+23,693
+(3,136)
+17,324
+15,530
+9,135
+6,395
+(4,364)
+(1,319)
+Transfer of equity interests of subsidiaries to non-controlling interests
+Partial disposal of equity interests in subsidiaries and businesses
+Disposal of subsidiaries
+2,129
+74,062
+80,013
+2,111
+82,124
+329
+28,806
+28,806
+302
+29,108
+329
+329
+- net gains from changes in fair value of available-for-sale
+financial assets
+12,586
+12,586
+12,586
+- transfer to profit or loss upon disposal of available-for-
+897
+-currency translation differences
+- other fair value gains, net
+Total comprehensive income for the year
+(1,309)
+5,131
+RMB'Million
+Total equity
+wholly owned subsidiaries (Note 31)
+Acquisition of additional equity interests in non-
+7,802
+7,802
+(Notes 39 and 40)
+Non-controlling interests arising from business combinations
+(4,613)
+(914)
+(3,699)
+(3,699)
+Capital injection
+Dividends (Note 15)
+665
+Profit appropriations to statutory reserves
+897
+897
+Share capital
+RMB'Million
+RMB'Million
+Share for share
+premium award schemes
+RMB'Million
+Other Retained
+reserves
+earnings
+RMB'Million RMB'Million
+controlling
+Total interests
+RMB'Million RMB'Million
+(665)
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2016
+Cash flows from operating activities
+18,528
+26,038
+354
+43,438
+42,713
+2,426
+371
+71,902
+43,438
+117
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+1 GENERAL INFORMATION
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the main board of the Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of value-added services ("VAS") and online advertising services to users in the
+People's Republic of China (the "PRC").
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable certain foreign companies to
+make investments into the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen)
+Company Limited ("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24
+February 2000. The foreign investors of the Company then subscribed to additional equity interest in the Company.
+Under a series of contractual arrangements (collectively, “Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer without
+making any payment; and
+•
+31,443
+the right to control the management and financial and operating policies of Tencent Computer.
+(549)
+(2,640)
+Shares withheld for share award schemes
+(1,936)
+(652)
+Proceeds from capital injection from non-controlling interests
+1,393
+99
+Proceeds from disposals of non-controlling interests in a
+non-wholly owned subsidiary
+267
+Payment for acquisition of non-controlling interests in
+non-wholly owned subsidiaries
+Dividends paid to the Company's shareholders
+Dividends paid to non-controlling interests
+Net cash flows generated from financing activities
+Net increase in cash and cash equivalents
+Cash and cash equivalents at beginning of the year
+Exchange gains on cash and cash equivalents
+Cash and cash equivalents at end of the year
+The notes on pages 118 to 226 are an integral part of these consolidated financial statements.
+(1,364)
+(4,547)
+(3,699)
+(907)
+Tencent Holdings Limited
+118
+Notes to the Consolidated Financial Statements
+3,453
+- value of employee services
+225
+25
+225
+225
+403
+35
+368
+57
+311
+1,414
+1,414
+48,617
+༄། །
+423
+48,194
+41,095
+7,099
+- proceeds from shares issued
+Employee share award schemes:
+-value of employee services
+34
+- shares withheld for share award schemes
+(1,936)
+394
+For the year ended 31 December 2016
+1
+GENERAL INFORMATION (Cont'd)
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.2(a) and Note 46)
+and the formation of the Group in 2000 was accounted for as a business combination between entities under common
+control under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor
+carrying amounts. This approach was adopted because in management's belief it best reflected the substance of the
+formation.
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company. See details in Note 46.
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
+The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+2.1 Basis of preparation
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards ("IFRSS"). The consolidated financial statements have been prepared
+under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and
+derivative financial instruments, which are carried at fair value.
+169
+The preparation of financial statements in conformity with IFRSS requires the use of certain critical accounting
+estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting
+policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
+estimates are significant to the consolidated financial statements are disclosed in Note 4.
+Annual Report 2016
+Tax benefit from share-based payments of a subsidiary
+617
+(617)
+-vesting of awarded shares
+(1,936)
+(1,936)
+3,915
+68
+3,847
+119
+225
+Proceeds from issuance of ordinary shares
+(1,917)
+(8,934)
+(11,423)
+1,107
+1,106
+(3,324)
+(2,394)
+Proceeds from disposals of investments in redeemable
+instruments of associates
+266
+Payments for acquisition of investments in joint ventures
+(62)
+(500)
+Proceeds from disposals of investments in joint ventures
+3
+Purchase/Prepayment of intangible assets
+(8,849)
+(4,620)
+Proceeds from disposals of intangible assets
+115
+Purchase/Prepayment of land use rights
+(1,506)
+(5,440)
+70
+(8,399)
+31
+Proceeds from disposals of property, plant and equipment
+Payments for acquisition of investments in associates
+Proceeds from disposals of investments in associates
+Payments for acquisition of investments in redeemable
+instruments of associates
+progress and investment properties
+Year ended 31 December
+2016
+Note
+RMB'Million
+2015
+RMB'Million
+Cash generated from operations
+Income tax paid
+Net cash flows generated from operating activities
+41(a)
+(3,045)
+76,034
+(10,516)
+(5,047)
+65,518
+45,431
+Cash flows from investing activities
+Proceeds from/(Payments for) business combinations, net of cash acquired
+Net inflow of cash in respect of the disposal of subsidiaries
+Purchase of property, plant and equipment, construction in
+1,285
+(1,349)
+619
+82
+50,478
+Non-
+Payments for available-for-sale financial assets and related
+(33,556)
+116
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2016
+Year ended 31 December
+2016
+RMB'Million
+2015
+RMB'Million
+Cash flows from financing activities
+Proceeds from short-term borrowings
+Repayment of short-term borrowings
+Proceeds from long-term borrowings
+Repayment of long-term borrowings
+Repayment of convertible bonds
+2,387
+8,565
+(1,734)
+55,394
+8,581
+(13,957)
+(2,200)
+(494)
+Net proceeds from issuance of notes payable
+13,619
+Repayment of notes payable
+(4,132)
+Tencent Holdings Limited
+(63,605)
+(70,923)
+515
+(13,001)
+Proceeds from disposals of available-for-sale financial assets
+1,637
+223
+Payments for loan to investees
+(2,994)
+(842)
+Proceeds from settlement of loan to investees and other receipts
+related to investees
+4,046
+derivative financial instruments
+Receipt from maturity of term deposits with initial terms of over three months
+61,810
+Placement of term deposits with initial terms of over three months
+(57,049)
+(87,186)
+Interest received
+1,718
+2,274
+Dividends received
+Net cash flows used in investing activities
+719
+42,319
+sale financial assets
+1 January 2016, and have not been early adopted by the Group in preparing the consolidated financial
+statements. None of these is expected to have a significant effect on the consolidated financial statements of
+the Group, except for set out below:
+Notes to the Consolidated Financial Statements
+125
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.3 Associates (Cont'd)
+The Group determines at each reporting date whether there is any objective evidence that investments accounted
+for using the equity method, including associates and joint arrangements (Note 2.4), are impaired. If this is the
+case,
+the Group calculates the amount of impairment as the difference between the recoverable amount of the
+investment and its carrying value and recognises the amount in "Other gains/(losses), net" in the consolidated
+income statement.
+Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's
+interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of
+an impairment of the asset transferred. A full gain or loss is recognised when a transaction involves a business
+whereas a partial gain or loss is recognised when a transaction involves assets that do not constitute a business,
+even if those assets are in a subsidiary. Accounting policies of associates have been changed where necessary to
+ensure consistency with the policies adopted by the Group.
+Gains or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
+The Group's investments in associates in the form of redeemable instruments are accounted for as compound
+financial instruments (Note 2.27).
+2.4 Joint arrangements
+Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures
+depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint
+arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
+Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted
+thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other
+comprehensive income. When the Group's share of losses in a joint venture equals or exceeds its interests in the
+joint ventures (which includes any long-term interests that, in substance, form part of the Group's net investment
+in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made
+payments on behalf of the joint ventures.
+Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
+Group's interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides
+evidence of an impairment of the asset transferred. A full gain or loss is recognised when a transaction involves
+a business whereas a partial gain or loss is recognised when a transaction involves assets that do not constitute
+a business, even if those assets are in a subsidiary. Accounting policies of the joint ventures have been changed
+where necessary to ensure consistency with the policies adopted by the Group.
+Tencent Holdings Limited
+126
+The Group's share of its associates' post-acquisition profit or loss is recognised in the consolidated income
+statement, and its share of post-acquisition movements in other comprehensive income is recognised in other
+comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of
+the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate,
+including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred
+legal or constructive obligations or made payments on behalf of the associate.
+If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
+share of the amounts previously recognised in other comprehensive income is reclassified to consolidated income
+statement where appropriate.
+Associates are all entities over which the Group has significant influence but not control, generally accompanying a
+shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the
+equity method of accounting and are initially recognised at cost, and the carrying amount is increased or decreased
+to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's
+investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss. Upon
+the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the
+Group's share of the net fair value of the associate's identifiable assets and liabilities is accounted for as goodwill.
+2.3 Associates
+(ii)
+Changes in ownership interests in subsidiaries without change of control
+-
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions that is, as transactions with the owners of the subsidiary in their capacity as
+owners. The difference between fair value of any consideration paid and the relevant share acquired of
+the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
+to non-controlling interests are also recorded in equity.
+(iii) Disposal of subsidiaries
+When the Group ceases to have control, any retained interest in the entity is re-measured to its
+fair value at the date when control is lost, with the change in carrying amount recognised in the
+consolidated income statement. The fair value is the initial carrying amount for the purposes of
+subsequently accounting for the retained interest as an associate, a joint venture or financial asset. In
+addition, any amounts previously recognised in other comprehensive income in respect of that entity
+are accounted for as if the Group had directly disposed of the related assets or liabilities. It means that
+amounts previously recognised in other comprehensive income are reclassified to the consolidated
+income statement or transferred to another category of equity as specified/permitted by applicable
+IFRSS.
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+124
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.2 Subsidiaries (Cont'd)
+(b) Separate financial statements
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined in
+Note 46(e)), a controlled structured entity, is stated at cost in "Contribution to Share Scheme Trust”, and will
+be transferred to the "Shares held for share award schemes" under equity when the contribution is used for
+the acquisition of the Company's shares.
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+2
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.5 Investments in associates/joint ventures achieved in stages
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2016
+2.8 Foreign currency translation (Cont'd)
+(c) Group companies
+The results and financial position of all the group entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+128
+(i)
+(ii)
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+(iii) All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other currency instruments designated as hedges of such investments,
+are taken to other comprehensive income.
+Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
+liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are
+recognised in other comprehensive income.
+129
+Annual Report 2016
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
+and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value
+of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,
+non-controlling interest recognised and previously held interest measured is less than the fair value
+of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
+recognised directly in the consolidated income statement.
+Tencent Holdings Limited
+Changes in the fair value of debt securities denominated in foreign currency classified as available-for-sale
+financial assets are analysed between translation differences resulting from changes in the amortised cost
+of the securities, and other changes in the carrying amount of the securities. Translation differences related
+to changes in the amortised cost and interest income are recognised in the consolidated income statement,
+and other changes in carrying amount are recognised in other comprehensive income.
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint
+venture; is measured as the sum of the fair value of the interest previously held plus the fair value of any additional
+consideration transferred as of the date when it becomes associate/joint venture. A gain or loss on re-measurement
+of the previously held interest is taken to the consolidated income statement. Any other comprehensive income
+recognised in prior periods in relation to the previously held interest is also taken to the consolidated income
+statement. Any acquisition-related costs are expensed in the period in which the costs are incurred.
+2.6 Partial disposal of associates to available-for-sale financial assets
+When the Group loses significant influence over an associate, it measures any retained investment at fair value. A
+profit or loss is recognised at any difference between the fair value of any retained interest plus any proceeds from
+disposing of the part interest in the associate and the carrying amount of the investment at the date the equity
+method was discontinued. The amounts previously recognised in other comprehensive income by an associate
+should be reclassified to the consolidated income statement or transferred to another category of equity as
+specified and permitted by applicable IFRSS when the Group loses significant influence over the associate.
+2.7 Segment reporting
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+decision-makers, who are responsible for allocating resources and assessing performance of the operating
+segments and making strategic decisions. The chief operating decision-makers mainly include the executive
+directors.
+2.8 Foreign currency translation
+(a) Functional and presentation currency
+Translation differences on non-monetary financial assets and liabilities such as equities held at fair value
+through profit or loss are recognised in the consolidated income statement as part of the fair value gain or
+loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-
+sale financial assets, are included in other comprehensive income.
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the "functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the PRC, the Group presents its consolidated financial statements
+in Renminbi ("RMB"), unless otherwise stated.
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.8 Foreign currency translation (Cont'd)
+(b) Transactions and balances
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised in the consolidated income statement.
+127
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is
+deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent
+consideration that is classified as equity is not re-measured, and its subsequent settlement is
+accounted for within equity.
+For the year ended 31 December 2016
+(a) Consolidation (Cont'd)
+120
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2016
+2.1 Basis of preparation (Cont'd)
+(b)
+New standards and amendments to standards that have been issued but not effective (Cont'd)
+(ii)
+IFRS 9 "Financial instruments'
+IFRS 9 "Financial instruments" addresses the classification, measurement and derecognition of
+financial assets and financial liabilities, introduces new rules for hedge accounting and a new
+impairment model for financial assets.
+IFRS 9 retains but simplifies the mixed measurement model and establishes three primary
+measurement categories for financial assets: amortised cost, fair value through other comprehensive
+income and fair value through profit or loss. Investments in equity instruments are required to be
+measured at fair value through profit or loss with the irrevocable option at inception to present changes
+in fair value in other comprehensive income which will not be recycling to the profit and loss. While
+management of the Group has just commenced an assessment on the classification and measurement
+of its financial assets, the potential impact to the future financial statements has yet to be determined
+but management considers that certain investments in equity instruments currently classified as
+available-for-sale financial assets might fall within the classification as at fair value through profit or
+loss, hence, there might be a change to the accounting of these assets.
+There will be no impact on the Group's accounting for financial liabilities, as the new requirements only
+affect the accounting for financial liabilities that are designated at fair value through profit or loss, while
+the Group does not have any such liabilities.
+The derecognition rules have been transferred from IAS 39 "Financial Instruments: Recognition and
+Measurement" and have not been changed.
+The new hedge accounting rules will align the accounting for hedging instruments more closely with
+the Group's established risk management practices. As a general rule, more hedge relationships might
+be eligible for hedge accounting, given the standard introduces a more principle-based approach.
+Nevertheless, the Group has not yet undertaken a detailed assessment but management expect
+that the Group's current hedge relationships might likely be qualified as continuing hedges upon the
+adoption of IFRS 9.
+Tencent Holdings Limited
+IFRS 15 "Revenue from contracts with customers" replaces IAS 18 "Revenue" and IAS 11
+"Construction contracts" and related interpretations. Revenue is recognised when a customer obtains
+control of a goods or service and thus has the ability to direct the use and obtain the benefits from
+the goods or service. This standard is effective for annual periods beginning on or after 1 January
+2018 and earlier adoption is permitted. The standard permits either a full retrospective or a modified
+retrospective approach for the adoption. At this stage, the Group does not intend to adopt this standard
+before its effective date while a full retrospective approach is expected to be applied upon the adoption.
+Management is currently assessing the effects of applying the new standard on the Group's financial
+statements and has identified that the application of IFRS 15 may affect the measurement and
+timing of recognition of revenues as a result of identification of different performance obligations and
+behaviors of different customers portfolios. At this stage, the Group is not in a position to estimate
+the impact on the Group's consolidated financial statements while the Group will make more detailed
+assessments of the impact over the next twelve months.
+IFRS 15 "Revenue from contracts with customers"
+(i)
+(i) Business combinations (Cont'd)
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.1 Basis of preparation (Cont'd)
+(a) Amendments to standards adopted by the Group
+The following amendments to standards have been adopted by the Group for the first time for the financial
+year beginning on 1 January 2016. The adoption of these amendments does not have any significant impact
+on the consolidated financial statements of the Group.
+IFRS 11 (amendment)
+121
+Accounting for acquisitions of interests in joint operations
+IAS 1 (amendment)
+IFRSS (amendment)
+Disclosure initiative
+Annual improvements 2014
+(b)
+New standards and amendments to standards that have been issued but not effective
+A number of new standards and amendments to standards are not effective for the financial year beginning
+IAS 16 and IAS 38 (amendment) Clarification of acceptable methods of depreciation and amortisation
+Annual Report 2016
+For the year ended 31 December 2016
+2.2 Subsidiaries (Cont'd)
+2.2 Subsidiaries
+For the year ended 31 December 2016
+(a) Consolidation
+Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
+controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
+with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
+consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
+date that control ceases.
+(i)
+Business combinations
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities
+assumed in a business combination are measured initially at their fair values at the acquisition date.
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets. All other components of non-controlling interests are measured
+at their acquisition date fair value, unless another measurement basis is required by IFRSS.
+Acquisition-related costs are expensed as incurred.
+If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+123
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+122
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.1 Basis of preparation (Cont'd)
+(b)
+New standards and amendments to standards that have been issued but not effective (Cont'd)
+(ii)
+IFRS 9 "Financial instruments" (Cont'd)
+The new impairment model requires the recognition of impairment provisions based on expected credit
+losses rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets
+classified at amortised cost, debt instruments measured at fair value through other comprehensive
+income, contract assets under IFRS 15 "Revenue from Contracts with Customers", lease receivables,
+loan commitments and certain financial guarantee contracts. While the Group has not yet undertaken
+a detailed assessment of how its impairment provisions would be affected by the new model,
+management expects it might result in an earlier recognition of credit losses.
+2
+IFRS 9 must be applied for financial years commencing on or after 1 January 2018. Early adoption is
+permitted. The Group does not intend to adopt this standard before its mandatory effective date.
+Tencent Holdings Limited
+(iii) IFRS 16 "Lease"
+IFRS 16 will result in almost all leases being recognised on the statement of financial position, as the
+distinction between operating and finance leases is removed. Under the new standard, an asset (the
+right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions
+are short-term and low-value leases.
+The accounting for lessors will not significantly change. The standard will affect primarily the
+accounting for Group's operating leases. However, the Group has just commenced its assessment and
+have not yet determined to what extent its commitments will result in the recognition of an asset and a
+liability for future payments and how this will affect the Group's profit and classification of cash flows.
+The new standard is mandatory for financial years commencing on or after 1 January 2019. The Group
+does not intend to adopt this standard before its effective date.
+The new standard also introduces expanded disclosure requirements and changes in presentation.
+These are expected to change the nature and extent of the Group's disclosures about its financial
+instruments particularly in the year of the adoption of the new standard.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.17 Impairment of financial assets (Cont'd)
+(b) Assets classified as available-for-sale financial assets
+For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also
+evidence that the assets are impaired. If any such evidence exists, the cumulative loss measured as the
+difference between the acquisition cost and the current fair value, less any impairment loss on that financial
+asset previously recognised in the consolidated income statement - is removed from equity and recognised
+in the consolidated income statement. Impairment losses recognised in the consolidated income statement
+on equity instruments are not reversed through the consolidated income statement.
+For debt securities, if any such evidence exists, the cumulative loss - measured as the difference between
+the acquisition cost (net of any principle repayment and amortisation) and the current fair value, less any
+impairment loss on that financial asset previously recognised in the consolidated income statement - is
+reclassified from equity and recognised in the consolidated income statement. If, in a subsequent period, the
+fair value of a debt instrument classified as available for sale increases and the increase can be objectively
+related to an event occurring after the impairment loss was recognised in the consolidated income statement,
+the impairment loss is reversed through the consolidated income statement.
+The Group documents at the inception of the transaction the relationship between hedging instruments and
+hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions.
+The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the
+derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash
+flows of hedged items.
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on
+whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The
+Group designates certain derivatives as either (i) hedges of the fair value of recognised assets or liabilities or a firm
+commitment (fair value hedge); (ii) hedges of a particular risk associated with a recognised asset or liability or a
+highly probable forecast transaction (cash flow hedge); or (iii) hedges of a net investment in a foreign operation (net
+investment hedge).
+Tencent Holdings Limited
+136
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2
+Annual Report 2016
+2.18 Derivative financial instruments and hedging activities
+135
+Regular way purchases and sales of investments are recognised on trade-date – the date on which the Group
+commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction
+costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair
+value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the
+consolidated income statement. Financial assets are derecognised when the rights to receive cash flows from
+the investments have expired or have been transferred and the Group has transferred substantially all risks
+and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit
+or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised
+cost using the effective interest method.
+For loans and receivables category, the amount of the impairment loss is measured as the difference
+between the asset's carrying amount and the present value of estimated future cash flows (excluding future
+credit losses that have not been incurred) discounted at the financial asset's original effective interest rate.
+The carrying amount of the asset is reduced and the amount of the impairment loss is recognised in the
+consolidated income statement. If a loan has a variable interest rate, the discount rate for measuring any
+impairment loss is the current effective interest rate determined under the contract. As a practical expedient,
+the Group may measure impairment on the basis of an instrument's fair value using an observable market
+price.
+Changes in the fair value of monetary and non-monetary securities classified as available-for-sale financial
+assets are recognised in other comprehensive income.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+When securities classified as available-for-sale financial assets are sold or impaired, the accumulated fair
+value adjustments recognised in other comprehensive income are included in the consolidated income
+statement as gains and losses from investment securities.
+Interest on available-for-sale securities calculated using the effective interest method is recognised in the
+consolidated income statement as part of other income. Dividends on available-for-sale financial assets
+equity instruments are recognised in the consolidated income statement when the Group's right to receive
+payments is established.
+2.16 Offsetting financial instruments
+Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
+position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle
+on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right must
+not be contingent on future events and must be enforceable in the normal course of business and in the event of
+default, insolvency or bankruptcy of the company or the counterparty.
+Tencent Holdings Limited
+134
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2016
+2.17 Impairment of financial assets
+The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset
+or a group of financial assets is impaired.
+(a) Assets carried at amortised cost
+A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is
+objective evidence of impairment as a result of one or more events that occurred after the initial recognition
+of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows
+of the financial asset or group of financial assets that can be reliably estimated.
+Evidence of impairment may include indications that the debtors or a group of debtors is experiencing
+significant financial difficulty, default or delinquency in interest or principal payments, the probability that
+they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a
+measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions
+that correlate with defaults.
+If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
+objectively to an event occurring after the impairment was recognised (such as an improvement in the
+debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the
+consolidated income statement.
+2.18 Derivative financial instruments and hedging activities (Cont'd)
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or
+less. If not, they are presented as non-current liabilities.
+Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised
+immediately in the consolidated income statement in "Other gains/(losses), net".
+Tencent Holdings Limited
+138
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2016
+2.25 Financial guarantee contracts
+The put option liabilities are current liabilities unless the put option can only be exercised 12 months after the end
+of the reporting period.
+The financial guarantee contract of the Group is the contract that represents guarantee provided by the Group in
+respect of a put arrangement granted by an investee to the employees of its subsidiary.
+2.26 Borrowings and notes payable
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their period using the
+effective interest method.
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it
+is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down
+occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the
+fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it
+relates.
+Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
+liability for at least 12 months after the end of the reporting period.
+Notes payable are classified as non-current liabilities unless the Group has an unconditional obligation to settle the
+liability within 12 months after the end of the reporting period.
+General and specific finance costs directly attributable to the acquisition, construction of qualifying assets, which
+are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to
+the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. During
+the year ended 31 December 2016, finance cost capitalised was insignificant to the Group.
+139
+The financial guarantee is initially recognised in the financial statements at fair value on the date the guarantee
+was given. Subsequent to initial recognition, the Company's liabilities under such guarantees are measured at the
+higher of the initial amount, less amortisation of fees recognised in accordance with IAS 18, and the best estimate
+of the amount required to settle the guarantee.
+Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the
+consolidated income statement, together with any changes in the fair value of the hedged asset or liability that are
+attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated
+and qualified as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the
+ineffective portion is recognised immediately in the consolidated income statement within "other gains/(losses),
+net". When the forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and
+losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost
+of the asset.
+Put option is the financial instrument granted by the Group that the counterparty may have the right to request the
+Group to purchase its own equity instruments for cash or other financial assets when certain conditions are met. If
+the Group does not have the unconditional right to avoid delivering cash or another financial assets under the put
+option, it has to recognise a financial liability at the present value of the estimated future cash outflows under the
+put option. The financial liability is initially recognised at fair value. Subsequently, if the Group revises its estimates
+of payments, the Group will adjust the carrying amount of the financial liability to reflect actual and revised
+estimated cash outflows. The Group will recalculate the carrying amount by computing the present value of revised
+estimated future cash outflows at the financial instrument's original effective interest rate and the adjustments
+will be recognised as income or expenses in the consolidated income statement. If the put option expires without
+delivery, the carrying amount of the liability is reclassified as equity.
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+2.19 Inventories
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average
+method and are stated at the lower of cost and net realisable value.
+2.20 Accounts receivable
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. If collection of accounts receivable is expected in one year or less, they are classified
+as current assets. Otherwise, they are presented as non-current assets.
+Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method, less provision for impairment.
+2.21 Cash and cash equivalents
+Cash and cash equivalents include cash in hand, deposits held at call with banks, money market funds and other
+short-term highly liquid investments with initial maturities of three months or less.
+2.24 Put option liabilities
+137
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.22 Share capital
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
+options are shown in equity as a deduction from the proceeds.
+Where any Group company purchases the Company's equity share capital (treasury share), the considerations
+paid, including any directly attributable incremental costs, is deducted from equity attributable to the Company's
+equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any
+consideration received (net of any directly attributable incremental transaction costs) is included in equity
+attributable to the Company's equity holders.
+2.23 Accounts payable
+Annual Report 2016
+(b) Recognition and measurement
+All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated
+impairment charges. Historical costs includes expenditure that are directly attributable to the acquisition of the
+items.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+Tencent Holdings Limited
+130
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2016
+2.10 Investment properties
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+Depreciation is calculated on the straight-line method to allocate their costs to their residual values over their
+estimated useful lives of 20-50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts.
+2.11 Land use rights
+2.15 Financial assets (Cont'd)
+2.12 Intangible assets
+(a) Goodwill
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.14).
+Construction in progress represents buildings under construction, which is stated at actual construction cost less
+any impairment loss. Construction in progress is transferred to property, plant and equipment when completed and
+ready for use.
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+Leasehold improvements
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.9 Property, plant and equipment
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
+of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the financial period in which they are
+incurred.
+Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their
+estimated useful lives, as follows:
+Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred over
+the Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the
+acquiree and the fair value of the non-controlling interests in the acquiree.
+20-50 years
+Computer equipment
+2 - 5 years
+Furniture and office equipment
+5 years
+5 years
+Shorter of their useful lives and the lease terms
+Motor vehicles
+Buildings
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUs"), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within
+the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the
+operating segment level.
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease or
+capitalised in construction in progress upon completion of construction.
+131
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.15 Financial assets
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable
+amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised
+immediately as an expense and is not subsequently reversed.
+The Group classifies its financial assets in the following categories: financial assets at fair value through
+profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on
+the purpose for which the financial assets were acquired, management's intentions and whether the assets
+are quoted in an active market. Management determines the classification of its financial assets at initial
+recognition.
+(i) Financial assets at fair value through profit or loss
+Financial assets at fair value through profit or loss are financial assets held for trading. A financial
+asset is classified in this category if acquired principally for the purpose of selling in the short term.
+Derivatives are classified as held for trading unless they are designated as hedges. Assets in this
+category are classified as current assets if expected to be settled within 12 months, otherwise they are
+classified as non-current.
+For the year ended 31 December 2016
+(ii)
+Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
+not quoted in an active market. They are included in current assets, except for those with maturities
+greater than 12 months after the end of the reporting period which are classified as non-current assets.
+The Group's loans and receivables comprise "Accounts receivable", "Deposits and other receivables",
+"Term deposits", "Restricted cash" and "Cash and cash equivalents" in the consolidated statement of
+financial position.
+(iii) Available-for-sale financial assets
+Available-for-sale financial assets are non-derivatives that are either designated in this category or not
+classified in any other category. They are included in non-current assets unless management intends
+to dispose of the investment within 12 months after the end of the reporting period.
+133
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+Loans and receivables
+Notes to the Consolidated Financial Statements
+(a) Classification
+Tencent Holdings Limited
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+132
+2.12 Intangible assets (Cont'd)
+(b) Licensed online contents
+The licensed online contents mainly include video and music contents. They are initially recognised and
+measured at cost or estimated fair value of intangible assets acquired through business combinations.
+Licensed online contents are amortised using a straight-line method or accelerated method which reflect the
+estimated consumption patterns.
+(c)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Other intangible assets mainly include game licences, copyrights, computer software and technology and
+non-compete agreements. They are initially recognised and measured at cost or estimated fair value of
+intangible assets acquired through business combinations.
+Other intangible assets are amortised over their estimated useful lives (generally three to ten years) using the
+straight-line method which reflects the pattern in which the intangible asset's future economic benefits are
+expected to be consumed.
+2.13 Shares held for share award schemes
+The consideration paid by the Share Scheme Trust (see Note 46(e)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as "Shares held for share award
+schemes" and the amount is deducted from total equity.
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium".
+2.14 Impairment of non-financial assets
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances
+indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
+which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
+asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at
+the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets
+other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting
+date.
+Other intangible assets
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
+amounts expected to be paid to the tax authorities.
+The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income
+statement, except to the extent that it relates to items recognised in other comprehensive income or directly in
+equity. In this case, the tax is also recognised in other comprehensive income or in equity, respectively.
+2.28 Current and deferred income tax
+For convertible bonds issued by a subsidiary of the Group, the entire instrument is designated as liabilities at fair
+value through profit or loss including derivative, they are initially recognised at fair value and subsequently carried
+at fair value with changes in fair value recognised.
+For the year ended 31 December 2016
+2.27 Compound financial instruments
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred
+income tax is not accounted for if it arises from initial recognition of goodwill or the initial recognition of an asset or
+liability in a transaction other than a business combination that at the time of the transaction neither accounting
+nor taxable profit or loss is affected. Deferred income tax is determined using tax rates (and laws) that have been
+enacted or substantively enacted by the end of the reporting period and are expected to apply when the related
+deferred income tax asset is realised or the deferred income tax liability is settled.
+Compound financial instruments held by the Group comprise equity instruments with redemption features of
+associates and convertible bonds of a subsidiary that can be converted to share capital at the option of the holder.
+The Group either (i) accounts for different components of the compound financial instruments separately or (ii)
+designate the entire financial instruments as financial assets/liabilities at fair value through profit or loss. The host
+component is recognised initially at the difference between the fair value of the compound financial instrument as
+a whole and the fair value of the embedded derivatives. The subsequent measurement of the host component and
+embedded derivatives follow the respective accounting policy of financial instruments as stated in Notes 2.15 and
+2.18.
+Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
+available against which the temporary differences can be utilised.
+For the year ended 31 December 2016
+140
+147
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.1 Financial risk factors (Cont'd)
+(a) Market risk (Cont'd)
+Tencent Holdings Limited
+Foreign exchange risk (Cont'd)
+As at 31 December 2016, the Group's major monetary assets and liabilities that exposed to foreign
+exchange risk are listed below:
+As at 31 December 2016
+USD
+denominated
+Non-USD
+denominated
+RMB'Million
+RMB'Million
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures and tries to minimise these exposures through natural hedges, wherever possible,
+and may enter into forward foreign exchange contracts, when necessary.
+Monetary assets, current
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to RMB, Hong Kong Dollars ("HKD"), USD and Euro
+("EUR"). Foreign exchange risk arises when future commercial transactions or recognised assets and
+liabilities are denominated in a currency that is not the respective functional currency of the Group's
+entities. The functional currency of the Company and majority of its overseas subsidiaries is USD
+whereas the functional currency of the subsidiaries which operate in the PRC is RMB.
+(i)
+2.35 Leases
+Leases in which a significant portion of the risks and rewards of ownership are retained by lessors are classified
+as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
+charged to the consolidated income statement on a straight-line basis over the period of the lease.
+2.36 Dividends distribution
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or board of
+directors where appropriate.
+2.37 Research and development expenses
+Research expenditure is recognised as an expense as incurred.
+Costs incurred on development projects (relating to the design and testing of new or improved products) are
+capitalised as intangible assets when recognition criteria are fulfilled and tests for impairment are performed
+annually. Other development expenditures that do not meet those criterias are recognised as expenses as incurred.
+Development costs previously recognised as expenses are not recognised as assets in subsequent periods.
+Tencent Holdings Limited
+146
+3
+FINANCIAL RISK MANAGEMENT
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+3.1 Financial risk factors
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price
+risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to
+minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out
+by the senior management of the Group.
+(a)
+Market risk
+Foreign exchange risk
+Under these circumstances, the grants/subsidies are recognised as income or matched with the associated costs
+which the grants/subsidies are intended to compensate.
+8,606
+Monetary liabilities, current
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.1 Financial risk factors (Cont'd)
+(a) Market risk (Cont'd)
+(i)
+Foreign exchange risk (Cont'd)
+(ii)
+For the year ended 31 December 2016
+At 31 December 2016, management considers that any reasonable changes in foreign exchange rates
+of the above currencies against the two major functional currencies of the Group's entities would not
+result in a significant change in the Group's results, as the net carrying amounts of financial assets and
+liabilities denominated in a currency other than the respective Group's entities' function currency are
+considered to be insignificant. Accordingly, no sensitivity analysis is presented for foreign exchange
+risk (2015: Nil).
+Price risk
+The Group is exposed to price risk mainly arising from investments that are classified as available-
+for-sale financial assets held by the Group (Note 23). To manage its price risk arising from the
+investments, the Group diversifies its portfolio. The investments made by the Group are either for
+strategic purposes, or for the purpose of achieving investment yield and balancing the Group's liquidity
+level simultaneously. Each investment is managed by senior management on a case by case basis.
+Sensitivity analysis is performed by management to assess the exposure of the Group's financial results
+to equity price risks of available-for-sale financial assets at the end of each of the reporting period. If
+equity prices of the respective instruments held by the Group had been 5% (2015: 5%) higher/lower
+as at 31 December 2016, the other comprehensive income would have been approximately RMB3,879
+million (2015: RMB2,067 million) higher/lower.
+(iii) Interest rate risk
+The Group's income and operating cash flows are substantially independent from changes in market
+interest rates and the Group has no significant interest-bearing assets except for loan to investees and
+investees' shareholders, term deposits with initial terms of over three months, restricted cash and cash
+and cash equivalents, details of which have been disclosed in Notes 24, 27 and 29.
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 33 and 34, which representing substantial
+portion of the Group's debts. Borrowings and notes payable carried at floating rates expose the Group
+to cash flow interest-rate risk whereas those carried at fixed rates expose the Group to fair value
+interest-rate risk.
+149
+Annual Report 2016
+148
+1,035
+Tencent Holdings Limited
+(3,260)
+(3,365)
+(177)
+Monetary liabilities, non-current
+(276)
+(5,470)
+4,965
+(4,612)
+As at 31 December 2015
+Monetary assets, current
+Monetary liabilities, current
+Monetary liabilities, non-current
+3,169
+286
+(2,186)
+(37)
+(3,509)
+983
+During the year ended 31 December 2016, the Group reported exchange gains of approximately
+RMB212 million (2015: exchange losses of approximately RMB108 million) within "Finance costs,
+net" in the consolidated income statement.
+Grants/Subsidies from government are recognised at their fair value where there is a reasonable assurance that the
+grants/subsidies will be received and the Group will comply with all attached conditions.
+(i)
+Dividend income is recognised when the right to receive payment is established.
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees and other qualifying
+participants as consideration for equity instruments (including share options and awarded shares) of the
+Group. The fair value of the employee and other qualifying participants services received in exchange for the
+grant of equity instruments of the Group is recognised as an expense over the vesting period, which is the
+period over which all of the specified vesting conditions are to be satisfied, and credited to share premium
+under equity.
+For grant of share options, the total amount to be expensed is determined by reference to the fair value
+of the options granted by using option-pricing models - Black-Scholes valuation model (the "BS Model”)
+and "Enhanced FAS 123" binomial model (the “Binomial Model”), which include the impact of market
+performance conditions (such as the Company's share price) but exclude the impact of service condition
+and non-market performance conditions. For grant of award shares, the total amount to be expensed is
+determined by reference to the market price of the Company's shares at the grant date. The Group also
+adopts valuation technique to assess the fair value of other equity instruments of the Group granted under
+the share-based compensation plans as appropriate.
+Non-market performance and services conditions are included in assumptions about the number of options
+that are expected to become vested.
+From the perspective of the Company, the Company grants its equity instruments to employees of its
+subsidiaries to exchange for their services related to the subsidiaries. Accordingly, the share-based
+compensation expenses, which are recognised in the financial statement, are treated as part of the
+"Investments in subsidiaries" in the Company's statement of financial position.
+At each reporting period end, the Group revise their estimates of the number of options and awarded shares
+that are expected to ultimately vest. They recognise the impact of the revision of original estimates, if any, in
+the consolidated income statement of the Group, with a corresponding adjustment made to equity over the
+remaining vesting period.
+Tencent Holdings Limited
+142
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.29 Employee benefits (Cont'd)
+(c) Share-based compensation benefits (Cont'd)
+When the options are exercised, the proceeds received net of any directly attributable transaction costs are
+credited to share capital (nominal value) and share premium.
+If the Group repurchases vested equity instruments, the payment made to the employee and other qualifying
+participants shall be accounted for as a deduction from equity, except to the extent that the payment
+exceeds the fair value of the equity instruments repurchased, measured at the repurchase date. Any such
+excess shall be recognised as an expense.
+If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the terms
+had not been modified. An additional expense is recognised for any modification that increases the total
+fair value of the share-based payment arrangement, or is otherwise beneficial to the employee and other
+qualifying participants, as measured at the date of modification.
+2.30 Provisions
+(c) Share-based compensation benefits
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably
+estimated. Provisions are not recognised for further operating losses.
+2.29 Employee benefits (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2016
+2.28 Current and deferred income tax (Cont'd)
+Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates,
+except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by
+the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the
+Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement
+in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future,
+deferred tax liability in relation to taxable temporary differences arising from the associate's undistributed profits is
+not recognised.
+Deferred income tax assets are recognised on deductible temporary differences arising from investments in
+subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will
+reverse in the future and there is sufficient taxable profit available against which the temporary difference can be
+utilised.
+Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
+assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes
+levied by the same taxation authority on either the taxable entity or different taxable entities where there is an
+intention to settle the balances on a net basis.
+2.34 Government grants/subsidies
+(a) Employee leave entitlements
+Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made
+for the estimated liability for annual leave as a result of services rendered by employees up to the end of
+the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time of
+leave.
+(b)
+Pension obligations
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate entity. The Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee service in the current and prior periods. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the scheme prior to vesting fully in the contributions.
+141
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+2.29 Employee benefits
+143
+VAS (Cont'd)
+The Group also opens its Internet and mobile platforms to third-party game/application developers under
+certain co-operation agreements, of which the Group pays a pre-determined percentage of the fees paid
+by and collected from the users of the Group's Internet and mobile platforms for the virtual products/items
+purchased to the third-party game/application developers. The Group recognises the related revenue on a
+gross or net basis depending on whether the Group is acting as a principal or an agent in the transaction.
+The Group also defers the related revenue, either on gross or net basis, over the estimated lifespan of the
+respective virtual products/items, given there is an implicit obligation of the Group to maintain and allow
+access of the users of the games/applications operated by the developers through its platforms.
+Determining whether revenue of the Group should be reported gross or net is based on a continuing
+assessment of various factors. The primary factor is whether the Group acting as the principal in offering
+services to the customer or as an agent in the transaction. The Group has determined that it is acting as
+the principal in offering services wherever the Group (i) is the primary obligor in the arrangement; (ii) has
+latitude in establishing the selling price; (iii) has discretion in suppliers selection; and (iv) has involvement
+in the determination of product or services specifications. The Group adopted different revenue recognition
+methods based on its specific responsibilities/obligations in different VAS offerings.
+Online advertising
+Online advertising revenues mainly comprise revenues derived from performance based and display based
+advertisements.
+Revenue from performance based advertisements is recognised based on actual performance measurement.
+The Group recognises the revenue from the delivery of pay-for click, pay-for download or pay-for instant
+display advertisements for advertisers to users of the Group based on the relevant performance measures.
+Revenue from displaying advertisements is recognised ratably over the respective contract periods with the
+advertisers and their advertising agencies, when the related advertisements are displayed.
+Commissions payable to advertising agencies are recognised as a component of the cost of revenues.
+145
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.32 Interest income
+Interest income is recognised on a time proportion basis, taking into account of the principal outstanding and the
+effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group.
+2.33 Dividend income
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to
+the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+(b)
+(a)
+For the year ended 31 December 2016
+For the year ended 31 December 2016
+2.31 Revenue recognition (Cont'd)
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+2.31 Revenue recognition
+The Group principally derives revenues from provision of VAS and online advertising services in the PRC.
+(a) VAS
+Revenues from VAS are derived principally from the provision of online/mobile games, community value-
+added services and applications across various Internet and mobile platforms.
+The VAS can be paid directly by end users by way of online payment channels or utilising the prepaid cards
+and tokens (represented a specific amount of payment unit) issued by the Group. In addition, certain VAS
+are paid through various third parties platforms.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Revenue is recognised from the sales of online services when the services are rendered. Revenue is
+recognised from the virtual products/items in the Group's Internet/mobile platforms over the estimated
+lifespan of the respective virtual products/items. The estimated lifespan of different virtual products/items
+are determined by the management based on either the expected user relationship periods or the stipulated
+period of validity of the relevant virtual products/items depending on the respective term of virtual products/
+items.
+In respect of the Group's VAS services directly delivered to the Group's customers and paid through various
+third parties platforms, these third party platforms collect the relevant service fees (the "Internet and Mobile
+Service Fees") on behalf of the Group and they are entitled to a pre-determined percentage of commission
+fee (defined as "Channel costs"). The Channel costs are withheld and deducted from the gross Internet and
+Mobile Service Fees collected by these platforms from the users, with the net amounts remitted to the Group.
+The Group recognises the Internet and Mobile Service Fees as revenue on a gross basis, given it is the
+principal in these transactions, and recognises the Channel costs as cost of revenues.
+Tencent Holdings Limited
+144
+Notes to the Consolidated Financial Statements
+2
+The Group sells the prepaid credits through various channels such as sales agents appointed by the Group,
+telecommunication operators, third party platform providers, broadband service providers and Internet cafes,
+etc. The end users can register the prepaid credits to their user accounts in the Group's platforms and then
+gain access to the Group's paid online products or services. Receipts from the sales of prepaid credits are
+deferred and recorded as “Deferred revenue” in the consolidated statement of financial position (see Note
+36).
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+1 and 2 years
+Over 5 years
+Between
+2 and 5 years
+1 year
+Between
+Less than
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date.
+Total
+At 31 December 2016
+2,005
+4,738
+6,444
+26,603
+8,224
+46,009
+Long-term payables
+2,178
+917
+5,100
+Borrowings
+13,520
+6,464
+51,110
+The Group aims to maintain sufficient cash and cash equivalents and marketable securities. Due to the
+dynamic nature of the underlying businesses, the Group maintains flexibility in funding by maintaining
+adequate cash and cash equivalents.
+Notes payable
+(c) Liquidity risk
+150
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3,367
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.1 Financial risk factors (Cont'd)
+(a) Market risk (Cont'd)
+(iii)
+Interest rate risk (Cont'd)
+The Group regularly monitors its interest rate risk to identify if there are any undue exposures to
+significant interest rate movements and manages its cash flow interest rate risk by using interest rate
+swaps, whenever considered necessary.
+During the year ended 31 December 2016, the Group entered into certain interest rate swap contracts
+to hedge its exposure arising from its borrowings carried at floating rates. Under these interest rate
+swap contracts, the Group agreed with the counterparties to exchange, at specified interval, the
+difference between fixed contract rates and floating-rate interest amounts calculated by reference
+to the agreed notional amounts. These interest rate swap contracts have the economic effect of
+converting borrowings from floating rates to fixed rates and were qualified as hedging accounting. The
+Group's outstanding interest rate swap contracts as at 31 December 2016 have been detailed in Note
+25.
+At 31 December 2016 and 2015, management considers that any reasonable changes in the interest
+rates would not result in a significant change in the Group's results as Group's exposure to cash flow
+interest-rate risk arising from its borrowings and notes payable carried at floating rates after considering
+the effect of hedging are considered to be insignificant. Accordingly, no sensitivity analysis is presented
+for interest rate risk.
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2016
+3.1 Financial risk factors (Cont'd)
+(b) Credit risk
+The Group is exposed to credit risk in relation to its cash and deposits placed with banks and financial
+institutions, other debt investments, as well as accounts and other receivables. The carrying amount of each
+class of these financial assets represents the Group's maximum exposure to credit risk in relation to the
+corresponding class of financial assets. To manage this risk, deposits are mainly placed with state-owned
+financial institutions in the PRC and reputable international financial institutions outside of the PRC. There
+has been no recent history of default in relation to these financial institutions.
+The Group has policies in place to ensure that revenues of on credit terms are made to counterparties with
+an appropriate credit history and the management performs ongoing credit evaluations of its counterparties.
+The Group's online advertising that are sales to/through advertising agencies or directly to the advertisers at
+term of full advances, partial advances or sales on credit according to the Group's credit policies. The credit
+period granted to the customers is usually not more than 90 days and the credit quality of these customers
+are assessed, which takes into account their financial position, past experience and other factors. Provisions
+are made for past due balances when management considers the loss from the customers is likely. The
+Group's historical experience in collection of receivables falls within the recorded allowances.
+The Group's revenues from VAS are generally paid by end users by way of online payment channels or
+utilising the prepaid cards and tokens issued and sold by the Group, whereas the revenue from VAS
+that delivered to its end users through third party platforms were collected by these third party platform
+providers and remitted to the Group under a credit period of 30 to 120 days. In addition, the Group also
+sold prepaid credits through various channels such as sales agents, telecommunication operators, third
+party platform providers and Internet cafes, etc. Apart from a credit period of 30 to 120 days granted to the
+telecommunication operators and third party platform providers, full advances were required from other
+channels.
+In view of the history of co-operation with these third party platform providers and telecommunication
+operators, and the sound financial position and collection history of receivables due from these
+counterparties, management believes that the credit risk inherent in the Group's outstanding accounts
+receivable balances from these counterparties is low (see Note 28 for details).
+151
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+3
+3.1 Financial risk factors (Cont'd)
+74,461
+508
+and accruals (excluding
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Opening balance
+27,947
+6,276
+588
+489
+Additions
+30,757
+15,766
+2,557
+Disposals and transfers/settlement
+(526)
+(1,030)
+(491)
+Changes in fair value
+5,651
+5,939
+(98)
+67
+Impairment provision
+2015
+Financial liabilities
+2016
+2015
+2016
+Other financial assets
+736
+462
+1,198
+Convertible bonds
+588
+588
+The fair value of financial instruments traded in active markets is determined based on quoted market prices at
+the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available
+from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
+actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for
+financial assets held by the Group is the current bid price. These instruments are included in level 1.
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in level 2.
+Tencent Holdings Limited
+154
+(708)
+Notes to the Consolidated Financial Statements
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2016
+3.3 Fair value estimation (Cont'd)
+If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
+Specific valuation techniques used to value financial instruments include:
+. Dealer quotes for similar instruments;
+The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows
+based on observable yield curves; and
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+instruments.
+During the year ended 31 December 2016, an available-for-sale financial asset was transferred from level 2 to level
+1 of fair value hierarchy classifications.
+The following table presents the changes of financial instruments in level 3 instruments for the years ended 31
+December 2016 and 2015:
+Financial assets
+3
+44,339
+(65)
+2,478
+The Group will continue to monitor the average lifespan of the virtual products/items. The results may differ from
+the historical period, and any change in the estimates may result in the revenue being recognised on a different
+basis than in prior periods.
+157
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+(b) Recoverability of non-financial assets and investments in redeemable instruments of associates
+The Group tests annually whether goodwill has suffered any impairment. Goodwill and other non-financial assets,
+mainly including property, plant and equipment, construction in progress, other intangible assets, investment
+properties, land use rights, and investments in associates and joint ventures, as well as investments in redeemable
+instruments of associates are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount may not be recoverable. The recoverable amounts have been determined based on value-in-
+use calculations or fair value less costs to sell. These calculations require the use of judgments and estimates.
+Judgment is required to identify any impairment indicators existed for any of the Group's goodwill and non-financial
+assets, to determine appropriate impairment approaches, i.e., fair value less costs of disposal or value in use, for
+impairment reviews purpose, and to select key assumptions applied in the adopted valuation models, including
+discounted cash flows and market approach. Changing the assumptions selected by management in assessing
+impairment could materially affect the result of the impairment test and as a result affect the Group's financial
+condition and results of operations. If there is a significant adverse change in the key assumptions applied, it may
+be necessary to take additional impairment charge to the consolidated income statement.
+(c) Fair value measurement of available-for-sale financial assets and other financial assets
+The fair values assessment of available-for-sale financial assets and other financial assets that are measured
+at level 3 fair value hierarchy required significant estimates, which includes estimating the future cash flows,
+determining appropriate discount rates and other assumptions. Changes in these assumptions and estimates could
+materially affect the respective fair value of these investments. The Group monitors its investments for impairment
+by considering factors including, but not limited to, current economic and market conditions, recent fund raising
+transactions undertaken by the investees, the operating performance of the investees including current earnings
+trends and other company-specific information.
+Tencent Holdings Limited
+158
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+(d) Classification of investments
+The Group made certain significant amounts of investments that involved complex terms and arrangements, and
+in different forms of financial instruments during the year. Judgement is required in determining the appropriate
+classification for these investments including assessing the relevant activities of the investee companies and its
+decisions making process on those activities that involving the Group, if any and its other investors, the rights and
+power of the Group and other investors on the investee companies, any other arrangements or transactions among
+the Group, its other investors and/or the investee companies, and the Group's returns from the investments.
+Different conclusions around these judgements may materially impact how these investments presented and
+measured in the consolidated statement of financial position of the Group.
+(e) Share-based compensation arrangements
+As mentioned in Note 2.29(c), the Group has granted share options to its employees and other qualifying
+participants. The directors have adopted the dividend adjusted Black-Scholes option pricing model and “Enhanced
+FAS 123" binomial model (“Valuation Models") to determine the total fair value of the options granted, which is
+to be expensed over the respective vesting periods. Significant judgement on parameters, such as risk free rate,
+dividend yield and expected volatility, is required to be made by the directors in applying the Valuation Models (Note
+32).
+The fair value of share options granted to employees and other qualifying participants determined using the
+Valuation Models was approximately HKD668 million (equivalent to approximately RMB560 million) in 2016 (2015:
+HKD76 million (equivalent to approximately RMB60 million)).
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate") in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2016, the Expected Retention Rate of the Group and its wholly-owned subsidiaries was assessed to be
+88%-96% (2015: 85%-97%).
+159
+Annual Report 2016
+Significant judgements are required in determining the expected users' relationship periods, included but not
+limited to historical users' consumption pattern, churn out rate and reactivity on marketing activities, games life-
+cycle, and the Group's marketing strategy. The Group has adopted a policy of assessing the estimated lifespan
+of virtual products/items on a regular basis whenever there is any indication of change in the expected users'
+relationship periods.
+As mentioned in Note 2.31(a), the end users purchase certain virtual products/items provided in the Group's
+Internet and mobile platforms and the relevant revenue is recognised based on the estimated lifespan of the virtual
+products/items. The estimated lifespan of different virtual products/items are determined by the management
+based on either the expected users' relationship periods or the stipulated period of validity of the relevant virtual
+products/items depending on the respective terms of virtual products/items.
+(a) The estimates of the lifespan of virtual products/items provided in the Group's Internet and mobile
+platforms
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk
+of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
+addressed below:
+1,061
+20
+32
+Closing balance
+65,599
+27,947
+2,576
+588
+155
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+Currency translation differences
+Accounts payable, other payables
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.3 Fair value estimation (Cont'd)
+Valuation processes of the Group (Level 3)
+The Group has a team of personnel who perform valuation on these level 3 instruments for financial reporting
+purposes. The team performs valuation, or necessary updates, at least once every quarter, which coincide with the
+Group's quarterly reporting dates. On an annual basis, the team adopts various valuation techniques to determine
+the fair value of the Group's level 3 instruments. External valuation experts may also be involved and consulted
+when it is necessary.
+The components of the level 3 instruments mainly include investments in private investment funds and unlisted
+companies, other financial instruments and convertible bonds. As these instruments are not traded in an active
+market, their fair values have been determined using various applicable valuation techniques, including discounted
+cash flows, comparable transactions approaches, and other option pricing models etc. Major assumptions used
+in the valuation include historical financial results, assumptions about future growth rates, estimate of weighted
+average cost of capital (WACC), recent market transactions, discount for lack of marketability and other exposure
+etc. Other financial liabilities included guarantee provided by the Group on certain put arrangements of an investee
+company and put options issued by the Group to certain investors of an investee company, at a pre-determined
+pricing formula. The fair values of these instruments determined by the Group requires significant judgement,
+including the likelihood of non-performing by the investee company, financial performance of the investee
+company, market value of comparable companies as well as discount rate, etc.
+Tencent Holdings Limited
+156
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
+Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
+expectations of future events that are believed to be reasonable under the circumstances.
+3
+27,485
+For the year ended 31 December 2016
+9,435
+and accruals (excluding
+prepayments received from
+customers and others,
+staff costs and welfare accruals)
+77,915
+77,915
+94,960
+12,517
+38,509
+8,046
+154,032
+Tencent Holdings Limited
+152
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2016
+3.2 Capital risk management
+The Group's objectives on managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+Capital referred to the equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+The Group monitors capital by regularly reviewing debts to adjusted earnings before interest, tax, depreciation and
+amortisation ("EBITDA”) (Note) ratio, being the measure of the Group's ability to pay off all debts that reflecting
+financial health and liquidity position. The total debts/adjusted EBITDA ratio calculated by dividing the total debts
+by adjusted EBITDA is as follows:
+Borrowings
+Notes payable
+Accounts payable, other payables
+25,015
+6,415
+6,826
+7,419
+prepayments received from
+customers and others,
+staff costs and welfare accruals)
+37,904
+37,904
+56,162
+14,913
+79,891
+12,508
+163,474
+Total debts
+At 31 December 2015
+5,271
+4,409
+29,747
+7,951
+47,378
+Long-term payables
+1,282
+2,347
+3,724
+Borrowings
+11,774
+Notes payable
+Adjusted EBITDA (Note)
+95
+Note:
+•
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
+Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
+(level 3).
+Level 2
+RMB'Million
+Level 3
+RMB'Million
+Total
+RMB'Million
+As at 31 December 2016
+Available-for-sale financial assets
+19,995
+63,303
+83,806
+Other financial assets
+1,113
+2,296
+3,409
+Other financial liabilities
+2,576
+2,576
+As at 31 December 2015
+Total debts/Adjusted EBITDA Ratio
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2016 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+Fair value estimation
+Level 1
+RMB'Million
+FINANCIAL RISK MANAGEMENT (Cont'd)
+As at 31 December
+2016
+2015
+RMB'Million
+RMB'Million
+69,827
+3.3
+39,670
+40,978
+109,497
+65,329
+66,863
+24,351
+1.64
+3
+45,805
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+Available-for-sale financial assets
+The movement in the ratio is mainly caused by additional borrowings during the year ended 31 December 2016.
+expenses.
+Adjusted EBITDA represents operating profit less interest income and other gains, net, and plus depreciation of property, plant
+and equipment and investment properties, amortisation of intangible assets and equity-settled share-based compensation
+1.43
+153
+(iv)
+a gain of approximately RMB1,130 million arising from the disposal of certain listed shares of a game company classified
+as available-for-sale financial assets; and
+net gains of approximately RMB2,091 million arising from dilution of the Group's equity interests in certain associates due
+to new equity interests being issued by these associates (Note 20). These associates are principally engaged in Internet-
+related business;
+a gain of approximately RMB1,505 million arising from a deemed disposal of an associate as it became a subsidiary of the
+Group;
+(iii)
+(ii)
+331
+3,594
+1,886
+(149)
+406
+(570)
+380
+The disposal and deemed disposal gains during the year ended 31 December 2016 mainly comprised the following:
+(470)
+8
+Tencent Holdings Limited
+EXPENSES BY NATURE
+272
+Others
+Available-for-sale financial assets (Note 23)
+Investments in redeemable instruments of associates (Note 22)
+Investments in associates (Note 20)
+aggregate net gains of approximately RMB2,240 million on disposal, acquisition achieved in stages or partial disposal of
+various financial investments of the Group.
+The impairment provision for investee companies and intangible assets arising from acquisitions was mainly set up against the
+carrying amounts of the following items:
+Note: (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+OTHER GAINS, NET (Cont'd)
+7
+164
+(b)
+563
+6 INTEREST INCOME
+658
+2016
+306,818
+As at 31 December 2016, the total non-current assets other than financial instruments and deferred tax assets located
+in Mainland China and other regions amounted to RMB117,415 million (2015: RMB77,704 million) and RMB19,115
+million (2015: RMB16,897 million), respectively.
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues during the
+years ended 31 December 2016 and 2015.
+163
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+Interest income mainly represents interest income from bank deposits, including bank balance and term deposits.
+7
+OTHER GAINS, NET
+2016
+2015
+RMB'Million
+RMB'Million
+Gains on disposals and deemed disposals of investee companies (Note (a))
+(2,373)
+(4,809)
+(i)
+(a)
+Note:
+Others
+462
+Donation to Tencent Charity Funds
+Dividend income
+Fair value gains on other financial instruments
+assets from acquisition (Note (b))
+Impairment provision for investee companies and intangible
+3,813
+6,966
+Subsidies and tax rebates
+2015
+13
+RMB'Million
+8,930
+3,476
+Depreciation of property, plant and equipment (Note 16)
+3,699
+3,153
+Auditor's remuneration
+- Audit services
+- Audit-related services
+46
+35
+13
+- Non-audit services
+16
+123
+36
+165
+Annual Report 2016
+2016
+395,899
+Exchange (gains)/losses
+Interest and related expenses
+FINANCE COSTS, NET
+9
+Amortisation of intangible assets (Note (b) and Note 19)
+(b) Mainly included the amortisation charge of intangible assets in respect of game licences and licensed online contents.
+During the year ended 31 December 2016, the Group incurred expenses for the purpose of research and development of
+approximately RMB11,845 million (2015: RMB9,039 million), which comprised employee benefits expenses of RMB9,290
+million (2015: RMB7,134 million).
+(a)
+Note:
+8 EXPENSES BY NATURE (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+No significant development expenses had been capitalised for the years ended 31 December 2016 and 2015.
+594
+800
+Travelling and entertainment expenses
+RMB'Million
+RMB'Million
+2015
+2016
+2,373
+4,809
+Employee benefits expenses (Note (a) and Note 13)
+149
+586
+1,028
+47
+1,298
+1,591
+2,117
+366
+RMB'Million
+23,433
+Content costs and agency fees (excluding amortisation of intangible assets)
+896
+1,117
+Operating lease rentals in respect of office buildings
+5,814
+9,219
+Promotion and advertising expenses
+18,475
+4,691
+Channel costs
+5,492
+7,876
+Bandwidth and server custody fees
+17,094
+22,328
+7,893
+93
+Certain subsidiaries of the Group in the PRC were approved as High and New Technology Enterprise, and
+accordingly, they were subject to a reduced preferential corporate income tax rate of 15% for the years
+ended 31 December 2016 and 2015. Moreover, according to announcement and circular issued by relevant
+government authorities, for the year of 2015 and beyond, software enterprise that entitled to a national
+key software enterprise which will be subject to a preferential tax rate of 10%, shall at the time of final tax
+settlement each year, file with tax authorities for record in accordance with the relevant requirements. The
+filing record will be subject to verification by relevant government authorities. Accordingly, PRC corporate
+income tax for the subsidiary has been provided for at a tax rate of 15% during the year and corresponding
+tax adjustments in relation to the change in applicable tax rate will be accounted for in the period upon the
+verification process is completed.
+9,036
+Online
+advertising
+Others
+Total
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Segment revenues
+107,810
+26,970
+17,158
+151,938
+Gross profit
+Depreciation
+70,188
+11,574
+2,737
+Others
+advertising
+VAS
+Online
+Year ended 31 December 2015
+8,277
+VAS
+5,295
+Amortisation
+2,591
+537
+200
+1,854
+84,499
+2,982
+Total
+Year ended 31 December 2016
+5 SEGMENT INFORMATION (Cont'd)
+2015
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+(e) Share-based compensation arrangements (Cont'd)
+If the Expected Retention Rate had been increased/decreased by 5% (2015: 5%), the amount of share-based
+compensation expenses would be increased/decreased by RMB230 million (2015: RMB154 million).
+In addition, during the year ended 31 December 2016, the Group repurchased certain vested equity interests in a
+non-wholly owned subsidiary and exchanged certain unvested equity interests in a non-wholly owned subsidiary for
+the unvested awarded shares of the Company, which have been accounted for as shareholders' transactions with
+gain or loss reflected within equity.
+(f)
+Income taxes
+The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining
+the worldwide provision for income taxes. The Group recognises liabilities for anticipated tax audit issues based on
+estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from
+the amounts that were initially recorded, such differences will impact current income tax and deferred income tax
+liabilities in the period in which such determination is made.
+Were the actual final outcome (on the judgement areas) to differ by 5% from management's estimates, the Group
+would need to:
+Increase the income tax liabilities by RMB261 million (2015: RMB80 million) and the deferred tax liabilities
+by RMB258 million (2015: RMB183 million), if unfavourable; or
+Decrease the income tax liabilities by RMB261 million (2015: RMB80 million) and the deferred tax liabilities
+by RMB258 million (2015: RMB183 million), if favourable.
+Tencent Holdings Limited
+160
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+161
+Other information, together with the segment information, provided to the chief operating decision-makers, is measured
+in a manner consistent with that applied in these consolidated financial statements. There were no segment assets and
+segment liabilities information provided to the chief operating decision-makers.
+There were no material inter-segment sales during the years ended 31 December 2016 and 2015. The revenues from
+external customers reported to the chief operating decision-makers are measured in a manner consistent with that
+applied in the consolidated income statement.
+"Others" segment of the Group primarily comprises payment related services, cloud services and other services.
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit of each operating segment. The selling and marketing expenses and general and administrative
+expenses are common costs incurred for these operating segments as a whole and therefore they are not included in the
+measure of the segments' performance which is used by the chief operating decision-makers as a basis for the purpose
+of resource allocation and assessment of segment performance. Interest income, other gains/(losses), net, finance
+income/(costs), net and income tax expense are also not allocated to individual operating segment.
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2016 and 2015 is as follows:
+Others.
+VAS;
+The Group has following reportable segments for the years ended 31 December 2016 and 2015:
+The chief operating decision-makers mainly include executive directors of the Company. They review the Group's internal
+reporting in order to assess performance and allocate resources, and determine the operating segments based on these
+reports.
+SEGMENT INFORMATION
+5
+For the year ended 31 December 2016
+Online advertising; and
+RMB'Million
+RMB'Million
+RMB'Million
+96,251
+7,567
+6,612
+151,938
+102,863
+The Group also conducts operations in the United States, Europe and other regions, and holds investments (including
+investments in associates, investments in redeemable instruments of associates, investments in joint ventures and
+available-for-sale financial assets) in various territories. The geographical information on the total assets is as follows:
+Operating assets
+Mainland China
+Others
+Investments
+- Mainland China and Hong Kong
+- North America
+- Europe
+- Asia excluding Mainland China and Hong Kong
+- Others
+As at 31 December
+2016
+11,322
+2,462
+21,645
+14,412
+22,310
+85,282
+144,371
+108,715
+56,152
+150,608
+175,642
+RMB'Million
+RMB'Million
+2015
+44,925
+RMB'Million
+RMB'Million
+2015
+171
+1,983
+Depreciation
+61,232
+458
+8,527
+37
+52,247
+102,863
+4,726
+17,468
+80,669
+Segment revenues
+RMB'Million
+Gross profit
+113
+2,191
+631
+2016
+- Others
+Mainland China
+Revenues
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in Mainland China.
+During the year ended 31 December 2016, the geographical information on the total revenues is as follows:
+For the year ended 31 December 2016
+Amortisation
+Notes to the Consolidated Financial Statements
+5
+162
+Tencent Holdings Limited
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+3,068
+2,437
+SEGMENT INFORMATION (Cont'd)
+RMB'Million
+For the year ended 31 December 2016
+2,167
+2015
+RMB'Million
+RMB'Million
+10,791
+(598)
+6,936
+172
+10,193
+7,108
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+11 TAXATION (Cont'd)
+(a) Income tax expense (Cont'd)
+The taxation on the Group's profit before income tax differs from the theoretical amount that would arise using the
+tax rate of 25% for the year (2015: 25%), being the tax rate of the major subsidiaries of the Group before enjoying
+preferential tax treatments, as follows:
+2016
+2015
+2016
+RMB'Million
+168
+Deferred income tax (Note 26)
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+11 TAXATION (Cont'd)
+(a) Income tax expense (Cont'd)
+(iii) PRC corporate income tax (Cont'd)
+In addition, according to relevant tax circulars issued by the PRC tax authorities, certain subsidiaries of the
+Company are entitled to other tax concessions and they are exempt from corporate income tax for two years,
+followed by a 50% reduction in the applicable tax rates for the next three years, commencing either from
+the first year of commercial operation or from the first year of profitable operation, after offsetting tax losses
+generated in prior years.
+(iv) Corporate income tax in other countries
+Income tax on profits arising from other jurisdictions, including the United States, Europe, East Asia and
+South America has been calculated on the estimated assessable profits for the year at the rates prevailing in
+the relevant jurisdictions, ranging from 12.5 % to 36%.
+(v)
+Withholding tax
+According to applicable tax regulations prevailing in the PRC, dividends distributed by a company established
+in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to a
+10% withholding tax. Under the double taxation arrangement between the Mainland China and Hong Kong,
+the relevant withholding tax rate applicable to the Group will be reduced from 10% to 5% subject to the
+fulfilment of certain conditions.
+Withholding taxes on dividends distribution at respective applicable tax rates are under certain jurisdictions
+that the Group's entities operate.
+The income tax expense of the Group are analysed as follows:
+Current tax
+Tencent Holdings Limited
+RMB'Million
+Profit before income tax
+51,640
+906
+Withholding tax on earnings expected to be remitted
+by subsidiaries (Note 26)
+Unrecognised deferred income tax assets
+Others
+Income tax expense
+169
+1,700
+266
+686
+421
+(91)
+60
+10,193
+7,108
+1,157
+Expenses not deductible for tax purposes
+(14)
+(112)
+36,216
+Share of losses of associates and joint ventures
+2,522
+2,793
+54,162
+39,009
+Tax calculated at a tax rate of 25%
+167
+13,540
+Effects of different tax rates applicable to different subsidiaries of the Group
+(6,191)
+(3,775)
+Effects of tax holiday on assessable profits of certain subsidiaries
+(496)
+(508)
+Income not subject to tax
+9,752
+Annual Report 2016
+RMB'Million
+Hong Kong profits tax has been provided for at the rate of 16.5% on the estimated assessable profits for the
+years ended 31 December 2016 and 2015.
+2,522
+2,793
+11 TAXATION
+(a)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+(27)
+Income tax expense is recognised based on management's best knowledge of the income tax rates expected for
+the financial year.
+Cayman Islands and British Virgin Islands corporate income tax
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2016 and 2015.
+(ii)
+Hong Kong profits tax
+(iii) PRC corporate income tax
+PRC corporate income tax has been provided for at applicable tax rates under the relevant regulations of
+the PRC after considering the available tax benefits from refunds and allowances, and on the estimated
+assessable profits of entities within the Group established in the PRC for the years ended 31 December 2016
+and 2015. The general PRC corporate income tax rate is 25% in 2016.
+(i)
+2,802
+Income tax expense
+RMB'Million
+1,510
+(212)
+2,549
+108
+1,955
+1,618
+10 SHARE OF LOSSES OF ASSOCIATES AND JOINT VENTURES
+Interest and related expenses mainly arose from the borrowings and notes payable disclosed in Notes 33 and 34.
+Share of profits of joint ventures
+Tencent Holdings Limited
+166
+2016
+2015
+RMB'Million
+Share of losses of associates (Note 20)
+118
+4.329
+9,430
+9,494
+130
+9,300
+13 EMPLOYEE BENEFITS EXPENSES
+28,806
+41,095
+2015
+2016
+3.055
+9,376
+2016
+13,900
+RMB'Million
+RMB'Million
+Wages, salaries and bonuses
+15,626
+13,377
+Contributions to pension plans (Note)
+1,426
+1,112
+Share-based compensation expenses
+4,455
+2,841
+Welfare, medical and other expenses (Note)
+1,841
+Diluted EPS (RMB per share)
+2015
+calculation of diluted EPS (million shares)
+28,806
+Profit attributable to equity holders of the Company (RMB'Million)
+Weighted average number of ordinary shares in issue (million shares)
+Adjustments for share options and awarded shares (million shares)
+Taxable advertising income
+City construction tax
+Educational surcharge
+7%
+Net VAT and BT payable amount
+5%
+Net VAT and BT payable amount
+12 EARNINGS PER SHARE
+(a) Basic
+Basic earnings per share ("EPS") is calculated by dividing the profit attributable to equity holders of the Company
+by the weighted average number of ordinary shares in issue during the year.
+2016
+2015
+Profit attributable to equity holders of the Company (RMB'Million)
+41,095
+Weighted average number of ordinary shares for the
+1,076
+9,376
+9,300
+Basic EPS (RMB per share)
+4.383
+3.097
+Tencent Holdings Limited
+170
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+12 EARNINGS PER SHARE (Cont'd)
+(b) Diluted
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption
+of the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted
+by the Company (collectively forming the denominator for computing the diluted EPS). No adjustment is made to
+earnings (numerator).
+In addition, the share options and restricted shares granted by the Company's non-wholly owned subsidiaries and
+associates, and the convertible bonds of the subsidiaries should also have potential dilutive effect on the EPS.
+During the years ended 31 December 2016 and 2015, these share options, restricted shares and convertible
+bonds had either anti-dilutive effect or insignificant dilutive effect to the Group.
+Weighted average number of ordinary shares in issue (million shares)
+Training expenses
+12.0-20.0%
+69
+For the year ended 31 December 2016
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+(a) Senior management's emoluments (Cont'd)
+The emoluments of the senior management fell within the following bands:
+Number of individuals
+2016
+2015
+Emolument bands
+HKD800,000 - HKD15,000,000
+HKD15,000,001 – HKD40,000,000
+HKD40,000,001 – HKD65,000,000
+HKD65,000,001 – HKD115,000,000
+HKD165,000,001 – HKD215,000,000
+HKD215,000,001 – HKD315,000,000
+Notes to the Consolidated Financial Statements
+1
+4
+4
+244
+-
+1
+2
+1
+(b) Five highest paid individuals
+The five individuals whose emoluments were the highest in the Group include one director during the year 2016
+(2015: one). All of these individuals including that one director (Note 14(a)) have not received any emolument
+from the Group as an inducement to join the Group during the years ended 31 December 2016 and 2015. The
+emoluments paid/payable to the remaining four (2015: four) individuals during the year were as follows:
+Salaries and bonuses
+Contributions to pension plans
+Share-based compensation expenses
+Allowances and benefits in kind
+1
+702,039
+1,005,603
+165,607
+699
+535,733
+23,433
+18,475
+171
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+Note:
+Majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred.
+The applicable percentages used to provide for these social security plans for the years ended 31 December 2016 and 2015 are listed
+below:
+Pension insurance
+Medical insurance
+Unemployment insurance
+Housing fund
+(a) Senior management's emoluments
+Percentage
+3%
+6.0-11.5%
+0.5-1.5%
+10.0-12.0%
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services excluding the directors and the
+CEO whose details have been reflected in Note 14(a) is as follows:
+Salaries, bonuses, allowances and benefits in kind
+Contributions to pension plans
+Share-based compensation expenses
+Tencent Holdings Limited
+172
+2016
+RMB'000
+2015
+RMB'000
+227,989
+826
+776,788
+85
+the period prior to May 2016)
+Construction fee for cultural undertakings
+423
+5%
+Motor Leasehold
+and office
+Computer
+equipment
+Buildings
+RMB'Million
+Furniture
+16 PROPERTY, PLANT AND EQUIPMENT (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+179
+During the year ended 31 December 2016, depreciation of RMB2,591 million (2015: RMB2, 191 million), RMB132
+million (2015: RMB118 million) and RMB976 million (2015: RMB844 million) were charged to cost of revenues, selling
+and marketing expenses and general and administrative expenses, respectively.
+9,973
+1,027
+equipment
+RMB'Million RMB'Million
+9
+5,959
+2,594
+Net book amount
+(11)
+25
+10
+(46)
+Currency translation differences
+(11,001)
+(694)
+(16)
+(432)
+(9,160)
+384
+(699)
+vehicles improvements
+RMB'Million RMB'Million RMB'Million
+Opening net book amount
+Year ended 31 December 2015
+7,918
+423
+12
+339
+5,092
+2,052
+Net book amount
+(68)
+4
+(63)
+Currency translation differences
+Total
+(8,508)
+(13)
+(338)
+(7,106)
+(522)
+Accumulated depreciation
+16,494
+961
+25
+673
+12,261
+2,574
+Cost
+At 1 January 2015
+(529)
+Accumulated depreciation
+20,985
+1,696
+5,212
+791
+3
+167
+3,498
+753
+Additions
+6
+2
+3
+1
+Business combinations
+7,918
+Disposals
+2016
+RMB'000
+339
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+11 TAXATION (Cont'd)
+(b) Value-added tax, business tax and related taxes
+The operations of the Group are also mainly subject to the following taxes in the PRC:
+Category
+Value-added tax ("VAT")
+Tax rate
+Basis of levy
+6-17%
+Sales value of goods sold and services fee income,
+offsetting by VAT on purchases
+Business tax ("BT") (applicable for
+12
+(4)
+(13)
+(15)
+25
+806
+15,165
+3,293
+Cost
+At 31 December 2015
+9,973
+1,027
+9
+384
+5,959
+2,594
+Closing net book amount
+57
+34
+6
+17
+Currency translation differences
+(31)
+(31)
+Transfer to investment properties
+(3,153)
+(208)
+(4)
+(115)
+(2,647)
+(179)
+Depreciation
+(36)
+Services fee income
+Tencent Holdings Limited
+2015
+RMB'000
+608,757
+(11,001)
+(694)
+(16)
+(432)
+(9,160)
+(699)
+Currency translation differences
+Accumulated depreciation
+1,696
+25
+25
+806
+15,165
+3,293
+20,985
+Cost
+(46)
+25
+9
+384
+5,959
+2,594
+Opening net book amount
+Year ended 31 December 2016
+10
+9,973
+9
+384
+5,959
+2,594
+Net book amount
+(11)
+1,027
+At 1 January 2016
+RMB'Million RMB'Million RMB'Million
+Total
+(c) Consideration provided to third parties for making available directors' services
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(b) Directors' termination benefits
+14 BENEFITS AND INTERESTS OF DIRECTORS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+No consideration provided to third parties for making available directors' services subsisted at the end of the year
+or at any time during the year.
+176
+Mr Yang Siu Shun was appointed as independent non-executive director with effect from 1 July 2016.
+No director received any emolument from the Group as an inducement to join or leave the Group or compensation for
+loss of office. No director waived or has agreed to waive any emoluments during the years ended 31 December 2016 and
+2015.
+During the year ended 31 December 2016, 3,750,000 options were granted to one executive director of the Company
+(2015: nil), and 61,474 awarded shares were granted to four independent non-executive directors of the Company (2015:
+75,000 awarded shares were granted to three independent non-executive directors of the Company).
+(iv)
+(iii)
+(ii)
+Tencent Holdings Limited
+(d) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate
+by and connected entities with such directors
+No loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate by and connected
+entities with such directors subsisted at the end of the year or at any time during the year.
+(e) Directors' material interests in transactions, arrangements or contracts
+Leasehold
+vehicles improvements
+Motor
+Furniture
+and office
+equipment
+equipment
+RMB'Million RMB'Million
+Buildings
+RMB'Million
+Computer
+16 PROPERTY, PLANT AND EQUIPMENT
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+177
+A final dividend in respect of the year ended 31 December 2016 of HKD0.61 per share (2015: HKDO.47 per share)
+was proposed pursuant to a resolution passed by the Board on 22 March 2017 and subject to the approval of the
+shareholders at the annual general meeting to be held on 17 May 2017. This proposed dividend is not reflected as
+dividend payable in the consolidated financial statements.
+The dividends amounted to RMB3,699 million (2015: RMB2,640 million) was paid during the year ended 31 December
+2016.
+15 DIVIDENDS
+No significant transactions, arrangements and contracts in relation to the group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+1,027
+(i) Allowances and benefits in kind include leave pay, insurance premium and club membership.
+9,973
+54
+Accumulated depreciation and impairment
+27,595
+1,787
+31
+902
+20,374
+(807)
+4,501
+At 31 December 2016
+13,900
+1,048
+13
+377
+8,768
+Cost
+3,694
+(11,610)
+(18)
+1,048
+13
+377
+8,768
+3,694
+Net book amount
+(544)
+91
+19
+19
+4
+Currency translation differences
+(13,786)
+(807)
+68
+Closing net book amount
+102
+43
+(1)
+(8)
+(20)
+Disposals
+7,624
+245
+(22)
+10
+5,877
+1,372
+Additions
+93
+33
+6
+120
+(51)
+Depreciation
+(133)
+(140)
+(1)
+9
+50
+Currency translation differences
+| ❁
+(139)
+Transfer to investment properties
+(2)
+Impairment
+(3,699)
+(277)
+(5)
+(134)
+(3,150)
+Business combinations
+316,874
+758
+116,613
+60,604
+(Note (i))
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+Total
+Ma Huateng (CEO)
+in kind
+plans
+and benefits
+to pension compensation
+Salaries
+and bonuses
+RMB'000
+RMB'000
+Fees
+expenses
+178
+1,249
+94
+716
+lan Charles Stone
+3,896
+3,001
+895
+lain Ferguson Bruce
+37,459
+122,017
+93,875
+26,832
+1,249
+Lau Chi Ping Martin
+38,821
+19
+61
+Allowances
+Share-based
+Contributions
+HKD183,000,001 – HKD183,500,000
+Emolument bands
+The emoluments of the above four individuals (2015: four) fell within the following bands:
+(b) Five highest paid individuals (Cont'd)
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2016
+HKD210,000,001 – HKD210,500,000
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+173
+926,422
+49
+33
+195,792
+503
+516,582
+712,926
+HKD231,000,001 – HKD231,500,000
+HKD262,500,001 – HKD263,000,000
+HKD274,000,001 – HKD274,500,000
+HKD310,500,001 – HKD311,000,000
+Tencent Holdings Limited
+During the year ended 31 December 2016:
+The remuneration of every director and the CEO is set out below:
+(a) Directors' and the chief executive's emoluments
+14 BENEFITS AND INTERESTS OF DIRECTORS
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+1
+1
+||2-
+21||-|
+- 2
+2015
+2016
+Number of individuals
+174
+2,969
+38
+3,685
+581
+74,970
+19
+53,842
+19,940
+1,169
+Lau Chi Ping Martin
+lain Ferguson Bruce
+32,828
+84
+32,725
+Ma Huateng (CEO)
+(Note (i))
+RMB'000
+RMB'000
+19
+RMB'000
+838
+3,616
+84
+52,665
+3,222
+Note:
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+2,778
+1,812
+545
+Li Dong Sheng
+3,387
+2,717
+670
+lan Charles Stone
+1,267
+RMB'000
+RMB'000
+RMB'000
+171,129
+80
+101,661
+94
+64,291
+5,003
+175
+691
+313
+Yang Siu Shun (Note (iv))
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+2,019
+1,438
+378
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+Total
+in kind
+expenses
+plans
+and benefits
+to pension compensation
+Salaries
+and bonuses
+Fees
+Name of director
+Allowances
+Share-based
+Contributions
+During the year ended 31 December 2015:
+(a) Directors' and the chief executive's emoluments (Cont'd)
+14 BENEFITS AND INTERESTS OF DIRECTORS (Cont'd)
+Li Dong Sheng
+Name of director
+5,092
+2,052
+Losses
+7,061
+10,152
+Accounts receivable (Note 28)
+6,230
+9,627
+Deposits and other receivables (Note 24)
+Investments in redeemable instruments of associates (Note 22)
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+As at 31 December 2016, the financial instruments of the Group is analysed as follows:
+Financial assets classified as loan and receivables:
+9,267
+7,709
+Term deposits (Note 27)
+Long-term payables (Note 35)
+40,978
+39,670
+Notes payable (Note 34)
+Financial liabilities at amortised cost:
+160,174
+157,433
+43,438
+71,902
+Cash and cash equivalents (Note 29(a))
+54,731
+750
+Restricted cash (Note 29(b))
+41,005
+55,735
+21 FINANCIAL INSTRUMENTS BY CATEGORY
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+260,186
+RMB'Million
+RMB'Million
+2015
+2016
+Year ended 31 December
+For the year ended 31 December 2016
+There are no contingent liabilities relating to the Group's interest in the associates.
+Total comprehensive loss
+Other comprehensive income
+Net loss
+Loss before tax
+Loss from operations
+Net Revenues
+Summarised consolidated statements of operations and comprehensive loss
+181,287
+4,935
+(2,081)
+(3,294)
+187
+The Group placed certain deposits in the form of wealth management products with an associate in the ordinary
+course of business. During the year ended and as at 31 December 2016, the balances of these deposits and
+interest income thereon were considered to be insignificant.
+Other transactions
+(ii)
+The revenues recorded by the Group from the aforesaid co-operation arrangements during the years ended 31
+December 2016 and 2015 were considered to be insignificant.
+During the year ended 31 December 2016, the Group had undertaken transactions relating provision of online
+traffic, online advertising and other online services to certain associates (including JD.com), under but not limited
+to certain co-operation arrangements.
+(i) Transactions related to online services
+Transactions with associates
+(8,229)
+(2,287)
+1,159
+1,187
+(9,388)
+(3,474)
+(9,402)
+(6,459)
+3,626
+Accounts payable (Note 37)
+27,413
+7,155
+Net book amount
+9
+2
+(8)
+11
+1,219
+Currency translation differences
+(387)
+(495)
+(4,935)
+(1,508)
+(860)
+(162)
+(8,347)
+697
+3,665
+259
+15,896
+Business combinations (Notes 39 and 40)
+13,439
+444
+50
+259
+3,665
+667
+697
+1,219
+7,155
+Opening net book amount
+Year ended 31 December 2016
+13,439
+444
+Accumulated amortisation and impairment
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+21,777
+754
+As at 31 December 2016, financial assets classified as available-for-sale were RMB83,806 million (2015: RMB44,339
+million) (Note 23).
+21 FINANCIAL INSTRUMENTS BY CATEGORY (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+188
+Tencent Holdings Limited
+As at 31 December 2016, financial assets and liabilities at fair value include other financial assets (Note 25) and other
+financial liabilities of RMB3,409 million (2015: RMB1, 198 million) and RMB2,576 million (2015: RMB588 million),
+respectively.
+146,282
+24,351
+69,827
+61,627
+10,491
+Other payables and accruals (excluding prepayments received from
+customers and others, staff costs and welfare accruals) (Note 38)
+Borrowings (Note 33)
+15,700
+152,336
+22 INVESTMENTS IN REDEEMABLE INSTRUMENTS OF ASSOCIATES
+As at 31 December 2016, the Group's investments in redeemable instruments of associates of RMB9,627 million
+(2015: RMB6,230 million) were stated at amortised cost. These investments mainly comprised investee companies
+that are principally engaged in online community services, online financing business, online games development and
+other Internet-related businesses. The redemption prices of the relevant instruments are agreed at not less than their
+respective original subscription prices.
+During the year ended 31 December 2016, the Group made aggregate investments in redeemable instruments of
+associates, including certain additional investments in existing investees of the Group, of RMB3,628 million. These
+investments mainly invested in companies that are principally engaged in online automotive financing business, online
+game businesses and other Internet-related businesses.
+8,598
+2,196
+2,087
+7,306
+Cost
+At 1 January 2016
+RMB'Million
+Total
+Others
+contents Copyrights
+RMB'Million RMB'Million RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+Annual Report 2016
+189
+During the year ended 31 December 2016, the Group also made an impairment provision of approximately RMB1,298
+million (2015: RMB47 million) against the carrying amounts of certain investments in redeemable instruments of
+associates based on the impairment assessment performed with reference to the business performances and recoverable
+amounts of these investee companies.
+836
+28
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+software and
+Licensed
+Computer
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+19 INTANGIBLE ASSETS
+Game
+180
+The land use rights represent prepaid operating lease payments in respect of land in the PRC with remaining lease
+period of 39 to 50 years. During the year ended 31 December 2016, all of the amortisation was charged to general and
+administrative expenses.
+2,293
+5,174
+(39)
+(95)
+1,581
+Tencent Holdings Limited
+online
+Goodwill
+technology
+484
+(1,141)
+52,576
+33,378
+71,894
+Listed entities
+2016
+31 December
+RMB'Million
+operation income
+income
+RMB'Million RMB'Million RMB'Million
+Liabilities Revenues
+RMB'Million RMB'Million
+Assets
+RMB'Million
+of listed
+companies
+as at
+from continuing comprehensive comprehensive
+Total
+licences
+2,976
+884
+751
+RMB'Million
+4,248
+RMB'Million
+RMB'Million
+2015
+2016
+Closing net book amount
+3,830
+Currency translation differences
+Transfer to property, plant and equipment
+Additions
+Opening net book amount
+17 CONSTRUCTION IN PROGRESS
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Transfer to investment properties
+2,559
+2,199
+(1,710)
+RMB'Million
+2015
+2016
+Closing net book amount
+Amortisation
+Additions
+Opening net book amount
+18 LAND USE RIGHTS
+As at 31 December 2016, construction in progress mainly comprised new buildings and internet data centres under
+construction located in the PRC.
+4,248
+4,674
+2
+17
+(440)
+(1,783)
+2,293
+(657)
+68,565
+Non-listed entities
+2015
+2016
+As at 31 December
+Summarised consolidated balance sheet
+Set out below are the summarised financial information of JD.com extracted from its financial statements prepared under
+generally accepted accounting principles in the United States.
+Online direct sales and online
+marketplace businesses/the PRC
+RMB'Million
+18.22%
+JD.com
+Name of entity
+Interest
+Particulars of a material associate of the Group, as determined by the directors, are set out below:
+Management has assessed the level of influence that the Group exercises on certain associates, with a total carrying
+amount of RMB37,131 million as at 31 December 2016 (2015: RMB31,207 million), and determined that it has
+significant influence thereon through the board representation or other arrangements made, even though the respective
+shareholding is below 20%. Consequently, these investments have been classified as associates.
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+held indirectly Principal activities/place of operation
+RMB'Million
+Current assets
+106,932
+30,678
+34,258
+Shareholders' equity
+7,057
+Redeemable non-controlling interests
+5,460
+14,665
+Non-current liabilities
+49,028
+104,843
+Current liabilities
+26,698
+53,891
+Non-current assets
+58,468
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+185
+55,557
+Listed entities
+2015
+(1,686)
+863
+(2,549)
+64,031
+58,224
+128,265
+(1,029)
+379
+(1,408)
+11,455
+24,846
+56,371
+19,517
+186
+36,149
+323
+(2,473)
+329
+(2,802)
+42,364
+26,952
+87,123
+(1,032)
+6
+(1,038)
+6,215
+7,435
+31,566
+Non-listed entities
+88,090
+(1,441)
+(1,764)
+1
+Place of incorporation
+Cayman Islands
+2,204
+2
+9
+(8)
+11
+Currency translation differences
+(8,347)
+15
+(387)
+(4,935)
+(1,508)
+(860)
+794
+(162)
+Accumulated amortisation and impairment
+(495)
+9
+Net book amount
+7,155
+For online game business, management calculates the fair value less costs to sell based on ratios of EV (enterprise value)
+divided by EBITDA (earnings before interest, tax, depreciation and amortisation) of several comparable public companies
+multiplied by the EBITDA (ranging within 10-18x) of the related CGU and discounted for the lack of marketability at
+a range of 10% to 20%. The comparable public companies are chosen based on factors such as industry similarity,
+company size, profitability and financial risks.
+Goodwill is allocated to the Group's CGUS and most of the goodwill is related to the VAS. The recoverable amount of a
+CGU is the higher of its value-in-use and fair value less costs to sell. The key assumptions used for the calculations of the
+recoverable amounts of major CGUS are as follows:
+Impairment tests for goodwill
+During the year ended 31 December 2016, amortisation of RMB8,277 million (2015: RMB3,068 million) and RMB653
+million (2015: RMB408 million) were charged to cost of revenues and general and administrative expenses, respectively.
+During the year ended 31 December 2016, goodwill and other identifiable intangible assets of certain subsidiaries have
+been impaired to the extent of RMB366 million (Note 7) as a result of significant decline in revenues and unsatisfactory
+operating performance of these subsidiaries.
+19 INTANGIBLE ASSETS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+182
+Tencent Holdings Limited
+13,439
+444
+259
+3,665
+697
+1,219
+21,777
+836
+754
+8,598
+(174)
+(30)
+(44)
+(99)
+Impairment provision
+(3,476)
+(136)
+(2,611)
+(329)
+(281)
+Amortisation
+(193)
+(6)
+(53)
+(37)
+Currency translation differences
+For online literature business and online music business, management calculates value-in-use based on discounted
+cash flows calculations. The discounted cash flows calculations use cash flow projections developed based on financial
+budgets approved by management of the Group covering a five-year period. Cash flows beyond the five-year period are
+extrapolated using an estimated annual growth of not more than 5%. Pre-tax discount rates of 20% to 25% adopted for
+the online music business and the online literature business, respectively, which reflects market assessments of time
+value and the specific risks relating to the industry that the Group operates. The financial projections were determined by
+the management based on past performance and its expectation for market development.
+150
+12
+2,196
+2,087
+7,306
+Cost
+At 31 December 2015
+13,439
+444
+259
+3,665
+697
+1,219
+7,155
+Closing net book amount
+174
+2
+13
+(97)
+183
+Notes to the Consolidated Financial Statements
+(i)
+Note:
+60,171
+70,042
+At end of the year
+2,888
+(ii)
+3,540
+(1,591)
+(2,117)
+Impairment provision (Note (v))
+(4,183)
+(1,706)
+Disposals and transfers (Note (iv))
+Currency translation differences
+(iii)
+(iv)
+In August 2016, the Group acquired from the market additional listed American Depositary Shares of an associate, JD.com, Inc.
+("JD.com"), totalling approximately USD200 million (equivalent to approximately RMB1,328 million).
+Fair value
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates,
+as well as the fair value of the associates which are listed entities, are shown in aggregate as follows:
+The associates of the Group have been accounted by using equity method based on the financial information of the associates
+prepared under the accounting policies generally consistent with the Group.
+During the year ended 31 December 2016, the Group made an aggregate impairment provision of RMB2, 117 million (2015:
+RMB1,591 million) against the carrying amounts of a number of associates. Within the amount, RMB775 million was provided for
+an associate, based on the results of impairment assessment performed on the carrying amount against its respective recoverable
+amount. The impairment loss mainly resulted from revisions of long-term financial outlook and the changes in business models of
+the affected associates.
+(vi)
+(v)
+Note: (Cont'd)
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+184
+Tencent Holdings Limited
+Disposals and transfers mainly comprised derecognition of our earlier minority investment in China Music Corporation ("CMC")
+from an associate as detailed in Note 39, and other disposals during the year ended 31 December 2016.
+The Group also acquired certain other associates and made additional investments in existing associates, with an aggregate
+amount of RMB7,406 million during the year ended 31 December 2016. These associates are principally engaged in online
+game business and other Internet-related businesses.
+In August 2016, the Group subscribed for new shares of WeBank Co., Ltd., an associate and a privately-owned commercial bank
+in China, in proportion to its then shareholding percentage together with the other investors, at a cash consideration of RMB1,166
+million.
+(237)
+(151)
+Dividends from associates
+329
+70,042
+24,131
+31,526
+36,040
+38,516
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+- Unlisted entities
+- Listed entities
+Investments in associates
+20 INVESTMENTS IN ASSOCIATES
+For the year ended 31 December 2016
+60,171
+Annual Report 2016
+2016
+RMB'Million
+863
+Share of other comprehensive income of associates
+(2,802)
+(2,549)
+Share of losses of associates (Note 10)
+1,931
+2,091
+Deemed disposal gains (Note 7(a)(ii))
+12,705
+9,900
+51,131
+60,171
+Additions (Note (i), (ii) and (iii))
+At beginning of the year
+RMB'Million
+2015
+Disposals
+Other
+6
+Annual Report 2016
+181
+36,467
+2,352
+42
+242
+6,596
+1,635
+1,535
+22,927
+Net book amount
+260
+3
+17
+20
+10
+209
+Currency translation differences
+(18,004)
+(796)
+(630)
+(13,121)
+(1,900)
+Notes to the Consolidated Financial Statements
+(1,118)
+For the year ended 31 December 2016
+Computer
+704
+586
+2,933
+1,711
+1,671
+6,558
+Cost
+At 1 January 2015
+RMB'Million
+RMB'Million RMB'Million
+Total
+Others
+Copyrights
+contents
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+licences
+technology
+Goodwill
+online
+Game
+software and
+Licensed
+19 INTANGIBLE ASSETS (Cont'd)
+14,163
+(439)
+54,211
+(2)
+(277)
+Impairment provision
+(8,930)
+(362)
+(139)
+(7,772)
+(396)
+(261)
+Amortisation
+(97)
+(4)
+(38)
+(45)
+Disposals
+13,247
+148
+125
+11,074
+1,331
+569
+Additions
+18,923
+(87)
+Accumulated amortisation and impairment
+(366)
+198
+3,147
+869
+20,880
+3,515
+2,643
+23,157
+Cost
+At 31 December 2016
+36,467
+2,352
+42
+242
+7,776
+1,635
+1,535
+22,927
+Closing net book amount
+251
+6
+3
+15
+11
+18
+Currency translation differences
+Accumulated amortisation and impairment
+7,776
+226
+(4,694)
+Currency translation differences
+(139)
+(21)
+(165)
+Net book amount
+6,356
+1,118
+566
+175
+5,665
+300
+450
+Additions
+1,208
+132
+231
+9,304
+Year ended 31 December 2015
+Opening net book amount
+6,356
+1,118
+566
+(273)
+609
+26
+609
+429
+9,304
+Business combinations
+845
+69
+429
+(360)
+(1,142)
+(2,324)
+226
+(532)
+(63)
+Annual Report 2016
+4,726
+11%
+17,158
+13,930
+17%
+17,468
+18%
+26,970
+78%
+80,669
+71%
+107,810
+(RMB in millions, unless specified)
+Amount
+Amount
+% of total
+% of total
+2015
+2016
+Year ended 31 December
+Total revenues
+Others
+11
+Online advertising
+VAS
+Revenues. Revenues increased by 48% to RMB151.9 billion for the year ended 31 December 2016 on a year-on-year basis.
+The following table sets forth our revenues by line of business for the years ended 31 December 2016 and 2015:
+Management Discussion and Analysis
+revenues
+revenues
+5,080
+32,410
+(1,955)
+Finance costs, net
+40,627
+56,117
+Operating profit
+(16,825)
+(22,459)
+General and administrative expenses
+(7,993)
+(1,618)
+(12,136)
+1,886
+3,594
+Other gains, net
+2,327
+2,619
+61,232
+84,499
+(41,631)
+(67,439)
+Selling and marketing expenses
+5%
+Share of losses of associates and joint ventures
+(2,793)
+45,420
+Non-GAAP profit attributable to equity holders of the Company
+29,108
+41,447
+302
+352
+28,806
+41,095
+Non-controlling interests
+(2,522)
+Equity holders of the Company
+29,108
+41,447
+Profit for the year
+(7,108)
+(10,193)
+Income tax expense
+36,216
+51,640
+Profit before income tax
+Attributable to:
+151,938
+(604)
+102,863
+13
+Cost of revenues for our other businesses increased by 238% to RMB14,421 million for the year ended 31 December
+2016 on a year-on-year basis. The increase was primarily driven by greater costs in payment related and cloud services.
+Cost of revenues for our online advertising business increased by 72% to RMB15,396 million for the year ended 31
+December 2016 on a year-on-year basis. The increase was mainly driven by greater investment in video content, to a
+lesser extent by higher traffic acquisition costs and staff costs.
+Cost of revenues for our VAS business increased by 32% to RMB37,622 million for the year ended 31 December 2016
+on a year-on-year basis. The increase primarily reflected greater sharing and content costs as well as channel costs as a
+result of higher revenues.
+41,631
+67,439
+90%
+Annual Report 2016
+4,268
+14,421
+51%
+8,941
+57%
+15,396
+35%
+28,422
+84%
+35%
+Management Discussion and Analysis
+Selling and marketing expenses. Selling and marketing expenses increased by 52% to RMB12, 136 million for the year ended
+31 December 2016 on a year-on-year basis. The increase mainly reflected greater marketing spending on products and
+platforms such as online media, online games and payment related services, as well as higher staff costs. As a percentage of
+revenues, selling and marketing expenses were 8% for the year ended 31 December 2016, broadly stable compared to the
+year ended 31 December 2015.
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2015
+2016
+31 December 31 December
+Other gains, net. We recorded net other gains, totalling RMB3,594 million for the year ended 31 December 2016, which
+primarily consisted of net disposal and deemed disposal gains arising from certain investee companies, and fair value gains on
+options we own in an investee company, partially offset by impairment provision charges for certain investee companies and
+donations made to the Tencent Charity Funds.
+Three months ended
+FOURTH QUARTER OF 2016 COMPARED TO FOURTH QUARTER OF 2015
+Management Discussion and Analysis
+14
+Tencent Holdings Limited
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 43% to
+RMB41,095 million for the year ended 31 December 2016 on a year-on-year basis. Non-GAAP profit attributable to equity
+holders of the Company increased by 40% to RMB45,420 million for the year ended 31 December 2016.
+Finance costs, net. Finance costs, net increased by 21% to RMB1,955 million for the year ended 31 December 2016 on a
+year-on-year basis. The increase was mainly driven by higher interest expenses as a result of greater amount of indebtedness.
+Income tax expense. Income tax expense increased by 43% to RMB10, 193 million for the year ended 31 December 2016 on
+a year-on-year basis. The increase was mainly driven by greater profit before income tax and withholding taxes.
+General and administrative expenses. General and administrative expenses increased by 33% to RMB22,459 million for the
+year ended 31 December 2016 on a year-on-year basis. The increase was mainly driven by greater research and development
+expenses as well as staff costs. As a percentage of revenues, general and administrative expenses decreased to 15% for the
+year ended 31 December 2016 from 16% for the year ended 31 December 2015.
+Unaudited
+100%
+37,622
+revenues
+14,460
+2015
+2016
+Year ended 31 December
+Total cost of revenues
+Others
+Online advertising
+Finance costs, net
+VAS
+Management Discussion and Analysis
+12
+Tencent Holdings Limited
+Revenues from our other businesses increased by 263% to RMB17,158 million for the year ended 31 December 2016
+on a year-on-year basis. The increase was mainly driven by growth in revenues from our payment related and cloud
+services.
+Revenues from our online advertising business increased by 54% to RMB26,970 million for the year ended 31
+December 2016 on a year-on-year basis. Performance-based advertising revenues grew by 81% to RMB15,765 million,
+mainly reflecting growth in advertising revenues derived from Weixin Moments, our mobile news apps, and Weixin Official
+Accounts. Brand display advertising revenues grew by 28% to RMB11,205 million, primarily due to higher revenues
+from our mobile media platforms such as Tencent News and Tencent Video.
+Revenues from our VAS business increased by 34% to RMB107.8 billion for the year ended 31 December 2016 on a
+year-on-year basis. Online games revenues increased by 25% to RMB70,844 million. The increase was mainly driven
+by revenue growth from our major smart phone games such as Honour of Kings, Cross Fire Mobile and JX Mobile. The
+increase was also driven by higher revenues from certain major PC client games. Social networks revenues increased by
+54% to RMB36,966 million. The increase primarily reflected growth in revenues from digital content services, as well as
+higher revenues from virtual item sales.
+100%
+Cost of revenues. Cost of revenues increased by 62% to RMB67,439 million for the year ended 31 December 2016 on a year-
+on-year basis. The increase mainly reflected greater sharing and content costs, costs of payment related services, and channel
+costs. As a percentage of revenues, cost of revenues increased to 44% for the year ended 31 December 2016 from 40% for
+the year ended 31 December 2015, primarily due to business mix changes. The following table sets forth our cost of revenues
+by line of business for the years ended 31 December 2016 and 2015:
+(RMB in millions, unless specified)
+(483)
+Share of losses of associates and joint ventures
+Amount
+revenues
+Amount
+% of segment
+% of segment
+Interest income
+10,523
+102,863
+Profit for the period
+(2,402)
+Income tax expense
+13,237
+12,925
+Profit before income tax
+(619)
+(522)
+(2,461)
+151,938
+Interest income
+Gross profit
+10,529
+7,164
+1,484
+34
+10,523
+7,198
+Non-GAAP profit attributable to equity holders of the Company
+12,332
+8,953
+15
+Annual Report 2016
+Management Discussion and Analysis
+Revenues. Revenues increased by 44% to RMB43,864 million for the fourth quarter of 2016 on a year-on-year basis. The
+following table sets forth our revenues by line of business for the fourth quarter of 2016 and the fourth quarter of 2015:
+VAS
+Online advertising
+Others
+Total revenues
+Unaudited
+Three months ended
+31 December 2016
+31 December 2015
+% of total
+% of total
+Non-controlling interests
+Amount
+Equity holders of the Company
+7,198
+(3,024)
+General and administrative expenses
+(6,909)
+(4,766)
+Operating profit
+13,930
+10,888
+Finance costs, net
+(483)
+(363)
+Share of losses of associates and joint ventures
+(522)
+(1,329)
+Profit before income tax
+12,925
+9,196
+Income tax expense
+(2,402)
+(1,998)
+Profit for the period
+10,523
+Attributable to:
+(4,462)
+revenues
+revenues
+Online advertising
+Others
+Total cost of revenues
+Unaudited
+Three months ended
+31 December 2016
+31 December 2015
+% of segment
+% of segment
+Amount
+revenues
+Amount
+revenues
+(RMB in millions, unless specified)
+10,734
+37%
+8,383
+36%
+4,424
+53%
+2,794
+49%
+VAS
+Amount
+Cost of revenues. Cost of revenues increased by 60% to RMB20,238 million for the fourth quarter of 2016 on a year-on-year
+basis. The increase mainly reflected greater costs of payment related services, sharing and content costs, as well as bandwidth
+and server custody fees. As a percentage of revenues, cost of revenues increased to 46% for the fourth quarter of 2016 from
+42% for the fourth quarter of 2015, primarily due to business mix changes. The following table sets forth our cost of revenues
+by line of business for the fourth quarter of 2016 and the fourth quarter of 2015:
+16
+(RMB in millions, unless specified)
+29,191
+66%
+23,068
+76%
+8,288
+19%
+5,733
+19%
+6,385
+15%
+1,640
+5%
+43,864
+100%
+30,441
+100%
+Revenues from our VAS business increased by 27% to RMB29,191 million for the fourth quarter of 2016 on a year-
+on-year basis. Online games revenues grew by 16% to RMB18,469 million. The increase was primarily driven by
+contributions from our major PvP and RPG genre smart phone games. Social networks revenues increased by 51% to
+RMB10,722 million. The increase mainly reflected revenue growth from digital content services, including our expanded
+digital music business, and virtual item sales.
+Revenues from our online advertising business increased by 45% to RMB8,288 million for the fourth quarter of 2016
+on a year-on-year basis. Performance-based advertising revenues grew by 77% to RMB5,168 million, mainly driven
+by higher contributions from advertising revenues derived from Weixin Moments, our mobile news apps, and Weixin
+Official Accounts. Brand display advertising revenues increased by 11% to RMB3, 120 million, primarily driven by growth
+in revenues from our mobile media platforms such as Tencent News and Tencent Video, partly offset by performance
+inventory replacing some brand inventory.
+Revenues from our other businesses increased by 289% to RMB6,385 million for the fourth quarter of 2016 on a year-
+on-year basis. The increase was mainly due to revenue growth from our payment related and cloud services.
+Tencent Holdings Limited
+Management Discussion and Analysis
+80%
+Selling and marketing expenses
+1,022
+Annual Report 2016
+19
+11,737
+12,332
+Non-GAAP profit attributable to equity holders of the Company
+10,776
+10,523
+130
+(6)
+Non-controlling interests
+10,646
+10,529
+Equity holders of the Company
+Attributable to:
+Operating profit
+(5,883)
+(6,909)
+General and administrative expenses
+(3,277)
+(4,462)
+Selling and marketing expenses
+10,776
+1,155
+Chairman's Statement
+Expanding the popularity of our major smart phone games while adding new genre-driven PC games;
+Cost of revenues
+Revenues
+(RMB in millions)
+2015
+2016
+Year ended 31 December
+YEAR ENDED 31 DECEMBER 2016 COMPARED TO YEAR ENDED 31 DECEMBER 2015
+Management Discussion and Analysis
+10
+10
+Tencent Holdings Limited
+Hong Kong, 22 March 2017
+Chairman
+Ma Huateng
+On behalf of the Board, I would like to take this opportunity to thank our dedicated staff and management team for their
+commitment, diligence and professionalism. I would also like to express our sincere gratitude to the continuing support of our
+shareholders and stakeholders. We will continue to enrich our platforms with quality products and services for the development
+of a healthy and prosperous Internet ecosystem.
+APPRECIATION
+The Board has recommended the payment of a final dividend of HKD0.61 per share (2015: HKDO.47 per share) for the year
+ended 31 December 2016, subject to the approval of the shareholders at the 2017 AGM. Such proposed dividend will be
+payable on 2 June 2017 to the shareholders whose names appear on the register of members of the Company on 24 May
+2017.
+Developing our capabilities in emerging technology areas such as machine learning and cloud services.
+Boosting usage frequency of our payment related services by covering more online and offline consumption
+scenarios; and
+Growing our digital content subscriber bases;
+Expanding our advertising market share by synchronising our capabilities in brand and performance advertising,
+and growing our number of small and regional advertisers with deeper targeting algorithms and more convenient
+self-service tools;
+DIVIDEND
+249
+1,022
+637
+Selling and marketing expenses. Selling and marketing expenses increased by 48% to RMB4,462 million for the fourth quarter
+of 2016 on a year-on-year basis. The increase was mainly driven by greater marketing and promotional expenses due to our
+expanded business scope. As a percentage of revenues, selling and marketing expenses were 10% for the fourth quarter of
+2016, broadly stable compared to the fourth quarter of 2015.
+Other gains, net. We recorded net other gains, totalling RMB1,022 million for the fourth quarter of 2016, which mainly
+consisted of net disposal and deemed disposal gains arising from certain investee companies, partly offset by impairment
+provision charges for certain investee companies and donations made to the Tencent Charity Funds.
+Management Discussion and Analysis
+Annual Report 2016
+17
+17
+Cost of revenues for our other businesses increased by 242% to RMB5,080 million for the fourth quarter of 2016 on a
+year-on-year basis. The increase mainly reflected greater costs in payment related and cloud services.
+Cost of revenues for our online advertising business increased by 58% to RMB4,424 million for the fourth quarter of
+2016 on a year-on-year basis. The increase was primarily driven by greater investment in video content. Staff costs and
+traffic acquisition costs also increased.
+Cost of revenues for our VAS business increased by 28% to RMB10,734 million for the fourth quarter of 2016 on a year-
+on-year basis. The increase was mainly due to greater sharing and content costs, as well as channel costs.
+12,661
+20,238
+90%
+43,864
+30,441
+(20,238)
+(12,661)
+23,626
+17,780
+653
+649
+Other gains, net
+General and administrative expenses. General and administrative expenses increased by 45% to RMB6,909 million for the
+fourth quarter of 2016 on a year-on-year basis. The increase primarily reflected greater research and development expenses,
+as well as staff costs, including those arising from higher share-based compensation expenses. As a percentage of revenues,
+general and administrative expenses were 16% for the fourth quarter of 2016, broadly stable compared to the fourth quarter of
+2015.
+Other gains, net
+Finance costs, net. Finance costs, net increased by 33% to RMB483 million for the fourth quarter of 2016 on a year-on-year
+basis, mainly due to greater amount of indebtedness.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 47% to
+RMB10,529 million for the fourth quarter of 2016 on a year-on-year basis. Non-GAAP profit attributable to equity holders of
+the Company increased by 38% to RMB12,332 million.
+653
+21,828
+23,626
+(18,560)
+(20,238)
+40,388
+43,864
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2016
+2016
+31 December 30 September
+Three months ended
+Unaudited
+FOURTH QUARTER OF 2016 COMPARED TO THIRD QUARTER OF 2016
+Management Discussion and Analysis
+18
+Tencent Holdings Limited
+Income tax expense. Income tax expense increased by 20% to RMB2,402 million for the fourth quarter of 2016 on a year-on-
+year basis. The increase primarily reflected greater profit before income tax and withholding tax, partly offset by the impact of
+income tax preferential treatment recognised by a subsidiary.
+(6)
+For the year ended 31 December 2016
+be remitted
+(a) Cash and cash equivalents
+Notes to the Consolidated Financial Statements
+Bank balances and cash
+Term deposits and highly liquid investments with
+initial terms within three months
+As at 31 December
+2016
+2015
+RMB'Million
+RMB'Million
+39,804
+19,845
+32,098
+23,593
+71,902
+43,438
+The effective interest rate of the term deposits of the Group with initial terms within three months during the year
+ended 31 December 2016 was 2.47% (2015: 3.08%).
+Approximately RMB28,154 million (2015: RMB22,150 million) and RMB1,856 million (2015: RMB6,995 million)
+of the total balance of the Group's cash and cash equivalents was denominated in RMB, which had been placed
+with banks in Mainland China and Hong Kong, respectively.
+(b) Restricted cash
+As at 31 December 2016, restricted deposits held at bank of RMB750 million (2015: RMB54,731 million) were
+mainly denominated in RMB.
+As at 31 December 2015, the cash amount deposited with banks under users' entrustment (the "Entrustment
+Value") had been presented and recognised as "Restricted cash" under current assets with corresponding liability
+in equivalent amount as “Other payables and accruals" (Note 38) under current liabilities.
+During the year ended 31 December 2016, in light of changes in operating environment in the PRC, and based on
+the advice of the Company's legal advisor, the Group has formed a view that it holds the Entrustment Value as a
+custodian and the Group has amended its relevant users' agreements to reflect such effect. Accordingly, the Group
+has no longer recognised the Entrustment Value since 2 July 2016, being the effective date of amendments to the
+users' agreements. The Entrustment Value amounted to approximately RMB125 billion on 2 July 2016.
+199
+Annual Report 2016
+(198)
+(631)
+(1,975)
+29 BANK BALANCES AND CASH
+(314)
+198
+As at 31 December 2016, the carrying amounts of the accounts receivable approximated their fair values.
+1,579
+438
+10,152
+7,061
+Majority of the Group's accounts receivable were denominated in RMB.
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+Online advertising customers
+Third party platform providers
+Telecommunications operators
+Others
+As at 31 December
+2016
+2015
+RMB'Million
+RMB'Million
+4,679
+3,340
+2,252
+1,500
+928
+815
+2,293
+1,406
+10,152
+7,061
+Online advertising customers, which are mainly advertising agencies related to brand display advertising business, are
+usually granted with a credit period of 90 days after full execution of the contracted advertisement orders. Third party
+platform providers and telecommunication operators usually settle the amounts due by them within 60 days and a period
+of 30 to 120 days, respectively.
+As at 31 December 2016, insignificant amounts of accounts receivable were past due and related impairment provision
+was recognised after assessment on the financial condition and credit quality with reference to the past history.
+Tencent Holdings Limited
+RMB'Million
+RMB'Million
+Total
+305
+209
+243
+11
+424
+209
+(11)
+==
+Currency translation differences
+226
+income statement
+(Charge)/credit to consolidated
+322
+96
+209
+17
+At 1 January 2015
+189
+642
+7,033
+2,541
+3,661
+66
+78
+71
+7
+3,851
+757
+Note:
+The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be
+available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting
+periods. As at 31 December 2016, the Group did not recognise deferred income tax assets of RMB957 million (2015: RMB1,017
+million) in respect of cumulative tax losses amounting to RMB4,064 million (2015: RMB4, 125 million). These tax losses will expire from
+2017 to 2021.
+195
+Others
+investees
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+assets
+disposals of
+financial
+business
+combinations by subsidiaries
+Deemed
+for-sale
+acquired in anticipated to
+available-
+798
+earnings
+fair value of
+tax on the
+Intangible
+Business combinations
+At 1 January 2016
+Change in
+Withholding
+Deferred income tax liabilities on temporary differences arising from
+The movements of deferred income tax liabilities were as follows:
+26 DEFERRED INCOME TAXES (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+assets
+1,294
+2,209
+4,019
+(425)
+(269)
+(3,391)
+(607)
+(17)
+(16)
+(2)
+362
+362
+300
+(1,745)
+88
+(227)
+At 31 December 2016
+Currency translation differences
+changes in equity
+Credit to consolidated statement of
+300
+the remittance of dividends
+Withholding tax paid in relation to
+(1,700)
+94
+income statement
+Credit/(charge) to consolidated
+(385)
+(385)
+(3,668)
+(461)
+(5,153)
+At 1 January 2015
+(360)
+(459)
+326
+(459)
+ล
+326
+2
+At 31 December 2015
+Currency translation differences
+changes in equity
+Charge to consolidated statement of
+the remittance of dividends
+Withholding tax paid in relation to
+5
+(550)
+5
+(596)
+(173)
+(198)
+(266)
+41
+Credit/(charge) to consolidated income statement
+2
+2
+Business combinations
+(2,942)
+(377)
+(172)
+(2,033)
+Disposal of a subsidiary
+1,794
+(314)
+(631)
+36,569
+2,708
+762
+1,494
+50,320
+37,331
+55,735
+41,005
+The effective interest rate for the term deposits of the Group with initial terms of over three months during the year ended
+31 December 2016 was 3.41% (2015: 4.00%).
+Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2016, the
+carrying amounts of the term deposits with initial terms of over three months approximated their fair values.
+197
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+28 ACCOUNTS RECEIVABLE
+Accounts receivable and their ageing analysis, based on recognition date, are as follows:
+0-30 days
+31 - 60 days
+61-90 days
+Over 90 days
+As at 31 December
+2016
+2015
+RMB'Million
+RMB'Million
+3,260
+3,616
+46,118
+3,674
+5,415
+5
+(198)
+(550)
+(3,668)
+Tencent Holdings Limited
+196
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+26 DEFERRED INCOME TAXES (Cont'd)
+As at 31 December 2016, the Group recognised the relevant deferred income tax liabilities of RMB3,391 million
+(2015: RMB1,975 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable future. No
+withholding tax had been provided for the earnings of approximately RMB41,220 million (2015: RMB37,344 million)
+expected to be retained by the PRC subsidiaries and not to be remitted to a foreign investor in the foreseeable future
+based on several factors, including management's estimation of overseas funding requirements.
+27 TERM DEPOSITS
+An analysis of the Group's term deposits by currencies are as follows:
+As at 31 December
+Included in non-current assets:
+(1,975)
+RMB term deposits
+Other currencies
+Included in current assets:
+RMB term deposits
+USD term deposits
+Other currencies
+2016
+RMB'Million
+2015
+RMB'Million
+5,409
+3,611
+58
+6
+USD term deposits
+2,057
+At 31 December 2015
+367
+As at 31 December
+24 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+191
+As at 31 December 2016, the balance of the Group's available-for-sale financial assets comprise of a large number of individual
+investments, among which the investment in Supercell represented the single largest investment in available-for-sale financial
+assets and was the only significant investment of the Group which triggered the disclosure requirements pursuant to Chapter 14
+of the Listing Rules at the time when the Group made such investment.
+The Group made an aggregate impairment provision of RMB1,028 million (2015: RMB586 million) against the carrying amounts
+of certain available-for-sale financial assets during the year ended 31 December 2016, with reference to their assessed fair values
+as at 31 December 2016.
+Fair value gains of RMB2,567 million (2015: RMB13,045 million) were recognised in other comprehensive income during the
+year ended 31 December 2016 as a result of the remeasurement of the changes in fair values of the available-for-sale financial
+assets as at 31 December 2016.
+During the year ended 31 December 2016, the Group acquired certain interests or made additional investments of approximately
+RMB11,057 million in unlisted entities mainly operated in the PRC and the United States. These companies are engaged in
+technology, online-to-offline and other Internet-related services.
+Subsequently, the Group acquired additional common stocks of Tesla and its aggregate equity interest in Tesla amounted to
+approximately 5% of the total issued common stocks of Tesla as of March 2017.
+During the year ended 31 December 2016, the Group acquired certain interests or made additional investments of approximately
+RMB7,277 million in listed entities in the United States, PRC, Sweden and South Korea. Among which, approximately USD737
+million (equivalent to approximately RMB5,052 million) was invested by the Group to acquire approximately 2.2% of common
+stocks of Tesla, Inc. ("Tesla"), a listed company in US which is principally engaged in the development and sales of electric
+vehicles, sustainable energy generation and storage equipment.
+The Group provided a guarantee and a put arrangement which were recognised as other financial liabilities and measured at
+their respective fair values.
+The Group's investment in the Consortium was accounted for as compound financial instruments with the host component
+(substantially equity) recognised as available-for-sale financial assets of RMB 18,985 million and embedded derivative recognised
+as other financial assets of RMB1, 176 million (Note 25).
+The Supercell Financing was completed upon finalisation of bank facilities agreements and investments made by the Group and
+co-investors in October 2016. According to the investment agreements entered into by the Group and co-investors in respect
+of their investment in Consortium, the Group considers its voting interests together with other arrangements do not give rise
+to sufficient ability for the Group to control the Consortium. The Supercell Acquisition was completed after the completion of
+Supercell Financing and the Consortium acquired 76.9% interest in Supercell.
+On 21 June 2016, a limited liability company and its subsidiaries established by the Group (the "Consortium") agreed to acquire
+a majority equity interest in Supercell Oy ("Supercell") ("Supercell Acquisition"). The acquisition consideration paid by the
+Consortium was funded by the Group, which subscribed for certain voting and non-voting redeemable and convertible shares
+and other instruments issued by the Consortium, certain co-investors, which subscribed for ordinary shares and preference
+shares issued by the Consortium, and bank borrowings obtained by the Consortium ("Supercell Financing").
+(vi)
+(v)
+(iv)
+(iii)
+(ii)
+(i)
+Note:
+23 AVAILABLE-FOR-SALE FINANCIAL ASSETS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+44,339
+2016
+RMB'Million
+2015
+RMB'Million
+Interest receivables
+2,507
+1,679
+Loan to investees and investees' shareholders (Note)
+3,275
+4,659
+Prepaid expenses
+2,252
+2,506
+Running royalty fees for online games
+Included in current assets:
+5,480
+7,363
+83,806
+1,025
+Others
+999
+1,113
+Loan to investees and investees' shareholders (Note)
+357
+685
+Running royalty fees for online games
+2,242
+2,343
+857
+3,942
+Prepayment for licensed online contents and game licences
+Included in non-current assets:
+1,623
+1,496
+3,364
+(586)
+RMB'Million
+2015
+RMB'Million
+2016
+As at 31 December
+190
+Tencent Holdings Limited
+At end of the year
+Currency translation differences
+Impairment provision (Note (v))
+Changes in fair value (Note (iv))
+Disposals and transfers
+Additions (Note (i), (ii) and (iii))
+3,909
+At beginning of the year
+Others
+Equity investments in unlisted entities
+- Japan
+- South Korea
+- Sweden
+- United States of America
+- United Kingdom
+– Hong Kong
+Mainland China
+Equity investments in listed entities
+23 AVAILABLE-FOR-SALE FINANCIAL ASSETS
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Movement of available-for-sale financial assets is analysed as follows:
+2,293
+6,198
+179
+(1,028)
+13,045
+2,567
+(932)
+(2,755)
+18,039
+37,319
+13,277
+44,339
+RMB'Million
+RMB'Million
+2015
+2016
+615
+44,339
+25
+749
+34,879
+62,580
+9,435
+20,477
+129
+131
+204
+553
+13,552
+2,376
+2,066
+83,806
+1,392
+Prepayments for land use rights
+260
+At 1 January 2016
+Deferred income tax assets on temporary differences arising from
+The movements of deferred income tax assets were as follows:
+Refundable value-added tax
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+(2,911)
+1,880
+7
+61
+3,851
+2
+(381)
+5
+(459)
+362
+326
+300
+(172)
+598
+(2,620)
+(2,911)
+RMB'Million
+RMB'Million
+2015
+2016
+194
+Business combinations
+Tencent Holdings Limited
+(Charge)/credit to consolidated
+Other additions
+1,604
+23
+(27)
+399
+4
+4
+757
+305
+།
+209
+243
+(Note)
+RMB'Million
+RMB'Million
+Total
+payments
+and others
+expenses
+RMB'Million
+Tax losses
+RMB'Million
+RMB'Million
+assets
+Accrued
+of intangible
+Share-based
+amortisation
+Accelerated
+At 31 December 2016
+Currency translation differences
+income statement
+At end of the year
+26 DEFERRED INCOME TAXES (Cont'd)
+Other additions
+2016
+As at 31 December
+Deferred income tax assets:
+There was no offsetting of deferred income tax assets and liabilities in 2016 and 2015.
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+26 DEFERRED INCOME TAXES
+Other financial assets were measured at their fair values.
+As at 31 December 2016, the Group had several outstanding interest rate swap contracts to exchange floating
+interest rates into fixed interest rates with the aggregate notional principal amount of USD4,001 million (equivalent to
+approximately RMB27,755 million) (2015: Nil). These interest rate swap contracts were qualified as hedging accounting.
+As at 31 December 2016, the Group's current other financial assets represent call option rights held by the Group which
+entitle it to acquire additional equity interests in certain investee companies of the Group.
+As at 31 December 2016, the Group's non-current other financial assets comprised the embedded derivatives bifurcated
+from the host component (Note 23(i)) and interest rate swap contracts of RMB1, 176 million and RMB584 million,
+respectively.
+25 OTHER FINANCIAL ASSETS
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+192
+2015
+Tencent Holdings Limited
+As at 31 December 2016, the amounts represented loan to investees and investees' shareholders. These balances are repayable within
+a period of two to nine years (included in non-current assets), or within one year (included in current assets), and are interest-bearing at
+rates of not higher than 8.0% per annum (2015: not higher than 10.0% per annum).
+Note:
+16,877
+21,481
+11,397
+14,118
+1,550
+2,522
+Currency translation differences
+167
+199
+Rental deposits and other deposits
+254
+As at 31 December 2016, the carrying amounts of deposits and other assets (excludes prepayments and refundable
+value-added tax), were approximate to their fair values. Deposits and other assets were neither past due nor impaired.
+Their recoverability was assessed with reference to the credit status of the counterparties and credit history.
+RMB'Million
+Others
+- to be recovered after more than 12 months
+RMB'Million
+Business combinations
+Disposal of a subsidiary
+Credit/(charge) to consolidated income statement (Note 11)
+At beginning of the year
+The movements of the deferred income tax assets/liabilities account were as follows:
+26 DEFERRED INCOME TAXES (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+193
+(3,668)
+(5,153)
+(955)
+Withholding tax paid relating to remittance of dividends
+Credit/(charge) to consolidated statement of changes in equity
+- to be recovered within 12 months
+(376)
+443
+- to be recovered within 12 months
+3,761
+314
+7,033
+3,272
+757
+Deferred income tax liabilities:
+- to be recovered after more than 12 months
+(4,777)
+(2,713)
+- shares issued (Note (a))
+Total
+Employee share option schemes:
+9,370,678,830
+At 1 January 2015
+3,822
+(1,309)
+5,131
+RMB'Million
+Employee share award schemes:
+- value of employee services
+Share
+premium
+RMB'Million
+capital
+RMB'Million
+share award
+Share
+ordinary
+shares
+held for
+fully paid
+Issued and
+Shares
+165
+For the year ended 31 December 2016
+30 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (Cont'd)
+schemes
+RMB'Million
+11,488,432
+(144)
+165
+Notes to the Consolidated Financial Statements
+Note:
+As at 31 December 2016, the total number of issued ordinary shares of the Company included 82,075,537 shares (2015:
+58,379,035 shares) held under the Share Award Schemes.
+10,350
+(1,817)
+12,167
+4,788
+4,788
+9,403,923,992
+At 31 December 2015
+non-wholly owned subsidiaries
+169
+Acquisition of additional equity interests in
+and transferred to the grantees (Note (d))
+- shares vested from share award schemes
+21,756,730
+- shares allotted for share award schemes (Note (c))
+(652)
+(652)
+2,058
+2,058
+- shares withheld for share award schemes (Note (b))
+- value of employee services
+169
+144
+200
+- shares vested from share award schemes
+14,188
+Total
+schemes
+RMB'Million
+premium
+RMB'Million
+RMB'Million
+capital
+share award
+Share
+Share
+ordinary
+shares
+Shares
+held for
+fully paid
+RMB'Million
+Issued and
+- value of employee services
+Employee share award schemes:
+- shares issued (Note (a))
+- value of employee services
+Employee share option schemes:
+At 1 January 2016
+As at 31 December 2016 and 2015, the authorised share capital of the Company comprises 50,000,000,000 ordinary
+shares with par value of HKD0.00002 per share.
+30 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+(a)
+- shares withheld for share award schemes (Note (b))
+Tencent Holdings Limited
+9,403,923,992
+(1,817)
+(3,136)
+17,324
+9,477,083,480
+At 31 December 2016
+1,785
+- 1,785
+non-wholly owned subsidiaries (Note 31(d))
+Acquisition of additional equity interests in
+617
+-- (617)
+and transferred to the grantees (Note (d))
+12,167
+64,440,700
+(1,936)
+(1,936)
+3,453
+3,453
+225
+311
+225
+ཆསྶ
+311
+8,718,788
+10,350
+- shares allotted for share award schemes (Note (c))
+During the year ended 31 December 2016, 8,718,788 Post-IPO options (2015: 11,488,432 Post-IPO options) with exercise
+prices ranging from HKD18.06 to HKD148.90 (2015: HKD8.53 to HKD124.30) were exercised.
+At 1 January 2016
+(c)
+Exercised
+Granted
+No. of
+options
+options
+price
+No. of
+Average
+exercise
+No. of
+options
+price
+exercise
+Average
+Total
+Post-IPO Option Scheme III
+Post-IPO Option Scheme II
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+(i) Movements in share options
+(a) Share option schemes (Cont'd)
+32 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+Lapsed
+205
+HKD80.59 25,697,305
+HKD160.11 11,843,070
+HKD29.69 (6,218,788) HKD31.70
+HKD42.72
+5,000,000 30,697,305
+11,843,070
+HKD39.44 (717,138)
+At 31 December 2015
+HKD18.28 (11,488,432)
+Lapsed
+Exercised
+HKD149.22 1,470,875
+5,000,000 41,432,000
+HKD57.36 36,432,000 HKD31.70
+Granted
+At 1 January 2015
+9,617,778
+HKD86.69 9,617,778
+at 31 December 2016
+Exercisable as
+2,500,000 33,747,436
+HKD120.95 31,247,436 HKD31.70
+At 31 December 2016
+(74,151)
+-
+(74,151)
+(2,500,000) (8,718,788)
+HKD31.70
+1,470,875
+(11,488,432)
+In respect of the Post-IPO Option Scheme II and the Post-IPO Option Scheme III, the Board may, at their
+discretion, grant options to any qualifying participants to subscribe for shares in the Company, subject to the terms
+and conditions stipulated therein. The exercise price must be in compliance with the requirement under The Rules
+Governing the Listing of Securities on the Stock Exchange. In addition, the option vesting period is determined
+by the Board provided that it is not later than the last day of a 7-year or 10-year period after the date of grant of
+option.
+The Company has adopted four share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II and the Post-IPO Option Scheme III.
+1,607
+736
+736
+1,970
+1,970
+329
+(11)
+12,586
+216
+216
+(1,195)
+(372)
+(8,160)
+982
+982
+273
+273
+190
+190
+1
+203
+1,089
+The Pre-IPO Option Scheme and the Post-IPO Option Scheme I expired on 31 December 2011 and 23 March
+2014 respectively.
+2,015
+9,673
+(a) Share option schemes
+32 SHARE-BASED PAYMENTS
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+204
+Tencent Holdings Limited
+During the year, the Group has acquired non-controlling interests in certain non-wholly owned subsidiaries and the aggregate net
+excess of considerations over the carrying amounts of acquired non-controlling interests of RMB2,523 million (2015: RMB8,160
+million) was recognised directly in equity. Out of which includes an agreement to entire non-controlling interests (including the
+outstanding equity-settled and cash-settled share options and restricted shares under the relevant employees incentive plans) in
+a non-wholly owned subsidiary entered into by the Group in 2015. The considerations were settled in cash and awarded shares
+of the Company. This acquisition was partially completed in 2015 and 2016.
+Share-based compensation reserve arises from share option schemes and share award schemes adopted by the subsidiaries of
+the Group (Note 32(d)).
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly owned foreign subsidiaries in the PRC, appropriation from net profits (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, such transfer needs not be made.
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries
+with limited liabilities in the PRC, appropriation of net profits (after offsetting accumulated losses from prior years) should be
+made by these companies to their respective Statutory Surplus Reserve Funds and the Discretionary Reserve Funds before
+distributions are made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount
+to be transferred to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance
+of the Statutory Surplus Reserve Fund reaches 50% of the registered capital, such transfer needs not to be made. Both the
+Statutory Surplus Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the
+remaining Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+(d)
+(c)
+(b)
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+(a)
+Note:
+31 OTHER RESERVES (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+736
+(717,138)
+HKD80.59 25,697,305 HKD31.70 5,000,000 30,697,305
+Exercisable as
+Granted
+At 1 January 2016
+Number of
+awarded shares
+Movements in the number of awarded shares for the years ended 31 December 2016 and 2015 are as follows:
+The Company has adopted two share award schemes (the "Share Award Schemes"), both of which are
+administered by an independent trustee appointed by the Group (the "Trustee") as of 31 December 2016. The
+vesting period of the awarded shares is determined by the Board.
+(b) Share award schemes
+32 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+208
+Tencent Holdings Limited
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the
+average daily trading price volatility of the shares of the Company.
+35.00% 40.00%-41.00%
+0.36%
+0.32%-0.33%
+(b)
+0.69%-1.08%
+HKD160.04
+2015
+2016
+Note:
+Lapsed
+Expected volatility (Note)
+Vested and transferred
+Vested but not transferred as at 31 December 2016
+Annual Report 2016
+209
+During the year ended 31 December 2016, 61,474 awarded shares were granted to four independent non-
+executive directors of the Company (2015: 75,000 awarded shares were granted to three independent non-
+executive directors of the Company).
+8,574,117
+91,786,907
+(57,811,262)
+(6,746,336)
+74,308,983
+82,035,522
+277,291
+86,365,812
+(53,989,266)
+(3,803,259)
+52,371,430
+91,786,907
+Vested but not transferred as at 31 December 2015
+At 31 December 2015
+Vested and transferred
+Lapsed
+Granted
+At 1 January 2015
+At 31 December 2016
+Dividend yield
+Risk free rate
+Weighted average share price at the grant date
+HKD18.06
+2015
+31 December
+31 December
+2016
+Range of exercise price
+Number of share options
+10 years commencing from the
+7 years commencing from the
+date of grant of options
+(Post-IPO Option Scheme II)
+Expiry Date
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2016 and 2015 are as follows:
+(ii) Outstanding share options
+(a) Share option schemes (Cont'd)
+32 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+206
+Tencent Holdings Limited
+As a result of the options exercised during the year ended 31 December 2016, 8,718,788 ordinary shares
+(2015: 11,488,432 ordinary shares) were issued by the Company (Note 30). The weighted average price of
+the shares at the time these options were exercised was HKD173.65 per share (equivalent to approximately
+RMB148.82 per share) (2015: HKD142.75 per share (equivalent to approximately RMB114.57 per share)).
+During the year ended 31 December 2016, 3,750,000 options were granted to a director of the Company
+(2015: Nil).
+HKD56.85 8,844,117 HKD31.70 1,250,000 10,094,117
+at 31 December 2015
+2,851,000
+HKD26.08-HKD49.76
+5,005,325
+8,094,967
+Other than the exercise price mentioned above, significant judgment on parameters, such as risk free rate,
+dividend yield and expected volatility, are required to be made by the directors in applying the Valuation
+Models, which are summarised as below.
+The directors of the Company have used the Valuation Models to determine the fair value of the options as at
+the respective grant dates, which is to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2016 was HKD56.41 per share (equivalent
+to approximately RMB47.33 per share) (2015: HKD51.92 per share (equivalent to approximately RMB41.01
+per share)).
+Fair value of options
+(iii)
+(a) Share option schemes (Cont'd)
+32 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+207
+586
+The outstanding share options as of 31 December 2016 were divided into three to five tranches on an equal
+basis as at their grant dates. The first tranche can be exercised after a specified period ranging from one to
+five years from the grant date, and then the remaining tranches will become exercisable in each subsequent
+year.
+33,747,436
+5,000,000
+2,500,000
+HKD31.70
+date of grant of options
+(Post-IPO Option Scheme III)
+25,697,305
+31,247,436
+14,751,338
+26,242,111
+HKD112.30-HKD174.86
+30,697,305
+458
+HKD149.22
+0.36%-1.54%
+15,106
+2,929
+available-for-sale financial assets
+Net gains from changes in fair value of
+Profit appropriations to PRC statutory reserves
+7,842
+and businesses
+Partial disposal of equity interests in subsidiaries
+516
+99
+option granted to non-controlling interests
+Transfer to profit or loss upon disposal of
+Write-back of financial liabilities upon termination of the put
+to non-controlling interests
+Transfer of equity interests of subsidiaries
+(2,523)
+non-wholly owned subsidiaries (Note (d))
+665
+665
+7,842
+99
+516
+(927)
+(927)
+available-for-sale financial assets
+(1,176)
+Share of other comprehensive income of associates
+31 OTHER RESERVES (Cont'd)
+23,693
+1,092
+3,363
+356
+356
+4,127
+863
+(1,176)
+2,929
+། །
+202
+Tencent Holdings Limited
+1,754
+5,734
+1,321
+16,859
+(6,430)
+Balance at 31 December 2016
+Other fair value gains, net
+4127
+Currency translation differences
+863
+(2,523)
+897
+897
+394
+Others
+reserve
+reserve
+Share-based
+statutory compensation
+Investments translation
+differences
+in associates
+assets
+reserve
+financial
+Capital
+PRC
+Currency
+for-sale
+Available-
+31 OTHER RESERVES
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+201
+During the year ended 31 December 2016, the Share Scheme Trust transferred 53,989,266 ordinary shares of the Company
+(2015: 57,811,262 ordinary shares) to the share awardees upon vesting of the awarded shares (Note 32(b)).
+During the year ended 31 December 2016, the Company allotted 64,440,700 ordinary shares (2015: 21,756,730 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the share award
+schemes.
+During the year ended 31 December 2016, the Share Scheme Trust withheld 13,242,861 ordinary shares (2015: 5,747,513
+ordinary shares) of the Company for an amount of approximately HKD2,267 million (equivalent to approximately RMB1,936
+million) (2015: HKD800 million (equivalent to approximately RMB652 million)), which had been deducted from the equity.
+(d)
+Total
+Balance at 1 January 2015
+RMB'Million
+RMB'Million RMB'Million
+394
+57
+57
+Acquisition of additional equity interests in
+Tax benefit from share-based payments of a subsidiary
+- Employee share award schemes
+-Employee share option schemes
+Value of employee services:
+9,673
+736
+2,015
+1,089
+1,607
+458
+(11,338)
+Balance at 1 January 2016
+(Note (c))
+(Note (b))
+(Note (a))
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Value of employee services:
+4,127
+- Employee share award schemes
+(363)
+873
+570
+2,129
+Acquisition of additional equity interests in
+non-wholly owned subsidiaries (Note (d))
+(8,160)
+Transfer of equity interests of subsidiaries to
+non-controlling interests
+(372)
+Recognition of financial liabilities in respect of the
+put options granted to non-controlling interests
+(1,195)
+129
+Profit appropriations to PRC statutory reserves
+available-for-sale financial assets
+12,586
+Transfer to profit or loss upon disposal of
+(11)
+Share of other comprehensive income of associates
+329
+29
+Currency translation differences
+Other fair value gains, net
+Balance at 31 December 2015
+(11,338)
+15,106
+- Employee share option schemes
+Net gains from changes in fair value of
+2,531
+available-for-sale financial assets
+(Note (c))
+Tax benefit from share-based payments of a subsidiary
+(1,611)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+Available-
+for-sale
+Currency
+Capital
+financial
+Investments
+translation
+statutory compensation
+reserve
+assets
+RMB'Million
+PRC Share-based
+in associates
+RMB'Million RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+(Note (b))
+Total
+reserve
+reserve
+differences
+Others
+(Note (a))
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+During the year ended 31 December 2016, the Group also acquired certain insignificant subsidiaries. The aggregate
+considerations for these acquisitions was RMB314 million, fair value of net assets acquired (including identifiable
+intangible assets), non-controlling interests and goodwill recognised were RMB291 million, RMB95 million and RMB118
+million, respectively.
+41
+CONSOLIDATED CASH FLOW STATEMENT
+Annual Report 2016
+217
+The revenue and the results contributed by these acquired entities for the period since respective acquisition dates
+were insignificant to the Group. The Group's revenue and results for the year would not be materially different if these
+acquisitions had occurred on 1 January 2016.
+The acquisition related costs of the business combinations were not significant and had been charged to general and
+administrative expenses during the year ended 31 December 2016.
+The fair value of the non-controlling interest in CMC was estimated by making reference to the above consideration of the
+CMC Integration. This consideration was adjusted for control premium and lack of marketability that market participants
+would consider when estimating the fair value of the non-controlling interest in CMC.
+The Group recognised a deemed disposal gain of RMB1,505 million recorded as “Other gains, net" during the year
+ended 31 December 2016, being the difference between the fair value of the Previously Held Interest in CMC as at the
+completion date and its then carrying value (Note 7).
+The revenue and the results contributed by CMC to the Group for the period since the completion date were insignificant.
+The Group's revenue and results for the year would not be materially different should the CMC Integration otherwise
+occur on 1 January 2016.
+Transaction costs of CMC Integration were not significant and were charged to general and administrative expenses in
+the consolidated income statement during the year ended 31 December 2016.
+39 CMC INTEGRATION (Cont'd)
+For the year ended 31 December 2016
+10,292
+(a) Reconciliation of net profit to cash inflow from operating activities:
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+216
+40 OTHER BUSINESS COMBINATIONS
+Profit for the year
+(3,813)
+2015
+9,025
+3,515
+Net losses on disposals of land used rights, intangible assets,
+15,778
+3,159
+3,716
+Depreciation of property, plant and equipment and investment properties
+Amortisation of intangible assets and land use right
+(272)
+(563)
+2016
+Dividend income
+Gains on disposals and deemed disposals of investees and businesses
+7,108
+10,193
+Income tax expense
+Adjustments for:
+29,108
+41,447
+RMB'Million
+RMB'Million
+(6,966)
+Others
+Other current assets
+314
+Recognised amounts of identifiable assets acquired and liabilities assumed:
+Cash and cash equivalents
+1,286
+349
+Intangible assets (mainly include licensed online contents and contractual customer relationship)
+3,027
+Other non-current assets
+390
+(7,707)
+10,292
+Other payables and accruals
+Other liabilities
+(668)
+Deferred income tax liabilities
+(385)
+Total identifiable net assets
+Non-controlling interests
+2,221
+property, plant and equipment and construction in progress
+Interest income
+Goodwill
+(1,778)
+102
+2,483
+7,809
+54,108
+588
+5,045
+2,415
+20,873
+70,199
+39 CMC INTEGRATION
+On 12 July 2016, the Group completed the integration of its online music business with CMC, a then existing associate of
+the Group which also operates online music business in the PRC. The Group injected its online music related operating
+assets and liabilities (the "Group's Online Music Business") into CMC in exchange for CMC's new ordinary shares (the
+"CMC Integration"). Upon completion of the CMC Integration, the Group's then prevailing 15.8% ordinary shares in CMC
+("Previously Held Interest") was derecognised as a deemed disposal and CMC became a non-wholly owned subsidiary in
+which the Group owns 61.6% of the issued and outstanding shares.
+As a result of the CMC Integration, the Group is expected to increase its presence in online music industry in China.
+Goodwill arising from the CMC Integration was attributable to operating synergies and economies of scale expected from
+integrating the operations of the Group's Online Music Business with CMC. The goodwill recognised was not expected to
+be deductible for income tax purpose.
+The Previously Held Interest in CMC deemed to be disposed
+The following table summarises the fair value of assets acquired, liabilities assumed and the non-controlling interest
+recognised, on a provisional basis, as a result of the CMC Integration at the completion date.
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+39 CMC INTEGRATION (Cont'd)
+Total consideration:
+At completion
+date
+RMB'Million
+The fair value of the equity interest of the Group's Online Music Business
+deemed to be issued by the Group
+215
+Equity-settled share-based compensation expenses
+3,886
+43
+2,866
+631
+44
+2,239
+1,911
+Capital investment in investees
+Purchase of other property, plant and equipment
+Construction/Purchase of buildings and purchase of land use rights
+Contracted:
+2,249
+RMB'Million
+2015
+2016
+As at 31 December
+Capital commitments as at 31 December 2016 are analysed as follows:
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+(a) Capital commitments
+42 COMMITMENTS
+218
+RMB'Million
+Tencent Holdings Limited
+4,821
+(b) Operating lease commitments
+Annual Report 2016
+219
+2,453
+2,090
+1,198
+1,156
+827
+632
+years
+5,119
+Later than one year and not later than five
+Later than five years
+302
+Not later than one year
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+Contracted:
+The future aggregate minimum lease payments under non-cancellable operating leases in respect of buildings are
+as follows:
+428
+60
+Other than the transaction with non-controlling interests described in Note 31(d) and CMC integration described in
+Note 39, there were no material non-cash transactions during the year ended 31 December 2016.
+(b) Major non-cash transactions
+108
+(212)
+Exchange (gains)/losses
+148
+366
+Impairment of intangible assets
+(462)
+(658)
+Fair value gains on other financial assets
+Changes in working capital:
+2,225
+investments in redeemable instruments of associates and joint ventures
+Impairment provision for available-for-sale financial assets, associates,
+2,793
+2,522
+Share of losses of associates and joint ventures
+2,756
+4,313
+(2,327)
+(2,619)
+4,443
+Convertible bonds of a subsidiary
+Accounts receivable
+(2,469)
+50,478
+76,034
+Cash generated from operating activities
+4,439
+8,428
+Deferred revenue
+(106)
+49
+Other tax liabilities
+(2,930)
+3,654
+5,969
+7,060
+Accounts payable
+(5,081)
+(4,108)
+Prepayments, deposits and other receivables
+(17)
+(38)
+Inventories
+Other payables and accruals
+non-controlling shareholders of subsidiaries
+Deposits received from customers (Note 29(b))
+5,376
+386
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+211
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate") in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2016, the Expected Retention Rate from the Group's wholly-owned subsidiaries was assessed to be
+88%-96% (2015: 85%-97%).
+(e) Expected retention rate of grantees
+Certain subsidiaries of the Group operate their own share-based compensation plans (share option and/or share
+award schemes). Their exercise prices of the share options, as well as the vesting periods of the share options and
+awarded shares are determined by the board of directors of these subsidiaries at their sole discretion. Similar to the
+share option/award schemes adopted by the Company, the share options or restricted shares of the subsidiaries
+granted are normally vested by several tranches. Participants of some subsidiaries have the right to request the
+Group to repurchase their vested equity interests of the respective subsidiaries ("Repurchase Transaction"). The
+Group has discretion to settle the Repurchase Transaction by using either equity instruments of the Company or
+by cash. For the Repurchase Transaction which the Group has settlement options, the directors of the Company
+are currently of the view that they would be settled by equity instruments of the Company. As a result, they are
+accounted for using the equity-settled share-based payment method.
+(d) Share options and share award schemes adopted by subsidiaries
+32 SHARE-BASED PAYMENTS (Cont'd)
+For the year ended 31 December 2016
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+The related share-based compensation expenses incurred for the years ended 31 December 2016 and 2015 were
+insignificant to the Group.
+For aligning the interests of key employees with the Group, the Group established five employees' investment plans
+in the form of limited liability partnerships in 2011, 2014, 2015 and 2016 (the "EIS") respectively. According to
+the term of the EISs, the Board may, at its absolute discretion, select any employee of the Group, excluding any
+director of the Company, to participate in the EISS by subscribing for the partnership interest at cash consideration.
+The participating employees are entitled to all the economic benefits generated by the EISS, if any, after a specified
+vesting period under the respective EISS, ranging from up to four to seven years. Wholly-owned subsidiaries of
+the Company act as general partner of these EISS administer and in essence, control the EISs. These EISS are
+therefore consolidated by the Company as structured entities.
+(c) Employee incentive schemes
+The outstanding awarded shares as of 31 December 2016 were divided into two to five tranches on an equal basis
+as at their grant dates. The first tranche can be exercised immediately or after a specified period ranging from four
+months to four years from the grant date, and the remaining tranches will become exercisable in each subsequent
+year.
+The weighted average fair value of awarded shares granted during the year ended 31 December 2016 was
+HKD165.25 per share (equivalent to approximately RMB141.89 per share) (2015: HKD147.94 per share
+(equivalent to approximately RMB120.86 per share)).
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date. The expected dividends during the vesting period have been taken into account when
+assessing the fair value of these awarded shares.
+(b) Share award schemes (Cont'd)
+32 SHARE-BASED PAYMENTS (Cont'd)
+210
+For the year ended 31 December 2016
+33 BORROWINGS
+Non-current portion of long-term USD bank borrowings, unsecured (Note (a))
+(a)
+Note:
+24,351
+69,827
+11,429
+12,278
+714
+139
+Current portion of long-term USD bank borrowings, unsecured (Note (a))
+Included in non-current liabilities:
+10,715
+USD bank borrowings, unsecured (Note (b))
+12,922
+57,549
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+Included in current liabilities:
+12,139
+(b)
+Notes to the Consolidated Financial Statements
+2016
+More than 5 years
+Between 1 and 2 years
+Between 2 and 5 years
+Within 1 year
+The notes payable were repayable as follows:
+The aggregate principal amounts of USD notes payable and HKD notes payable were USD5,200 million (2015:
+USD5,800 million) and HKD4,200 million (2015: HKD4,200 million), respectively. The interest rate range of the notes
+payable is from 2.00% to 4.70% (2015: 2.00% to 4.70%) per annum.
+40,978
+RMB'Million
+2015
+RMB'Million
+All of these notes payable issued by the Group were unsecured.
+Non-current portion of long-term USD notes payable
+33,583
+Non-current portion of long-term HKD notes payable
+3,743
+3,509
+36,204
+37,092
+Included in current liabilities:
+Current portion of long-term USD notes payable
+3,466
+32,461
+As at 31 December
+As at 31 December
+2015
+As at 31 December
+35 LONG-TERM PAYABLES
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+213
+As at 31 December 2016, the fair value of the notes payable amounted to RMB40,379 million (2015: RMB41,372
+million). The respective fair values are assessed based on the active market price of these notes on the reporting date or
+by making reference to similar instruments traded in the observable market.
+In December 2016, the notes payable with an aggregate principal amount of USD600 million which were issued in
+December 2011 reached their maturity and they were fully repaid by the Group.
+40,978
+2016
+39,670
+6,880
+27,421
+24,281
+3,236
+5,043
+3,886
+3,466
+RMB'Million
+RMB'Million
+6,435
+Liabilities in relation to the put options granted to
+The aggregate principal amount of long-term USD bank borrowings was USD8,316 million (2015: USD2,100 million). Applicable
+interest rates are at LIBOR plus 0.85% to 1.35% or an interest rate of 1.875% (2015: LIBOR plus 1.02% to 1.52%) per annum.
+Within 1 year
+2016
+As at 31 December
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+38 OTHER PAYABLES AND ACCRUALS
+15,700
+27,413
+2,389
+2,363
+2015
+1,518
+1,774
+2,740
+10,019
+20,815
+RMB' Million
+RMB'Million
+2015
+2016
+As at 31 December
+1,495
+214
+Notes to the Consolidated Financial Statements
+RMB'Million
+403
+Interests payable
+351
+394
+Purchase consideration payables for investee companies
+1,459
+857
+Purchase of land use rights and construction related costs
+966
+RMB'Million
+1,160
+265
+1,417
+Prepayments received from customers and others
+1,628
+2,530
+7,719
+8,965
+Selling and marketing expense accruals
+Staff costs and welfare accruals
+General and administrative expenses accruals
+The long-term USD bank borrowings were repayable as follows:
+Tencent Holdings Limited
+61 - 90 days
+Tencent Holdings Limited
+As at 31 December 2016, the carrying amounts of borrowings approximated their fair values.
+(c)
+The aggregate principal amount of short-term USD bank borrowings was USD1,750 million (2015: USD1,650 million). Applicable
+interest rates are at LIBOR plus 0.70% to 0.75% (2015: LIBOR plus 0.75% to 0.85% or an interest rate of 1.125%) per annum.
+13,636
+57,688
+3,226
+6,299
+48,947
+212
+6,623
+714
+139
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+More than 5 years
+Between 1 and 2 years
+Between 2 and 5 years
+39,670
+Over 90 days
+34 NOTES PAYABLE
+2016
+31 - 60 days
+0-30 days
+Accounts payable and their ageing analysis, based on recognition date, are as follows:
+37 ACCOUNTS PAYABLE
+Deferred revenue mainly represents service fees prepaid by customers for certain VAS in the form of pre-paid tokens or
+cards, virtual items and subscription, for which the related services had not been rendered as at 31 December 2016. It
+also includes customer loyalty incentives offered by the Group to its customers which were valued at their respective fair
+values at the inception date. As at 31 December 2016, deferred revenue also included fair value of internet traffic and
+other support to be offered to JD.com and other investee companies in the future periods measured at their respective
+inception dates, as mentioned in Note 20.
+36 DEFERRED REVENUE
+3,626
+4,935
+778
+Included in non-current liabilities:
+873
+203
+Others
+non-controlling shareholders of subsidiaries
+2,361
+3,859
+Payables to the licensed online contents and running royalty fee for online games
+Present value of liabilities in relation to the put options granted to
+RMB'Million
+RMB'Million
+2015
+487
+For the year ended 31 December 2016
+2,506
+Later than one year and not later than five years
+in the United States
+Development and operation of online games
+100%
+USD1,239
+Established in the United States,
+limited liability company
+Riot Games, Inc.
+Design and production of advertisement
+in the PRC
+limited liability company
+Company Limited
+100%
+RMB5,000,000
+Established in the PRC,
+Beijing Tencent Culture Media
+online advertisement services in Hong Kong
+limited liability company
+Investment holding and provision of
+100%
+HKD1,000
+Established in Hong Kong,
+integration services in the PRC
+(Note (a))
+limited liability company
+Provision of information system
+100%
+RMB120,000,000
+China Reading Limited
+Established in the Cayman Islands,
+limited liability company
+USD66,683
+64.35%
+As mentioned in Note (a) above and Note 32(c), the Company has consolidated the operating entities within the Group without
+any legal interests and the EISS out of which wholly-owned subsidiaries of the Company act as general partner. In addition,
+due to the implementation of the share award schemes of the Group mentioned in Note 30(b), the Company has also set up a
+structured entity ("Share Scheme Trust”), and its particulars are as follows:
+Consolidation of structured entities
+(e)
+As at 31 December 2016, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to RMB86,250
+million were held in Mainland China and they are subject to local exchange control and other financial and treasury regulations.
+The local exchange control, and other financial and treasury regulations provide for restrictions, on payment of dividends, share
+repurchase and offshore investments, other than through normal activities.
+Significant restrictions
+(d)
+Note: (Cont'd)
+46 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+Annual Report 2016
+225
+Established in the PRC,
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings
+held directly by the parent company do not differ from its proportion of ordinary shares held. The parent company further does
+not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+As described in Note 1, the Company does not have legal ownership in equity of these structured entities or their subsidiaries.
+Nevertheless, under certain contractual agreements entered into with the registered owners of these structured entities, the
+Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing their
+financial and operating policies, appointing or removing the majority of the members of their controlling authorities, and casting
+the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards
+of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled
+structured entities of the Company.
+(c)
+(b)
+(a)
+Note:
+entertainment services in the PRC
+Provision of online music
+62.45%
+USD211,137
+Established in the Cayman Islands,
+limited liability company
+Tencent Music Entertainment Group
+Provision of online literature services in the PRC
+The directors of the Company considered that the non-wholly owned subsidiaries with non-controlling interests are not significant
+to the Group, therefore, no summarised financial information of these non-wholly owned subsidiaries is presented separately.
+Tencent Cloud Computing (Beijing)
+Company Limited
+Morespark Limited
+Development of softwares and provision of
+Internet information services in the PRC
+100%
+Established in the PRC,
+Tencent Cyber (Shenzhen)
+Company Limited
+Provision of value-added services in the PRC
+100%
+(Note (a))
+limited liability company
+RMB10,000,000
+Established in the PRC,
+Beijing Starsinhand Technology
+Company Limited
+Provision of value-added services in the PRC
+100%
+(Note (a))
+limited liability company
+RMB216,500,000
+USD30,000,000
+Established in the PRC,
+Provision of value-added services in the PRC
+100%
+(Note (a))
+limited liability company
+RMB10,290,000
+Established in the PRC,
+Nanjing Wang Dian Technology
+Company Limited
+Development and sale of softwares and
+provision of information technology services
+in the PRC
+100%
+USD1,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Beijing)
+Company Limited
+Asset management in Hong Kong
+Beijing BIZCOM Technology
+Company Limited
+Structured entity
+100%
+wholly foreign owned enterprise
+USD30,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Wuhan)
+Company Limited
+Development of softwares and provision of
+information technology services in the PRC
+100%
+USD170,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Chengdu)
+Company Limited
+Development of softwares and provision of
+Internet information services in the PRC
+wholly foreign owned enterprise
+100%
+USD5,000,000
+Development of softwares in the PRC
+Established in the PRC,
+by the Group (%) Principal activities and place of operation
+capital
+Proportion of
+equity interest held
+issued/paid-in
+Place of establishment
+and nature of legal entity
+Name
+Particulars of
+46 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+224
+Tencent Holdings Limited
+Tencent Technology (Shanghai)
+Company Limited
+Share Scheme Trust
+Principal activities
+Administering and holding the Company's shares acquired for share award schemes
+which are set up for the benefits of eligible persons of the Schemes
+"Listing Rules'
+"IPO"
+"IP"
+"Investment Committee"
+"IM"
+"IFRS"
+"IC"
+"IAS"
+"IA"
+“Hong Kong”
+"HKD"
+"Hainan Network"
+"M&A"
+2,090
+Definition
+228
+Tencent Holdings Limited
+the Company and its subsidiaries
+in relation to any Awarded Share, the date on which the Awarded Share is, was or
+is to be granted
+Generally Accepted Accounting Principles
+any person(s) eligible to participate in the respective Share Award Schemes
+earnings per share
+earnings before interest, tax, depreciation and amortisation
+daily active user accounts
+Tencent Cyber (Tianjin) Company Limited
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+the corporate governance committee of the Company
+Term
+the website of the Company at www.tencent.com
+"MAU"
+"Model Code"
+Annual Report 2016
+229
+online-to-offline, or offline-to-online
+the nomination committee of the Company
+NASDAQ Global Select Market
+in Appendix 10 to the Listing Rules
+the Model Code for Securities Transactions by Directors of Listed Issuers set out
+MIH TC Holdings Limited
+monthly active user accounts
+mergers and acquisitions
+the Rules Governing the Listing of Securities on the Stock Exchange
+initial public offering
+"MIH TC"
+intellectual property
+Instant messaging
+International Financial Reporting Standards
+internal control department of the Company
+International Accounting Standards
+internal audit department of the Company
+the Hong Kong Special Administrative Region, the PRC
+the lawful currency of Hong Kong
+Hainan Tencent Network Information Technology Company Limited
+Definition
+"020"
+"Nomination Committee"
+"NASDAQ❞
+the investment committee of the Company
+100%
+Tencent Holdings Limited, a limited liability company organised and existing
+under the laws of the Cayman Islands and the shares of which are listed on the
+Stock Exchange
+the corporate governance code as set out in Appendix 14 to the Listing Rules
+13 December 2007, being the date on which the Company adopted the 2007
+Share Award Scheme
+the bank account opened in the name of the trust pursuant to Trust Deed II,
+I managed by the Trustee, and operated solely for the purposes of operating the
+2013 Share Award Scheme, which is held on trust for the benefit of Selected
+Participants and can be funded by the Company or any of its subsidiaries
+the bank account opened in the name of the Company to be operated solely for
+the purposes of operating the 2007 Share Award Scheme and the funds thereof
+to be held on trust by the Company for the Selected Participants
+the annual general meeting of the Company to be held on 17 May 2017 or any
+adjournment thereof
+the share award scheme adopted by the Company on Adoption Date II, as
+amended
+the share award scheme adopted by the Company on Adoption Date I, as
+amended
+Definition
+"Awarded Share(s)"
+"Auditor"
+"Audit Committee❞
+"Articles of Association"
+"AR"
+13 November 2013, being the date on which the Company adopted the 2013
+Share Award Scheme
+"Adoption Date II"
+"Account II"
+"Account I"
+"2017 AGM"
+"2013 Share Award Scheme"
+"2007 Share Award Scheme"
+Term
+In this annual report, unless the context otherwise requires, the following expressions have the following meanings:
+Definition
+226
+Tencent Holdings Limited
+During the year ended 31 December 2016, the Company contributed approximately RMB1,936 million (2015: RMB652 million)
+to the Share Scheme Trust for financing its acquisition of the Company's shares.
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+"Adoption Date I"
+Tencent Music Entertainment Group (formerly known as China Music
+Corporation), a limited liability company incorporated under the laws of the
+Cayman Islands
+augmented reality
+the audit committee of the Company
+the board of directors of the Company
+Beijing Starsinhand Technology Company Limited
+Beijing BIZCOM Technology Company Limited
+Definition
+"Group"
+"Grant Date"
+"GAAP"
+"EPS"
+"Eligible Person(s)"
+"EBITDA"
+"DAU"
+"Cyber Tianjin❞
+the amended and restated articles of association of the Company adopted by
+special resolution passed on 14 May 2014
+"COSO Framework"
+"Company Website'
+"Company"
+"CMC"
+"CG Code"
+"Board"
+"Beijing Starsinhand"
+"Beijing BIZCOM"
+Term
+Definition
+Annual Report 2016
+227
+the share(s) of the Company awarded under the Share Award Schemes
+"Corporate Governance Committee”
+USD100
+PricewaterhouseCoopers, the auditor of the Company
+Tencent Asset Management Limited
+221
+57,723
+67,768
+Total assets
+10,286
+11,752
+99
+1,629
+Cash and cash equivalents
+Annual Report 2016
+131
+Prepayments, deposits and other receivables
+10,056
+10,108
+Amounts due from subsidiaries
+Current assets
+47,437
+56,016
+48
+67
+15
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+45 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+4,031
+(448)
+126
+(1,817)
+12,167
+17,324
+(3,136)
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+LIABILITIES
+Total equity
+Retained earnings (Note (b))
+Other reserves (Note (b))
+Shares held for share award schemes
+Share premium
+Share capital
+Equity attributable to equity holders of the Company
+EQUITY
+(a) Financial position of the Company (Cont'd)
+426
+464
+1,278
+45,647
+5,993
+43 RELATED PARTIES TRANSACTIONS
+Except as disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest paid individuals),
+Note 14 (Benefits and interests of directors), Note 20 (Transactions with associates), Note 24 (Loan to investees and
+investees' shareholders) and Note 32 (Share-based payments) to the consolidated financial statements, the Group had
+no other material transactions with related parties during the year ended 31 December 2016, and no other material
+balances with related parties as at 31 December 2016.
+44 SUBSEQUENT EVENTS
+There were no material subsequent events during the period from 31 December 2016 to the approval date of these
+financial statements by the Board of Directors on 22 March 2017.
+Tencent Holdings Limited
+220
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+45 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+(a) Financial position of the Company
+ASSETS
+Non-current assets
+Intangible assets
+Investments in subsidiaries
+Investments in associates
+Prepayments, deposits and other receivables
+Contribution to Share Scheme Trust
+As at 31 December
+2016
+Established in BVI,
+limited liability company
+9,025
+472
+540
+Later than five years
+54,097
+38
+42
+RMB'Million
+RMB'Million
+2015
+3,404
+Not later than one year
+RMB'Million
+RMB'Million
+2015
+2016
+As at 31 December
+Contracted:
+The future aggregate minimum payments under non-cancellable bandwidth and server custody leases and online
+game and online content licensing agreements are as follows:
+(c) Other commitments
+42 COMMITMENTS (Cont'd)
+For the year ended 31 December 2016
+Notes to the Consolidated Financial Statements
+4,081
+3,363
+1,540
+18,345
+1,346
+Non-current liabilities
+Profit for the year
+7,258
+Dividends paid relating to 2015
+(3,699)
+Currency translation differences
+574
+At 31 December 2016
+(448)
+4,031
+4,206
+(377)
+Losses for the year
+(1,094)
+Dividends paid relating to 2014
+(2,640)
+Currency translation differences
+126
+RMB'Million
+Other reserves
+472
+10,257
+Total liabilities
+49,423
+47,349
+Total equity and liabilities
+67,768
+57,723
+Tencent Holdings Limited
+222
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+45 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+(b) Reserve movement of the Company
+Retained
+earnings
+RMB'Million
+At 1 January 2016
+(71)
+11,294
+At 31 December 2015
+(448)
+USD2,000,000
+100%
+wholly foreign owned enterprise
+Development of softwares and provision of
+information technology services in the PRC
+Shenzhen Shiji Kaixuan Technology
+Company Limited
+Established in the PRC,
+RMB11,000,000
+Established in the PRC,
+limited liability company
+Provision of Internet advertisement services
+in the PRC
+Tencent Cyber (Tianjin) Company Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD90,000,000
+100%
+Development of softwares and provision of
+information technology services in the PRC
+100%
+(Note (a))
+Tencent Technology
+Provision of value-added services and
+Internet advertisement services in the PRC
+100%
+(Note (a))
+223
+Annual Report 2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2016
+46 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+The following is a list of principal subsidiaries of the Company as at 31 December 2016:
+Place of establishment
+Name
+and nature of legal entity
+10,374
+Particulars of
+issued/paid-in
+capital
+Proportion of
+equity interest held
+by the Group (%) Principal activities and place of operation
+Tencent Computer
+Established in the PRC,
+RMB65,000,000
+limited liability company
+472
+3,886
+At 1 January 2015
+Notes payable
+3,466
+Notes payable
+347
+363
+6,024
+7,465
+Amounts due to subsidiaries
+Other payables and accruals
+37,092
+38,129
+1,925
+Other financial liabilities
+37,092
+36,204
+Current liabilities
+"USD"
+an independent trustee appointed by the Company for managing the Share Award
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2013 Share Award Scheme
+Definition
+"WFOES"
+"Wang Dian"
+"VAS"
+"United States"
+Tencent Technology (Wuhan) Company Limited
+"Trust Deed II"
+"Trust Deed I"
+Term
+Definition
+Annual Report 2016
+231
+Schemes
+Tencent Information Technology (Chongqing) Company Limited
+Tencent Information Technology (Shanghai) Company Limited
+Tencent Information Technology (Shenzhen) Company Limited
+Tencent Technology (Shanghai) Company Limited
+Tencent Technology (Shenzhen) Company Limited
+"Trustee❞
+the United States of America
+"Share Subdivision"
+value-added services
+Facsimile 852-25201148
+Telephone: 852-21795122
+No.1 Queen's Road East
+Wanchai, Hong Kong
+29/F., Three Pacific Place
+Tencent Holdings Limited Hong Kong Office
+Facsimile: 86-755-86013399
+Telephone: 86-755-86013388
+Zipcode : 518057
+the lawful currency of the United States
+Tencent Building, Kejizhongyi Avenue, Hi-tech Park
+Nanshan District, Shenzhen, the PRC
+Website: www.tencent.com
+Tencent 腾讯
+Shenzhen Tencent Computer Systems Company Limited
+"Shiji Kaixuan"
+232
+Tencent Holdings Limited
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Information
+Shenzhen, Tencent Chengdu, Tencent Information Chongqing, Tencent
+Information Shanghai, Tencent Shanghai, Tencent Wuhan and Hainan Network
+Nanjing Wang Dian Technology Company Limited
+Tencent Group Head Office
+Tencent Technology (Chengdu) Company Limited
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2007 Share Award Scheme
+Tencent Technology (Beijing) Company Limited
+Term
+the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as
+amended, supplemented or otherwise modified from time to time
+any Eligible Person(s) selected by the Board to participate in the Share Award
+Schemes
+role playing game
+the lawful currency of the PRC
+the remuneration committee of the Company
+in respect to a Selected Participant, the date of final approval by the Board of the
+total number of shares of the Company to be awarded to the relevant Selected
+Participant on a single occasion pursuant to the 2007 Share Award Scheme
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+player versus player
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the People's Republic of China
+peak concurrent user accounts
+personal computer
+Paradox Interactive AB (publ), a company incorporated in Sweden and listed on
+NASDAQ First North
+Definition
+Definition
+"SFO"
+"Selected Participant(s)"
+"PC"
+"RPG"
+"PCU"
+charity funds established by the Group
+"RMB"
+"Remuneration Committee"
+"Reference Date"
+"PvP"
+"Pre-IPO Option Scheme"
+"Post-IPO Option Scheme I"
+"Post-IPO Option Scheme II"
+"Post-IPO Option Scheme III"
+"PRC" or "China"
+"Share Award Schemes"
+"SKT CFC"
+"Paradox"
+"Stock Exchange"
+the co-operation committee established under the TCS CFC
+the co-operation framework contract dated 28 February 2004 entered into
+between Tencent Technology and Tencent Computer
+Supercell Oy, a private company incorporated in Finland
+The Stock Exchange of Hong Kong Limited
+the co-operation committee established under the SKT CFC
+the co-operation framework contract dated 28 February 2004 entered into
+between Cyber Tianjin and Shiji Kaixuan
+Shenzhen Shiji Kaixuan Technology Company Limited
+Term
+"SKT Co-operation Committee"
+Definition
+"Tencent Wuhan"
+"Tencent Technology"
+with effect from 15 May 2014, each existing issued and unissued share of
+HKD0.0001 each in the share capital of the Company was subdivided into five
+subdivided shares of HKD0.00002 each, after passing of an ordinary resolution at
+the annual general meeting of the Company held on 14 May 2014 and granting
+by the Stock Exchange of the listing of, and permission to deal in, the subdivided
+shares
+"Tencent Information Shenzhen"
+"Supercell"
+"TCS CFC"
+"Tencent Shanghai"
+"Tencent Beijing"
+"Tencent Charity Funds"
+the 2007 Share Award Scheme and the 2013 Share Award Scheme
+"TCS Co-operation Committee'
+"Tencent Chengdu"
+"Tencent Computer"
+"Tencent Information Chongqing"
+"Tencent Information Shanghai"
+Tencent Holdings Limited
+230
+Definition
+(1,886)
+(649)
+(249)
+(1,155)
+(1,022)
+Other (gains)/losses, net
+(2,327)
+(2,619)
+(3,594)
+(637)
+2016
+Interest income
+21
+Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress,
+land use rights and intangible assets (excluding online games and other content licences).
+(d)
+Net cash represents period end balance and is calculated as cash and cash equivalents, term deposits, minus borrowings and notes
+payable.
+(c)
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+(b)
+EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of property, plant and
+equipment as well as investment properties, and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-
+settled share-based compensation expenses.
+Depreciation of property, plant and
+(a)
+Note:
+7,709
+12,100
+1,883
+3,651
+21
+(653)
+Annual Report 2016
+The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
+40,627
+56,117
+10,888
+14,460
+13,930
+Operating profit
+Adjustments:
+2015
+31 December
+2016
+Year ended
+(RMB in millions, unless specified)
+2015
+2016
+31 December 30 September 31 December
+Three months ended
+Unaudited
+Management Discussion and Analysis
+equipment and investment
+66,863
+1,007
+45,805
+NON-GAAP FINANCIAL MEASURES
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain non-GAAP financial measures,
+including non-GAAP operating profit, non-GAAP operating margin, non-GAAP profit for the period, non-GAAP net margin,
+non-GAAP profit attributable to equity holders of the Company, non-GAAP basic EPS and non-GAAP diluted EPS, have been
+presented in this annual report. These unaudited non-GAAP financial measures should be considered in addition to, not as a
+substitute for, measures of the Group's financial performance prepared in accordance with IFRS. In addition, these non-GAAP
+financial measures may be defined differently from similar terms used by other companies.
+The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact
+of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material
+associates based on available published financials of the relevant material associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+Tencent Holdings Limited
+22
+22
+Management Discussion and Analysis
+The following tables set forth the reconciliations of the Group's non-GAAP financial measures for the fourth quarters of 2016
+and 2015, the third quarter of 2016, and the years ended 31 December 2016 and 2015 to the nearest measures prepared in
+accordance with IFRS:
+Unaudited three months ended 31 December 2016
+Adjustments
+Net (gains)/
+Equity-settled
+Cash-settled
+losses from
+Amortisation
+share-based
+share-based
+investee
+of intangible
+Impairment
+2,839
+12,831
+16,963
+18,495
+Adjusted EBITDA
+933
+826
+3,716
+3,159
+Amortisation of intangible assets
+3,513
+2,264
+1,224
+8,930
+3,476
+properties
+EBITDA
+15,865
+12,040
+62,550
+43,049
+Equity-settled share-based compensation
+1,720
+1,098
+791
+4,313
+2,756
+16,775
+Capital expenditures (d)
+3,169
+18,140
+3.097
+- basic
+EPS (RMB per share)
+32,410
+1,149
+(4,016)
+81
+3,221
+28,806
+Profit attributable to equity holders
+32,852
+3,185
+1,186
+(4,016)
+85
+3,304
+29,108
+Profit for the year
+41,764
+Management Discussion and Analysis
+Revenues. Revenues increased by 9% to RMB43,864 million for the fourth quarter of 2016 on a quarter-on-quarter basis.
+Revenues from our VAS business increased by 4% to RMB29, 191 million for the fourth quarter of 2016. Online games
+revenues grew by 2% to RMB18,469 million. The increase primarily reflected higher revenues from our smart phone
+games, partly offset by weaker seasonality for PC online games in the fourth quarter, which we did not experience in the
+fourth quarter of 2015 due to new virtual item releases within one of our major PC game titles during the time. Social
+networks revenues increased by 9% to RMB10,722 million. The increase was mainly driven by higher contributions from
+digital content services, as well as from virtual item sales.
+- diluted
+3.055
+Operating margin
+39%
+As reported
+Cash and cash equivalents
+Our net cash positions as at 31 December 2016 and 30 September 2016 are as follows:
+LIQUIDITY AND FINANCIAL RESOURCES
+Impairment provision for associates, available-for-sale financial assets, and intangible assets arising from acquisitions
+Amortisation of intangible assets resulting from acquisitions, net of related deferred tax
+Including net (gains)/losses on deemed disposals, disposals of investee companies and businesses, and fair value changes on options
+we own in investee companies
+(d)
+(c)
+(b)
+Revenues from our online advertising business increased by 11% to RMB8,288 million for the fourth quarter of 2016.
+The increase was mainly driven by revenue growth from performance-based advertising which increased by 18% to
+RMB5,168 million, primarily due to higher advertising revenues from Weixin Moments, our app store and our mobile
+news apps. Brand display advertising revenues increased slightly by 1% to RMB3, 120 million, impacted by a high base
+effect from Olympics-related advertising in the prior quarter.
+(a) Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives
+Management Discussion and Analysis
+Annual Report 2016
+25
+25
+32%
+41%
+3.437
+3.485
+28%
+Net margin
+Note:
+19,114
+Cost of revenues. Cost of revenues increased by 9% to RMB20,238 million for the fourth quarter of 2016 on a quarter-on-
+quarter basis. The increase was primarily driven by greater costs of payment related services, staff costs including share-based
+compensation expenses, as well as bandwidth and server custody fees. As a percentage of revenues, cost of revenues was
+46% for the fourth quarter of 2016, broadly stable compared to the third quarter of 2016.
+Cost of revenues for our online advertising business decreased by 7% to RMB4,424 million for the fourth quarter of
+2016. The decrease was mainly due to lower amortisation expenses from video content rights.
+18,495
+16,963
+12,831
+66,863
+45,805
+Adjusted EBITDA margin (b)
+42%
+42%
+42%
+44%
+45%
+Interest expense
+611
+585
+409
+2,167
+1,510
+Net cash (c)
+18,140
+8,368
+19,114
+Adjusted EBITDA (a)
+43,049
+62,550
+12,040
+Selling and marketing expenses. Selling and marketing expenses increased by 36% to RMB4,462 million for the fourth quarter
+of 2016 on a quarter-on-quarter basis. The increase mainly reflected seasonal marketing and promotion activities for our online
+games and greater marketing spending on our payment related services.
+General and administrative expenses. General and administrative expenses increased by 17% to RMB6,909 million for the
+fourth quarter of 2016 on a quarter-on-quarter basis. The increase was primarily driven by greater research and development
+expenses, as well as staff costs, including greater share-based compensation expenses.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 1% to
+RMB10,529 million for the fourth quarter of 2016 on a quarter-on-quarter basis. Non-GAAP profit attributable to equity holders
+of the Company increased by 5% to RMB12,332 million.
+Tencent Holdings Limited
+20
+20
+OTHER FINANCIAL INFORMATION
+Management Discussion and Analysis
+Unaudited
+Three months ended
+Cost of revenues for our VAS business increased by 10% to RMB10,734 million for the fourth quarter of 2016. The
+increase mainly reflected greater sharing and content costs, as well as channel costs.
+31 December 30 September 31 December
+31 December
+2016
+2016
+2015
+2016
+2015
+(RMB in millions, unless specified)
+EBITDA (a)
+16,775
+15,865
+Year ended
+compensation compensation
+18
+assets
+Net margin
+24%
+0.961
+0.949
+38%
+30%
+Tencent Holdings Limited
+24
+24
+Management Discussion and Analysis
+Year ended 31 December 2016
+Adjustments
+36%
+Net (gains)/
+Cash-settled
+losses from
+Amortisation
+share-based
+share-based
+investee
+of intangible
+Impairment
+As reported
+compensation
+compensation
+companies
+Equity-settled
+assets
+Operating margin
+- diluted
+Operating profit
+10,888
+791
+(929)
+46
+719
+11,533
+Profit for the period
+7,198
+959
+17
+(995)
+0.759
+313
+9,017
+Profit attributable to equity holders
+7,164
+939
+16
+(995)
+304
+1,525
+8,953
+EPS (RMB per share)
+- basic
+0.769
+1,525
+provision
+Non-GAAP
+(a)
+Operating margin
+Net margin
+4.383
+4.329
+37%
+27%
+4.844
+4.784
+38%
+30%
+Year ended 31 December 2015
+Equity-settled Cash-settled
+share-based share-based
+Adjustments
+Net (gains)/
+losses from
+investee
+- diluted
+As reported compensation compensation companies
+Impairment
+provision
+Non-GAAP
+(RMB in millions, unless specified)
+Operating profit
+40,627
+2,756
+85
+(4,275)
+198
+2,373
+Term deposits
+Amortisation
+of intangible
+assets
+- basic
+EPS (RMB per share)
+45,420
+(b)
+(c)
+(d)
+(RMB in millions, unless specified)
+Operating profit
+56,117
+4,313
+142
+(7,624)
+397
+4,809
+58,154
+Profit for the year
+41,447
+5,085
+142
+(7,786)
+1,651
+5,452
+45,991
+Profit attributable to equity holders
+41,095
+4,982
+141
+(7,770)
+1,547
+5,425
+(RMB in millions, unless specified)
+(c)
+(b)
+Non-GAAP
+- basic
+1.121
+- diluted
+1.108
+Operating margin
+32%
+Net margin
+24%
+1.313
+1.298
+34%
+28%
+EPS (RMB per share)
+23
+Annual Report 2016
+Management Discussion and Analysis
+Unaudited three months ended 30 September 2016
+Adjustments
+Net (gains)/
+Equity-settled
+Cash-settled
+losses from
+Amortisation
+share-based share-based
+investee
+of intangible
+23
+12,332
+810
+493
+provision
+Non-GAAP
+(a)
+(b)
+(c)
+(RMB in millions, unless specified)
+Operating profit
+13,930
+1,720
+34
+(1,502)
+162
+602
+14,946
+Profit for the period
+10,523
+1,946
+34
+(1,440)
+541
+828
+12,432
+Profit attributable to equity holders
+10,529
+1,906
+34
+(1,440)
+Impairment
+companies
+As reported
+companies
+- basic
+1.134
+- diluted
+1.121
+Operating margin
+36%
+Net margin
+27%
+1.251
+1.236
+37%
+30%
+EPS (RMB per share)
+Unaudited three months ended 31 December 2015
+Equity-settled
+share-based
+Cash-settled
+losses from
+Amortisation
+share-based
+investee
+of intangible
+Impairment
+As reported compensation compensation
+companies
+assets
+provision
+Adjustments
+Net (gains)/
+11,737
+1,742
+389
+assets
+provision
+Non-GAAP
+(b)
+(c)
+(RMB in millions, unless specified)
+Operating profit
+14,460
+1,098
+34
+(2,404)
+139
+1,710
+15,037
+Profit for the period
+10,776
+1,259
+34
+(2,309)
+426
+1,743
+11,929
+Profit attributable to equity holders
+10,646
+1,224
+33
+(2,297)
+compensation compensation
+Borrowings
+Particulars of the Company's principal subsidiaries as at 31 December 2016 are set out in Note 46 to the consolidated
+financial statements.
+Net cash
+25 March 2014
+23 March 2020
+(Note 1)
+(Note 4)
+24 March 2015 to
+31.70
+2,500,000
+2,500,000
+5,000,000
+24 March 2010
+Lau Chi Ping Martin
+Exercise period
+price
+HKD
+Exercise
+As at
+Exercised
+during 31 December
+the year
+2016
+the year
+2016
+Date of grant
+Name of director
+Granted
+during
+1 January
+As at
+Number of share options
+As at 31 December 2016, there were a total of 11,250,000 outstanding share options granted to a director of the Company,
+details of which are as follows:
+The Company has adopted four share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I,
+the Post-IPO Option Scheme II and the Post-IPO Option Scheme III. The Pre-IPO Option Scheme and the Post-IPO Option
+Scheme I expired on 31 December 2011 and 23 March 2014 respectively.
+5,000,000
+5,000,000
+114.52
+25 March 2015 to
+Notes payable
+Annual Report 2016
+29
+29
+No options were cancelled or lapsed during the year.
+6.
+The closing price immediately before the date on which the options were granted on 21 March 2016 was HKD157.9.
+5.
+The closing price immediately before the date on which the options were exercised on 30 March 2016 was HKD157.3.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 5 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+SHARE OPTION SCHEMES
+2,500,000 11,250,000
+Total:
+20 March 2023
+(Note 3)
+21 March 2017 to
+158.10
+3,750,000
+3,750,000
+(Note 5)
+21 March 2016
+24 March 2021
+(Note 2)
+4.
+3.
+2.
+Note:
+10,000,000 3,750,000
+Directors' Report
+1.
+28
+Directors' Report
+26
+26
+Tencent Holdings Limited
+For the fourth quarter of 2016, the Group had free cash flow of RMB17,156 million. This was a result of net cash flow
+generated from operating activities of RMB20,000 million, offset by payments for capital expenditure of RMB2,844 million.
+As at 31 December 2016, RMB46.1 billion of our financial resources (cash and cash equivalents and term deposits) were
+denominated in non-RMB currencies.
+As at 31 December 2016, the Group had net cash of RMB18,140 million. The sequential increase in net cash was mainly
+due to free cash flow generation, recoupment of approximately USD1.2 billion as a result of Supercell financing arrangements,
+partly offset by payments for M&A initiatives and licensed content. Fair value of our stakes in listed investee companies (both
+associates and available-for-sale financial assets) totalled RMB89 billion as at 31 December 2016.
+8,368
+18,140
+(42,178)
+(39,670)
+(69,827)
+100,336
+127,637
+47,919
+55,735
+52,417
+71,902
+(RMB in millions)
+2016
+2016
+Unaudited
+30 September
+31 December
+88
+Audited
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31
+December 2016.
+PRINCIPAL ACTIVITIES
+(49,790)
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations are set out in Note 5 to the consolidated financial statements.
+Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's shares during the year
+ended 31 December 2016.
+The principal activity of the Company is investment holding. The activities of the principal subsidiaries are set out in Note 46 to
+the consolidated financial statements.
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+FINANCIAL SUMMARY
+The donation made by the Group to Tencent Charity Funds in the year was RMB570 million.
+DONATION
+Particulars of the Group's borrowings and notes payable are set out in Note 33 and Note 34 to the consolidated financial
+statements respectively.
+SUBSIDIARIES
+Details of the movements in the share capital of the Company during the year are set out in Note 30 to the consolidated
+financial statements.
+SHARE CAPITAL
+Details of the business review of the Group and the proposed dividend for the year ended 31 December 2016 are set out
+under the "Chairman's Statement".
+BUSINESS REVIEW AND DIVIDEND
+BORROWINGS
+Directors' Report
+RESULTS AND APPROPRIATIONS
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 110 of this
+annual report.
+The directors have recommended the payment of a final dividend of HKD0.61 per share for the year ended 31 December
+2016. The dividend is expected to be payable on 2 June 2017 to the shareholders whose names appear on the register of
+members of the Company on 24 May 2017. The total dividend for the year under review is HKDO.61 per share.
+RESERVES
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+As at 31 December 2016, the Company had distributable reserves amounting to RMB18,345 million (2015: RMB10,374
+million).
+Tencent Holdings Limited
+Annual Report 2016
+PROPERTY, PLANT AND EQUIPMENT
+Details of the movements in property, plant and equipment of the Group during the year are set out in Note 16 to the
+consolidated financial statements.
+27
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 114 to 115, Note 30, Note 31 and Note 45 to the consolidated financial statements
+respectively.
+2,116,800 96,704,847
+29 Jun 2026 (Note 1)
+Annual Report 2016
+Directors' Report
+Note:
+1.
+30 Jun 2016 to
+2.
+3.
+No options were granted, exercised or cancelled during the period.
+All the options can be exercised 1 year after the commencement date as specified in the relevant grant letter if a certain condition is
+satisfied.
+The first 25% of the total options can be exercised 1 year after the commencement date as specified in the grant letter, and each 6.25%
+of the total options will become exercisable in each subsequent quarter. When a certain condition is satisfied, the vesting schedule for
+the remaining options will be accelerated by 1 year and the remaining options can be exercised in equal installments on a quarterly
+basis during the accelerated vesting period.
+The first 25% of the total options can be exercised 1 year after the commencement date as specified in the relevant grant letter, and
+each 12.5% of the total options will become exercisable in each subsequent six months.
+4.
+0.000083
+12,430,852
+30 Jun 2016 to
+29 Jun 2026 (Note 1)
+0.000083
+600,000
+30 May 2026 (Note 3)
+1 Jun 2017 to
+0.29
+6,521,513
+30 May 2026 (Note 2)
+1 Jun 2017 to
+800,000
+30 Mar 2026 (Note 1)
+SUMMARY OF THE SHARE OPTION SCHEMES
+33
+0.29
+Pre-IPO
+Directors' Report
+Option Scheme
+33
+Maximum
+number of
+shares
+3.
+Option Scheme
+Details
+Pre-IPO
+34
+34
+Tencent Holdings Limited
+executive directors) of any
+member of the Group or
+any invested entity, and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+independent non-
+Any senior executive,
+senior officer or director
+(including executive,
+non-executive and
+Any employee (whether
+full time or part time),
+executive, officer or
+director (including
+executive, non-executive
+and independent non-
+executive directors) of
+any member of the Group
+or any invested entity,
+which is any entity in
+which the Group holds
+an equity interest, and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+the Group
+Any employee,
+consultant or
+director of any
+company within
+executive directors
+of the Company
+including
+1.
+Purposes
+Post-IPO
+Post-IPO
+Option Scheme I
+Option Scheme II
+Details
+Post-IPO
+To recognise the contribution that certain individuals have made to the Group, to attract the best
+available personnel and to promote the success of the Group's business
+2.
+Qualifying
+Any eligible
+participants
+employee,
+Option Scheme III
+98,821,647
+1 Jul 2015
+12,430,852
+31 Dec 2015
+3,448,491
+31 Dec 2015
+1 Oct 2016 to
+0.29
+908,800
+30,000
+938,800
+1 Oct 2015
+30 Jun 2025 (Note 2)
+1 Jul 2016 to
+0.29
+3,600,000
+3,600,000
+345,300
+1 Jul 2015
+1 Jul 2016 to
+0.29
+200,000
+200,000
+As at 7 June
+2004, options
+to subscribe for
+an aggregate
+29 Mar 2025 (Note 1)
+30 Mar 2016 to
+0.29
+3,869,842
+3,869,842
+30 Mar 2015
+28 Feb 2025 (Note 2)
+1 Mar 2016 to
+0.35
+30 Jun 2025 (Note 1)
+Total:
+1 Mar 2016
+30 Sep 2025 (Note 1)
+30 Jun 2016
+600,000
+30 Jun 2016
+6,521,513
+1 Jun 2016
+800,000
+1 Jun 2016
+31 Mar 2017 to
+0.29
+390,000
+390,000
+31 Mar 2016
+28 Feb 2026 (Note 2)
+1 Mar 2017 to
+908,000
+0.29
+500,000
+1 Mar 2016
+28 Feb 2026 (Note 1)
+1 Mar 2017 to
+0.29
+908,000
+30 Dec 2025 (Note 1)
+31 Dec 2016 to
+0.000083
+345,300
+30 Dec 2025 (Note 1)
+31 Dec 2016 to
+0.29
+3,448,491
+33,000
+of 72,386,370
+shares were
+Directors' Report
+Post-IPO
+Details of the movements in the share options during the year are set out in Note 32 to the consolidated financial statements.
+MOVEMENTS IN THE SHARE OPTIONS
+The total numbers of shares available for issue under the Post-IPO Option Scheme II and the Post-IPO Option Scheme III are 229,078,185
+and 175,093,330 respectively, which represent approximately 2.42% and 1.85% respectively of the issued shares of the Company as at the
+date of this annual report.
+Note:
+It expired on 23
+March 2014.
+It expired on 31
+December 2011.
+of the scheme
+Remaining life
+8.
+ten years commencing on
+13 May 2009.
+It shall be valid and
+effective for a period of
+Option Scheme III
+Post-IPO
+ten years commencing on
+16 May 2007.
+VALUATION OF SHARE OPTIONS
+It shall be valid and
+effective for a period of
+Post-IPO
+Option Scheme |
+Post-IPO
+Option Scheme
+Pre-IPO
+Details
+Directors' Report
+Annual Report 2016
+37
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Option Scheme III
+Post-IPO
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+Option Scheme II
+Details of the valuation of share options during the year are set out in Note 32 to the consolidated financial statements.
+Tencent Holdings Limited
+38
+Annual Report 2016
+39
+The Board may at any time at its
+discretion, in respect of each Selected
+Participant, cause to be paid the relevant
+amount from the Company's resources
+or any subsidiary's resources into the
+Account II for the purchase and/or
+subscription of Awarded Shares as soon
+as practicable after the Grant Date.
+The Board may, from time to time, at its
+absolute discretion select any Eligible
+Person to be a Selected Participant
+and grant to such Selected Participant
+Awarded Shares.
+1% of the issued share capital of the
+Company as at the Adoption Date II (i.e.
+92,979,085 shares (after the effect of
+the Share Subdivision))
+3% of the issued share capital of the
+Company as at the Adoption Date II (i.e.
+278,937,260 shares (after the effect of
+the Share Subdivision))
+It shall be valid and effective unless and
+until being terminated on the earlier of:
+(i) the 15th anniversary of the Adoption
+Date II; and (ii) such date of early
+termination as determined by the Board
+provided that such termination does
+not affect any subsisting rights of any
+Selected Participant.
+The Board shall, in respect of each
+Selected Participant, cause to be paid
+the relevant amount from the Company's
+resources into the Account I or to
+the Trustee to be held in trust for the
+relevant Selected Participant for the
+purchase and/or subscription of the
+Awarded Shares as soon as practicable
+after the Reference Date.
+The Board shall select the Eligible
+Person(s) and determine the number of
+shares to be awarded.
+1% of the issued share capital of the
+Company as at the Adoption Date | (i.e.
+89,388,080 shares (after the effect of
+the Share Subdivision))
+2% of the issued share capital of the
+Company as at the Adoption Date | (i.e.
+178,776,160 shares (after the effect of
+the Share Subdivision))
+Operation
+5.
+of each participant
+Maximum entitlement
+4.
+that can be awarded
+38
+Directors' Report
+SHARE AWARD SCHEMES
+The Company adopted the following two Share Award Schemes with major terms and details set out below:
+1.
+Purpose
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+2007 Share Award Scheme
+To recognise the contributions and to attract, motivate and retain eligible participants
+(including any director) of the Group
+2.
+Duration and Termination
+It shall be valid and effective for a period
+of 15 years from the Adoption Date I.
+Maximum number of shares
+3.
+2013 Share Award Scheme
+outstanding. No
+further option
+could be granted
+under the Pre-IPO
+Option Scheme.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Post-IPO
+Option period
+5.
+issuable under the
+scheme.
+The number of
+ordinary shares in
+respect of which
+options may be
+granted shall not
+exceed 10% of
+the number of
+ordinary shares
+issued and
+Maximum
+entitlement
+of each
+participant
+4.
+Option Scheme
+Details
+Pre-IPO
+1% of the issued share
+capital of the Company
+from time to time within
+any 12-month period up
+to the date of the latest
+grant
+Option Scheme III
+Post-IPO
+1% of the issued share
+capital of the Company
+from time to time within
+any 12-month period up
+to the date of the latest
+grant
+Option Scheme II
+All the options
+Post-IPO
+Option Scheme |
+Post-IPO
+Directors' Report
+Annual Report 2016
+35
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme III shall
+be 180,093,330 shares
+(after the effect of the
+Share Subdivision), 2%
+of the relevant class of
+securities of the Company
+in issue as at 13 May
+2009. The maximum
+number of shares which
+may be issued upon
+exercise of all outstanding
+options granted and yet
+to be exercised under
+the Post-IPO Option
+Scheme III and any other
+share option schemes,
+including the Pre-IPO
+Option Scheme, the Post-
+IPO Option Scheme |
+and the Post-IPO Option
+Scheme II, must not in
+aggregate exceed 30% of
+the issued share capital of
+the Company from time to
+time (Note).
+Option Scheme III
+Post-IPO
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme II shall
+be 444,518,270 shares
+(after the effect of the
+Share Subdivision), 5%
+of the relevant class of
+securities of the Company
+in issue as at 16 May
+2007. The maximum
+number of shares which
+may be issued upon
+exercise of all outstanding
+options granted and yet
+to be exercised under
+the Post-IPO Option
+Scheme II and any other
+share option schemes,
+including the Pre-IPO
+Option Scheme, the Post-
+IPO Option Scheme |
+and the Post-IPO Option
+Scheme III, must not in
+aggregate exceed 30% of
+the issued share capital of
+the Company from time to
+time (Note).
+Option Scheme II
+Post-IPO
+outstanding. No
+further option
+could be granted
+under the Post-
+IPO Option
+Scheme I.
+As at 16 May
+2007, options
+to subscribe for
+an aggregate
+of 60,413,683
+shares were
+Option Scheme |
+1% of the issued
+share capital of
+the Company from
+time to time within
+any 12-month
+period up to the
+date of the latest
+grant
+The option period
+are exercisable
+in installments
+from the
+commencement
+of the relevant
+vesting period
+until 31 December
+2011, but on the
+condition that
+the Company
+has been listed
+in a sizeable
+of the share.
+the nominal value
+of grant; and (iii)
+preceding the date
+days immediately
+five business
+Options granted
+must be accepted
+within 28 days of
+the date of grant,
+upon payment of
+HKD1 per grant.
+The exercise price
+must be at least
+the higher of: (i)
+the closing price
+of the securities as
+stated in the Stock
+Exchange's daily
+quotations sheet
+on the date of
+grant, which must
+be a business day;
+(ii) the average
+closing price of
+the securities
+as stated in the
+Stock Exchange's
+daily quotations
+sheets for the
+Option Scheme |
+Post-IPO
+7,482,654
+Price shall be
+determined by the
+Board.
+Exercise price
+7.
+Options granted
+must be accepted
+within 15 days of
+the date of grant,
+upon payment of
+RMB1 per grant.
+of offer
+Acceptance
+6.
+securities market.
+The Board may
+at their discretion
+determine the
+specific vesting
+and exercise
+periods.
+Option Scheme II
+is determined
+by the Board
+provided that the
+period during
+which the option
+may be exercised
+shall not be less
+than one year from
+the date of grant
+of the options.
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+10-year period after the
+date of grant of option.
+There is no minimum
+period for which an option
+must be held before it
+can be exercised.
+Tencent Holdings Limited
+36
+Pre-IPO
+Details
+Option Scheme
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+7-year period after the
+date of grant of option.
+There is no minimum
+period for which an option
+must be held before it
+can be exercised.
+7,482,654
+467,000
+28 Feb 2025 (Note 2)
+7,250
+44,050
+128,800
+15 Aug 2011
+23 Mar 2018 (Note 4)
+24 Mar 2015 to
+38.88
+250,000
+250,000
+24 Mar 2011
+23 Mar 2018 (Note 3)
+24 Mar 2014 to
+38.88
+798,750
+77,500
+77,500
+24 Mar 2011
+12 Aug 2017 (Note 2)
+13 Aug 2012 to
+30.14
+12,500
+12,500
+13 Aug 2010
+4 Jul 2017 (Note 3)
+5 Jul 2013 to
+26.08
+1,363,800
+193,700
+1,557,500
+5 Jul 2010
+876,250
+4 Jul 2017 (Note 2)
+37.80
+15 Aug 2011
+15 Aug 2011
+HKD
+Exercise period
+price
+Exercise
+during 31 December
+the year
+2016
+the year
+(Note 10)
+the year
+2016
+Date of grant
+during
+during
+1 January
+As at
+15 Aug 2012 to
+Lapsed
+Number of share options
+Granted
+As at
+Directors' Report
+14 Aug 2018 (Note 2)
+15 Aug 2013 to
+37.80
+620,700
+14 Aug 2018 (Note 1)
+30
+30
+Tencent Holdings Limited
+207,300
+828,000
+Exercised
+5 Jul 2012 to
+26.08
+1,057,575
+9 Jul 2016 (Note 2)
+10 Jul 2011 to
+-- 18.06
+664,950
+1 Mar 2015
+10 Jul 2009
+9 Jul 2016 (Note 1)
+10 Jul 2010 to
+- 18.06
+182,300
+182,300
+10 Jul 2009
+Exercise period
+price
+HKD
+10 Jul 2009
+(Note 10)
+during 31 December
+the year
+2016
+the year
+the year
+2016
+Date of grant
+As at
+Lapsed
+Number of share options
+Exercised
+during
+during
+1 January
+Granted
+As at
+Details of movements of share options granted to employees of the Group (apart from a director of the Company) during the
+year ended 31 December 2016 are as follows:
+Directors' Report
+Exercise
+2,003,750
+2,003,750
+-- 18.06
+48,800
+694,125
+1,800,500
+5 Jul 2010
+4 Jul 2017 (Note 1)
+5 Jul 2011 to
+26.08
+56,750
+80,500
+137,250
+5 Jul 2010
+23 Mar 2017 (Note 4)
+24 Mar 2014 to
+31.70
+366,667
+366,667
+24 Mar 2010
+10 Jul 2012 to
+9 Jul 2016 (Note 3)
+24 Nov 2009
+1,250,000
+1,250,000
+29.32
+100,000
+24 Nov 2012 to
+24 Mar 2010
+25,000
+25,000
+31.70
+24 Mar 2012 to
+23 Mar 2017 (Note 2)
+23 Nov 2016 (Note 3)
+50,000
+664,950
+37.80
+32
+Tencent Holdings Limited
+The weighted average closing price immediately before the date on which the options were exercised was HKD180.6.
+10.
+The closing price immediately before the date on which the options were granted on 6 July 2016 was HKD176.4.
+9.
+The closing price immediately before the date on which the options were granted on 21 March 2016 was HKD157.9.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 2 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 1 year after the grant date, and each 33.33% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 4 years after the grant date, and each 33.33% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 3 years after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 2 years after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+Directors' Report
+8.
+6.
+5.
+4.
+3.
+2.
+1.
+Note:
+Directors' Report
+Annual Report 2016
+31
+5 Jul 2023 (Notes 6 and 9)
+22,497,436
+74,151
+20,697,305 8,093,070 6,218,788
+7.
+Total:
+Details of movements of share options granted to employees and certain external consultants under the equity plans adopted
+by CMC, a subsidiary in the Group, during the period commencing from the date of completion of the CMC integration (i.e. 12
+July 2016) and ending on 31 December 2016 are as follows:
+Date of grant
+50,000
+1 Mar 2016 to
+0.29
+26,880,000
+26,880,000
+1 Mar 2015
+28 Feb 2025 (Note 1)
+1 Mar 2016 to
+0.29
+- 2,053,800 13,071,960
+15,125,760
+1 Mar 2015
+28 Feb 2025 (Note 1)
+0.000083
+As at
+--- 14,780,435
+1 Mar 2015
+USD
+Exercise period
+price
+2016
+Exercise
+during 31 December
+the period
+during
+the period
+As at
+Lapsed
+Cancelled
+Number of share options
+Exercised
+during
+the period
+Granted
+during
+the period
+12 July
+2016
+14,780,435
+6 Jul 2017 to
+1 Mar 2016 to
+1,418,070
+10 July 2014
+21 May 2021 (Note 5)
+22 May 2015 to
+112.30
+62,500
+62,500
+22 May 2014
+24 Mar 2021 (Note 1)
+25 Mar 2015 to
+114.52
+3,725,000
+125,000
+3,850,000
+25 Mar 2014
+1,724,813
+24 Mar 2021 (Note 5)
+114.52
+2,562,500
+2,562,500
+25 Mar 2014
+12 Sep 2019 (Note 1)
+13 Sep 2013 to
+705,250
+9,500
+47,750
+762,500
+13 Sep 2012
+14 Aug 2018 (Note 3)
+174.86
+15 Aug 2014 to
+25 Mar 2015 to
+179,309
+49.76
+1,540,128
+1,418,070
+5,376
+20 Mar 2023 (Notes 6 and 8)
+6 Jul 2016
+21 Mar 2017 to
+158.10
+6,675,000
+21 Mar 2016
+9 Jul 2022 (Note 6)
+10 Jul 2016 to
+148.90
+903,263
+3,225
+39,387
+945,875
+6,675,000
+1 Apr 2022 (Note 6)
+9 Jul 2021 (Note 6)
+10 Jul 2015
+12 Dec 2014
+10 Jul 2015 to
+80,650
+124.30
+116.40
+12 Dec 2016 to
+80,650
+11 Dec 2021 (Note 7)
+2 Apr 2015
+525,000
+--- 525,000
+149.80
+2 Apr 2016 to
+21 March 2017 to
+10,000
+10,000
+2 April 2015
+2 April 2019
+15,000
+2 April 2016 to
+11,250
+3,750
+21 March 2016
+21 March 2020
+36,250
+35,000
+10,000
+8,750
+Yang Siu Shun
+6 July 2016
+11,474
+11,474
+6 July 2017 to
+24 March 2019
+6 July 2020
+Total:
+Total:
+24 March 2015 to
+Vested
+during
+5,000
+20,000
+11,474
+32,500
+72,500
+Tencent Holdings Limited
+42
+42
+Number of Awarded Shares
+Directors' Report
+As at
+1 January
+15,000
+Granted
+during
+31 December
+Name of director
+Date of grant
+2016
+the year
+the year
+2016
+Vesting period
+Li Dong Sheng
+24 March 2014
+20,000
+As at
+11,474
+Directors' Report
+210,000
+Annual Report 2016
+Charles St Leger Searle, age 53, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, including Mail.ru Group Limited that is listed on the London Stock Exchange and MakeMyTrip Limited that is listed on
+NASDAQ. Prior to joining the Naspers Group, he held positions at Cable & Wireless plc and at Deloitte & Touche in London
+and Sydney. Mr Searle is a graduate of the University of Cape Town and a member of the Institute of Chartered Accountants
+in Australia and New Zealand. Mr Searle has more than 23 years of international experience in the telecommunications and
+Internet industries. Mr Searle also serves as a director of certain subsidiaries of the Company.
+Li Dong Sheng, age 59, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Corporation and the Chairman of the Hong Kong listed TCL Multimedia Technology Holdings Limited,
+both of which produce consumer electronic products. Mr Li is a non-executive director of Fantasia Holdings Group Co.,
+Limited, a leading property developer and property related service provider in China that is listed on the Stock Exchange. Mr Li
+is also an independent director of Legrand, the global specialist in electrical and digital building infrastructures, shares of which
+are listed on New York Stock Exchange Euronext. Mr Li graduated from South China University of Technology in 1982 with a
+Bachelor degree in radio technology and has more than 22 years of experience in the information technology field. Mr Li is the
+Chairman of TCL Communication Technology Holdings Limited, which was delisted for privatisation from the Stock Exchange
+on 30 September 2016.
+lain Ferguson Bruce, age 76, has been an independent non-executive director since April 2004. Mr Bruce joined KPMG in
+Hong Kong in 1964 and was elected to its partnership in 1971. He was the Senior Partner of KPMG from 1991 until his
+retirement in 1996 and served as Chairman of KPMG Asia Pacific from 1993 to 1997. Since 1964, Mr Bruce has been a
+member of the Institute of Chartered Accountants of Scotland, and is a fellow of the Hong Kong Institute of Certified Public
+Accountants, with over 52 years of international experience in accounting and consulting. He is also a fellow of The Hong
+Kong Institute of Directors and the Hong Kong Securities and Investment Institute (formerly known as Hong Kong Securities
+Institute). Mr Bruce is an independent non-executive director of Citibank (Hong Kong) Limited and MSIG Insurance (Hong
+Kong) Limited. Mr Bruce is currently an independent non-executive director of Goodbaby International Holdings Limited,
+a manufacturer of durable juvenile products, The 13 Holdings Limited (formerly known as Louis XIII Holdings Limited),
+a construction, engineering services and hotel development company, and Wing On Company International Limited, a
+department store operating and real property investment company; all of these companies are publicly listed on the Stock
+Exchange. Mr Bruce is also a non-executive director of Noble Group Limited, a commodity trading company that is publicly
+listed on The Singapore Exchange Securities Trading Limited and an independent non-executive director of Yingli Green
+Energy Holding Company Limited, a China-based vertically integrated photovoltaic product manufacturer that is listed on the
+New York Stock Exchange. Mr Bruce was an independent non-executive director of Vitasoy International Holdings Limited, a
+beverage manufacturing company, up to 4 September 2014, and of Sands China Ltd., an operator of integrated resorts and
+casinos, up to 11 March 2016, both of these companies are publicly listed on the Stock Exchange.
+Tencent Holdings Limited
+46
+Directors' Report
+lan Charles Stone, age 66, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 27 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong, China, South East Asia and the Middle East. Mr Stone has more
+than 46 years of experience in the telecom and mobile industries. Mr Stone is a fellow member of The Hong Kong Institute of
+Directors. Mr Stone also serves as an independent non-executive director of a subsidiary of the Company.
+Yang Siu Shun, age 61, has been an independent non-executive director since July 2016. Mr Yang is currently serving as a
+Member of the 12th National Committee of the Chinese People's Political Consultative Conference, a Justice of the Peace in
+Hong Kong, a Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority, a Steward of the
+Hong Kong Jockey Club, the Deputy Chairman of the Council of the Open University of Hong Kong, a Board Member and the
+Audit Committee Chairman of the Hang Seng Management College and an independent non-executive director of Industrial
+and Commercial Bank of China Limited which is publicly listed on the Stock Exchange and the Shanghai Stock Exchange.
+Mr Yang retired from PricewaterhouseCoopers ("PwC") on 30 June 2015. Before his retirement, he served as the Chairman
+and Senior Partner of PwC Hong Kong, the Executive Chairman and Senior Partner of PwC China and Hong Kong, one of the
+five members of the Global Network Leadership Team of PwC and the PwC Asia Pacific Chairman. Mr Yang graduated from
+the London School of Economics and Political Science in 1978. Mr Yang is a Fellow Member of the Institute of Chartered
+Accountants in England and Wales, the Hong Kong Institute of Certified Public Accountants and the Chartered Institute of
+Management Accountants.
+47
+Annual Report 2016
+Directors' Report
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Xu Chenye, age 45, Chief Information Officer, oversees the strategic planning and development for the website properties
+and communities, customer relations and public relations of the Company. Mr Xu is one of the core founders and has been
+employed by the Group since 1999. Prior to that, Mr Xu had experiences in software system design, network administration
+as well as marketing and sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu
+received a Bachelor of Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree
+in Computer Science from Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of
+the Company.
+Ren Yuxin, age 41, Chief Operation Officer and President of Interactive Entertainment Group, Mobile Internet Group and Online
+Media Group, joined the Company in 2000 and had served as General Manager for the Value-Added Services Development
+Division and General Manager for Interactive Entertainment Business Division. Since September 2005, Mr Ren has been
+responsible for the research and development, operations, marketing and sales of gaming products for the Interactive
+Entertainment Business. Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of
+the overall operation of the Interactive Entertainment Group, Mobile Internet Group and Social Network Group. He is also in
+charge of the operation of Online Media Group starting from 24 March 2017. Prior to joining the Company, Mr Ren has worked
+in Huawei Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from
+the University of Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International
+Business School (CEIBS) in 2008. Mr Ren currently serves as a director or officer of certain subsidiaries of the Company.
+James Gordon Mitchell, age 43, Chief Strategy Officer and Senior Executive Vice President, joined the Company in August
+2011. He is responsible for various functions, including the Company's strategic planning and implementation, investor
+relationships, and mergers, acquisitions and investment activity. Prior to joining the Company, Mr Mitchell had worked in
+investment banking for 16 years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading
+the bank's Communications, Media and Entertainment research team, which analysed Internet, entertainment and media
+companies globally. Mr Mitchell received a degree from Oxford University and holds a Chartered Financial Analyst Certification.
+Mr Mitchell currently serves as a director of certain subsidiaries of the Company.
+Lau Seng Yee, age 50, Senior Executive Vice President and Chairman of Tencent Advertising, Group Marketing and Global
+Branding, joined the Company in 2006. Mr Lau serves as Chairman of Tencent Advertising, Group Marketing and Global
+Branding starting from 24 March 2017 and is responsible for overseeing the Company's Advertising, Group Marketing and
+Global Branding businesses as well as developing international strategic partnership relationship. Before that, he was in
+charge of Online Media Group. Mr Lau is a seasoned professional in the media industry with a rare 22 years of on-ground
+China market experience. In 2007, Mr Lau sat in the advisory board for ad:tech, the globally renowned organisation for Online
+Marketing. Mr Lau held the post of Vice President of China Advertising Association since 2007. Mr Lau was appointed as the
+Adjunct Professor of School of Journalism and Communication by Xiamen University in 2010 and also by Fudan University
+in 2014. Prior to joining the Company, Mr Lau was the Managing Partner of Publicis China and Chief Executive Officer for
+BBDO China, as well as a few management positions in other multinations. Mr Lau received an EMBA degree from Rutgers
+State University of New Jersey, USA. He also completed the Advanced Marketing Management program, and the Advanced
+Management Program (AMP) in Harvard Business School. In 2011, Mr Lau was honoured by New York based AdAge
+publication as one of "The World's 21 Most Influential People in Marketing and Media Industry, 2009-2010". In 2015, he is
+named as Global Media Person of the year award by Cannes Lions International Festival of Creativity. Mr Lau currently sits as a
+board member in the Asia Pacific Advisory Board of Harvard Business School.
+Tencent Holdings Limited
+48
+Directors' Report
+Tong Tao Sang, age 43, Senior Executive Vice President and President of Social Network Group, joined the Company in 2005.
+Mr Tong started as a technical architect, and led the product development of the social network platform, Qzone. He drove
+the open platform initiative of Qzone, which led to the development of the performance advertising business and the cloud
+services. Since May 2012, Mr Tong has been responsible for the QQ messaging and Qzone social networking platforms,
+the VIP subscriptions business, QQ Music and the Tencent Cloud services. Prior to joining the Company, Mr Tong worked
+for Sendmail, Inc. on managing the product development of operator-scale messaging systems. Mr Tong also worked for
+Oracle on the development and testing of Oracle Server and Oracle Applications. Mr Tong received a Bachelor of Science
+degree in Computer Engineering from University of Michigan, Ann Arbor in 1994 and a Master of Science degree in Electrical
+Engineering from Stanford University in 1997. Mr Tong currently serves as a director of certain subsidiaries of the Company.
+Zhang Xiaolong, age 47, Senior Executive Vice President and President of Weixin Group, joined the Company in March 2005
+and served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail service
+provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has been
+appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail. He
+is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted to
+Senior Executive Vice President, in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received his Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+Lu Shan, age 42, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company in
+2000 and had served as General Manager for IM Product Divisions, Vice President for Platform Research and Development
+System and Senior Vice President for Operations Platform System. Since March 2008, Mr Lu has been in charge of
+management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge of management
+of Technical Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming Network Systems Limited. Mr
+Lu received a Bachelor of Science degree in Computer Science and Technology from University of Science and Technology of
+China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of the Company.
+David A M Wallerstein, age 42, Chief exploration Officer and Senior Executive Vice President, joined the Company in 2001.
+He drives the Company's active participation in new and emerging technologies, business areas, and ideas from his base in
+Palo Alto, California. Mr Wallerstein has worked on Tencent's entrance into new business areas since 2001. Prior to joining
+the Company, Mr Wallerstein worked with Naspers in China. Mr Wallerstein currently serves as a director of a subsidiary of the
+Company.
+85,000
+45
+Jacobus Petrus (Koos) Bekker, age 64, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers.
+He serves on the boards of other companies within the group and associates, as well as on public bodies. In April 2015, he
+succeeded Mr Vosloo as non-executive chair. Academic qualifications include BA Hons and honorary doctorate in commerce
+(Stellenbosch University), LLB (University of the Witwatersrand) and MBA (Columbia University, New York).
+Ma Huateng, age 45, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma is a deputy to the 12th National People's Congress. Mr Ma has
+a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen University and
+more than 23 years of experience in the telecommunications and Internet industries. He is a director of Advance Data Services
+Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the Company.
+Lau Chi Ping Martin, age 43, is an executive director and President of the Company. Mr Lau joined the Company in 2005 as
+the Chief Strategy and Investment Officer and was responsible for corporate strategies, investments, merger and acquisitions
+and investor relations. In 2006, Mr Lau was promoted as President of the Company to manage the day-to-day operation of
+the Company. In 2007, he was appointed as an executive director of the Company. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at Mckinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from the University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. On 28 July 2011, Mr Lau was appointed as a non-executive director of Kingsoft Corporation Limited,
+an Internet based software developer, distributor and software service provider listed in Hong Kong. On 10 March 2014, Mr
+Lau was appointed as a director of JD.com, Inc., an online direct sales company in China, which has been listed on NASDAQ
+since May 2014. On 31 March 2014, Mr Lau was appointed as a director of Leju Holdings Limited, an online-to-offline real
+estate services provider in China, which has been listed on New York Stock Exchange since April 2014. Mr Lau also serves as
+a director/corporate representative of certain subsidiaries of the Company.
+BIOGRAPHICAL DETAILS AND OTHER INFORMATION OF DIRECTORS
+61,474
+78,750
+192,724
+43
+Annual Report 2016
+Directors' Report
+DIRECTORS AND SENIOR MANAGEMENT
+The directors and senior management of the Company during the year and up to the date of this annual report were:
+Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+Grand Total:
+Non-Executive Directors
+Charles St Leger Searle
+Independent Non-Executive Directors
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+Yang Siu Shun (appointed with effect from 1 July 2016)
+In accordance with Article 87 of the Articles of Association, Mr Lau Chi Ping Martin and Mr Charles St Leger Searle will retire
+at the 2017 AGM and, being eligible, will offer themselves for re-election. In addition, in accordance with Article 86(3) of the
+Articles of Association, Mr Yang Siu Shun, who was appointed as director with effect from 1 July 2016, will hold office until the
+2017 AGM and, being eligible, will offer himself for re-election.
+The Company has received from each independent non-executive director an annual confirmation of his independence
+pursuant to Rule 3.13 of the Listing Rules and the Board considers them independent.
+Tencent Holdings Limited
+44
+Directors' Report
+Jacobus Petrus (Koos) Bekker
+Total:
+As at 31 December 2016, there were a total of 192,724 outstanding Awarded Shares granted to the directors of the Company,
+details of which are as follows:
+21 March 2017 to
+During the year, a total of 73,159,488 shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II and the Post-IPO Option Scheme III, and pursuant to the Share Award Schemes.
+41
+Annual Report 2016
+Directors' Report
+Number of Awarded Shares
+As at
+1 January
+Granted
+during
+Vested
+During the year, a total of 52,371,430 Awarded Shares were granted under the 2013 Share Award Scheme and out of which,
+61,474 Awarded Shares were granted to the independent non-executive directors of the Company. Details of the movements
+in the Share Award Schemes during the year are set out in Note 32 to the consolidated financial statements.
+As at
+Date of grant
+2016
+the year
+during
+the year
+21 March 2020
+2016
+Vesting period
+lain Ferguson Bruce
+17 March 2011
+Name of director
+The Company shall comply with the relevant Listing Rules when granting the Awarded Shares. If awards are made to the
+directors or substantial shareholders of the Group, such awards shall constitute connected transaction under Chapter 14A of
+the Listing Rules and the Company shall comply with the relevant requirements under the Listing Rules.
+The Trustee does not exercise any voting
+rights in respect of any shares held
+pursuant to the Trustee Deed II or as
+nominee.
+Subject to the satisfaction of all vesting
+conditions as prescribed in the 2013
+Share Award Scheme, the Selected
+Participants will be entitled to receive the
+Awarded Shares.
+Directors' Report
+6.
+Restrictions
+2007 Share Award Scheme
+No award shall be made by the Board
+and no instructions to acquire shares
+and allot new shares shall be given by
+the Board or the Trustee under the 2007
+Share Award Scheme where any director
+is in possession of unpublished price-
+sensitive information in relation to the
+Group or where dealings by directors
+are prohibited under any code or
+requirement of the Listing Rules and all
+applicable laws from time to time.
+2013 Share Award Scheme
+No award may be made by the Board to
+any Selected Participant: (i) where the
+Company has information that must be
+disclosed under Rule 13.09 of the Listing
+Rules or where the Company reasonably
+believes there is inside information which
+must be disclosed under part XIVA of the
+SFO, until such inside information has
+been published on the websites of the
+Stock Exchange and the Company; (ii)
+after any inside information in relation
+to the securities of the Company has
+occurred or has become the subject of
+a decision, until such inside information
+has been published; (iii) within the period
+commencing 60 days (in the case of
+yearly results), or 30 days (in the case
+of results for half-year, quarterly or other
+interim period) immediately preceding
+the earlier of (1) the date of a meeting of
+the Board (as such date is first notified
+to the Stock Exchange) for the approval
+of the Company's results for any year,
+half-year, quarterly or other interim
+period (whether or not required under
+the Listing Rules); and (2) the deadline
+for the Company to publish its quarterly,
+interim or annual results announcement
+for any such period, and ending on the
+date of such announcement; or (iv) in any
+other circumstances where dealings by
+Selected Participant (including directors)
+are prohibited under the Listing Rules,
+the SFO or any other applicable law or
+regulation or where the requisite approval
+from any applicable regulatory authority
+has not been granted.
+Tencent Holdings Limited
+40
+40
+Directors' Report
+7.
+Vesting and Lapse
+8.
+Voting Rights
+2007 Share Award Scheme
+Awarded Shares and the related income
+derived therefrom are subject to a
+vesting scale to be determined by the
+Board at the date of grant of the award.
+Vesting of the shares will be conditional
+on the Selected Participant satisfying all
+vesting conditions specified by the Board
+at the time of making the award until
+and on each of the relevant vesting dates
+and his/her execution of the relevant
+documents to effect the transfer from the
+Trustee.
+The Trustee shall not exercise the voting
+rights in respect of any shares held by it
+pursuant to the Trustee Deed I (including
+but not limited to the Awarded Shares
+and any bonus shares and scrip shares
+derived therefrom).
+2013 Share Award Scheme
+The vesting of the Awarded Shares
+is subject to the Selected Participant
+remaining, at all times after the Grant
+Date and on the date of vesting, an
+Eligible Person, subject to the rules of
+the 2013 Share Award Scheme.
+20,000
+20,000
+31 December
+17 March 2012 to
+17 March 2011
+15,000
+15,000
+17 March 2012 to
+-
+24 March 2014
+40,000
+10,000
+30,000
+lan Charles Stone
+24 March 2015 to
+2 April 2015
+30,000
+7,500
+22,500
+2 April 2016 to
+2 April 2019
+21 March 2016
+20,000
+20,000
+24 March 2019
+72,500
+17 March 2016
+20,000
+17 March 2016
+Annual Report 2016
+24 March 2014
+37,500
+10,000
+30,000
+24 March 2015 to
+24 March 2019
+2 April 2015
+30,000
+40,000
+22,500
+7,500
+90,000
+Total:
+21 March 2020
+21 March 2017 to
+49
+20,000
+21 March 2016
+2 April 2019
+2 April 2016 to
+20,000
+PERMITTED INDEMNITY PROVISION
+Directors' Report
+Ma Xiaoyi, age 43, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company
+since November 2008. Prior to joining the Company, Mr Ma served as a General Manager of Games Division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as a General Manager in Shanghai EasyService Technology Development
+Ltd. Mr Ma graduated from Shanghai Jiaotong University, and received an EMBA degree from Fudan University in 2008. Mr
+Ma currently serves as a director of certain subsidiaries of the Company.
+John Shek Hon Lo, age 48, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and served as the
+Company's Financial Controller from 2004 to 2008. Mr Lo was appointed as the Company's Vice President and Deputy Chief
+Financial Officer in 2008 and was appointed as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo
+worked in PricewaterhouseCoopers as Senior Manager (audit services). He is a Fellow of the CPA Australia, a Fellow of the
+Hong Kong Institute of Certified Public Accountants and a Fellow of the Chartered Institute of Management Accountants. Mr
+Lo received a Bachelor of Business in Accounting from Curtin University and an EMBA degree from Kellogg Graduate School
+of Management, Northwestern University and HKUST. Mr Lo currently serves as a director of certain subsidiaries of the
+Company.
+Guo Kaitian, age 44, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of administration, legal affairs, government relations, charity fund, procurement as well as the
+functional management of the branches in Beijing, Shanghai and Chengdu. Mr Guo received a Bachelor of Law degree from
+Zhongnan University of Economics and Law in 1996. Mr Guo currently serves as a director of a subsidiary of the Company.
+50
+Tencent Holdings Limited
+Directors' Report
+DIRECTORS' SERVICE CONTRACTS
+Mr Lau Chi Ping Martin has entered into a service contract with the Company for a term of three years ending 31 December
+2018. Mr Lau is entitled to an annual bonus based on the performance of the Company in an amount to be determined by the
+Remuneration Committee. Mr Lau is entitled to participate in all employee benefit plans, programmes and arrangements of the
+Company.
+Save as disclosed above, none of the directors who are proposed for re-election at the 2017 AGM has a service contract
+with the Company which is not determinable by the Company within one year without payment of compensation, other than
+statutory compensation.
+Xi Dan, age 41, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 21 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director or officer of certain subsidiaries of the Company.
+Mr Ma Huateng has entered into a service contract with the Company for a term of three years from 1 January 2016 to 31
+December 2018. The term of the service contract can be extended by agreement between the Company and Mr Ma. The
+Company may terminate the service contract by three months' written notice at any time, subject to paying his salary for the
+shorter of six months and a portion of his annual bonus for the year in which termination occurred pro rata to the portion of the
+year before the termination becomes effective.
+Save as disclosed in this annual report, no transaction, arrangement or contract of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+Yang Siu Shun
+54.29%
+RMB35,285,705
+Approximate %
+of shareholding
+and class of
+shares held
+Number of shares
+Personal
+Shiji Kaixuan
+Personal
+Tencent Computer
+Ma Huateng
+Nature of interest
+Name of
+associated
+corporation
+Name of director
+(B) Long position in the shares of associated corporations of the Company
+Interests of spouse or child under 18 as beneficial owner
+Interests of beneficial owner
+The interest comprises 11,474 underlying shares in respect of the awarded shares granted pursuant to the 2013 Share Award
+Scheme. Details of the awarded shares granted to this director are set out above under "Share Award Schemes".
+The interest comprises 327,500 shares and 72,500 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 417,500 shares and 72,500 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 50 shares and 36,250 underlying shares in respect of the awarded shares granted pursuant to the 2007
+Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 32,468,000 shares and 11,250,000 underlying shares in respect of the share options granted pursuant
+to the Post-IPO Option Scheme II and the Post-IPO Option Scheme III. Details of the share options granted to this director are set
+out above under "Share Option Schemes".
+6.
+5.
+(registered capital)
+RMB5,971,427
+54.29%
+(registered capital)
+as at 31 December 2016
+Name of the operating companies
+Registered owners
+Set out below is the registered owners and business activities of the OPCOS which had entered into transactions with the Group
+during the year ended 31 December 2016:
+Particulars of the OPCOS
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the Company indirectly operates the value-added telecommunication service business,
+online and mobile games, online advertising and other Internet and wireless portals in the PRC through affiliated OPCOS that
+hold the necessary licences for the existing lines of businesses.
+However, Circular 13 does not provide any interpretation of the term "foreign investors" or make a distinction between foreign
+online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether the State
+General Administration of Press, Publication, Radio, Film and Television will deem the Group's structure and operations to be
+in violation of these provisions.
+Directors' Report
+54
+54
+4.
+Tencent Holdings Limited
+2016
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed “Our History and Structure”
+and "Structure Contracts" in the IPO prospectus. During the year ended 31 December 2016, there was no material change
+in the Structure Contracts and/or the circumstances under which they were adopted, and none of the Structure Contracts has
+been unwound as none of the restrictions that led to the adoption of Structure Contracts has been removed.
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services in
+China. As foreign-invested enterprises, the WFOES do not have licences to provide Internet content or information services and
+other telecommunications value-added services. Accordingly, the value-added telecommunications business of the Group has
+been conducted through Tencent Computer, Shiji Kaixuan and the new operating companies (the "New OPCOS") (collectively,
+the "OPCOS") by itself or through their subsidiaries under the Structure Contracts (as defined in the section "Our History and
+Structure Structure Contracts" of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group is
+able to recognise and receive the economic benefit of the business and operations of the OPCOs. The Structure Contracts are
+also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to acquire
+the equity interests in and/or assets of the OPCOS.
+The reasons for using Structure Contracts
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+Directors' Report
+Annual Report 2016
+33
+53
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests or short
+positions in any shares, underlying shares or debentures of the Company and its associated corporations as at 31 December
+2016.
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進
+□)(the “Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009 provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via wholly
+owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors from
+gaining control over or participating in domestic online game operators through indirect ways such as establishing other joint
+venture companies or entering into contractual or technical arrangements with the Chinese licence holders.
+3.
+2.
+Advance Data Services Limited, a British Virgin Islands company wholly-owned by Ma Huateng, holds 729,507,500 shares
+directly and 98,000,000 shares indirectly through its wholly-owned subsidiary, Ma Huateng Global Foundation.
+*
+Personal
+Li Dong Sheng
+(Note 2)
+0.46%
+43,718,000
+8.73%
+827,507,500
+Corporate (Note 1)
+*
+Personal
+36,300
+Lau Chi Ping Martin
+of shareholding
+shares held
+Nature of interest
+Name of director
+Approximate %
+shares/ underlying
+Number of
+(A) Long position in the shares and underlying shares of the Company
+As at 31 December 2016, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+DIRECTORS' INTERESTS IN SECURITIES
+Directors' Report
+Ma Huateng
+Business activities
+0.0004%
+lain Ferguson Bruce
+1.
+Directors' Report
+Note:
+(Note 6)
+0.0001%
+11,474
+52
+52
+Tencent Holdings Limited
+*
+Personal
+(Note 3)
+(Note 5)
+240,000
+0.004%
+160,000
+Personal
+Family+
+↓
+lan Charles Stone
+(Note 4)
+0.005%
+490,000
+*
+Personal
+400,000
+Tencent Computer
+CONNECTED TRANSACTIONS
+Shiji Kaixuan
+Annual Report 2016
+Directors' Report
+5.
+6.
+7.
+8.
+9.
+10.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no domain name
+licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no domain name licence
+was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Co-operation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+52
+Tencent Holdings Limited
+Directors' Report
+11.
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOS, decide to implement enforceable remedy
+(including mandatorily requiring OPCOS to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WFOES and OPCOs, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WFOES and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as “High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+59
+59
+Annual Report 2016
+DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS
+Provision of value-added services and
+Internet advertisement services in the PRC
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+51
+Annual Report 2016
+58
+57
+Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and one of the WFOES,
+the parties shall cooperate in the provision of communications services. For each agreement, the WFOES shall allow the
+New OPCOS to use its and its affiliates' assets and provide services to the New OPCOs. The New OPCOS shall transfer all
+of its Surplus Cash to the WFOES and its affiliates as consideration. Co-operation committees have also been established
+according to these agreements. During the year, revenue sharing amounting to approximately RMB42,000,000,
+RMB9,000,000, and RMB313,000,000 was paid or payable by Wang Dian to Tencent Technology, Cyber Tianjin
+and Tencent Beijing respectively. Revenue sharing amounting to approximately RMB21,000,000, RMB109,000,000,
+and RMB358,625 was paid or payable by Beijing BIZCOM to Tencent Technology, Cyber Tianjin and Tencent Beijing
+respectively. Revenue sharing amounting to approximately RMB739,544, RMB6,000,000, and RMB3,000,000 was paid
+or payable by Beijing Starsinhand to Tencent Technology, Cyber Tianjin, and Tencent Beijing respectively.
+Pursuant to the amended and restated intellectual property transfer agreement dated 28 February 2004 entered
+into between Tencent Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its
+principal present and future intellectual property rights, free from encumbrances (except for licences granted in the
+ordinary course of Tencent Computer's business) in consideration of Tencent Technology's undertaking to provide
+certain technology and information services to Tencent Computer. During the year, no intellectual property transfer was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+Tencent Computer
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Provision of Internet advertisement services
+in the PRC
+Beijing BIZCOM
+Wang Dian
+Pursuant to the intellectual property transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and
+Shiji Kaixuan, Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future intellectual property rights, free
+from encumbrance (except for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of
+Cyber Tianjin's undertaking to provide certain technology and information services to Shiji Kaixuan. During the year, no
+intellectual property transfer was transacted under such arrangements, save as disclosed elsewhere in this section.
+Provision of value-added services in the PRC
+Provision of value-added services in the PRC
+50% by Chen Guangyu
+50% by Tang Yibin
+Provision of value-added services in the PRC
+55
+55
+Annual Report 2016
+Directors' Report
+Beijing Starsinhand
+Review of the transactions carried out under the Structure Contracts during the financial year
+The above OPCOs are significant to the Group as they hold relevant licences to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB100 billion for the year ended 31 December 2016 and
+approximately RMB18 billion as at 31 December 2016 respectively.
+1.
+2.
+3.
+4.
+56
+Directors' Report
+56
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and to provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established the
+SKT Co-operation Committee according to this agreement. During the year, no services was transacted under such
+arrangements, save as disclosed elsewhere in this section.
+Tencent Holdings Limited
+The Auditor had carried out procedures on the transactions pursuant to the Structure Contracts and had provided a letter
+to the Board confirming that such transactions had been approved by the Board and had been entered into, in all material
+respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus Cash of the
+OPCOS as at 31 December 2016 to the WFOES and that no dividends or other distributions had been made by the OPCOs to
+the holders of their equity interests.
+The Company's independent non-executive directors had reviewed the Structure Contracts (as defined in the section "Our
+History and Structure Structure Contracts" of the IPO prospectus of the Company) and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure Contracts
+and, had been operated so as to transfer by the date of this annual report Tencent Computer's and Shiji Kaixuan's Surplus
+Cash (as defined in the section “Our History and Structure - Structure Contracts" of the IPO prospectus of the Company) as
+at 31 December 2016 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology (Shenzhen)
+Company Limited in the IPO prospectus of the Company), Tencent Beijing, Tencent Information Shenzhen, Tencent Chengdu,
+Tencent Information Chongqing, Tencent Information Shanghai, Tencent Shanghai, Tencent Wuhan and Hainan Network. The
+Company's independent non-executive directors had also confirmed that no dividends or other distributions had been made
+by the OPCOS to the holders of their equity interests and the terms of any new Structure Contracts entered into, renewed and/
+or cloned during the relevant financial period are fair and reasonable so far as the Group was concerned and in the interests
+of the Company's shareholders as a whole. To this extent, similar Structure Contracts were entered into relating to the New
+OPCOS.
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent Technology
+and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and to provide services to Tencent
+Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates as
+consideration. The parties also established the TCS Co-operation Committee according to this agreement. During the
+year, revenue sharing amounting to approximately RMB40,525,000,000, RMB3,129,000,000, RMB13,948,000,000,
+RMB4,233,000,000, RMB4,687,000,000, RMB1,270,000,000, RMB669,000,000, RMB693,000,000,
+RMB4,514,000,000 and RMB525,000,000 were paid or payable by Tencent Computer to Tencent Technology, Cyber
+Tianjin, Tencent Beijing, Tencent Chengdu, Tencent Shanghai, Tencent Wuhan, Tencent Information Chongqing,
+Hainan Network, Tencent Information Shenzhen and Tencent Information Shanghai respectively. In addition, during
+the year, Internet data center service fee amounting to approximately RMB486,000,000 was paid or payable by
+Tencent Computer to Cyber Tianjin, and IOS account usage fee amounting to RMB50,000, RMB50,000, RMB50,000
+and RMB50,000 were paid or payable to Tencent Technology, Cyber Tianjin, Tencent Beijing and Tencent Shanghai
+respectively.
+Transactions carried out during the year ended 31 December 2016, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+Tencent Holdings Limited
+•
+approves the Company's financial statements and interim and annual reports;
+determines the Group's communication policy;
+Corporate Governance Report
+66
+•
+determines director selection, orientation and evaluation;
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders;
+establishes Board sub-committees with clear terms of reference and responsibilities as appropriate;
+defines levels of delegation in respect of specific matters, with required authority to Board sub-committees and
+management;
+monitors non-financial aspects pertaining to the businesses of the Group;
+•
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned;
+regularly evaluates its own performance and effectiveness.
+considers and, if appropriate, declares the payment of dividends to shareholders; and
+99
+•
+Corporate Governance Report
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans;
+approves the annual business plan and budget proposed by management;
+64
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once every
+two weeks or as frequent as necessary to formulate policies and make recommendations to the Board. The senior management
+team administers, enforces, interprets and supervises compliance with the internal rules and operational procedures of the
+Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate amendments to
+such rules and procedures. The senior management team reports to the Board on a regular basis and communicates with the
+Board whenever required.
+Directors' Report
+AUDITOR
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2017 AGM.
+On behalf of the Board
+Ma Huateng
+Chairman
+Hong Kong, 22 March 2017
+55
+65
+Annual Report 2016
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors with a
+thorough understanding of the Group's management and how such management oversees and manages different businesses
+of the Group. Our belief is that investors will realise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will lead to public trust and will ultimately create shareholder value
+for the Group.
+CORPORATE GOVERNANCE PRACTICES
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board
+believes that throughout the year ended 31 December 2016, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions A.2.1 regarding the segregation of the role of the chairman
+and chief executive and A.4.2 regarding the retirement and re-election of directors.
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes at
+the appropriate time.
+BOARD OF DIRECTORS
+Responsibilities
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategy and monitors management's
+execution of such strategy.
+The Board has defined the business and governance issues for which it needs to be responsible, and these matters are
+reviewed periodically to ensure that the Company maintains effective and up-to-date corporate governance practices. In this
+regard, the Board:
+•
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual business plan and budget;
+Name of director
+• develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors;
+All directors have full and timely access to all relevant information as well as the advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring Board procedures and all applicable rules and regulations are
+followed. All directors may also obtain independent professional advice at the Company's expense for carrying out their
+functions.
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders; and
+•
+reviews and monitors the Company's policies and practices on its compliance with legal and regulatory requirements;
+reviews and monitors the training and continuous professional development of the directors and senior management
+team;
+reviews the Company's corporate governance and makes recommendations to the Board;
+Corporate Governance Committee
+Corporate Governance Report
+Annual Report 2016
+67
+To better serve the long term interests of our stakeholders, the Board delegates certain matters requiring particular time,
+attention and expertise to its committees. The Board has determined that these matters are better dealt with by the committees
+as they require independent oversight and specialist input. As such, the Board has established five committees to assist the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. Each of the committees has terms of reference which clearly specify its powers and authorities. All committees
+report back to the Board and make recommendations to the Board if necessary.
+oversees the risks undertaken by the Company including determining the level or risk the Company expects to and is
+able to take.
+reviews the work done by the Company's management with respect to risk management and internal control systems;
+and
+exercises oversight of the Company's financial reporting system;
+reviews the Company's financial information;
+•
+handles the relationship with the Company's external auditor;
+Audit Committee
+The Company's governance structure of these committees can be summarised as follows:
+54
+reviews the Company's compliance with the CG Code and disclosure in the Corporate Governance Report.
+We believe education and training are important for maintaining an effective Board. New directors undergo an orientation
+programme designed to provide a thorough understanding of the Group's operations and businesses, and also receive a
+handbook outlining their responsibilities under the Listing Rules and applicable laws. Existing directors are provided with
+tailored training programmes covering topics such as best practices in corporate governance, legal and regulatory trends
+and, given the nature of our business, emerging technologies and products. Directors also regularly meet with the senior
+management team to understand the Group's businesses, governance policies and regulatory environment. During the year
+ended 31 December 2016, the Company arranged training on topics relating to corporate governance, legal and regulatory
+updates and product trends which are relevant to the Group's businesses. The chart below summarises the participation of
+each of the directors in continuous professional development during the year ended 31 December 2016:
+Investment Committee
+identifies, considers and makes recommendations on mergers, acquisitions and disposals; and
+The work of the committees during the year 2016 is set out on pages 74 to 77.
+Corporate Governance Report
+68
+Tencent Holdings Limited
+ensures that no director or any of his associates is involved in deciding his own remuneration.
+ensures these remuneration proposals are aligned to corporate goals and objectives; and
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team;
+Remuneration Committee
+reviews and monitors the implementation of the board diversity policy of the Company.
+assesses the independence of independent non-executive directors; and
+•
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders;
+by taking into account the individual's experience, knowledge, skills and background, as well as the Listing Rules
+requirements;
+identifies suitable and qualified individuals and makes recommendations to the Board as to new Board members,
+reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy;
+•
+•
+Nomination Committee
+ensures compliance with the Listing Rules and any other relevant laws and regulations of any mergers, acquisitions and
+disposals.
+•
+Tencent Holdings Limited
+Non-executive directors
+(B) Entitlement to the Proposed Final Dividend
+33.25%
+3,151,201,900
+Corporate (Note 1)
+Long position
+MIH TC
+of shareholding
+shares held
+Approximate %
+shares/underlying
+Advance Data Services Limited Long position
+Nature of
+interest/capacity
+Name of shareholder
+Number of
+Long/ short position in the shares of the Company
+As at 31 December 2016, the following persons, other than the directors or chief executive of the Company, had interests or
+short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under
+section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the shares of the Company:
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+Directors' Report
+60
+60
+Tencent Holdings Limited
+Long/ short position
+Save as the related parties transaction disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest
+paid individuals), Note 14 (Benefits and interests of directors), Note 20 (Transactions with associates), Note 24 (Loan to
+investees and investees' shareholders) and Note 32 (Share-based payments) to the consolidated financial statements, no
+related parties transactions disclosed in the consolidated financial statements constitutes a discloseable connected transaction
+as defined under the Listing Rules. The Company has complied with the disclosure requirements set out in Chapter 14A of the
+Listing Rules.
+Corporate (Note 2)
+8.73%
+Annual Report 2016
+53
+61
+(Note 3(ii))
+0.71%
+66,820,440
+Beneficial owner
+Short position
+5.97%
+827,507,500
+565,917,112
+283,913,097
+agent
+approved lending
+Custodian corporation/
+43,070
+180,688,514
+101,272,431
+Beneficial owner
+Investment manager
+Trustee (other than
+a bare trustee)
+Long position
+JPMorgan Chase & Co.
+Total (Note 3(i)):
+The register of members will be closed from Tuesday, 23 May 2017 to Wednesday, 24 May 2017, both days inclusive,
+during which period no transfer of shares will be registered. In order to qualify for the proposed final dividend, all duly
+completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's branch
+share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre,
+183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Monday, 22 May 2017.
+Other connected transactions
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in the
+PRC, a number of agreements have been entered into between members of the Group whereby the Company and the WFOES
+derive substantially all their revenues from transactions with the OPCOs. The recognition of revenues outlined in these intra-
+group contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and adverse
+impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the tax
+treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimise the risks of adjustment
+in tax treatment.
+As to the deviation from code provisions A.2.1 and A.4.2 of the CG Code, the Board will continue to review the current
+structure from time to time and shall make necessary changes when appropriate and inform the shareholders accordingly.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+The Group is committed to minimising the impact on the environment from our business activities and the details of such
+efforts are set out in the section headed “Environment” in the Environmental, Social and Governance Report in this annual
+report. As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+PRE-EMPTIVE RIGHTS
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of the Cayman Islands, which would
+oblige the Company to offer new shares on a pro rata basis to existing shareholders.
+83
+63
+Save as disclosed in the 2016 interim report and the corporate governance report in the 2015 annual report of the Company,
+none of the directors of the Company is aware of any information which would reasonably indicate that the Company has not,
+for any part of the year ended 31 December 2016, complied with the code provisions as set out in the CG Code.
+Annual Report 2016
+EMPLOYEE AND REMUNERATION POLICIES
+As at 31 December 2016, the Group had 38,775 employees (2015: 30,641). The number of employees employed by the
+Group varies from time to time depending on needs and employees are remunerated based on industry practice.
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-
+house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according
+to the assessment of individual performance.
+The total remuneration cost incurred by the Group for the year ended 31 December 2016 was RMB23,433 million (2015:
+RMB18,475 million).
+SUFFICIENCY OF PUBLIC FLOAT
+Based on information that is publicly available to the Company and within the knowledge of its directors, the directors confirm
+that the Company has maintained during the year the amount of public float as required under the Listing Rules.
+CLOSURE OF REGISTER OF MEMBERS
+(A) Entitlement to Attend and Vote at the 2017 AGM
+The register of members will be closed from Monday, 15 May 2017 to Wednesday, 17 May 2017, both days inclusive,
+during which period no transfer of shares will be registered. In order to be entitled to attend and vote at the 2017 AGM,
+all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's
+branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell
+Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Friday, 12 May 2017.
+Directors' Report
+For details of the risks associated with the Structure Contracts, please refer to the section headed "Risk factors - Risks relating
+to our structure" in the IPO prospectus.
+COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
+AUDIT COMMITTEE
+Directors' Report
+Executive directors
+2.
+MIH TC is controlled by Naspers Limited through its wholly-owned intermediary companies, MIH (Mauritius) Limited, MIH Ming He
+Holdings Limited and MIH Holdings Proprietary Limited. As such, Naspers Limited, MIH (Mauritius) Limited, MIH Ming He Holdings
+Limited and MIH Holdings Proprietary Limited are deemed to be interested in the same block of 3,151,201,900 shares under Part XV of
+the SFO.
+Advance Data Services Limited holds 729,507,500 shares directly and 98,000,000 shares indirectly through its wholly-owned
+subsidiary, Ma Huateng Global Foundation. As Advance Data Services Limited is wholly-owned by Ma Huateng, Mr Ma has an interest
+in these shares as disclosed under the section of "Directors' Interests in Securities".
+3.
+(i)
+(ii)
+Such long position includes derivative interests in 35,842,496 underlying shares of the Company of which 11,670,973 underlying
+shares are derived from listed and physically settled derivatives, 2,565,400 underlying shares are derived from listed and cash
+settled derivatives, 14,768,059 underlying shares are derived from unlisted and physically settled derivatives and 6,838,064
+underlying shares are derived from unlisted and cash settled derivatives. It also includes 283,913,097 shares in lending pool.
+The Audit Committee has reviewed the Group's audited consolidated financial statements for the year ended 31 December
+2016. The Audit Committee has also reviewed the accounting principles and practices adopted by the Group and discussed
+auditing, risk management, internal control and financial reporting matters.
+Such short position includes derivative interests in 35,228,087 underlying shares of the Company of which 8,227,800 underlying
+shares are derived from listed and physically settled derivatives, 14,010,790 underlying shares are derived from listed and cash
+settled derivatives, 4,128,936 underlying shares are derived from unlisted and physically settled derivatives and 8,810,561
+underlying shares are derived from unlisted and cash settled derivatives.
+MANAGEMENT CONTRACTS
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company was entered into or existed during the year.
+MAJOR CUSTOMERS AND SUPPLIERS
+For the year ended 31 December 2016, the five largest customers of the Group accounted for approximately 3.67% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 1.20% of the Group's
+total revenues. In addition, for the year ended 31 December 2016, the five largest suppliers of the Group accounted for
+approximately 19.45% of the Group's total purchases while the largest supplier of the Group accounted for approximately 6.55%
+of the Group's total purchases.
+None of the directors, their associates or any shareholder (which to the knowledge of the directors owns more than 5% of the
+number of issued shares of the Company) had an interest in any of the major customers or suppliers noted above.
+Tencent Holdings Limited
+62
+62
+Directors' Report
+Save as disclosed above, the Company had not been notified of any other persons (other than a director or chief executive
+of the Company) who, as at 31 December 2016, had interests or short positions in the shares and underlying shares in the
+Company as recorded in the register required to be kept under section 336 of the SFO.
+Ma Huateng
+Jacobus Petrus (Koos) Bekker
+1.
+Lau Chi Ping Martin
+Annual Report 2016
+69
+Maintaining a high level of corporate governance and integrity cannot depend solely on the Board's efforts; each of the Group's
+employees is also required to contribute to such cause. A code of conduct policy with an emphasis on integrity and respect is
+distributed by the Company to all employees and forms part of their employment agreements.
+Mr Yang Siu Shun was appointed as an independent non-executive director of the Company with effect from 1 July 2016.
+2
+Attended training/ seminar/ conference arranged by the Company or other external parties or read relevant materials.
+1
+V
+√
+Note:
+V
+Directors' Report
+Charles St Leger Searle
+Independent non-executive directors
+Li Dong Sheng
+V
+lan Charles Stone
+Yang Siu Shun²
+Participated in
+continuous professional
+development'
+lain Ferguson Bruce
+0/1
+1/1
+1/1
+2/2
+8/8
+5/5
+lain Ferguson Bruce
+1/4
+1/1
+5/5
+Li Dong Sheng
+Independent non-executive directors
+lan Charles Stone
+1/1
+==
+1/1
+1/1
+5/5
+1/1
+2/2
+As described above, the Board has established five committees each of which has been delegated responsibilities and reports
+back to the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and
+Remuneration Committee. The roles and functions of these committees are set out in their respective terms of reference. The
+terms of reference of each of the Corporate Governance Committee, the Investment Committee and the Nomination Committee
+were revised in July 2016 to ensure they continue to meet the needs of the Company and to ensure compliance with the
+CG Code. The terms of reference of the Audit Committee, the Nomination Committee and the Remuneration Committee are
+available on the Company Website and the Stock Exchange's website.
+THE COMMITTEES
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final version of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+Corporate Governance Report
+Annual Report 2016
+73
+At the Board meetings, the Board discussed a wide range of matters, including the Group's overall strategies, financial and
+operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary,
+in consultation with the Chairman and the senior management team, prepares the agenda for each meeting and all directors
+are given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all
+applicable rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the
+Board meeting to each of the directors at least 14 days in advance of each regular Board meeting. The company secretary
+also sends the agenda, board papers and relevant information relating to the Group to each of the directors at least 3 days in
+advance of each regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial
+performance and latest developments. If any director raises any queries, steps will be taken to respond to such queries as
+promptly and fully as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director,
+such director will declare his interest and will abstain from voting on such matters. The directors may approach the Company's
+senior management team when necessary. The directors may also seek independent professional advice at the Company's
+expense in appropriate circumstances.
+8/8
+Mr Yang Siu Shun was appointed as an independent non-executive director of the Company with effect from 1 July 2016.
+1/1
+4/4
+3/3
+Yang Siu Shun*
+2/2
+4/4
+1/1
+*
+8/8
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Governance
+Audit
+Committee
+Board
+Name of director
+Annual
+Corporate
+Attendance/ No. of Board, Committee Meetings and Annual General Meeting
+Nomination
+The Board meets four times during the year as a minimum and, during the year of 2016, it met five times. The attendance
+of each director at Board, committee meetings and annual general meeting, whether in person or by means of electronic
+communication, is detailed in the table below:
+Corporate Governance Report
+72
+Tencent Holdings Limited
+The Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by rotation
+nor taken into account in determining the number of directors to retire in each year. Therefore, there is a deviation from code
+provision A.4.2 of the CG Code. The Chairman is one of the founders of the Group and he plays a key role in the growth and
+development of the Group and his continuing presence in the Board is vital to assure sustainable development of the Group.
+Given the importance of the Chairman's role in the development of the Group, the Board considers that the deviation from
+code provision A.4.2 of the CG Code has no material impact on the operation of the Group as a whole.
+The Board is the core of the Group's success, and with the appropriate composition of the Board, we can benefit from the right
+set of skills, experience and diversity of perspectives to take the Company forward. Therefore, it is essential for the Company to
+maintain a formal, considered and transparent procedure for the appointment of new directors to the Board. It is our corporate
+governance practice and in accordance with the Articles of Association that all directors (except for the Chairman) should be
+subject to re-election at regular intervals and the resignation and removal of any director should be explained with reasons. In
+the 2016 annual general meeting, Messrs Jacobus Petrus (Koos) Bekker and lan Charles Stone retired and were re-elected.
+Code provision A.4.2 of the CG Code provides that all directors appointed to fill a casual vacancy should be subject to election
+by shareholders at the first general meeting after appointment. Every director, including those appointed for a specific term,
+should be subject to retirement by rotation at least once every three years.
+Appointments, Re-election and Removal
+Corporate Governance Report
+Board Activity
+5/5
+Remuneration
+Committee
+4/4
+5/5
+Audit Committee
+Non-executive directors
+1/1
+1/1
+==
+General
+1/1
+5/5
+Lau Chi Ping Martin
+Ma Huateng
+Executive directors
+Meeting
+Committee
+Committee
+5/5
+The Audit Committee comprises only non-executive directors. Its members are Mr lain Ferguson Bruce, Mr lan Charles Stone,
+Mr Yang Siu Shun (appointed as a member of the Audit Committee with effect from 1 July 2016) (all of them are independent
+non-executive directors) and Mr Charles St Leger Searle (non-executive director). Mr lain Ferguson Bruce, who chairs the
+Audit Committee, and Mr Charles St Leger Searle and Mr Yang Siu Shun have appropriate professional qualifications and
+experiences in financial matters.
+the 2016 interim report and interim results announcement;
+The Audit Committee's main work during the year 2016 includes reviewing:
+The third line of defence mainly consists of the functions of internal audit and anti-fraud investigation under the IA.
+The Third Line of Defence -- Independent Assurance
+The second line of defence is mainly the IC. This line of defence is responsible for formulating policies related to the risk
+management and internal control of the Company and for planning and implementing the establishment of integrated risk
+control systems. For ensuring effective implementation of such systems, this line of defence also assists and supervises the
+first line of defence in the establishment and improvement of risk management and internal control systems.
+The Second Line of Defence -- Risk Management
+The first line of defence is mainly formed by the business and functional departments of each business group of the Company
+who are responsible for the day-to-day operation and management. It is responsible for designing and implementing controls
+to address the risks.
+The First Line of Defence -- Operation and Management
+Corporate Governance Report
+The IA holds a high degree of independence and is responsible for providing an independent evaluation on the effectiveness of
+the Company's risk management and internal control systems.
+Annual Report 2016
+To ensure that the risk management and internal control systems are effective, the Company, under the supervision and
+guidance of the Board and factoring the actual needs of the Company, has adopted the "three lines of defence" model as an
+official organisational structure for risk management and internal control.
+The Board acknowledges that it is the Board's responsibility to ensure that the Company has established and maintained
+adequate and effective risk management and internal control systems. The Board delegates its responsibility to the Audit
+Committee to review the practices of management with respect to risk management and internal control, including the design,
+implementation and supervision of the risk management and internal control systems. This review formally takes place on a
+quarterly basis. The Audit Committee also reviews the effectiveness of the risk management and internal control systems on
+an annual basis. The Board is responsible for overseeing the risk appetite of the Company including determining the level of
+risk the Company expects and is able to take, and proactively considering, analysing and formulating strategies to manage the
+key risks that the Company is exposed to. The Audit Committee oversees the management of the design, implementation and
+monitoring of risk management and internal control systems.
+Adequate and effective risk management and internal control systems are key to safeguarding the achievement of the
+Company's business strategies. The risk management and internal control systems shall also ensure the achievement of the
+Company's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with applicable
+laws, regulations and policies.
+As part of the Board's responsibility, the Board ensures that a balanced and clear assessment of the Group's performance and
+prospects is presented. The directors acknowledge that it is their responsibility to prepare the accounts that give a true and
+fair view of the Group's financial position on a going-concern basis and other announcements and financial disclosures. To
+assist the Board in discharging its responsibilities, the senior management team provides updates to the Board from time to
+time, including the Group's business and financial position in sufficient detail, to give the directors a balanced, understandable
+and clear assessment of the performance, position and prospects of the Group. The senior management team also provides
+all necessary and relevant information to the Board, giving the directors sufficient explanation and information they need
+to discharge their responsibilities and make an informed assessment of financial and other information put before them for
+approval. The Company auditor's statement in respect of their reporting responsibilities is set out in the "Independent Auditor's
+Report".
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual or any of his associates was involved in determining his own remuneration. It also ensured that
+remuneration awards were determined by reference to the performance of the individual and the Company and were aligned to
+the market practice and conditions, the Company's goals and strategies. They are designed to attract, retain and motivate high
+performing individuals, and reflect the specifics of individual roles.
+77
+The anti-fraud investigation function is responsible for receiving whistleblower reports through various channels and for
+following up and investigating alleged fraudulent activities. It also assists management in promoting the "Tencent Sunshine
+Code of Conduct" (the "Sunshine Code") and the value of integrity to all employees of the Company. The IA has direct
+reporting lines to the Audit Committee.
+These systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only
+provide reasonable but not absolute assurance against material misstatement or loss.
+Risk Management
+Annual Report 2016
+79
+Below is a summary of the significant risks of the Company along with the applicable response strategies. With the growth of
+business scale, extent, complexity and the changing external environment, the Company's risk profile may change and the list
+below is not intended to be exhaustive.
+On behalf of the Board, the Audit Committee assists the Board in supervising the overall risk status of the Company
+and evaluating the change in the nature and severity of the Company's major risks. The Audit Committee considers that
+management has taken appropriate measures to address and manage the key risks which they are responsible for at a level
+acceptable to the Board.
+In 2016, the Company identified and determined the significant risks of the Company through the risk management process
+detailed above.
+Significant Risks of the Company
+The Audit Committee, on behalf of the Board, assesses and determines the nature and level of the risks that the
+Company is willing to take in order to achieve its business objectives and formulates appropriate response strategies
+which includes designating responsible departments for handling each significant risk. The Audit Committee provides
+guidance to the Company's management to implement effective risk management system with supports from the IC.
+The IC reviews and evaluates the responses to significant risks from time to time, and reports to the Audit Committee at
+least once a year; and
+The IC collects, analyses and consolidates a list of significant risks at the company level, and provides input on risk
+response strategies and control measures for such risks. These significant risks as well as the corresponding risk
+responses and control measures will be reviewed by senior management and subsequently by the Audit Committee
+before reporting to the Board;
+Business and functional departments of each business group identify, assess and respond to risks in the course of
+operation in a systematic manner, escalating concerns and communicating results to the IC;
+Being an Internet company with a wide variety of rapidly-changing businesses, the Company has adopted the following
+dynamic risk management process in response to the ever-changing risk landscape:
+Risk Management Process
+Corporate Governance Report
+78
+Tencent Holdings Limited
+The Company has established a risk management system (including the "three lines of defence" model as detailed above)
+which sets out the roles and responsibilities of each relevant party as well as the relevant risk management policies and
+processes. Each business group of the Company, on a regular basis, identifies and assesses risk factors that may negatively
+impact the achievement of its objectives, and formulates appropriate response measures.
+The Company is committed to continuously improving the risk management system, including structure, process and culture,
+through the enhancement of risk management ability, to ensure long-term growth and sustainable development of the
+Company's business.
+Corporate Governance Report
+The Audit Committee meets not less than four times a year; in 2016 the Audit Committee met eight times. Individual
+attendance of each Audit Committee member is set out on page 73. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Head of IA and the Head of IC, and the external auditor at the
+invitation of the Audit Committee.
+76
+reviewing and approving compensation awards granted to senior management team, to recognise their contributions to
+the Company and to provide incentives for future performances.
+Corporate Governance Committee
+PricewaterhouseCoopers ("PwC") is the Group's external auditor. The Audit Committee annually reviews the relationship of
+the Company with PwC. Having also reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied with this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2017 AGM.
+the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group.
+the adequacy of resources, qualifications and training of the Group's finance department; and
+the plans (including those for 2016), resources and work of the Company's internal auditors;
+•
+Corporate Governance Report
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr lain Ferguson Bruce, Mr lan Charles Stone and Mr Yang Siu Shun (appointed as a member of
+the Corporate Governance Committee with effect from 1 July 2016) (all of them are independent non-executive directors). The
+Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+74
+in relation to the external auditor, their plans, reports and management letter, fees, involvement in non-audit services,
+and their terms of engagement;
+compliance with the CG Code, the Listing Rules and relevant laws;
+•
+the 2016 first and third quarters results announcements;
+•
+71
+the 2015 annual report, including the Corporate Governance Report, Directors' Report and the financial statements, as
+well as the related results announcement;
+Tencent Holdings Limited
+The Corporate Governance Committee met twice in 2016. Individual attendance of each Corporate Governance Committee
+member is set out on page 73.
+During 2016, the Corporate Governance Committee discussed on the arrangements made for directors and senior
+management team to attend training sessions for continuous professional development, reviewed the Company's compliance
+with the CG Code and disclosure in the Corporate Governance Report, and reviewed the Company's policies and practices
+on corporate governance, and legal and regulatory compliance, including the insider dealing policy, the disclosure of inside
+information policy and the shareholders communication policy.
+Investment Committee
+assessing performance and, reviewing and approving amendments to the remuneration packages for the members of
+the senior management team; and
+reviewing and recommending to the Board on the remuneration packages for the directors, including Mr Yang Siu Shun
+(who was appointed as an independent non-executive director with effect from 1 July 2016);
+reviewing and recommending to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with a similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staff;
+The Remuneration Committee's main work during the year 2016 includes the following:
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration packages of each director.
+The Remuneration Committee met four times in 2016. Individual attendance of each Remuneration Committee member is set
+out on page 73.
+The Remuneration Committee comprises only non-executive directors. Its members are Mr lan Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). The
+Remuneration Committee is chaired by Mr lan Charles Stone.
+Remuneration Committee
+During 2016, the Nomination Committee reviewed board composition and director succession, and the board diversity policy.
+The Nomination Committee has also identified, discussed, considered and made a recommendation to the Board on the
+proposed appointment of Mr Yang Siu Shun as an independent non-executive director of the Company. The Nomination
+Committee has also assessed the independence of the independent non-executive directors and considers all of them to be
+independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing Rules in the context of
+the length of service of each independent non-executive director. The Company recognises the benefits of having a diverse
+Board, and views diversity at Board level as a business imperative that will help the Company achieve its strategic objectives
+and maintain a competitive advantage. As such, the Board has set measurable objectives for the implementation of the board
+diversity policy to ensure that the Board has the appropriate balance of skills, experience and diversity of perspectives that
+are required to support the execution of its business strategy and maintain the effectiveness of the Board. The Nomination
+Committee is satisfied that the board diversity policy is successfully implemented with reference to the measurable objectives.
+The Nomination Committee will continue to monitor the implementation of the board diversity policy and will review the board
+diversity policy periodically to ensure its continued effectiveness.
+Corporate Governance Report
+Annual Report 2016
+75
+The Nomination Committee met once in 2016. Individual attendance of each Nomination Committee member is set out on
+page 73.
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr lain Ferguson Bruce, Mr lan Charles Stone (all three are independent non-executive directors) and Mr
+Charles St Leger Searle (non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+Nomination Committee
+In 2016, the Investment Committee met once, and had also considered and passed various resolutions on its decisions on the
+Group's acquisitions and disposals.
+The Investment Committee comprises a majority of executive directors. Its members are Mr Lau Chi Ping Martin, Mr Ma
+Huateng and Mr Charles St Leger Searle. The Investment Committee is chaired by Mr Lau Chi Ping Martin.
+Tencent Holdings Limited
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Annual Report 2016
+The Board values the importance of professional judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in professional, constructive and informed manner, and actively participate in Board and committee
+meetings and to bring professional judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also exercise their professional
+judgment and utilise their expertise to scrutinise the Company's performance in achieving agreed corporate goals, and monitor
+performance reporting.
+Further, in compliance with Rule 3.10 of the Listing Rules, two of our independent non-executive directors have the
+appropriate professional qualifications of accounting or related financial management expertise, and provide valuable advice
+from time to time to the Board. The Company has also received from each independent non-executive director a confirmation
+annually of his independence and the Nomination Committee has conducted an annual review and considers that all
+independent non-executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13
+of the Listing Rules in the context of the length of service of each independent non-executive director.
+Corporate Governance Report
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and
+compliance with the CG Code.
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+•
+•
+review of the shareholders communication policy has been and will be conducted on a regular basis;
+training has been and will continue to be provided to directors on a timely basis, including briefing the directors on any
+updates to the Listing Rules and relevant laws;
+the company secretary attends training in compliance with the Listing Rules requirements; and
+informal updates from time to time and structured monthly updates on the Company's performance, position and
+prospects are provided to the directors.
+Chairman and Chief Executive Officer
+A list of directors and their respective biographies are set out on pages 45 to 47 of this annual report.
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be technically sophisticated and sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the role of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision
+A.2.1 of the CG Code, which provides that the roles of chairman and chief executive should be separate and should not be
+performed by the same individual. The division of responsibilities between the chairman and chief executive should be clearly
+established and set out in writing.
+Composition
+Corporate Governance Report
+10
+As at the date of this annual report, the Board is comprised of eight directors, with two executive directors, two non-executive
+directors and four independent non-executive directors. During the year ended 31 December 2016 and up to the date of this
+annual report, there is no change to the composition of the Board except that Mr Yang Siu Shun has been appointed as an
+independent non-executive director with effect from 1 July 2016.
+Tencent Holdings Limited
+The Board is therefore of the view that there is an adequate balance of power and that appropriate safeguards are in place.
+Nevertheless, the Board will continue to regularly monitor and review the Company's current structure and to make necessary
+changes at an appropriate time.
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as well
+as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to time
+to make presentations and answer Board's enquiries. In addition, directors are encouraged to participate actively in all Board
+and committee meetings of which they are members, and the Chairman ensures that all issues raised are properly briefed at
+the Board meetings, and together with the senior management team, provide adequate, accurate, clear, complete and reliable
+information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is available for
+discussion for all items at the Board meetings. During the year ended 31 December 2016, the Chairman held a meeting with
+the non-executive directors (including the independent non-executive directors) without the presence of the executive directors
+as required by the Listing Rules.
+70
+In order to take advantage of the skills, experiences and diversity of perspectives of the directors and in order to ensure that the
+directors give sufficient time and attention to the Group's affairs, we request each of the directors to disclose to the Company,
+on a quarterly basis, the number and the nature of offices held in public companies or organisations and other significant
+commitments. The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that
+the number of independent non-executive directors must represent at least one-third of the Board. The Board believes that
+the balance between the executive directors and the non-executive directors is reasonable and adequate to provide sufficient
+checks and balances that safeguard the interests of the shareholders and the Group.
+The Company has long been endeavoring to promote the healthy development of the Internet industry, and efforts are
+being made to make the products and platforms of the Company exert a positive community influence. The Company
+strictly controls third party access to the content on the Company's platform and products and prohibits businesses that
+are not in compliance with laws and regulations. The Company has also established supervisory and whistleblowing
+mechanisms to minimise and manage the spread of illegal and malicious information.
+The Company's internal control systems clearly define roles and responsibilities of each party as well as authorisations and
+approvals required for key actions of the Company. Policies and procedures are put in place for the key business processes.
+This information is also clearly conveyed to employees in practice and plays an important role in internal control systems. All
+employees must strictly follow the policies which cover, amongst other things, financial, legal and operational issues that set
+the control standards for the management of each business process.
+Management of the Company is responsible for the design, implementation and maintenance of the effectiveness of internal
+control systems. The Board and the Audit Committee are responsible for monitoring and overseeing the performance of
+management over the internal control systems to ensure it is appropriate and effective.
+Framework.
+The Company has always valued the importance of the internal control systems, and has been implementing the COSO
+Internal Control
+Social responsibility risk
+Annual Report 2016
+81
+With the diverse products and platforms of the Company and its expanding user base, the products and platforms of the
+Company have gained considerable influence in wider society. The Company's products and platforms are subject to
+increased scrutiny from a social responsibility perspective.
+Management Self-assessment
+6.
+The Company has set up several professional departments and teams that work closely with management of business
+groups to monitor and identify changes in any relevant laws and regulations, so as to take appropriate actions or
+measures to ensure the Company is in compliance with applicable laws and regulations. In addition, the Company also
+actively exchanges view and information with relevant regulatory authorities on the trend and development of Internet
+industry.
+Although the Internet and technology industry is still evolving, regulatory authorities in numerous jurisdictions have been,
+in an attempt to keep up with such evolution, developing more comprehensive and stringent regulations to regulate the
+industry. As the Company is continuously expanding its businesses in the PRC and overseas, it is required to comply
+with the new applicable laws and regulations in different jurisdictions that are specifically relevant to the Company's
+businesses, such as laws relating to data protection, Internet information security, IP, gaming and Internet finance.
+Corporate Governance Report
+In order to further strengthen the accountability of the management team in the internal control systems of the Company
+and to assist in determining the effectiveness of such internal control systems, the management team of each business
+group conducts self-assessment and confirms the internal control status of the business group for which it is responsible.
+The IC assists the management in preparing a self-assessment questionnaire according to the COSO Framework, and
+guides the management of each business group to carry out the self-assessment. The IC is also responsible for collecting
+and summarising the results of self-assessment. The Chief Executive Officer of the Company reviews this summarised self-
+assessment of each business group, assesses the general effectiveness of the internal control systems of the Company, and
+submits the written confirmation thereof on behalf of the senior management team of the Company to the Audit Committee and
+the Board.
+The Audit Committee, on behalf of the Board, continuously reviews the risk management and internal control systems.
+The review process comprises, among other things, of meetings with management of business groups, IA, IC, legal, and the
+external auditors, reviewing the relevant work reports and information of key performance indicators, the management self-
+assessment on internal control as detailed above and discussing the major risks with the senior management of the Company.
+The Board is of the view that throughout the year ended 31 December 2016, the risk management and internal control
+systems of the Company are effective and adequate.
+Tencent Holdings Limited
+DISCLOSURE OF OTHER INFORMATION
+Apart from participating in the Company's general meetings, the Company's shareholders are provided with contact details of
+the Company, such as telephone number and email address which are available on the Company Website, in order to enable
+them to make any query that they may have. Shareholders may send their enquiries to the Board directly through these
+means. Shareholders may also contact the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor
+Services Limited, if they have any enquiries about their shareholdings and entitlements to dividends.
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure the shareholders are familiar with the detailed procedures for conducting a poll,
+detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions from
+shareholders on the voting procedures will be answered before the poll voting starts. An external scrutineer will be appointed to
+monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock Exchange's website
+after each general meeting.
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the Company Secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and
+such meeting shall be held within two months after the deposit of such requisition.
+Corporate Governance Report
+Annual Report 2016
+83
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board and the senior management team. The Chairman, other members of the Board and relevant members of the
+senior management team, under normal circumstances, attend to answer questions raised and discuss matters in relation to
+the Company in an open manner. Save as Mr Li Dong Sheng, all directors attended the 2016 annual general meeting, with a
+view to understand the views of the Company's shareholders. The company secretary provided the minutes of 2016 annual
+general meeting to all directors to have a thorough understanding of the views of the Company's shareholders. The Company's
+external auditor will also attend the annual general meeting to answer questions relating to the conduct of the audit, the
+auditor's report and auditor independence. The Company's shareholders may also propose candidates for election as a director
+of the Company according to the procedures set out in the Company Website.
+The Company strives to provide ready, equal, regular and timely disclosure of information that is material to the investor
+community. Therefore, the Company works to maintain effective and on-going communication with shareholders so that
+they, along with prospective investors, can exercise their rights in an informed manner based on a good understanding of the
+Group's operations, businesses and financial information. The Company also encourages shareholders' active participation
+in annual general meetings and other general meetings or other proper means. As such, the Company sends notices to
+shareholders for annual general meetings at least 20 clear business days before the meeting and at least 10 clear business
+days for all other general meetings. In addition, the Company has developed and maintains the shareholders communication
+policy, which is available on the Company Website.
+SHAREHOLDERS
+In addition, the Board believes that the Company's accounting and financial reporting functions have been performed by
+staff of the appropriate qualifications and experience and that such staff receives appropriate and sufficient training and
+development. Based on the work report from the Audit Committee, the Board also believes that the Company's internal audit
+function is adequate with sufficient resources and budget. The relevant staff has appropriate qualifications and experience,
+and receives sufficient training and development.
+Governance policies and regulations risk
+Effectiveness of Risk Management and Internal Control
+Corporate Governance Report
+82
+In addition, the IC supervises the establishment of the risk management and internal control systems set up by management,
+ensure that management has implemented appropriate measures and report the general situation of risk management and
+internal control of the Company to the Audit Committee on a quarterly basis. The IA, serving as the independent third line of
+defence, conducts objective evaluation on the effectiveness of the Company's risk management and internal control systems
+and reports the results to the Audit Committee.
+5.
+4.
+Protecting user data is the top priority of the Company, and the Company is fully aware that any loss or leakage of
+sensitive user information could have a negative impact on affected users and the Company's reputation, even lead to
+potential legal action against the Company.
+Market competition and innovation risk
+1.
+Corporate Governance Report
+Environmental, Social and Governance Report
+Energy Saving Measures taken in our Data Centres
+We endeavour to fulfil our responsibility to protect the environment by applying innovative technology to our data centres.
+Our T-block west lab is the fourth generation of our data centres and it is the most innovative. It has adopted: (i) photovoltaic
++ HVDC technology for electrical design which offers a clean and effective energy source; (ii) indirect evaporative cooling units
+to cool down entire block modules; and (iii) machine-learning automated system which monitors the energy level for rack
+space and minimises the power usage effectiveness (the index of which is lower when it is more effective). These technologies
+tremendously improve the energy efficiency of the data centre. For example, our T-block west lab now only needs 70% of
+previously required energy for the same capability.
+In our Shanghai Qingpu CCHP (Combined Cooling Heating and Power) project, we have built a distributed power station that
+uses a natural gas generator and flue gas hot water type lithium bromide unit as the core component for electricity and cooling
+capability required by the data centre. The natural gas-fired distributed power system enables energy cascading. We use high-
+quality natural gas with high efficiency to generate high-quality electricity. Steam and condensation produced from the power
+generation are re-used for cooling. The overall energy utilisation can be increased by up to approximately 80%.
+For our Qingpu data centre, we have one of the largest photovoltaic grids used by a data centre in the PRC which provides
+100% clean energy. In phase one of the project, we have built 3,000 square metres of photovoltaic grid which produces
+300MWh electricity and reduces CO2 emission by 200 tonnes on an annual basis. The solar panel on the rooftop is also
+thermally insulated so it helps save energy in summer.
+WORKPLACE
+Employee Development and Training
+We have a well-established performance management system. A performance assessment for each employee is conducted by
+that employee's supervisor every six months and employees are required to work with their supervisors to set a performance
+target after each assessment. Supervisors are encouraged to provide constructive feedback from time to time to assist the
+personal growth of each employee.
+As employees are one of our most important assets, we have been investing heavily in employee development and training.
+In 2007, we founded our own corporate university, Tencent Academy. Throughout 2016, the number of the average in-house
+training hours per employee was 26.1 while the number of online trainings completed by our employees in total was 157,753.
+Tencent Academy offers different training programmes for each stage of an employee's career, including an induction, on-
+the-job training and leadership training. It has also set up an online learning platform and a mobile learning system in order
+to allow employees to learn anytime and anywhere. We also intend to open up our training resources to our business partners
+and industry players in order to enhance the market standard.
+89
+Annual Report 2016
+The Internet industry is highly competitive, innovative and ever-changing due to the relatively low entry barrier and
+evolving preferences of users. Therefore, one of the challenges of the Company is to attract new users while maintaining
+its existing market share. Absence of new technology and product innovation would impair the core competitiveness of
+the Company.
+The Company focuses on user experience by keeping track of the development of new technologies in a timely manner,
+capturing changes in user experience, and continuously developing products to meet the expectations of the market.
+In addition, as a proponent of "Internet+" and in order to foster its leading position in the industry, the Company has
+established a number of open platforms and strengthened its cooperation with business partners with the aim of
+enhancing mutual benefit to achieve the win-win objective.
+The Company not only encourages its employees to innovate, but also allocates considerable resources to the research
+and development of new technologies and the optimatisation of features as well as enhancement of user experience of
+products.
+2.
+Information security risk
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. We set out these
+information below which has not been covered above.
+Moreover, the Company has allocated delicated resources from IA and IC perspectives to support management of its
+controlling subsidiaries to continuously established sound risk management and internal control systems.
+The Company has also designated finance, legal and other relevant professional teams to support and monitor the
+performance of the investee companies. These teams periodically analyse and review relevant operating and financial
+information of the investee companies to ensure that they continue to satisfy the Company's investment strategies.
+Corporate Governance Report
+80
+80
+The Company is obliged to protect sensitive user information and as such, the Company strives to provide the highest
+level of protection to such data. In this regard, the Company has formulated policies and control measures to protect
+user data. Information security is ensured through effective management systems, encryption, access restrictions and
+process protocols. In addition, the Company performs review periodically and engages independent specialists to review
+the Company's data protection practices and provides training programmes to employees to enhance their awareness of
+information security.
+Tencent Holdings Limited
+The Company takes the management of investment risks seriously, and has, amongst other things, established an
+Investment Committee under the Board, dedicated an investment team to identify investment opportunities, appointed
+finance, legal and other relevant professional teams to manage relevant risks and put in place the investment risk
+evaluation and approval process.
+With the Company's increased investment activities, it is important for the Company to adopt robust procedures in the
+formulation of investment strategies and strong treasury management, both at the investment evaluation stage as well
+as the post-investment stage. Failure to promptly manage investment risks could hinder the realisation of investment
+strategies.
+Acquisition and investment management risk
+In order to mitigate this risk, the Company has backup infrastructure and a disaster recovery mechanism in place to
+support disaster recovery functions. In addition, the Company has established dedicated teams to develop business
+contingency plans and perform periodic drills on the plans to ensure its effectiveness. Various business departments
+are also engaged in emergency procedures, to ensure the smooth operation of the Company's businesses and business
+continuity.
+The stability of servers and network infrastructure for products and platforms of the Company is of vital importance for
+the successful operation of the Company's business as well as the provision of high quality user experience. Any material
+functional defect, interruption, breakdown or other issue in connection is likely to materially adversely impact the
+Company's businesses.
+3.
+Business continuity risk
+In addition, there is a designated professional team that regularly reviews the Company's cash position and, continuously
+expands financing channels and capabilities to meet the needs from the Company's business operations as well as
+acquisitions.
+Model Code for Securities Transactions by Directors of Listed Issuers
+84
+Appointment Terms of Non-Executive Directors
+Environment
+5.
+Contribute to the industry and continue to provide an open platform
+•
+. Promote innovation and the establishment of a legal framework to protect IP rights
+Establish a platform for charity donations
+Community
+Combat behaviours which are harmful to the interest of our partners by setting up an independent steering group
+on business ethics and anti-bribery practice
+Hold regular meetings with our partners to review their performance and explore possible collaboration
+opportunities
+Allow investee companies to maintain autonomy for their business development and meet them on a regular basis
+for exchange of industry knowledge and know-how
+Ensure our partners receive fair treatment and benefit from their collaboration with us
+•
+•
+Business partners (including suppliers and investee companies)
+Prioritise users' interests in business decision-making
+• Make protection of the environment one of our priorities
+Be honest to users and protect their interests
+Adopt a sustainable investment strategy
+Through this approach we are able to create a favourable environment that will enable us to provide quality services to Internet
+users and promote the positive development of wider society.
+88
+Tencent Holdings Limited
+We are also actively involved in the design of our new office building in Shenzhen and have taken energy saving considerations
+into account during the process.
+In addition, we have installed a direct drinking water system in our Shenzhen headquarter in replacement of bottled water. It
+reduces the use of plastic packaging materials and indirectly reduces the CO2 emissions generated from the delivery of bottled
+water. This effective energy saving measure will also be implemented in our offices in other PRC cities in the future.
+In order to reduce the energy consumption in our Shenzhen headquarter, we have optimised the air conditioning system,
+upgraded the building automation system, and installed equipment with new functions for better efficiency. These
+optimisations have enabled us to efficiently reduce energy consumption for the air conditioning system and for the whole
+building, and to reduce our CO2 emissions. This energy saving project has been certified by the China Academy of Building
+Research and accredited by Shenzhen local authority. We are among the first companies which were granted subsidies from
+the Ministry of Housing and Urban-Rural Development of the PRC for the energy saving efforts. The project has set a good
+precedent not only for our other office buildings but also for other office buildings in Shenzhen.
+Energy Saving Measures taken in our Office Buildings
+We recognise the importance of environmental protection and conservation of natural resources in our business operations.
+Starting from our office buildings in Shenzhen, we have implemented a number of energy-saving measures and we plan to
+adopt the same in our office spaces in other locations. We have also strived to build our data centres with environmental
+considerations as one of our key priorities.
+ENVIRONMENT
+Going forward, we will continue to enhance our corporate management system and integrate ESG considerations into our
+operations. We will closely cooperate with our stakeholders with the aim of creating a better future.
+"Internet+" has significant implications for our ESG initiatives. Important changes can be achieved through connecting millions
+of Internet users as well as developing their modes of communication and living, and creating more exciting opportunities for
+society. In addition, through the "smart living" system in QQ and Weixin/WeChat, people and public services can be digitally
+connected, facilitating developments in transport, healthcare, environmental protection, public safety and other social arenas.
+This is important for optimising the distribution of societal resources, driving innovation in public services, improving service
+quality, breaking down communication barriers and ultimately benefiting the wider community. We will leverage our core
+capability in the Internet, technology and communication spheres to develop innovative approaches to resolving social issues,
+promoting social development and protecting the interests of the public. We also aim to drive ESG awareness in society,
+through collaborating with our stakeholders and other industry players.
+Environmental, Social and Governance Report
+Annual Report 2016
+87
+Our ESG strategy requires the participation of all of our product lines and platforms, and participation from across the wider
+Internet industry. We will continue to place more emphasis on ESG, encouraging every individual, enterprise and organisation
+to take part in the implementation of our ESG strategy.
+Our ESG Direction
+Remain committed to environmental sustainability
+The Company has adopted the Model Code. The Company has also adopted an insider dealing policy for employees for
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exacting than those of the Model Code. The Company has made specific enquiries with the directors and
+the directors have confirmed they have complied with the Model Code throughout 2016.
+Consistently listen to the voices of our users, concurrently enhancing product and service quality
+.
+SCOPE OF THIS REPORT
+This report provides information on the Group's environmental, social and governance ("ESG") performance for the year of
+2016. It should be read in conjunction with this annual report, in particular the Corporate Governance Report contained in this
+annual report, as well as the sections headed "Corporate Governance" and "Culture" on the Company Website.
+OVERVIEW
+Environmental, Social and Governance Report
+Annual Report 2016
+85
+Under the framework, if an employee is aware of any project, transaction, information or situation which he thinks could
+potentially be inside information, he should contact the Head of Compliance, the General Counsel and the Company Secretary
+as soon as possible. Legal analysis and consultations with the Company's directors and senior executives will be made so as to
+identify whether any such information constitutes inside information and is required to be disclosed to the public pursuant to
+the SFO. The framework and its effectiveness are subject to review on a regular basis according to established procedures.
+Framework for Disclosure of Inside Information
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set
+out in the "Independent Auditor's Report" on pages 100 to 108. During the year ended 31 December 2016, the remuneration
+paid/payable to the Company's external auditor, PwC, was disclosed in Note 8 to the consolidated financial statements. The
+audit and audit-related services conducted by the external auditor mainly comprise of statutory audits and reviews for the
+Group, certain of its subsidiaries and acquired entities. The non-audit services conducted by the external auditor mainly
+include professional services on risk management and internal control review, mergers and acquisitions advisory and tax
+advisory.
+External Auditor and Auditor's Remuneration
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors
+and officers.
+Directors and Officers Liability Insurance
+Corporate Governance Report
+Tencent Holdings Limited
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his appointment.
+This report aims to provide a balanced representation of the Group's ESG performance in terms of environment, workplace,
+community, supply chain management and product responsibility. We will focus on each of these areas in turn in this report,
+in particular those economic, environmental and social issues that could have a material impact on the sustainability of our
+operations and that are of interest to stakeholders.
+•
+ESG STRATEGY, MANAGEMENT APPROACH, PRIORITIES AND OBJECTIVES
+At the heart of our ESG strategy is our vision to become the most respected Internet company. In pursuit of this vision, we
+embrace the principle of sustainability, uphold integrity and promote shared growth and development within the industry;
+environmental protection, staff development and community welfare are always at the forefront. We conduct and review our
+ESG strategy in five dimensions as detailed below.
+Users
+4.
+3.
+2.
+Environmental, Social and Governance Report
+86
+Tencent Holdings Limited
+Care for employees and provide them with training and development opportunities
+Establish a diverse corporate culture
+•
+• Operate with integrity and protect shareholders' interests
+Operate in compliance with applicable laws and regulations
+•
+Business operations
+1.
+Five Dimensions of our ESG Strategy
+We believe that it is important to formulate effective strategies to balance the economic, environmental and social benefits
+of our activities with our other business aims. We have fully integrated ESG considerations into our operations as part of our
+corporate development strategy, with a particular focus on fostering closer connections with our stakeholders, listening to the
+voices of our users, working openly with partners to overcome challenges, caring for and growing with employees, and taking
+on more responsibility within society.
+The Company has put in place a framework for the handling and disclosure of inside information in compliance with the SFO.
+The framework sets out the procedures and internal controls for the handling and dissemination of inside information in a
+timely manner so as to allow all the shareholders and stakeholders to assess the latest position of the Group.
+Annual Report 2017
+9
+Company Strategic Highlights
+50,035
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+2013
+RMB'Million
+As at 31 December
+2014
+2015
+2016
+RMB'Million RMB'Million RMB'Million
+33,267
+2017
+RMB'Million
+Assets
+Non-current assets
+Current assets
+Total assets
+53,549
+53,686
+65,126
+95,845
+75,321
+246,745
+376,226
+155,378
+149,154
+178,446
+107,235
+171,166
+306,818
+395,899
+554,672
+Equity and liabilities
+Equity attributable to equity holders of the Company
+57,945
+151,440
+45,420
+32,410
+24,737
+88,215
+Profit for the year
+15,563
+23,888
+29,108
+41,447
+72,471
+Profit attributable to equity holders of the Company
+15,502
+23,810
+28,806
+41,095
+71,510
+Total comprehensive income for the year
+18,376
+21,975
+44,723
+48,617
+79,061
+Total comprehensive income attributable
+to equity holders of the Company
+Non-GAAP profit attributable to
+equity holders of the Company*
+18,327
+21,891
+44,416
+48,194
+78,218
+17,008
+Non-controlling interests
+51,640
+518
+120,035
+Annual Report 2017
+3
+Chairman's Statement
+Ma Huateng
+Chairman
+I am pleased to present our annual report for the year ended 31 December 2017 to the shareholders.
+RESULTS
+Kejizhongyi Avenue
+The Group's non-GAAP profit attributable to equity holders of the Company for the year ended 31 December 2017 was
+RMB65,126 million, an increase of 43% compared with the results for the previous year. Non-GAAP basic and diluted EPS for
+the year ended 31 December 2017 were RMB6.920 and RMB6.830, respectively.
+4
+Tencent Holdings Limited
+BUSINESS REVIEW AND OUTLOOK
+1.
+Chairman's Statement
+Comparative figures have been restated retrospectively to conform with the presentation adopted in 2015, whereas, among others,
+we have extended the definition of non-GAAP adjustments to cover that of our material associates. We adopted the new presentation
+in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to be industry
+practice.
+In 2017, we fortified our "Connection" strategy by enriching our content and services, thus promoting interaction and
+sharing among our users in innovative ways.
+Weixin and WeChat: We further grew Weixin's and WeChat's user bases, such that their combined monthly active
+users exceeded 1 billion accounts after the Chinese New Year. Since the launch of Mini Programs in January
+2017, we have been enhancing Mini Programs' functionalities, in order to facilitate their discovery by users and
+the development process. Mini Programs connect users across a wide spectrum of online and offline services
+including retail, eCommerce, lifestyle services, municipal services and games. In particular, Mini Games (a subset
+of Mini Programs) received a warm user reception following their launch in December 2017, further driving wide
+adoption of Mini Programs among users. As of January 2018, 580,000 Mini Programs were launched with over
+170 million DAU.
+We continued to achieve solid growth across core business segments:
+Online games: We sustained another year of strong growth in both smart phone and PC games. On the mobile
+front, our in-house developed MOBA game, Honour of Kings, achieved mass adoption and became the most
+popular smart phone game in China in terms of DAU. It consistently ranked top in app stores' grossing charts for
+China. We achieved some initial success with the launch of its overseas version, Arena of Valor, in South East Asia.
+We further strengthened our leadership as the preferred publishing partner in China for domestic and international
+smart phone game developers. Successfully launching several licensed role playing games enhanced our presence
+in this high-revenue game genre. We also diversified our smart phone game portfolio by launching strategy and
+car-racing titles. On PC, we solidified our leading position in 2017 against a challenging market environment. We
+strengthened core user engagement by organizing eSports tournaments and live streaming activities. Through
+attaining the PC publishing rights and mobile development rights for the popular survival shooter game “PUBG” in
+China, we are well-positioned to develop this emerging category of games during 2018, as evidenced by the late-
+mover success of the mobile game PUBG: Exciting Battleground launched before Chinese New Year.
+Annual Report 2017
+5
+Chairman's Statement
+Digital content: Tencent Video achieved rapid growth in traffic and paying users driven by the popularity of our
+exclusive drama series, movies and self-commissioned content. We became the leading video streaming platform
+in China with over 137 million mobile DAU during the fourth quarter and 56 million subscriptions as of the end of
+2017. In November, we successfully listed our online literature business, China Literature, on the Main Board of
+The Stock Exchange of Hong Kong Limited. China Literature operates one of the largest and most diverse libraries
+of online literary content in China. We remain its controlling shareholder and will continue to leverage its rich and
+diverse content library for exploring adaptation into other media formats. Tencent Music operates the three most
+popular music apps in China by DAU, namely QQ Music, Kugou and WeSing. It increased subscription revenues
+and achieved robust virtual gifting sales. In the area of news feed content and short video, we upgraded Tencent
+Open Media Platform to centralize the content library and facilitate content curation for distribution across our
+news, browser and social properties.
+Advertising: For social and others advertising, we deployed our Al technology and data analysis capabilities to
+further strengthen the user targeting capabilities of our advertising platform, enabling our advertisers to achieve
+higher ROI and effectiveness. Catering to advertiser demand, we increased our ad load for Weixin Moments in
+certain first-tier cities and lowered the traffic threshold for advertisements in Weixin Official Accounts. The number
+of advertisers for social advertisements grew strongly, helped by our self-service platform and our partner platforms.
+For media advertising, the popularity of our original and licensed video content contributed to traffic growth, user
+engagement, and helped to attract more branding and sponsorship advertisements. We have completed the
+revamp of our news feed advertising system and started to resume monetization at the end of 2017. To facilitate
+effective placement by advertisers, we launched a unified advertising platform which integrated the advertising
+inventory of all our news feed products.
+Payment related services: We extended our leadership in mobile payment in terms of active user accounts and
+further increased our presence in commercial transactions. For social transactions, total transaction volume
+increased year-on-year and money transfers kept on growing while red envelope gifting volume decreased. For
+commercial transactions, our offline transaction volume more than doubled year-on-year. We deepened our
+relationships with key channel partners and empowered more small merchants with technologies to enhance their
+operational efficiency. Payment is also an important platform for upselling our Internet finance products. LiCaiTong,
+our wealth management platform, aggregated more than RMB300 billion assets under management as of the
+end of January 2018. WeBank achieved rapid growth in its unsecured consumer loan business, Weilidai, which
+managed outstanding loans of over RMB100 billion as of the end of 2017 while maintaining a low non-performing
+loan ratio. In October 2017, we attained an insurance distribution license in China and started to partner with
+insurance companies in offering customized insurance products.
+60
+Tencent Holdings Limited
+Chairman's Statement
+Cloud services: Tencent Cloud continued to grow rapidly during the year. We maintained our leading market
+position in cloud services verticals including online games and video cloud services. We deepened our penetration
+among the leading Internet industries with more key clients, and expanded our client base in cloud services for
+financial services and government sectors. Our sales, channel and big data capabilities enabled us to offer smart
+retail solutions targeted at supermarkets, department stores, and fast moving consumer goods companies.
+We are committed to investing in Artificial Intelligence (AI) and applying Al technologies to our existing products, such
+as performance advertising systems, content services and financial services. In addition to these core business use
+cases, we are deploying Al in new areas such as medical healthcare and translation. We launched an Al-empowered
+diagnostic medical imaging product called Al Medical Innovation System ("") which is now being deployed in
+close to 100 hospitals in China with accuracy rates of over 90% for diagnoses of esophageal cancer. Our Al Lab rolled
+out an Al-assisted translation software. In view of demand among traditional retailers to undergo digital transformation,
+we launched our smart retail strategy to empower offline retailers with our technological capabilities including payment,
+cloud, data analytics and Al technologies. We also provide traffic support to enable merchants access into our online
+user base. In addition, Weixin Official Accounts and Mini Programs can act as CRM systems for retailers to better
+connect with their customers.
+QQ: We focused on rolling out entertainment-oriented features which appealed to young users, driving their time
+spent on smart devices. Our KanDian news feed service targets the entertainment-oriented information needs of
+young users. We have strengthened KanDian's curation capability and recommendation algorithms to offer a more
+personalized news feed service and to enhance user stickiness. QQ released a series of Al-enabled features which
+encourage users to interact in rich media formats with entertaining tools, such as face swap effects and video chat
+filters.
+554,672
+395,899
+306,818
+174,624
+256,074
+2,065
+11,623
+21,019
+Total equity
+58,463
+82,124
+122,100
+186,247
+277,093
+Non-current liabilities
+15,505
+39,007
+60,312
+108,455
+125,839
+Current liabilities
+101,197
+151,740
+Total liabilities
+48,772
+89,042
+184,718
+209,652
+277,579
+Total equity and liabilities
+107,235
+171,166
+80,013
+2,111
+2.
+36,216
+19,281
+lain Ferguson Bruce (Chairman)
+AUDIT COMMITTEE
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Independent Non-Executive Directors
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+Non-Executive Directors
+Lau Chi Ping Martin
+Ma Huateng (Chairman)
+Executive Directors
+lan Charles Stone
+DIRECTORS
+00
+239 DEFINITION
+130 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+128 CONSOLIDATED STATEMENT OF CASH FLOWS
+126 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+123 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+122 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+121 CONSOLIDATED INCOME STATEMENT
+112 INDEPENDENT AUDITOR'S REPORT
+93 ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
+CORPORATE GOVERNANCE REPORT
+72
+DIRECTORS' REPORT
+Corporate Information
+Charles St Leger Searle
+Yang Siu Shun
+CORPORATE GOVERNANCE
+COMMITTEE
+Tencent Building
+TENCENT GROUP HEAD OFFICE
+Grand Cayman KY1-1111
+Cayman Islands
+Hutchins Drive, P.O. Box 2681
+Cricket Square
+REGISTERED OFFICE
+The Hongkong and Shanghai Banking
+Corporation Limited
+Bank of China Limited
+PRINCIPAL BANKERS
+Certified Public Accountants
+PricewaterhouseCoopers
+AUDITOR
+Li Dong Sheng
+Jacobus Petrus (Koos) Bekker
+lan Charles Stone (Chairman)
+REMUNERATION COMMITTEE
+Charles St Leger Searle
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Ma Huateng (Chairman)
+NOMINATION COMMITTEE
+Charles St Leger Searle
+Ma Huateng
+Lau Chi Ping Martin (Chairman)
+INVESTMENT COMMITTEE
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Charles St Leger Searle (Chairman)
+29
+29,013
+MANAGEMENT DISCUSSION AND ANALYSIS
+CHAIRMAN'S STATEMENT
+www.tencent.com
+STOCK CODE
+700
+2
+Tencent Holdings Limited
+Financial Summary
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+124,406
+Year ended 31 December
+2014
+2015
+2013
+2016
+RMB'Million
+RMB'Million RMB'Million
+COMPANY WEBSITE
+RMB'Million
+Revenues
+60,437
+78,932
+102,863
+151,938
+237,760
+Gross profit
+32,659
+48,059
+61,232
+84,499
+116,925
+Profit before income tax
+2017
+RMB'Million
+Wan Chai, Hong Kong
+183 Queen's Road East
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+4
+FINANCIAL SUMMARY
+3
+CORPORATE INFORMATION
+2
+CONTENTS
+Annual Report
+智慧溝通 靈感無限
+2017
+smart communication inspires
+(Stock Code 股份代號:700)
+於開曼群島註冊成立的有限公司
+騰訊控股有限公司
+Incorporated in the Cayman Islands with limited liability
+Tencent Holdings Limited
+Tencent 腾讯
+Shenzhen, 518057
+The PRC
+PRINCIPAL PLACE OF BUSINESS
+IN HONG KONG
+29/F., Three Pacific Place
+No. 1 Queen's Road East
+Wanchai
+Hong Kong
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+SMP Partners (Cayman) Limited
+Royal Bank House - 3rd Floor
+24 Shedden Road
+P.O. Box 1586
+Grand Cayman, KY1-1110
+Cayman Islands
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+Computershare Hong Kong Investor
+Services Limited
+12
+Company Financial Performance
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2017 was
+RMB71,510 million, an increase of 74% compared with the results for the previous year. Basic and diluted EPS for the year
+ended 31 December 2017 were RMB7.598 and RMB7.499, respectively.
+Hi-tech Park
+Nanshan District
+MAU of QQ
+783.4
+868.5
+-9.8%
+843.2
+-7.1%
+Smart device MAU of QQ¹
+(in millions, unless specified)
+683.0
+1.7%
+652.9
+4.6%
+PCU of QQ (for the quarter)
+270.8
+243.7
+11.1%
+671.6
+change
+2017
+change
+We achieved 56% year-on-year revenue growth. Smart phone games and PC games, payment related services, digital
+content subscriptions and sales, and social and video advertising were key contributors to the overall revenue growth.
+Operating profit grew by 61% year-on-year. Operating margin was 38%, up 1 percentage point from the previous year.
+Profit attributable to equity holders of the Company increased by 74% year-on-year. Non-GAAP profit attributable to
+equity holders of the Company increased by 43%. Free cash flow grew by 70%.
+Annual Report 2017
+7
+Chairman's Statement
+Operating Information
+As at
+As at
+Year-
+As at
+Quarter-
+31 December
+31 December
+on-year
+30 September
+on-quarter
+2017
+2016
+272.2
+-0.5%
+3. Company Business Highlights
+988.6
+125.3
+7.4%
+Social and Communication
+QQ: Smart device MAU was up by 1.7% year-on-year to 683.0 million while PCU, including PC and mobile,
+increased by 11.1% year-on-year to 270.8 million. Smart device MAU for users aged 21 years or below increased
+year-on-year and their time spent per user also increased, indicating higher stickiness among young users. We
+launched Al-enabled features designed to attract young users to create amusing photo-, audio- and video-based
+messages. During the Chinese New Year, we encouraged users to send short-form greeting videos for receiving red
+envelopes, and to personalize greetings with Chinese New Year-themed animation and background music.
+Qzone: Smart device MAU was down 9.1% year-on-year to 554.0 million. Campus Qzone further increased
+coverage in high schools and colleges.
+Weixin and WeChat: Combined MAU was 988.6 million, representing year-on-year growth of 11.2%. Following the
+Chinese New Year, the combined MAU exceeded 1 billion. We fine-tuned the Weixin user interface to enable more
+prominent featuring of Mini Programs. The launch of Mini Games in the end of 2017 gained widespread attention
+and accelerated adoption among users.
+1
+Since the first quarter of 2017, we have adjusted historical smart device QQ and Qzone MAU figures so as to include users who
+only participate in certain activities inside the QQ and Qzone applications, such as interest groups, listening to online music,
+or reading online literature. These changes had a relatively immaterial impact on the MAU count and growth rates, but we feel
+better reflect the broadening range of user activities within QQ.
+8
+Tencent Holdings Limited
+Chairman's Statement
+Online Games
+PC client games achieved approximately RMB12.8 billion revenues, representing 13% year-on-year revenue growth,
+mainly contributed by the increase in DnF and LoL. Active users declined due to the general user migration to mobile
+devices while revenues were impacted by reduced item-sales marketing in the fourth quarter of 2017. PC game
+revenues are likely to remain under pressure in future quarters impacted by the mobile shift. We will continue to develop
+the PC game franchise by enhancing our core users' engagement through organizing professional eSports tournaments,
+promoting breakout new games such as PUBG and Fortnite, and discovering innovative game titles such as Subnautica
+to strengthen our platform.
+Smart phone games achieved approximately RMB16.9 billion revenues, up 59% year-on-year. The number of active
+users remained healthy while ARPU was down quarter-on-quarter. Our shooter game CFM rolled out a survival mode
+which greatly expanded its user base but with no immediate monetization. Several RPG games entered into the post-
+launch user consolidation phase and their revenues reduced sequentially during the quarter. We have extended our
+leadership in smart phone games through the roll out of new game genres. We launched two PUBG mobile games -
+PUBG: Exciting Battleground, which has achieved by far the highest DAU within the survival shooter game genre, and
+PUBG: Full Ahead, which has attained solid DAU. Currently, we focus on user experience and are yet to monetize these
+games. In December, we launched QQ Speed Mobile, which achieved breakout success with over 20 million DAU and
+healthy monetization. Its successful launch illustrated our capability to create an original game IP, operate it successfully
+on PC, and then extend its success to mobile.
+Digital Content
+Total fee-based VAS subscriptions grew by 22% year-on-year to 135 million, primarily driven by video and music
+streaming services. Tencent Video became the leading online video platform in China in terms of mobile DAU and
+subscriptions. Our mobile video DAU increased by 44% year-on-year to 137 million during the fourth quarter of 2017
+and our subscriptions increased by 121% year-on-year to 56 million as of the end of 2017. Leveraging our diversified
+content strategy and proven operations expertise, we further grew our online video subscriptions to approximately 62.6
+million as of the end of February 2018. Our IP portfolio under China Literature and Tencent Games provides a rich
+source for adaptation of the quality content into video. We have accumulated an exclusive content library covering TV
+drama series, movies, variety shows, animation, documentaries and music programs. We are committed to investing in
+high quality content to solidify our position as the largest and most rapidly growing online video platform in China.
+Combined MAU of Weixin and WeChat
+22.1%
+110.2
+In fiscal year 2017
+Fee-based VAS registered subscriptions
+134.6
+11.2%
+0.9%
+MAU of Qzone
+563.3
+638.0
+-11.7%
+568.4
+980.0
+Smart device MAU of Qzone¹
+0.4%
+-0.9%
+551.8
+889.3
+609.4
+554.0
+-9.1%
+753,203.73
+0.15
+Running water consumption (tonnes)
+612,700.27
+5,261
+2.2 Data Centres
+Total energy consumption (MWh)
+Including: Diesel (MWh)
+Including: Electricity (MWh)
+Average PUE
+Running water consumption (tonnes)
+1,739.07
+Total energy consumption per floor area (MWh per square metre)
+Direct energy consumption (MWh)
+Indirect energy consumption (MWh)
+11,694.16
+Total energy consumption per employee (MWh per employee)
+2. Energy and resources consumption
+2.1 Office Buildings
+Total energy consumption (MWh)
+Direct energy consumption (MWh)
+Including: Petrol (MWh)
+Diesel (MWh)
+Natural gas (MWh)
+2.67
+Indirect energy consumption (MWh)
+113,510.48
+1,739.07
+779.92
+22.04
+10,892.20
+101,816.32
+101,816.32
+Including: Electricity (MWh)
+751,464.65
+3
+1.28-1.50
+WORKPLACE
+Employee Development and Training
+We have a well-established performance management system. A performance assessment for each employee is conducted by
+that employee's supervisor every six months and employees are required to work with their supervisors to set a performance
+target after each assessment. Supervisors are encouraged to provide constructive feedback from time to time to assist the
+personal growth of each employee.
+As our staff is one of our most important assets, we invest heavily in employee development and training. We encourage
+employees to attend external and internal trainings. We have adopted relevant policies to ensure that employee trainings are
+provided and managed in a systematic manner. For example, supervisors are required to assist in designing the professional
+development plans for the employees and evaluate the effectiveness of the trainings received by the employees. To ensure the
+quality of the trainings, we have also developed policies which set out requirements for the qualifications and experience of the
+instructors and the objectives of the programmes and worked with external educational institutions from time to time to jointly
+develop training programmes.
+In 2007, we founded our own corporate university, Tencent Academy. It offers different training programmes for each stage of
+an employee's career, including an induction, on-the-job training and leadership training. It has also set up an online learning
+platform and a mobile learning system in order to allow employees to learn anytime and anywhere. In 2016, we won the
+Innovation in Talent Development Award by the Association for Talent Development. We are the first Chinese enterprise which
+received such honour in that category.
+As at 31 December 2017, there were approximately 600 face-to-face courses, 5,000 online courses and over 1,000 internal
+part-time instructors. Over the past decade, we ran face-to-face courses over 8,000 times per year and over 1,000 courses
+were livestreamed per year. The aggregate number of training hours of our employees in the past 10 years exceeds 5 million.
+Throughout 2017, the number of the average in-house training hours per employee was 39 and the percentage of employees
+who received training is 99%.
+Data of packaging materials is not applicable to the Group.
+We also intend to open up our training resources to our business partners and industry players in order to enhance the market
+standard.
+99
+99
+Running water consumption per employee (tonnes per employee)
+14.43
+Environmental, Social and Governance Report
+Recycled water consumption (tonnes)
+Annual Report 2017
+Water fees in some data centres are borne by the operators so such running water consumption data not available. Data on
+running water consumption in our data centres reported here only covers the data centres whose water fees are borne by the
+Group.
+Average PUE (Power Usage Effectiveness) is yearly average data of PUE of the Group's data centres. PUE, an indicator of the
+power efficiency of a data centre, is the ratio of total amount of energy used by a data centre to the energy delivered to the
+computing equipment.
+8
+920,006
+Note:
+1
+Total energy consumption is worked out by the data of electricity and fuel with reference to the coefficients in the "General
+Principles for Calculation of the Comprehensive Energy Consumption (GB/T 2589-2008)" published by the General
+Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China, and the Standardization
+Administration of the People's Republic of China.
+2
+The Group's water resources come from municipal water supply.
+4
+5
+Recycled water consumption is the recycled domestic water treated by the waste water treatment system equipped at Tencent
+Tower A in Chengdu Province.
+Electricity fees in some data centres are borne by the operators so the relevant electricity consumption data is not available. The
+data on electricity purchased by our data centres reported here only covers the data centres whose electricity fees are borne by
+the Group.
+Fees for diesel in some data centres are borne by the operators so such diesel data is not available. Data on diesel consumed by
+our data centres reported here only covers the data centres whose diesel fees are borne by the Group.
+98
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+6
+751,464.65
+7
+90
+Non-hazardous waste produced by the Group's operation mainly includes domestic waste and waste electronic devices.
+Domestic waste, including office waste and kitchen waste, is disposed of by the property management company and kitchen
+waste recycling vendors, and its data is not yet available for statistics, so we made estimation with reference to “Handbook on
+Domestic Discharge Efficiencies for Towns in the First Nationwide Census on Contaminant Discharge" published by the State
+Council. Waste electronic devices are recycled by wasting recycling vendors.
+Annual Report 2017
+Establish a diverse corporate culture
+•
+Care for employees and provide them with training and development opportunities
+.
+Operate with integrity and protect shareholders' interests
+.
+Operate in compliance with applicable laws and regulations
+•
+Business operations
+1.
+Five Dimensions of our ESG Strategy
+At the heart of our ESG strategy is our vision to become the most respected Internet company. In pursuit of this vision, we
+embrace the principle of sustainability, uphold integrity and promote shared growth and development within the industry;
+environmental protection, staff development and community welfare are always at the forefront. We conduct and review our
+ESG strategy in five dimensions as detailed below.
+We believe that it is important to formulate effective strategies to balance the economic, environmental and social benefits of
+our activities with our other business targets. We have fully integrated ESG considerations into our operations as part of our
+corporate development strategy, with a particular focus on fostering closer connections with our stakeholders, listening to the
+voices of our users, working openly with partners to overcome challenges, caring for and growing with employees, and taking
+on more responsibility within society.
+ESG STRATEGY, MANAGEMENT APPROACH, PRIORITIES AND OBJECTIVES
+93
+This report aims to provide a balanced representation of the Group's ESG performance in terms of environment, workplace,
+community, supply chain management and product responsibility. We will focus on each of these areas in turn in this report,
+in particular those economic, environmental and social issues that could have a material impact on the sustainability of our
+operations and that are of interest to stakeholders.
+Environmental, Social and Governance Report
+3.
+Community
+Combat behaviours which are harmful to the interest of our partners by setting up an independent steering group
+on business ethics and anti-bribery practice
+.
+• Hold regular meetings with our partners to review their performance and explore possible collaboration
+opportunities
+Allow investee companies to maintain autonomy for their business development and meet them on a regular basis
+for exchange of industry knowledge and know-how
+Ensure our partners receive fair treatment and benefit from their collaboration with us
+•
+Business partners (including suppliers and investee companies)
+Prioritise users' interests in business decision-making
+Be honest to users and protect their interests
+Consistently listen to the voices of our users, concurrently enhancing product and service quality
+•
+Users
+5.
+4.
+2.
+.
+SCOPE OF THIS REPORT
+OVERVIEW
+DISCLOSURE OF OTHER INFORMATION
+Apart from participating in the Company's general meetings, the Company's shareholders are provided with contact details of
+the Company such as telephone number and email address which are available on the Company Website, in order to enable
+them to make any query that they may have. Shareholders may send their enquiries to the Board directly through these
+means. Shareholders may also contact the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor
+Services Limited, if they have any enquiries about their shareholdings and entitlements to dividends.
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure the shareholders are familiar with the detailed procedures for conducting a poll,
+detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions from
+shareholders on the voting procedures will be answered before the poll voting starts. An external scrutineer will be appointed to
+monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock Exchange's website
+after each general meeting.
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and
+such meeting shall be held within two months after the deposit of such requisition.
+Corporate Governance Report
+Tencent Holdings Limited
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board and the senior management team. The Chairman, other members of the Board and relevant members of the
+senior management team, under normal circumstances, attend to answer questions raised and discuss matters in relation to
+the Company in an open manner. Save as Mr Li Dong Sheng, all directors attended the 2017 annual general meeting and the
+extraordinary general meeting held on 17 May 2017, with a view to understanding the views of the Company's shareholders.
+The company secretary provided the minutes of 2017 annual general meeting and the aforesaid extraordinary general meeting
+to all directors to have a thorough understanding of the views of the Company's shareholders. The Company's external auditor
+will also attend the annual general meeting to answer questions relating to the conduct of the audit, the auditor's report and
+auditor independence. The Company's shareholders may also propose candidates for election as a director of the Company
+according to the procedures set out in the Company Website.
+The Company strives to provide ready, equal, regular and timely disclosure of information that is material to the investor
+community. Therefore, the Company works to maintain effective and on-going communication with shareholders so that
+they, along with prospective investors, can exercise their rights in an informed manner based on a good understanding of the
+Group's operations, businesses and financial information. The Company also encourages shareholders' active participation
+in annual general meetings and other general meetings or other proper means. As such, the Company sends notices to
+shareholders for annual general meetings at least 20 clear business days before the meeting and at least 10 clear business
+days for all other general meetings. In addition, the Company has developed and maintains the shareholders communication
+policy, which is available on the Company Website.
+SHAREHOLDERS
+In addition, the Board believes that the Company's accounting and financial reporting functions have been performed by
+staff of the appropriate qualifications and experience and that such staff receives appropriate and sufficient training and
+development. Based on the audit report of the Audit Committee, the Board also believes that sufficient resources have been
+obtained for the Company's internal audit function and that its staff qualifications and experience, training programmes and
+budgets are sufficient.
+The review process comprises, among other things, of meetings with management of business groups, IA, IC, legal, and the
+external auditor, reviewing the relevant work reports and information of key performance indicators, the management self-
+assessment on internal control as detailed above and discussing the major risks with the senior management of the Company.
+The Board is of the view that throughout the year ended 31 December 2017, the risk management and internal control
+systems of the Company are effective and adequate.
+The Audit Committee, on behalf of the Board, continuously reviews the risk management and internal control systems.
+Effectiveness of Risk Management and Internal Control
+Corporate Governance Report
+90
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. We set out these
+information below which has not been covered above.
+This report provides information on the Group's environmental, social and governance ("ESG") performance for the year of
+2017. It should be read in conjunction with this annual report, in particular the Corporate Governance Report contained in this
+annual report, as well as the sections headed "Corporate Governance" and "Culture" on the Company Website.
+Model Code for Securities Transactions by Directors of Listed Issuers
+Appointment Terms of Non-Executive Directors
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+92
+42
+Under the framework, if an employee is aware of any project, transaction, information or situation which he thinks could
+potentially be inside information, he should contact the Head of Compliance, the General Counsel and the Company Secretary
+as soon as possible. Legal analysis and consultations with the Company's directors and senior executives will be made so as to
+identify whether any such information constitutes inside information and is required to be disclosed to the public pursuant to
+the SFO. The framework and its effectiveness are subject to review on a regular basis according to established procedures.
+The Company has put in place a framework for the handling and disclosure of inside information in compliance with the SFO.
+The framework sets out the procedures and internal controls for the handling and dissemination of inside information in a
+timely manner so as to allow all the shareholders and stakeholders to assess the latest position of the Group.
+Framework for Disclosure of Inside Information
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set
+out in the "Independent Auditor's Report" on pages 112 to 120. During the year ended 31 December 2017, the remuneration
+paid/payable to the Company's external auditor, PwC, was disclosed in Note 8 to the consolidated financial statements. The
+audit and audit-related services conducted by the external auditor mainly comprise of statutory audits and reviews for the
+Group and certain of its subsidiaries. The amounts of audit and audit-related services for the year ended 31 December 2017
+also included the services fees in connection with the initial public offering of a subsidiary of the Company. The non-audit
+services conducted by the external auditor mainly include professional services on risk management and internal control
+review, mergers and acquisitions advisory and tax advisory.
+External Auditor and Auditor's Remuneration
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors
+and officers.
+Directors and Officers Liability Insurance
+Corporate Governance Report
+91
+Annual Report 2017
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his appointment.
+The Company has adopted the Model Code. The Company has also adopted an insider dealing policy for employees for
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exacting than those of the Model Code. The Company has made specific enquiries with the directors and
+the directors have confirmed they have complied with the Model Code throughout 2017.
+•
+Establish a platform for charity donations
+Promote innovation and the establishment of a legal framework to protect IP rights
+190.92
+2,783.79
+576,659.99
+Non-hazardous waste per employee (tonnes per employee)
+Non-hazardous waste (tonnes)
+Hazardous waste per employee (tonnes per employee)
+Hazardous waste (tonnes)
+Total GHG emissions in the office buildings per floor area (tonnes per square metre)
+Total GHG emissions in the office buildings per employee (tonnes per employee)
+Including: Electricity (tonnes)
+Indirect GHG emissions (Scope 2) (tonnes)
+Natural gas (tonnes)
+Diesel (tonnes)
+Including: Gasoline (tonnes)
+Direct GHG emissions (Scope 1) (tonnes)
+463.05
+Total GHG emissions (Scopes 1 and 2) (tonnes)
+2,129.82
+573,876.20
+Hazardous waste produced by the Group's operation mainly includes waste toner cartridge and waste ink cartridge from printing
+equipment at office buildings, as well as waste lead-acid accumulators at data centres. Waste toner cartridge and waste ink
+cartridge are collected and disposed of by printing suppliers, whereas lead-acid accumulators are disposed of by qualified waste
+recycling vendors. In 2017, there was no waste lead-acid accumulators.
+5
+4
+Diesel was consumed for backup generators.
+3
+The Group's GHG inventory includes carbon dioxide, methane and nitrous oxide. GHG emissions data is presented in carbon
+dioxide equivalent and is based on the "2015 Baseline Emission Factors for Regional Power Grids in China" issued by the
+National Development and Reform Commission of China, and the "2006 IPCC Guidelines for National Greenhouse Gas
+Inventories" issued by the Intergovernmental Panel on Climate Change (IPCC).
+Due to its business nature, the significant air emissions of the Group are GHG emissions, arising mainly from electricity and fuels
+derived from fossil fuels.
+2
+1
+Note:
+3,954.46
+0.09
+0.00005
+2.21
+0.09
+1.63
+573,876.20
+Environmental, Social and Governance Report
+1. Emissions
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+94
+Our ESG strategy requires the participation of all of our product lines and platforms, and participation from across the
+wider Internet industry. We will continue to place more emphasis on ESG, and encourage every individual, enterprise and
+organisation to take part in the implementation of our ESG strategy.
+Our ESG Direction
+We understand the importance of the feedback from our stakeholders (including our users, investors, employees and business
+partners) on our ESG performance. Therefore, we have an effective communication channel with our stakeholders, which
+includes conducting an employee satisfaction survey annually and user experience research, engaging in constant discussion
+with our users directly before and after the launch of our products and services, and sharing our ESG strategies with our
+business partners.
+Stakeholder analysis
+Through this approach we are able to create a favourable environment that will enable us to provide quality services to Internet
+users and promote the positive development of wider society.
+• Remain committed to environmental sustainability
+Adopt a sustainable investment strategy
+•
+Make protection of the environment one of our priorities
+•
+Environment
+Contribute to the industry and continue to provide an open platform
+"Internet+" has significant implications for our ESG initiatives. Important changes can be achieved through connecting millions
+of Internet users as well as developing their modes of communication and living, and creating more exciting opportunities
+for society. In addition, through the "smart living" system in QQ and Weixin/WeChat, people and public services can be
+digitally connected, which in effect facilitate developments in transport, healthcare, environmental protection, public safety
+and other social arenas. This is important for optimising the distribution of societal resources, driving innovation in public
+services, improving service quality, breaking down communication barriers and ultimately benefiting the wider community.
+We will leverage our core capability in the Internet, technology and communication spheres to develop innovative approaches
+to resolving social issues, promoting social development and protecting the interests of the public. We also aim to drive ESG
+awareness in society, through collaborating with our stakeholders and other industry players.
+Going forward, we will continue to enhance our corporate management system and integrate ESG considerations into our
+operations. We will closely cooperate with our stakeholders with the aim of creating a better future.
+ENVIRONMENT
+We recognise the importance of environmental protection and conservation of natural resources in our business operations.
+Starting from our office buildings in Shenzhen, we have implemented a number of energy-saving measures and we plan to
+adopt the same in our office spaces in other locations. We have also strived to build our data centres with environmental
+considerations as one of our key priorities.
+96
+Below are the environmental key performance indicators of the Group. Unless otherwise specified, such data covers the
+Group's operation in China only; the data in relation to our office buildings excludes the data of Tencent Binhai Building which
+has only commenced partial operation since the last quarter of 2017 and the data in relation to our data centres only covers
+the main data centres which were built in the past three years.
+Table of Environmental Key Performance Indicators
+We have shared our experience and technology in building green data centres with other industry players so that HVDC, micro
+module and indirect evaporative cooling technologies have been widely adopted in the PRC data centre business. We have
+also helped to establish the industry standards for HVDC and micro module technologies in order to enhance energy saving
+efforts among the industry players.
+Our data centres are one of the first in the industry to use the combined cooling heating and power system and photovoltaic
+technology to generate clean energy. In addition, we are building an advanced data centre with a high level of privacy, defence
+and security in Gui'an in the PRC, which will serve as a highly reliable and environmentally friendly data centre for our Group
+and our eco-friendly business partners. In the Gui'an data centre, we will apply our self-developed T-block technology and
+leverage on the local climate and landscape to build a technologically advanced and energy efficient data centre with an
+innovative approach.
+T-block technology (comprising (i) photovoltaic + High Voltage Direct Current ("HVDC") technology for electrical design; (ii)
+indirect evaporative cooling units; (iii) smart control system; and (iv) fully commercialised project delivery solution) has been
+used in the fourth generation of our data centres, including the new data centre in Guangming, Shenzhen. Our PRC data
+centres are in the leading position in terms of power usage effectiveness in the PRC industry. According to a press release
+published by the Ministry of Industry and Information Technology of the PRC in April 2017, the power usage effectiveness of
+newly built big data centres in the PRC should be below 1.5 on average while that of our recently built Shenzhen data centre
+(which is located in a low-altitude climate zone) was below 1.25.
+We endeavour to fulfil our responsibility to protect the environment by applying innovative technology to our data centres and
+be the exemplar of green data centres in the PRC industry.
+Annual Report 2017
+Energy Saving Measures taken in our Data Centres
+Environmental, Social and Governance Report
+95
+Annual Report 2017
+Our new office building has adopted a centralised system to collect, purify and recycle rainwater and condensed water from
+the air conditioning system for the purposes of flushing, watering plants and cleaning the parking lot. In addition, we have
+installed a direct drinking water system in replacement of bottled water. It reduces the use of plastic packaging materials and
+indirectly reduces the CO2 emissions generated from the delivery of bottled water.
+We have optimised the air conditioning system and the integrated building management system in order to automate the
+energy saving and monitoring process. The air conditioning system uses pumps controlled by frequency-conversion technology
+for the enhancement of energy efficiency. We have also reduced energy consumption of the air conditioning system by partially
+deploying natural ventilation in autumn and winter.
+We have taken environmental protection as one of our priorities when designing our new office building, Tencent Binhai
+Building, in Shenzhen. The construction has been completed in accordance with LEED-EB standards. The property
+management company of the Shenzhen headquarters has obtained ISO 14001 (environmental management) certification,
+ISO 9001 (quality management) certification and GB/T 23331 (energy management system) certification. We have also
+implemented various measures to enhance efficiency of energy use and reduce water consumption and emissions.
+Energy Saving Measures taken in our New Office Building
+We monitor the levels of air pollutants such as PM2.5, PM10, carbon dioxide, carbon monoxide, sulfur dioxide, nitro dioxide
+inside and outside our office building with an online monitoring system and display the data on a real-time basis. To ensure
+the air quality in the building, we have installed induced ventilation system (which regulates the ventilation automatically in
+response to the level of carbon monoxide) in the underground parking garage and fresh air ventilation system (which regulates
+the ventilation automatically in response to the level of carbon dioxide) in the office area. We have upgraded the kitchen
+ventilation units in the kitchens in our office building. The units comprise fire-resistant environmental friendly exhaust hoods to
+remove oil and purify air with photolysis purification function and the activated carbon filter and air ioniser to neutralise odors.
+The emission of cooking fumes is in compliance with the PRC national standards GB18483-2001.
+97
+We have a designated team in charge of the physical and mental health of employees. We arrange annual medical checkups
+for employees and organise health seminars, fitness sessions, on-site medical consultations as well as face-to-face and
+telephone counselling from time to time.
+Equal Opportunities and Diversity
+The procurement department looks for qualified suppliers in the market and conducts standard or simplified verification on the
+suppliers depending on the duration of the cooperation, the order volume and the nature of the request. We have maintained a
+database of qualified suppliers which are ready to take orders from us.
+During the year ended 31 December 2017, all suppliers which were formally engaged had completed the Self-Assessment and
+signed the Anti-commercial Bribery Declaration. We are not aware of any of our suppliers engaging in commercial bribery, or
+being materially and adversely affected by issues relating to environmental and social responsibility.
+In the course of supplier engagement, potential suppliers are required to conduct self-assessment on their commitment,
+amongst other things, to environmental protection, social responsibility, and health and safety at work (the "Self-Assessment").
+Suppliers which are formally engaged by us are also required to agree to the terms of a declaration and undertaking in relation
+to anti-commercial bribery in doing business with our Group (the "Anti-commercial Bribery Declaration").
+To enhance the social responsibility awareness of our employees, we have formulated a code of conduct which those
+employees engaging in procurement activities must adhere to. To minimise the ethics risks, such employees are also required
+to declare any relationship they may have with our suppliers in writing.
+Our supply chain management programme attaches supreme importance to managing the ethics risk associated with the
+relationship between our procurement employees and our business partners. It also focuses on teaching those employees who
+are involved in procurement to recognise and mitigate the inherent risks.
+SUPPLY CHAIN MANAGEMENT
+We have further improved the anti-money laundering compliance and internal risk control mechanisms by: (i) recruiting more
+anti-money laundering professionals for suspicious transaction review and analysis in order to enhance the effectiveness and
+specialisation level of anti-money laundering; (ii) strengthening the requirements for the know-your-customer procedures;
+(iii) enhancing the overall monitoring system of suspicious transaction and manual analysis; (iv) cooperating with regulators
+and law enforcement bodies on anti-money laundering investigation; (v) actively participating in the strike on terrorism and
+corruption internationally, in order to prevent money laundering and upstream criminal activities; and (vi) carrying out various
+forms of training, education and public relation activities on anti-money laundering.
+Other control measures
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+106
+Anti-money laundering and internal control systems
+The Group has implemented a three-line defence mechanism. Our first line of defence is the product team and the
+business development team, which are responsible for enhancing the awareness of anti-money laundering requirements
+and implementing anti-money laundering measures. The risk management team and anti-money laundering team serve as
+the second line and they are responsible for organising and coordinating the anti-money laundering efforts within the Group
+including but not limited to conducting assessments on the anti-money laundering governance and compliance, supervising
+the construction of the anti-money laundering compliance framework and organising trainings and public relations events
+relating to anti-money laundering. The internal audit team acts as the third line of defence and its main responsibilities include
+conducting the annual anti-money laundering audit and independent assessment on anti-money laundering governance.
+Three lines of defence
+Our protective measures include, but are not limited to, the following:
+We continued to improve our anti-money laundering and counter-terrorist financing systems in various aspects such as
+infrastructure, know-your-customer process, procedures for identification and reporting of suspicious transactions and training.
+We have robust systems and measures to detect, deter and protect our business from involvement in financial crimes such as
+money laundering and terrorist financing.
+In 2017, we established an Anti-Money Laundering Committee (the "AML Committee”) chaired by our executive director and
+President, Mr. Lau Chi Ping Martin, with heads of each relevant business group as committee members. The AML Committee
+supervises and monitors the implementation of the anti-money laundering and counter-terrorist financing measures at the
+group level and at the subsidiary level with a unified approach. The objective is to centralise the management of the anti-
+money laundering efforts within the Group.
+The Group strictly abides by all applicable laws and regulations on anti-money laundering and counter-terrorist financing, and
+fulfills its social responsibilities and legal obligations on anti-money laundering.
+Anti-Money Laundering
+Environmental, Social and Governance Report
+105
+Annual Report 2017
+When a report of suspected fraudulent activities is received, the anti-fraud investigation team, which consists of professionals
+with profound knowledge in fraud risk management and solid fraud investigation experiences, is assigned to handle the
+investigation independently. After an investigation has been completed, the employee found and proven to have committed
+such fraud shall be subject to immediate dismissal, and corrective actions shall be taken in response to the findings at the
+same time. If we find any supplier or business partner engaging in corruption or any other fraudulent activities, we will put
+any supplier or business partner on the blacklist and terminate the contracts with them immediately. In the event that any
+fraudulent activity violates any relevant laws or regulations, such cases shall be reported to government authorities. In order to
+convey a message regarding our determination to fight against fraud and to introduce our whistleblowing system externally, we
+send a letter to our suppliers and business partners (including the current ones and the ones who ceased to work with us in
+the past two years) and request them to complete a questionnaire annually.
+Fraud detection and corruption prevention
+We have adopted an Anti-fraud and Whistleblowing Policy (the "Whistleblowing Policy"), which clearly conveys the message
+of zero tolerance in relation to fraudulent activity to all the employees and suppliers/business partners. All employees and
+suppliers/business partners are encouraged to report genuine concerns about any potential fraudulent activities. The
+Whistleblowing Policy outlines the multiple whistleblowing channels and how the Group should deal with such concerns,
+so that employees and suppliers/business partners can report their good faith concerns without fear of reprisal or potential
+retaliation.
+Anti-fraud and Whistleblowing Policy
+All employees of the entire Group are required to follow and to strictly comply with the Tencent Sunshine Code of Conduct (the
+"Sunshine Code"). It expressly prohibits all kinds of fraudulent activity, bribery, extortion and any other activities which are
+not in compliance with applicable laws and regulations. The Sunshine Code will be reviewed annually against the changing
+needs of the Group and revised when appropriate, in order to ensure that it reflects the positions under applicable laws and
+regulations and captures all kinds of fraudulent activities. To ensure our employees comply with the requirements and ethical
+standards stipulated in the Sunshine Code, all employees are required to complete e-learning programmes and attend various
+face-to-face training programmes with a view to understanding and refreshing the rules and standards of the Sunshine Code
+on a regular basis. For positions with high bribery risk, those employees are required to attend face-to-face training course at
+least once a year.
+Tencent Sunshine Code of Conduct
+Environmental, Social and Governance Report
+We have an internal policy which sets out the procedures for supplier onboarding. Before engaging a supplier, we will form
+a supplier assessment team to conduct the background check (including site visit) on the supplier. The team will consist of
+members from the procurement department, the requesting department, the technology department (if applicable) and the risk
+management department. The assessment results will be reported to the procurement department for a final determination.
+We normally ask for price quotations from at least three vendors. Other factors including delivery time and technical capabilities
+of the vendors will be taken into consideration when selecting vendors. If there is only one vendor available for selection as it
+dominates the relevant market or it is the only vendor with access to the required goods/services, the exclusive procurement
+arrangement with such vendor will require special approval with a satisfactory justification provided by the technology
+department or the requesting department.
+Tencent Holdings Limited
+Annual Report 2017
+Environmental, Social and Governance Report
+109
+Annual Report 2017
+The laws, regulations and policies relating to online gaming mainly include: (i) "The Regulation on Internet Information Service
+of the People's Republic of China" promulgated by the State Council; (ii) "The Provisions on the Administration of Online
+Publishing Services” promulgated by the former State Administration of Press, Publication, Radio, Film and Television and the
+Ministry of Industry and Information Technology; and (iii) "The Interim Provisions on the Administration of Internet Culture",
+"The Interim Measures for the Administration of Online Games" and "The Notice on Regulating Online Game Operation and
+Strengthening Concurrent and Ex-Post Supervisions" promulgated by the former Ministry of Culture. The aims of such laws
+include the regulation of the qualifications of operating entities of online games, the regulation of the content of online games,
+the protection for the physical and mental health of online game users and adolescents and the privacy protection of the
+personal data of users.
+The authorities in the PRC which regulate online gaming mainly include: (i) the General Administration of Press and
+Publication; (ii) the Ministry of Culture and Tourism; (iii) the Ministry of Industry and Information Technology; and (iv) the State
+Administration for Market Supervision.
+One of our important businesses is our online gaming business. We need to comply with the laws, regulations and policy
+requirements in relation to online gaming in the PRC.
+Healthy Environment for our Users
+We have a designated team of staff who is responsible for handling complaints from customers who visit our offices and
+for better risk control we have designed a set of protocols for different types of incidents.
+We have strengthened our system infrastructure which allows classification of complaints by urgency and risk level so
+that the customer service staff can better prioritise the cases and deal with the complaints in a timely manner.
+For better user experience, we have established a set of complaint handling procedures which set out clearly the
+responsibilities within the customer service department and the timeframe within which a complaint needs to be
+resolved.
+There is a designated team within the customer service department to handle complaints and deal with compensation
+requests. The team is responsible for conducting investigation based on the information provided by the complainant,
+explaining the relevant procedures to the complainant and notifying the complainant of the investigation results with the
+aim of providing him with a satisfactory solution.
+4.
+3.
+2.
+1.
+We have established the following management system to handle complaints from our customers effectively:
+The Tencent Customer Service Centre consists of more than 2,000 staff members and is responsible for handling complaints
+and responding to enquiries from customers for our businesses. We commit to providing solutions to our customers in a timely
+manner through different means including customer service hotline, online customer support, Weixin/WeChat and face-to-face
+meeting.
+Customer Service
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+108
+We actively participate in shaping the development of the industry framework on privacy protection. For example, we have
+been accredited with privacy certifications from TrustArc for WeChat, which is the leading global data privacy management
+company and powers trust in the data economy by certifying businesses', compliance and security level for their customer
+data collection and usage across web, mobile, cloud and advertising channels. The privacy policy of Weixin has been approved
+in the joint review by the Cyberspace Administration of China, the Ministry of Industry and Information Technology of the PRC,
+the Ministry of Public Security of the PRC and the Standardisation Administration of the PRC. Our data security management
+has been internationally recognised - For example, Tencent Cloud have been ISO27001 (information security management),
+ISO22301 (business continuity) and ISO20000 (service management system) certified.
+To ensure that our users understand how we protect their personal information and enhance the transparency of how we
+collect and process the data, we publish our privacy protection policies on our product websites and in-app products. We also
+provide communication channels for our users to file complaints and raise enquiries whenever they are in doubt.
+We provide training to our employees to enhance their privacy protection awareness and build up the cultural awareness of the
+importance of privacy protection.
+We have a dedicated privacy team within the Legal Department which is responsible for handling data protection matters.
+We have devised specific procedures to collect and process user data to ensure that we provide our products and services in
+accordance with applicable legal requirements. We evaluate specific products from the perspective of privacy protection on
+a regular basis and perform privacy risk assessments before the launch of new products to ensure that our products are not
+exposed to the risk of privacy infringement or leakage of user data.
+To uphold our dedication to value creation for our users, amongst other user specific aims, one of our important missions is to
+protect the privacy of user data and other sensitive information. We comply with all the applicable laws on privacy protection,
+and incorporate applicable legal and regulatory requirements on privacy protection into our internal compliance policies taking
+into account the specific features of our products and services.
+User Privacy
+We strive to provide the best user experience and pay high attention to the quality of our products and services. We conduct
+strict reviews of our product and service offerings and related sales, marketing and advertising strategies and materials to
+ensure their compliance with applicable laws and regulations. We also build in safeguards on user privacy, product safety and
+IP rights as described below.
+PRODUCT RESPONSIBILITY
+We evaluate the performance of our suppliers from time to time and take appropriate steps to address any issues with the
+quality of the suppliers as part of our supply chain management. For suppliers with unsatisfactory performance, subject to the
+applicable contractual arrangements, we may (i) discuss with them on the remedial steps to be taken by them; (ii) suspend the
+cooperation; (iii) reduce the order volume; (iv) impose penalties; or (v) suspend payment. The procurement department may
+disqualify a supplier for the following events: (i) we suffer from material economic losses as a result of the delayed delivery,
+quality issue or breach of contract by the supplier; (ii) the supplier has received the lowest rating in the rating scale for two
+consecutive quarters; and (iii) the supplier has in serious breach of business ethnics.
+107
+Environmental, Social and Governance Report
+00
+In 2016, we updated the Risk Management and Internal Control Policy (the "Policy") with a system comprising three lines of
+defence. The first line is business and functional departments. The risk management and internal control department serves
+as the second line while the internal audit department and anti-fraud team act as the third line of defence. The Policy sets out
+the roles and responsibilities of different stakeholders in risk management and controls (including those in relation to frauds).
+It is emphasized in the Policy that the management of each business group is primarily responsible for the risk management
+and internal controls of its department. If any fraudulent activity is detected, the management of the relevant department
+shall improve the control procedures promptly to prevent recurrence of similar incidents. The management may be subject to
+disciplinary actions if a fraudulent act occurs as a result of management's failure to implement any internal control measures.
+Each business group has its designated team to provide internal control and risk management support. We apply continuous
+auditing to key businesses in order to detect irregularities and identify risks in a timely and systematic manner and to improve
+the effectiveness of fraud risk management and control.
+COMMUNITY
+Environmental, Social and Governance Report
+101
+Annual Report 2017
+We strive to create a casual yet sophisticated communication channel with customised content for our employees. There
+are annual rallies for employees and management, face-to-face discussion forums, featured magazines and social media
+platforms. The corporate strategy and culture are communicated and reinforced through these products and communication
+channels.
+Communication
+Our contribution to social insurance in the PRC is in compliance with applicable laws and regulations and we offer various
+supplemental insurance benefits to employees and their families (including medical insurance, critical illness insurance,
+accident insurance and life insurance).
+We strive to provide a safe and comfortable work environment for our employees. There are well-established security and fire
+service systems and food safety monitoring system.
+Occupational Health and Safety
+We also organise a wide variety of recreational and leisure activities (e.g. running, photography, music, dance, language
+classes) for employees.
+We have implemented various initiatives such as flexi-time arrangements and volunteer service leave to help employees strike
+a good work-life balance. The leave scheme allows employees to enjoy annual leave, fully-paid sick leave, half-paid leave of
+absence and fully-paid special Chinese New Year leave which are above the statutory standard. Also, female employees are
+entitled to take fully-paid maternity leave, while male employees are also entitled to take fully-paid paternity leave. Employees
+can also apply for one day of fully-paid volunteer service leave per year.
+Work-Life Balance
+We value our relationship with our employees and handle employee departure (whether by resignation or dismissal) strictly
+in accordance with applicable laws and regulations. We arrange an exit interview with each of the departing employees to
+understand the reasons for his/her departure and welcome any suggestions for improvement.
+All of our employees enter into written employment contracts which detail, among other things, the grounds for termination of
+the employment.
+Employee Departure
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+100
+Employees may apply for promotion during their interim and year-end performance reviews, provided that they satisfy the
+requirements with regards to the length of service and performance. Depending on the practice area, the promotion will be
+reviewed and considered by different internal committees. The promotion review process is fair and open there is a formal
+channel for our employees to provide and receive feedback. The promotion review is conducted in compliance with applicable
+laws and regulations.
+-
+Promotion
+We care for the well-being of our employees. For example, we celebrate special occasions of our employees (e.g. anniversary
+of joining us, wedding and festivities) by giving them different employee benefits. We strive to create work-life balance and a
+safe and comfortable work environment for employees. Employees have the flexibility to choose the most suitable insurance
+plans for themselves and their families.
+We were awarded by Universum as the most attractive employer in the Internet industry in 2015. We have also been voted as
+one of the best employers in the PRC for 12 consecutive years since 2006 in a survey jointly conducted by zhaopin.com and
+the Institute of Social Science Survey, Peking University.
+The basic benefits system was built and is maintained in accordance with relevant laws, regulations and market practice. In
+addition, certain special benefits are created to motivate employees and implement our strategy.
+Benefits
+We offer competitive pay and employee benefits to attract and retain talent. The remuneration and bonus system is
+performance-based and designed to reward employees with high performance and great potential.
+Compensation
+The recruitment process strictly abides by the guidelines of the Group's Human Resource Department. Every job applicant is
+required to provide information on his/her education background, qualification and job experience in a recruitment questionnaire,
+which is reviewed by Human Resource Department and verified by professional background check agency. This allows the Group to
+hire suitable candidate in accordance with the job requirements and, to the extent possible, avoid child and forced labour.
+Compensation and Benefits
+We had 44,796 employees as at 31 December 2017. Our employment practice is in compliance with applicable laws and
+regulations (including but not limited to those which prohibit child and forced labour) and does not discriminate on the
+grounds of gender, ethnicity, race, disability, age, religious belief, sexual orientation or family status. Diversity is well supported
+in our corporate culture.
+Community Investment
+104
+We set up the Tencent Charity Foundation (the "Tencent Foundation") on 26 June 2007. It is a non-public fundraising
+foundation incorporated in the PRC and a separate legal entity. We commit to donating certain portion of our profits to the
+Tencent Foundation every year for the purpose of supporting charitable works. As of 31 December 2017, our Group and
+our employees donated over RMB2.72 billion and RMB67 million in total to the Tencent Foundation respectively since its
+establishment. During the year 2017, our Group and our employees donated RMB820 million and RMB5.4 million to the
+Tencent Foundation respectively.
+The Tencent Foundation has also applied technology to various charitable initiatives such as WeCountry for rural development
+and Tencent Three-dimensional Disaster Relief Programme in response to recent natural disasters in China via the online
+platform. In 2017, the total number of donations made by the Internet users is approximately 63 million and the total amount
+of the funds raised is over RMB1.6 billion.
+Risk Management and Internal Control Policy
+Tencent embraces the value of integrity, proactivity, collaboration and innovation. To promote integrity, we have developed
+robust systems and measures to prevent, detect and deter corruption or any other fraudulent activities and internal audit is
+conducted to ensure the Group's compliance with ethical standards which we promote and strive to uphold.
+Anti-Corruption
+In order to encourage employees to participate in volunteer service, employees, since April 2012, have been granted one day
+of fully-paid volunteer service leave per year.
+The Tencent Volunteers' Association combines its expertise in technology to help the community. For example, it has been
+broadcasting information on missing persons via Weixin/WeChat and QQ and with the latest facial recognition and blockchain
+technologies, the number of successful cases increased tenfold from approximately 40 in 2016 to approximately 400 in 2017.
+In 2016, the Tencent Volunteers' Association also established the China IT-Philanthropy Union which promotes the "Internet +
+Charity" model by holding summits and publishing white papers on the successful examples of how the information technology
+has changed the landscape of charity work.
+There are sub-divisions under the Tencent Volunteers' Association in Beijing, Shanghai, Chengdu, Shenzhen, Wuhan and
+Guangzhou formed by different business groups, each with a special focus on online charity, emergency support, poverty
+relief, scholarship, environmental protection, care for children with special needs, animal protection and green network. The
+Tencent Volunteers' Association works closely with the Tencent Foundation in various projects.
+In 2006, some of our employees founded the Tencent Volunteers' Association on their own initiative in response to our
+corporate vision of being “the most respected Internet company". Since then, the Tencent Volunteers' Association has
+contributed more than 100,000 hours of voluntary services. We launch more than 200 volunteering activities with more than
+5,000 participants every year. In 2016, the Tencent Volunteers' Association was awarded a spot in the list of Top 10 Best
+Volunteer Organisations in Guangdong Province.
+Volunteering
+Environmental, Social and Governance Report
+103
+Annual Report 2017
+In 2017, the Tencent Foundation donated approximately RMB140 million to support poverty relief initiatives through Ai You
+Foundation and other charitable organisations.
+Poverty relief
+In 2017, the Tencent Foundation donated RMB7.6 million to China Association of Social Workers and other community
+organisations in support of the community organisations to promote philanthropy and innovation in charity work.
+Community development
+China.
+The Tencent Foundation is keen on environmental protection and cultural preservation. In 2017, the Tencent Foundation
+donated approximately RMB28 million to the China Foundation for Cultural Heritage Conservation and other ecological
+conservation organisations to continue to preserve and repair the Great Wall and for the ecological conservation project in
+Ecological conservation and cultural preservation
+The Tencent Foundation has set up scholarships to promote education in the PRC, Hong Kong and other countries throughout
+the years. There are also specific donations for different education initiatives. In 2017, the Tencent Foundation donated
+approximately RMB50 million in education related projects. For example, we set up a scholarship with each of China Children
+and Teenagers' Fund, Li Po Chun United World College of Hong Kong and the Taxation Institute of Hong Kong. We sponsored
+activities of the Institute of Accountants Exchange and supported an education programme run by the China Children and
+Teenagers' Fund.
+Education
+In 2015, WeCountry, our open platform built on the "Internet + Village" model, was launched to offer villagers access
+digital technology which will benefit their communities. As of 31 December 2017, 16 provincial administrative areas with
+approximately 5,800 villages (or communities) joined WeCountry platform. The number of verified villagers is over 2 million and
+they interacted with each other via the platform for over 160 million times as of 31 December 2017.
+Rural development
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+102
+In response to the recent natural disasters in the PRC as well as globally, the Tencent Foundation has created a multifaceted
+disaster relief model by combining our various products including online platforms, instant messengers, online payment
+and Internet search to help the public follow the latest news, participate in rescue efforts and make donations. In addition,
+the Tencent Foundation has made donations to support the rescue missions and post-disaster reconstructions. In 2017, we
+donated an aggregate of approximately RMB5.9 million to the China Foundation for Poverty Alleviation, the One Foundation, Ai
+You Foundation and other charitable organisations in response to the earthquake in Xinjiang and the landslides in Sichuan and
+for the post-disaster child care programme following the earthquake in Ya'an city.
+Disaster relief
+In addition to promoting philanthropy through the online charity platform, the Tencent Foundation makes direct donation in the
+following areas: (i) disaster relief; (ii) rural development; (iii) education; (iv) ecological conservation and cultural preservation; (v)
+community development; and (vi) poverty relief.
+The highlight of the Tencent Foundation's charity efforts is the annual "99 Charity Day" campaign where it matches the
+donations made by the Internet users between 7 September and 9 September via its online platform. In 2017, the Tencent
+Foundation donated RMB300 million for the campaign, of which 37% is for poverty relief, disaster relief and medical care,
+31% is for education initiatives and the remaining 32% is for environmental protection initiatives and others.
+The Tencent Foundation believes that everyone can participate in charity work anytime and anywhere through technology.
+In June 2007, the Tencent Foundation leveraged on our Internet technical capabilities and online platforms to build the first
+online public fundraising platform. It is designed, developed and operated by the Tencent Foundation while we provide server,
+broadband and other technical support for free. The platform is open for eligible charitable organisations free of charge.
+It allows charitable works to be performed more conveniently, smoothly and transparently. This is a good example of the
+application of the concept of "Internet+". As of 31 December 2017, there had been approximately 5,300 active charitable
+organisations and over 15,000 charity projects in different locations with different focuses.
+We have: (i) formulated a set of anti-money laundering policies based on the applicable anti-money laundering laws and
+regulations; (ii) implemented an anti-money laundering monitoring system; and (iii) set up a dedicated anti-money laundering
+team, which is solely responsible for compliance management, anti-money laundering name screening and suspicious
+transaction monitoring.
+KEY AUDIT MATTERS
+If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
+required to report that fact. We have nothing to report in this regard.
+by case basis, in carrying out the impairment assessments,
+mainly including discounted cash flows and market approach.
+We assessed, on a sample basis, the basis management
+used to identify separate groups of cash generating units
+that containing goodwill, the impairment approaches and
+the valuation models used in management's impairment
+assessments, which we found them to be appropriate.
+In respect of the impairment assessments of cash generating
+units that containing goodwill, investments in associates and
+investments in redeemable instruments of associates using
+discounted cash flows, we assessed the key assumptions
+adopted including revenue growth rate, discount rate and
+other working capital requirement assumptions by examining
+the approved financial/business forecast models, and
+comparing actual results for the year against the previous
+period's forecasts and the applicable industry/business data
+external to the Group. We assessed certain of these key
+assumptions with the involvement of our internal valuation
+experts. We considered that the key assumptions adopted by
+management are in line with our expectation and evidence
+obtained.
+Annual Report 2017
+115
+Independent Auditor's Report
+Key Audit Matter
+Impairment assessments of goodwill, investments in associates
+and investments in redeemable instruments of associates
+(Cont'd)
+How our audit addressed the Key Audit Matter
+116
+Tencent Holdings Limited
+In respect of the impairment assessments of cash generating
+units that containing goodwill and investments in associates
+using market approach, we assessed the valuation assumptions
+including the selection of comparable companies, recent market
+transactions, and liquidity discount for lack of marketability, etc.
+We assessed these key assumptions adopted by management
+with the involvement of our internal valuation experts based on
+our industry knowledge and independent research performed
+by us. We considered that the key assumptions adopted by
+management are in line with our expectation and evidence
+obtained.
+We independently tested, on a sample basis, the accuracy of
+mathematical calculation applied in the valuation models and
+the calculation of impairment charges. We did not identify any
+material exceptions from our testing.
+Independent Auditor's Report
+Key Audit Matter
+Fair value measurement of financial instruments, including
+available-for-sale financial assets and other derivative
+financial instruments
+Independence
+As at 31 December 2017, the Group's financial assets
+which were carried at fair value comprised available-for-sale
+financial assets and other derivative financial instruments of
+approximately RMB127,218 million and RMB5,624 million,
+respectively, of which approximately RMB77,131 million of
+these financial assets were measured based on significant
+unobservable inputs and classified as “Level 3 financial
+instruments".
+We focused on this area due to the high degree of judgement
+required in determining the respective fair values of Level 3
+financial instruments, which do not have direct open market
+quoted values, with respect to the adoption of applicable
+valuation methodology and the application of appropriate
+assumptions in the valuation.
+How our audit addressed the Key Audit Matter
+In respect of the fair value measurement of Level 3 financial
+instruments, we tested the key controls, on a sample basis,
+in relation to the valuation process including the adoption
+of applicable valuation methodology and the application
+of appropriate assumptions in different circumstances, by
+inspection of the evidence of management's review, which we
+found no material exceptions.
+We involved our internal valuation experts to discuss with
+management and assess the appropriateness of valuation
+methodology and assumptions used. We tested, on a sample
+basis, valuation of Level 3 financial instruments as at 31
+December 2017 by evaluating the underlying assumptions
+including discount rates, projected growth rates, marketability
+discount, market information of comparable companies
+(such as recent transactions and earnings multiples) based
+on our industry knowledge as well as underlying supporting
+documentation. We also tested, on a sample basis, the
+arithmetical accuracy of the valuation computation. We
+found that the valuation methodology of Level 3 financial
+instruments is acceptable and the assumptions made by
+management are supported by available evidence.
+Annual Report 2017
+117
+Independent Auditor's Report
+OTHER INFORMATION
+The directors of the Company are responsible for the other information. The other information comprises all of the information
+included in the annual report other than the consolidated financial statements and our auditor's report thereon.
+Management adopted different valuation models, on a case
+We also tested, on a sample basis, key controls in respect of
+the impairment assessments, including the determination of
+appropriate impairment approaches, valuation models and
+assumptions and the calculation of impairment provisions,
+which we found no material exceptions.
+We tested management's assessment including periodic
+impairment indications evaluation as to whether indicators
+of impairment exist by corroborating with management and
+market information.
+How our audit addressed the Key Audit Matter
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
+consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
+these matters.
+Key audit matters identified in our audit are summarised as follows:
+Revenue recognition on provision of online games value-added services - estimates of the lifespans of virtual products/
+items
+• Impairment assessments of goodwill, investments in associates and investments in redeemable instruments of associates
+•
+Fair value measurement of financial instruments, including available-for-sale financial assets and other derivative
+financial instruments
+Annual Report 2017
+113
+Independent Auditor's Report
+Key Audit Matter
+Revenue recognition on provision of online games value-added
+services - estimates of the lifespans of virtual products/items
+Refer to Note 4(a) to the consolidated financial statements
+The Group has recognised revenue from sales of virtual
+products/items to the users in respect of value-added services
+rendered on the Group's online platforms. The relevant
+revenue is recognised over the lifespans of respective virtual
+products/items which was determined by the management,
+on an item by item basis, with reference to the expected
+users' relationship periods or the stipulated period of validity
+of the relevant virtual products/items, depending on the terms
+of the virtual products/items.
+During the year ended 31 December 2017, a majority of the
+Group's revenue from value-added services was contributed
+from online games and was predominately derived from the
+sales of virtual products/items.
+Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
+assurance conclusion thereon.
+We focused on this area due to the fact that management
+applied significant judgements in determining the expected
+users' relationship periods for certain virtual products/
+items. These judgements included (i) the determination of
+key assumptions applied in the expected users' relationship
+periods, including but not limited to historical users'
+consumption patterns, churn rates and reactivity on marketing
+activities, games life-cycle, as well as the Group's marketing
+strategy; and (ii) the identification of events that may trigger
+changes in the expected users' relationship periods.
+We discussed with management and evaluated their
+judgements on key assumptions in determining the estimated
+lifespans of the virtual products/items that were based on the
+expected users' relationship periods.
+We tested, on a sample basis, key controls in respect of
+the recognition of revenue from sales of virtual products/
+items, including management's review and approval of
+(i) determination of the estimated lifespans of new virtual
+products/items prior to their launches; and (ii) changes in the
+estimated lifespans of existing virtual products/items based
+on periodic reassessment on any indications triggering such
+changes. We also assessed the data generated from the
+Group's information system supporting the management's
+review, including testing the information system logic for
+generation of reports, and checking, on a sample basis, the
+monthly computation of revenue recognised on selected
+virtual products/items generated directly from the Group's
+information system.
+We assessed, on a sample basis, the expected users'
+relationship periods adopted by management by testing
+the data integrity of historical users' consumption patterns
+and calculation of the churn rates. We also evaluated the
+consideration made by management in determining the
+underlying assumptions for expected users' relationship
+periods with reference to historical operating and marketing
+data of the relevant games. We also assessed, on a sample
+basis, the historical accuracy of the management's estimation
+process by comparing the actual users' relationship periods
+for the year against the original estimation for selected virtual
+products/items.
+We found that the results of our procedures performed to
+be materially consistent with management's supporting
+documentation.
+114
+Tencent Holdings Limited
+Independent Auditor's Report
+Key Audit Matter
+Impairment assessments of goodwill, investments in associates
+and investments in redeemable instruments of associates
+Refer to Notes 4(b), 19, 20 and 22 to the consolidated
+financial statements
+As at 31 December 2017, the Group held significant amounts
+of goodwill, investments in associates and investments
+in redeemable instruments of associates amounting to
+RMB23,608 million, RMB113,779 million and RMB22,976
+million, respectively. Impairment provision of RMB124
+million, RMB1,277 million and RMB607 million had been
+recognised during the year ended 31 December 2017 against
+the carrying amounts, respectively.
+We focused on this area due to the magnitude of the
+carrying amounts of these assets and the fact that significant
+judgements were required by management (i) to identify
+whether any impairment indicators existed for any of these
+assets during the year; (ii) to determine the appropriate
+impairment approaches, i.e. fair value less costs of disposal or
+value in use; and (iii) to select key assumptions to be adopted
+in the valuation models, including discounted cash flows and
+market approach, for the impairment assessments.
+How our audit addressed the Key Audit Matter
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
+in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
+knowledge obtained in the audit or otherwise appears to be materially misstated.
+Refer to Notes 3.3, 24 and 26 to the consolidated financial
+statements
+RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
+FINANCIAL STATEMENTS
+the consolidated statement of financial position as at 31 December 2017;
+•
+The consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries (the "Group") set out
+on pages 121 to 238, which comprise:
+What we have audited
+OPINION
+(incorporated in the Cayman Islands with limited liability)
+TO THE SHAREHOLDERS OF TENCENT HOLDINGS LIMITED
+羅兵咸永道
+pwc
+Independent Auditor's Report
+111
+Annual Report 2017
+Looking forward, we will continue to devote great efforts and resources to observe and protect IP rights.
+•
+Within the past decade, we have several times been awarded “China Patent Gold Awards" by the State Intellectual Property
+Office of the PRC, "China Trademark Awards" jointly by World Intellectual Property Organisation and the State Administration
+for Industry & Commerce of the PRC and "China Copyright Gold Awards" by the National Copyright Administration of the PRC
+and the World Intellectual Property Organisation, signifying our contribution to the development of independent innovation
+of the PRC. We have also several times been awarded "National Copyright Demonstration Unit", recognising our outstanding
+performance in management and protection of copyright. In November 2017, we were awarded “China Appearance Design
+Gold Award" by the State Intellectual Property Office of the PRC and the World Intellectual Property Organisation and this is
+the first time where a graphic user interface won such title.
+We began a comprehensive programme for the management of IP at an early stage. We have consistently applied for the
+registration of IP rights since the early stages of its establishment. With the successful development of our business, we have
+expanded our global IP portfolio to cover more than 100 countries and regions. As of 31 December 2017, we had obtained
+over 14,000 officially registered trademarks and over 6,000 issued patents. Coupled with our creation of a vast amount of
+copyrighted content, we have accumulated IP assets of considerable value. Our IP team has developed a comprehensive
+database for our patents, trademarks and copyrights and our strong data analytical skills enable us to manage and monitor
+our IP rights in a meticulous and efficient manner. To combat infringement of IP rights, our IP team has also established a
+comprehensive and efficient monitoring and maintenance system, and has devised various civil, criminal and administrative
+enforcement measures to enforce our IP rights. Please see further details on the Company Website (https://www.tencent.com/
+legal/html/en-us/property.html).
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+110
+We are a technology-oriented company and we stress the importance of the observation and protection of intellectual property
+("IP") rights. We have established a dedicated IP team with approximately 80 employees as of 31 December 2017 that is
+responsible for the day-to-day management of legal matters involving trademark, patent, copyright, domain names and other
+IP rights.
+Intellectual Property Rights
+Each of Weixin/WeChat and QQ provides a mechanism for users to report any fake or in appropriate content circulated on its
+platform. To protect the original user-generated content, Weixin/WeChat has launched a new feature in December 2017 for the
+Weixin/WeChat official account holders to declare the originality of the content generated by them on Weixin/WeChat so as to
+help identify and deter copyright infringement more effectively.
+Monitoring of and Protection for Original User-generated Content
+In addition, we have worked with School of Brain and Cognitive Science of Beijing Normal University and Data Centre of the
+China Internet (DCCI) to publish "Guide on Healthy Use of the Internet for Teenagers" and "Research on Online Gaming
+Behaviours of and Online Protections for Teenagers". Parents, education institutions and industry players can download these
+documents free of charge for their reference.
+To safeguard the physical and mental health of online game users and adolescents, we have implemented the real name
+system and anti-addiction system in accordance with the regulatory requirements of the PRC and strengthened the promotion
+of healthy gaming and anti-addiction through various channels. In February 2017, we have launched a series of services
+on "Tencent Game Guardian Platform" (http://jiazhang.qq.com) which assists parents to monitor the gaming habits of their
+underage children. This is the platform dedicated to healthy gaming of underage children in the online game industry. In July
+2017, we have implemented an anti-addiction system on Honour of Kings, which sends reminders to players or forces logout
+from the game if players spend too much time on the game in one day. So far it is one of the strictest anti-addiction measures
+taken by a gaming company in the PRC mobile game industry.
+Permit.
+We have been actively implementing various measures to ensure compliance with the relevant laws, regulations and
+policies. For instance, we have already obtained the relevant credentials for operating online games, for example, the
+Telecommunication Business Operation Permit, the Online Publishing Service Licence and the Internet Culture Business
+Environmental, Social and Governance Report
+We actively participate in public affairs and strive to promote the awareness of IP protection in the Internet industry. As
+members of the China National Information Technology Standardisation Committee, the China Intellectual Property Society,
+the Patent Protection Association of China, the World Wide Web Consortium, the International Trademark Association and
+the China Trademark Association, we have participated in the consultations on legislative amendments to the PRC laws and
+regulations relating to patents, trademarks and anti-competition and have made recommendations in the development of
+industry standards.
+We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics
+for Professional Accountants ("IESBA Code"), and we have fulfilled our other ethical responsibilities in accordance with the
+IESBA Code.
+the consolidated income statement for the year then ended;
+•
+The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and
+fair view in accordance with IFRSS and the disclosure requirements of the Hong Kong Companies Ordinance, and for such
+internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are
+free from material misstatement, whether due to fraud or error.
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as
+a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
+unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+118
+Tencent Holdings Limited
+Independent Auditor's Report
+AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
+from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report
+our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to
+any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee
+that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can
+arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
+influence the economic decisions of users taken on the basis of these consolidated financial statements.
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
+throughout the audit. We also:
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
+or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
+and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
+fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
+misrepresentations, or the override of internal control.
+Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal
+control.
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
+disclosures made by the directors.
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit
+evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
+on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
+to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
+disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
+date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going
+concern.
+•
+Annual Report 2017
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
+We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those
+standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
+of our report.
+BASIS FOR OPINION
+Independent Auditor's Report
+Tencent Holdings Limited
+112
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group
+as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended
+in accordance with International Financial Reporting Standards ("IFRSS") and have been properly prepared in compliance with
+the disclosure requirements of the Hong Kong Companies Ordinance.
+Our opinion
+the notes to the consolidated financial statements, which include a summary of significant accounting policies.
+•
+the consolidated statement of cash flows for the year then ended; and
+the consolidated statement of changes in equity for the year then ended;
+the consolidated statement of comprehensive income for the year then ended;
+119
+554,672
+395,899
+Tax benefit from share-based payments of a subsidiary
+(133)
+(293)
+(69)
+(224)
+Lapse of put option granted to non-controlling interests
+Transfer of equity interests of subsidiaries to non-controlling interests
+Dilution of interests in subsidiaries
+Disposal of subsidiaries
+(952)
+(133)
+728
+Acquisition of additional equity interests in non-wholly
+(5,995)
+(943)
+(5,052)
+(5,052)
+Dividends (Note 15)
+(519)
+519
+Profit appropriations to statutory reserves
+owned subsidiaries
+6,378
+6,378
+7,363
+11,785
+8,553
+3,232
+(5,571)
+4,757
+(834)
+4,880
+Tencent Holdings Limited
+126
+Balance at 31 December 2017
+as equity holders for the year
+Total transactions with equity holders at their capacity
+669
+76
+26
+50
+50
+2,045
+(2,045)
+(2,045)
+13,741
+244
+'$
+244
+'༔
+171
+56
+156
+1,125
+4.3
+843
+78,218
+71,510
+6,708
+Employee share award schemes:
+-value of employee services
+- proceeds from shares issued
+Employee share option schemes:
+Transactions with equity holders
+Capital injection
+Total comprehensive income for the year
+- other fair value gains, net
+706
+།
+706
+706
+(9,316)
+(118)
+79,061
+22,204
+60
+60
+244
+1,398
+(1,398)
+- vesting of awarded shares
+10
+(2,232)
+(2,232)
+4,767
+106
+4,661
+407
+(2,232)
+- shares withheld for share award schemes
+107
+4,254
+-value of employee services
+171
+171
+1,379
+98
+1,281
+60
+(3,970)
+35,158
+202,682
+35
+368
+57
+311
+1,414
+1,414
+- proceeds from shares issued
+Employee share award schemes:
+-value of employee services
+Employee share option schemes:
+Capital injection
+Transactions with equity holders
+Total comprehensive income for the year
+- other fair value gains, net
+48,617
+423
+48,194
+41,095
+7,099
+356
+356
+།
+403
+356
+225
+225
+Profit appropriations to statutory reserves
+897
+897
+897
+Tax benefit from share-based payments of a subsidiary
+617
+(617)
+-vesting of awarded shares
+881
+41,447
+(1,936)
+3,915
+68
+3,847
+I
+(1,936)
+- shares withheld for share award schemes
+394
+3,453
+- value of employee services
+225
+|
+(9,198)
+4,198
+4,127
+RMB'Million
+Total equity
+Total interests
+RMB'Million RMB'Million
+controlling
+Other Retained
+reserves
+earnings
+RMB'Million RMB'Million
+Share for share
+premium award schemes
+RMB'Million RMB'Million
+capital
+RMB'Million
+Share
+Non-
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2017
+Consolidated Statement of Changes in Equity
+-share of other comprehensive income of associates
+Other comprehensive income, net of tax:
+Profit for the year
+Comprehensive income
+Balance at 1 January 2016
+277,093
+21,019
+256,074
+12,167
+71
+(1,817)
+100,012
+4,127
+-currency translation differences
+(1,176)
+(1,176)
+(1,176)
+financial assets
+- transfer to profit or loss upon disposal of available-for-sale
+2,929
+2,929
+2,929
+- net gains from changes in fair value of available-for-sale
+financial assets
+863
+863
+41,447
+352
+41,095
+41,095
+863
+122,100
+2,065
+120,035
+9,673
+665
+(9,198)
+(2,561)
+Consolidated Income Statement
+Tencent Holdings Limited
+120
+Hong Kong, 21 March 2018
+Certified Public Accountants
+PricewaterhouseCoopers
+The engagement partner on the audit resulting in this independent auditor's report is Tong Yu Keung.
+From the matters communicated with those charged with governance, we determine those matters that were of most
+significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
+matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the
+matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
+because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
+communication.
+We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
+audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
+We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
+regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
+bear on our independence, and where applicable, related safeguards.
+For the year ended 31 December 2017
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
+within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
+supervision and performance of the group audit. We remain solely responsible for our audit opinion.
+Independent Auditor's Report
+12(a)
+7.598
+4.383
+12(b)
+7.499
+4.329
+- diluted
+The notes on pages 130 to 238 are an integral part of these consolidated financial statements.
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
+disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
+manner that achieves fair presentation.
+Note
+Year ended 31 December
+2017
+(120,835)
+8
+151,938
+237,760
+5000
+Interest income
+Gross profit
+Cost of revenues
+17,158
+43,338
+26,970
+40,439
+107,810
+153,983
+Others
+Online advertising
+Value-added services
+Revenues
+RMB'Million
+2016
+RMB'Million
+Annual Report 2017
+121
+Consolidated Statement of Comprehensive Income
+For the year ended 31 December 2017
+The notes on pages 130 to 238 are an integral part of these consolidated financial statements.
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+Total comprehensive income for the year
+Other fair value losses
+Items that may not be subsequently reclassified to profit or loss
+600
+756
+Other fair value gains
+4,198
+(9,316)
+(1,176)
+(2,561)
+2,929
+16,854
+Net gains from changes in fair value of available-for-sale financial assets
+Transfer to profit or loss upon disposal of available-for-sale financial assets
+Currency translation differences
+863
+907
+Share of other comprehensive income of associates
+Items that may be subsequently reclassified to profit or loss
+122
+(67,439)
+Tencent Holdings Limited
+(244)
+Profit for the year
+Other comprehensive income, net of tax:
+Year ended 31 December
+2017
+RMB'Million
+2016
+RMB'Million
+2017
+As at 31 December
+As at 31 December 2017
+Consolidated Statement of Financial Position
+48,617
+79,061
+423
+843
+48,194
+78,218
+48,617
+79,061
+7,170
+6,590
+(50)
+116,925
+84,499
+Other gains, net
+interests
+RMB'Million
+RMB'Million
+Total
+controlling
+Retained
+reserves earnings
+RMB'Million RMB'Million
+Other
+Share for share
+premium award schemes
+RMB'Million RMB'Million
+Share
+capital
+RMB'Million
+Non-
+Shares held
+Attributable to equity holders of the Company
+Other comprehensive income, net of tax:
+Profit for the year
+Comprehensive income
+Balance at 1 January 2017
+For the year ended 31 December 2017
+Consolidated Statement of Changes in Equity
+125
+Annual Report 2017
+Director
+Lau Chi Ping Martin
+Total equity
+Ma Huateng
+Director
+RMB'Million
+(3,136)
+(2,561)
+(2,561)
+financial assets
+-transfer to profit or loss upon disposal of available-for-sale
+16,854
+16,854
+16,854
+- net gains from changes in fair value of available-for-sale
+financial assets
+907
+907
+907
+-share of other comprehensive income of associates
+72,471
+961
+71,510
+71,510
+186,247
+11,623
+174,624
+136,743
+23,693
+17,324
+-currency translation differences
+The consolidated financial statements on pages 121 to 238 were approved by the Board of Directors on 21 March 2018 and
+were signed on its behalf:
+41,447
+(1,955)
+(2,908)
+9
+Finance costs, net
+56,117
+90,302
+Operating profit
+(22,459)
+(33,051)
+8
+General and administrative expenses
+(12,136)
+(17,652)
+3,594
+20,140
+7
+2,619
+3,940
+6
+8 18
+Selling and marketing expenses
+Share of profit/(loss) of associates and joint ventures
+The notes on pages 130 to 238 are an integral part of these consolidated financial statements.
+10
+(2,522)
+72,471
+352
+961
+41,095
+71,510
+- basic
+(in RMB per share)
+Earnings per share for profit attributable to equity holders of the Company
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+41,447
+72,471
+Profit for the year
+(10,193)
+(15,744)
+11
+Income tax expense
+51,640
+88,215
+Profit before income tax
+821
+(665)
+(1,936)
+(3,699)
+277,579
+209,652
+Other financial assets
+14,118
+17,110
+25
+Prepayments, deposits and other assets
+10,152
+16,549
+Total equity and liabilities
+29
+263
+295
+Inventories
+Current assets
+246,745
+376,226
+5,415
+5,365
+28
+Accounts receivable
+Total liabilities
+101,197
+151,740
+39
+29,433
+20,873
+Borrowings
+34
+15,696
+12,278
+Notes payable
+35
+4,752
+3,466
+Current income tax liabilities
+8,708
+5,219
+Other tax liabilities
+934
+745
+Deferred revenue
+37
+42,132
+31,203
+Term deposits
+7,033
+9,793
+27
+36,467
+40,266
+19
+Intangible assets
+5,174
+5,111
+18
+Land use rights
+854
+800
+4,674
+3,163
+Dividends (Note 15)
+13,900
+23,597
+16
+Investment properties
+Construction in progress
+Property, plant and equipment
+Non-current assets
+ASSETS
+Investments in associates
+Other payables and accruals
+20
+70,042
+Deferred income tax assets
+1,760
+5,159
+26
+Other financial assets
+7,363
+11,173
+25
+Prepayments, deposits and other assets
+83,806
+127,218
+24
+Available-for-sale financial assets
+630
+7,826
+23
+Investments in joint ventures
+9,627
+22,976
+22
+Investments in redeemable instruments of associates
+113,779
+27,413
+50,085
+38
+As at 31 December
+2017
+Note
+RMB'Million
+2016
+RMB'Million
+Equity attributable to equity holders of the Company
+Share capital
+31
+Share premium
+31
+22,204
+17,324
+Shares held for share award schemes
+Other reserves
+Retained earnings
+31
+(3,970)
+(3,136)
+32
+35,158
+EQUITY
+23,693
+As at 31 December 2017
+123
+26
+465
+1,649
+Term deposits
+28
+36,724
+50,320
+Restricted cash
+Cash and cash equivalents
+30
+1,606
+750
+30
+105,697
+71,902
+178,446
+149,154
+Total assets
+554,672
+395,899
+Annual Report 2017
+Consolidated Statement of Financial Position
+RMB'Million
+202,682
+256,074
+27
+5,975
+5,153
+Deferred revenue
+37
+2,391
+2,038
+125,839
+108,455
+124
+Tencent Holdings Limited
+Current liabilities
+Consolidated Statement of Financial Position
+As at 31 December 2017
+As at 31 December
+2017
+Note
+RMB'Million
+2016
+RMB'Million
+Accounts payable
+Deferred income tax liabilities
+136,743
+2,576
+Other financial liabilities
+174,624
+Non-controlling interests
+Total equity
+21,019
+11,623
+277,093
+186,247
+LIABILITIES
+Non-current liabilities
+Borrowings
+34
+82,094
+57,549
+Notes payable
+35
+29,363
+36,204
+Long-term payables
+36
+3,862
+4,935
+2,154
+2016
+17
+Note
+Payments for acquisition of investments in associates
+Proceeds from disposals of property, plant and equipment
+and investment properties
+619
+(3)
+Net (outflow)/inflow of cash in respect of disposals of subsidiaries
+Purchase of property, plant and equipment, construction in progress
+1,285
+(21)
+(Payments for)/proceeds from business combinations, net of cash acquired
+Cash flows from investing activities
+65,518
+106,140
+(10,516)
+(13,862)
+76,034
+120,002
+40(a)
+Net cash flows generated from operating activities
+Income tax paid
+Cash generated from operations
+Cash flows from operating activities
+RMB'Million
+2016
+Proceeds from disposals of investments in associates
+Payments for acquisition of investments in redeemable instruments of associates
+Proceeds from disposals of investments in redeemable instruments of associates
+Payments for acquisition of investments in joint ventures
+(16,384)
+(12,108)
+(33,556)
+(47,716)
+financial instruments
+Payments for available-for-sale financial assets and related derivative
+Purchase of/prepayment for land use rights
+Purchase of/prepayment for intangible assets
+Proceeds from disposals of investments in joint ventures
+(1,506)
+(46)
+(8,849)
+(19,850)
+RMB'Million
+3
+(7,091)
+9
+266
+507
+(3,324)
+1,107
+608
+(8,934)
+(17,528)
+31
+28
+(8,399)
+(62)
+Proceeds from disposals of available-for-sale financial assets
+Note
+Year ended 31 December
+8,142
+300
+7,842
+7,842
+(3)
+(3)
+(1,232)
+(494)
+(738)
+Termination of the put option granted to non-controlling interests
+Transfer of equity interests of subsidiaries to non-controlling interests
+Partial disposal of equity interests in subsidiaries and businesses
+Disposal of subsidiaries
+(2,523)
+1,785
+owned subsidiaries
+Acquisition of additional equity interests in non-wholly
+7,802
+7,802
+Non-controlling interests arising from business combinations
+(4,613)
+(914)
+(3,699)
+(927)
+(927)
+927
+516
+For the year ended 31 December 2017
+Consolidated Statement of Cash Flows
+127
+Annual Report 2017
+The notes on pages 130 to 238 are an integral part of these consolidated financial statements.
+186,247
+11,623
+174,624
+136,743
+23,693
+(3,136)
+2017
+17,324
+9,135
+6,395
+(4,364)
+6,921
+(1,319)
+5,157
+Balance at 31 December 2016
+as equity holders for the year
+Total transactions with equity holders at their capacity
+516
+516
+15,530
+4,705
+1,637
+Payments for loans to investees and others
+1,393
+6,466
+Proceeds from issuance of additional equity of non-wholly owned subsidiaries
+Proceeds from disposals of non-controlling interests in a non-wholly owned subsidiary
+Payments for acquisition of non-controlling interests in non-wholly owned subsidiaries
+Dividends paid to the Company's shareholders
+(1,936)
+(2,232)
+Shares withheld for share award schemes
+225
+171
+Proceeds from issuance of ordinary shares
+(4,132)
+106
+(3,450)
+(13,957)
+(5,281)
+Repayment of notes payable
+Repayment of long-term borrowings
+Repayment of convertible bonds
+55,394
+33,517
+(1,734)
+(12,450)
+2,387
+16,676
+(494)
+Proceeds from long-term borrowings
+267
+(1,364)
+129
+Annual Report 2017
+The notes on pages 130 to 238 are an integral part of these consolidated financial statements.
+71,902
+105,697
+Cash and cash equivalents at end of the year
+2,426
+(2,551)
+43,438
+71,902
+(927)
+26,038
+31,443
+26,598
+Cash and cash equivalents at beginning of the year
+Exchange (losses)/gains on cash and cash equivalents
+Net increase in cash and cash equivalents
+Net cash flows generated from financing activities
+(907)
+(946)
+Dividends paid to non-controlling interests
+(3,699)
+(5,052)
+36,346
+RMB'Million
+72,471
+For the year ended 31 December 2017
+Repayment of short-term borrowings
+Proceeds from short-term borrowings
+Cash flows from financing activities
+RMB'Million
+2016
+RMB'Million
+Dividends received
+2017
+2,009
+Consolidated Statement of Cash Flows
+Tencent Holdings Limited
+128
+(70,923)
+(96,392)
+Year ended 31 December
+1,718
+3,529
+Interest received
+(2,219)
+(2,994)
+Proceeds from settlement of loans to investees and others
+1,533
+4,046
+Payments for acquisition of other financial assets
+(995)
+Proceeds from settlement of other financial assets
+995
+Receipt from maturity of term deposits with initial terms of over three months
+86,166
+42,319
+Placement of term deposits with initial terms of over three months
+(72,520)
+(57,049)
+Net cash flows used in investing activities
+719
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards ("IFRSS"). The consolidated financial statements have been prepared
+under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and
+derivative financial instruments, which are carried at fair value.
+•
+the right to control the management, financial and operating policies of Tencent Computer.
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of value-added services ("VAS") and online advertising services to users in the
+People's Republic of China (the "PRC").
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the main board of The Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+130
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer; and
+For the year ended 31 December 2017
+1
+GENERAL INFORMATION (Cont'd)
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.2(a) and Note 45)
+and the formation of the Group in 2000 was accounted for as a business combination between entities under common
+control under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor
+carrying amounts. This approach was adopted because in management's belief it best reflected the substance of the
+formation.
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company. See details in Note 45.
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
+The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+2.1 Basis of preparation
+1 GENERAL INFORMATION
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable certain foreign companies to
+make investments into the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen)
+Company Limited ("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24
+February 2000. The foreign investors of the Company then subscribed to additional equity interests in the Company.
+Under a series of contractual arrangements (collectively, "Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+Notes to the Consolidated Financial Statements
+Annual Report 2017
+(i)
+(a) Consolidation (Cont'd)
+2.2 Subsidiaries (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+2
+Tencent Holdings Limited
+136
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is
+deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent
+consideration that is classified as equity is not re-measured, and its subsequent settlement is
+accounted for within equity.
+If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+Acquisition-related costs are expensed as incurred.
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities
+assumed in a business combination are measured initially at their fair values at the acquisition date.
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets. All other components of non-controlling interests are measured
+at their acquisition date fair value, unless another measurement basis is required by IFRSS.
+Business combinations
+Business combinations (Cont'd)
+(i)
+2.2 Subsidiaries (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+135
+Annual Report 2017
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
+controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
+with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
+consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
+date that control ceases.
+(a) Consolidation
+2.2 Subsidiaries
+The new standard is mandatory for financial years commencing on or after 1 January 2019. The Group
+does not intend to adopt this standard before its effective date.
+The accounting for lessors will not be significantly changed. The standard will affect primarily the
+accounting for Group's operating leases. However, the Group has just commenced its assessment and
+have not yet determined to what extent its commitments will result in the recognition of an asset and a
+liability for future payments and how this will affect the Group's profit and classification of cash flows.
+IFRS 16 will result in almost all leases being recognised on the statement of financial position, as the
+distinction between operating and finance leases is removed. Under the new standard, an asset (the
+right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions
+are short-term and low-value leases.
+(a) Consolidation (Cont'd)
+The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
+and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value
+of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,
+non-controlling interest recognised and previously held interest measured is less than the fair value
+of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
+recognised directly in the consolidated income statement.
+Changes in ownership interests in subsidiaries without change of control
+_
+The preparation of financial statements in conformity with IFRSS requires the use of certain critical accounting
+estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting
+policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
+estimates are significant to the consolidated financial statements are disclosed in Note 4.
+For the year ended 31 December 2017
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.2 Subsidiaries (Cont'd)
+(b) Separate financial statements
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined in
+Note 45(e)), a controlled structured entity, is stated at cost in "Contribution to Share Scheme Trust”, and will
+be transferred to the "Shares held for share award schemes" under equity when the contribution is used for
+the acquisition of the Company's shares.
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+2.3 Associates
+Associates are all entities over which the Group has significant influence but not control, generally but not
+necessarily accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates
+are accounted for using the equity method of accounting and are initially recognised at cost. The Group's
+investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss. Upon
+the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the
+Group's share of the net fair value of the associate's identifiable assets and liabilities is accounted for as goodwill.
+138
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.3 Associates (Cont'd)
+The Group's share of its associates' post-acquisition profit or loss is recognised in the consolidated income
+statement, and its share of post-acquisition movements in other comprehensive income is recognised in other
+comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of
+the investment. When the Group's share of losses in an associate equals or exceeds its interests in the associate,
+including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has
+incurred legal or constructive obligations or made payments on behalf of the associate.
+The Group determines at each reporting date whether there is any objective evidence that investments accounted
+for using the equity method, including associates and joint arrangements (Note 2.4), are impaired. If this is the
+case,
+the Group calculates the amount of impairment as the difference between the recoverable amount of the
+investment and its carrying value and recognises the amount in "Other gains/(losses), net" in the consolidated
+income statement.
+Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's
+interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of
+an impairment of the asset transferred. A full gain or loss is recognised when a transaction involves a business
+whereas a partial gain or loss is recognised when a transaction involves assets that do not constitute a business,
+even if those assets are held by a subsidiary. Accounting policies of associates have been changed where
+necessary to ensure consistency with the policies adopted by the Group.
+Gains or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
+If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
+share of the amounts previously recognised in other comprehensive income is reclassified to consolidated income
+statement where appropriate.
+The Group's investments in associates in the form of redeemable instruments are accounted for as compound
+financial instruments (Note 2.27).
+Annual Report 2017
+139
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+137
+Annual Report 2017
+When the Group ceases to have control, any retained interest in the entity is re-measured to its
+fair value at the date when control is lost, with the change in carrying amount recognised in the
+consolidated income statement. The fair value is the initial carrying amount for the purposes of
+subsequently accounting for the retained interest as an associate, a joint venture or financial asset. In
+addition, any amounts previously recognised in other comprehensive income in respect of that entity
+are accounted for as if the Group had directly disposed of the related assets or liabilities. It means that
+amounts previously recognised in other comprehensive income are reclassified to the consolidated
+income statement or transferred to another category of equity as specified/permitted by applicable
+IFRSS.
+(iii) Disposal of subsidiaries
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions that is, as transactions with the owners of the subsidiary in their capacity as
+owners. The difference between fair value of any consideration paid and the relevant share acquired of
+the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
+to non-controlling interests are also recorded in equity.
+(iii) IFRS 16 "Lease"
+New standards and amendments to standards that have been issued but not effective (Cont'd)
+(ii)
+Basis of preparation (Cont'd)
+For the year ended 31 December 2017
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+132
+The Group's investments in redeemable instruments of associates, certain available-for-sale
+financial assets and certain other financial assets of the Group will be reclassified to financial
+assets at fair value through profit or loss and cumulative fair values change of these available-
+for-sale financial assets as at 31 December 2017 currently recognised in other reserves will
+be reclassified to retained earnings on 1 January 2018. The remaining available-for-sale
+financial assets of the Group will be reclassified to financial assets at fair value through other
+comprehensive income and not recycling to income statement.
+. Classification and measurement of financial instruments
+The Group has reviewed its financial assets and liabilities and is expecting the following impact from
+the adoption of the new standard on 1 January 2018:
+IFRS 9 "Financial instruments" addresses the classification, measurement and derecognition of
+financial assets and financial liabilities, introduces new rules for hedge accounting and a new
+impairment model for financial assets.
+IFRS 9 "Financial instruments"
+(i)
+New standards and amendments to standards that have been issued but not effective
+(b)
+Clarification of disclosure requirement of interests in entities classified as
+held for sale
+Recognition of deferred tax assets for unrealised losses
+Disclosure initiative
+IFRS 12 (amendment)
+IAS 12 (amendment)
+IAS 7 (amendment)
+The following amendments to standards have been adopted by the Group for the first time for the financial
+year beginning on 1 January 2017. The adoption of these amendments does not have any significant impact
+on the consolidated financial statements of the Group.
+(a) Amendments to standards adopted by the Group
+Basis of preparation (Cont'd)
+2.1
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+(b)
+131
+2.1 Basis of preparation (Cont'd)
+(b) New standards and amendments to standards that have been issued but not effective (Cont'd)
+A number of new standards and amendments to standards are not effective for the financial year beginning
+1 January 2017, and have not been early adopted by the Group in preparing the consolidated financial
+statements. In respect of IFRS 9 "Financial instruments”, IFRS 15 "Revenue from contracts with customers"
+and IFRS 16 "Lease”, none of these is expected to have a significant effect on the consolidated financial
+statements of the Group except IFRS 9, details of which are set out below.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.1
+(i) IFRS 9 "Financial instruments" (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+134
+IFRS 15 must be applied for financial years commencing on or after 1 January 2018 and earlier
+adoption is permitted. The Group will apply the full retrospective approach upon the adoption since 1
+January 2018.
+The standard permits either a full retrospective or a modified retrospective approach for the adoption.
+Based on the management's assessment on the adoption of IFRS 15, the Group expects the effects of
+applying the new standard on the Group's financial statements to be insignificant.
+IFRS 15 establishes a comprehensive framework for determining when to recognize revenue and how
+much revenue to recognize through a five step approach: (i) identify the contract(s) with a customer;
+(ii) identify separate performance obligations in a contract; (iii) determine the transaction price; (iv)
+allocate transaction price to performance obligations; and (v) recognize revenue when performance
+obligation is satisfied. IFRS 15 also provides specific guidance on contract costs and license
+arrangements. It also includes a cohesive set of disclosure requirements about revenue and cash flows
+arising from the contracts with customers.
+(ii) IFRS 15 "Revenue from contracts with customers"
+New standards and amendments to standards that have been issued but not effective (Cont'd)
+(b)
+2.1 Basis of preparation (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+IFRS 15 "Revenue from contracts with customers" will replace IAS 18 "Revenue" and IAS 11
+"Construction contracts" and the related interpretation's on revenue recognition.
+Classification and measurement of financial instruments (Cont'd)
+For the year ended 31 December 2017
+There will be no impact on the Group's accounting for financial liabilities, as the new requirements
+only affect the accounting for financial liabilities that are designated at fair value through profit or
+loss, while the Group does not have any such liabilities.
+•
+Derivatives and hedging activities
+Impairment of financial assets
+The new impairment model requires the recognition of impairment provisions based on
+expected credit losses rather than only incurred credit losses as is the case under IAS 39. It
+applies to financial assets classified at amortised cost, debt instruments measured at fair value
+through other comprehensive income, contract assets under IFRS 15, lease receivables, loan
+commitments and certain financial guarantee contracts. Based on the assessments undertaken
+to date, the Group expects changes in the loss allowance for account receivables to be
+insignificant.
+The new hedge accounting rules will align the accounting for hedging instruments more
+closely with the Group's established risk management practices. As a general rule, more hedge
+relationships might be eligible for hedge accounting, given the standard introduces a more
+principle-based approach. The Group has confirmed that its current hedge relationships will be
+qualified as continuing hedges upon the adoption of IFRS 9.
+•
+IFRS 9 must be applied for financial years commencing on or after 1 January 2018. Early adoption is
+permitted. The Group will apply the new rules retrospectively from 1 January 2018, with the practical
+expedients permitted under the standard. Comparatives for 2017 will not be restated.
+Annual Report 2017
+133
+Notes to the Consolidated Financial Statements
+The new standard also introduces expanded disclosure requirements and changes in presentation.
+These are expected to change the nature and extent of the Group's disclosures about its financial
+instruments.
+142
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are
+recognised in other comprehensive income.
+(i)
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other currency instruments designated as hedges of such investments,
+are taken to other comprehensive income.
+(iii) All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+(ii)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
+2.9 Property, plant and equipment
+Construction in progress represents buildings under construction, which is stated at actual construction cost less
+any impairment loss. Construction in progress is transferred to property, plant and equipment when completed and
+ready for use.
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
+of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the financial period in which they are
+incurred.
+Depreciation is calculated using the straight-line method to allocate their cost net of their residual values over their
+estimated useful lives, as follows:
+Buildings
+Computer equipment
+Furniture and office equipment
+Motor vehicles
+Leasehold improvements
+20-50 years
+2 - 5 years
+2 - 5 years
+5 years
+Shorter of their useful lives and the lease terms
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+The results and financial position of all the group entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated
+impairment charges. Historical costs includes expenditure that are directly attributable to the acquisition of the
+items.
+(c) Group companies
+Notes to the Consolidated Financial Statements
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.14).
+For the year ended 31 December 2017
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.4 Joint arrangements
+Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures
+depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint
+arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
+Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted
+thereafter to recognise the Group's share of the post-acquisition profit or loss and movements in other
+comprehensive income. When the Group's share of losses in a joint venture equals or exceeds its interests in the
+joint venture (which includes any long-term receivables that, in substance, form part of the Group's net investment
+in the joint venture), the Group does not recognise further losses, unless it has incurred obligations or made
+payments on behalf of the joint venture.
+Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
+Group's interests in the joint ventures. Unrealised losses are also eliminated unless the transaction provides
+evidence of an impairment of the asset transferred. A full gain or loss is recognised when a transaction involves
+a business whereas a partial gain or loss is recognised when a transaction involves assets that do not constitute
+a business, even if those assets are held by a subsidiary. Accounting policies of the joint ventures have been
+changed where necessary to ensure consistency with the policies adopted by the Group.
+2.5 Investments in associates/joint ventures achieved in stages
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint venture,
+is measured as the sum of the fair value of the interests previously held plus the fair value of any additional
+consideration transferred as of the date when it becomes associate/joint venture. A gain or loss on re-measurement
+of the previously held interests is taken to the consolidated incomes statement. Any other comprehensive income
+recognised in prior periods in relation to the previously held interests is also taken to the consolidated income
+statement. Any acquisition-related costs are expensed in the period in which the costs are incurred.
+2.6 Partial disposal of associates to available-for-sale financial assets
+When the Group loses significant influence over an associate, it measures any retained investment at fair value. A
+profit or loss is recognised at any difference between the fair value of any retained interest plus any proceeds from
+disposing part of the interests in the associate and the carrying amount of the investment at the date the equity
+method of accounting was discontinued. The amounts previously recognised in other comprehensive income by an
+associate should be reclassified to the consolidated income statement or transferred to another category of equity
+as specified and permitted by applicable IFRSS when the Group loses significant influence over the associate.
+140
+Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.7 Segment reporting
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+decision-makers, who are responsible for allocating resources and assessing performance of the operating
+segments and making strategic decisions. The chief operating decision-makers mainly include the executive
+directors.
+2.8 Foreign currency translation
+(a) Functional and presentation currency
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the “functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the PRC, the Group presents its consolidated financial statements
+in Renminbi ("RMB"), unless otherwise stated.
+(b)
+Transactions and balances
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised in the consolidated income statement.
+Changes in the fair value of debt securities denominated in foreign currency classified as available-for-sale
+financial assets are analysed between translation differences resulting from changes in the amortised cost
+of the securities, and other changes in the carrying amount of the securities. Translation differences related
+to changes in the amortised cost and interest income are recognised in the consolidated income statement,
+and other changes in carrying amount are recognised in other comprehensive income.
+Translation differences on non-monetary financial assets and liabilities such as equity instruments held at
+fair value through profit or loss are recognised in the consolidated income statement as part of the fair value
+gain or loss. Translation differences on non-monetary financial assets, such as equity instruments classified
+as available-for-sale financial assets, are included in other comprehensive income.
+Annual Report 2017
+141
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+2.8 Foreign currency translation (Cont'd)
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+143
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+147
+Annual Report 2017
+Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
+position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle
+on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right must
+not be contingent on future events and must be enforceable in the normal course of business and in the event of
+default, insolvency or bankruptcy of the company or the counterparty.
+2.16 Offsetting financial instruments
+Interest on loans and receivables and available-for-sale financial assets calculated using the effective
+interest method is recognised in the consolidated income statement as part of interest income. Dividends
+on available-for-sale financial assets are recognised in the consolidated income statement when the Group's
+right to receive payments is established.
+2.17 Impairment of financial assets
+Changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income.
+Financial assets are derecognised when the rights to receive cash flows from the investments have expired or
+have been transferred and the Group has transferred substantially all risks and rewards of ownership. When
+available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments recognised
+in other comprehensive income are included in the consolidated income statement as "Other gains/(losses),
+net".
+(b) Recognition and measurement
+2.15 Financial assets (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+2
+Tencent Holdings Limited
+146
+Investments are designated as available-for-sale financial assets if they do not have fixed maturities
+and fixed or determinable payments, and management intends to hold them for the medium to long-
+term. Financial assets that are not classified into any of the other categories are also included in the
+available-for-sale category. They are included in non-current assets unless management intends to
+dispose of the investment within 12 months after the end of the reporting period.
+(iii) Available-for-sale financial assets
+Regular way purchases and sales of investments are recognised on trade date - the date on which the Group
+commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction
+costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair
+value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the
+consolidated income statement. Available-for-sale financial assets and financial assets at fair value through
+profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at
+amortised cost using the effective interest method.
+Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
+not quoted in an active market. They are included in current assets, except for those with maturities
+greater than 12 months after the end of the reporting period which are classified as non-current assets.
+The Group's loans and receivables comprise "Accounts receivable”, “Deposits and other receivables",
+"Term deposits", "Restricted cash" and "Cash and cash equivalents" in the consolidated statement of
+financial position.
+The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset
+or a group of financial assets is impaired.
+(a) Assets carried at amortised cost
+149
+Annual Report 2017
+The Group documents at the inception of the transaction the relationship between hedging instruments and
+hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions.
+The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the
+derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash
+flows of hedged items.
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on
+whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The
+Group designates certain derivatives as either (i) hedges of the fair value of recognised assets or liabilities or a
+firm commitment (fair value hedges); (ii) hedges of a particular risk associated with the cash flows of a recognised
+asset or liability or a highly probable forecast transaction (cash flow hedges); or (iii) hedges of a net investment in a
+foreign operation (net investment hedges).
+2.18 Derivative financial instruments and hedging activities
+For debt securities, if any such evidence exists, the cumulative loss - measured as the difference between
+the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any
+impairment loss on that financial asset previously recognised in the consolidated income statement - is
+reclassified from equity and recognised in the consolidated income statement. If, in a subsequent period, the
+fair value of a debt instrument classified as available for sale increases and the increase can be objectively
+related to an event occurring after the impairment loss was recognised in the consolidated income statement,
+the impairment loss is reversed through the consolidated income statement.
+statement.
+For equity investments, a significant or prolonged decline in the fair value of the security below its cost is
+also considered as an indication that the assets are impaired. If any such evidence of impairment exists, the
+cumulative loss - measured as the difference between the acquisition cost and the current fair value, less
+any impairment loss on that financial asset previously recognised in the consolidated income statement - is
+removed from equity and recognised in the consolidated income statement. Impairment losses recognised in
+the consolidated income statement on equity instruments are not reversed through the consolidated income
+A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is
+objective evidence of impairment as a result of one or more events that occurred after the initial recognition of
+the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the
+financial asset or group of financial assets that can be reliably estimated.
+(b) Assets classified as available-for-sale financial assets
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+148
+If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
+objectively to an event occurring after the impairment was recognised (such as an improvement in the
+debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the
+consolidated income statement.
+For loans and receivables category, the amount of the impairment loss is measured as the difference
+between the asset's carrying amount and the present value of estimated future cash flows (excluding future
+credit losses that have not been incurred) discounted at the financial asset's original effective interest rate.
+The carrying amount of the asset is reduced and the amount of the impairment loss is recognised in the
+consolidated income statement. If a loan has a variable interest rate, the discount rate for measuring any
+impairment loss is the current effective interest rate determined under the contract. As a practical expedient,
+the Group may measure impairment on the basis of an instrument's fair value using an observable market
+price.
+Evidence of impairment may include indications that the debtor or a group of debtors is experiencing
+significant financial difficulty, default or delinquency in interest or principal payments, the probability that
+they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a
+measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions
+that correlate with defaults.
+2.17 Impairment of financial assets (Cont'd)
+Annual Report 2017
+Loans and receivables
+Financial assets at fair value through profit or loss are financial assets held for trading. A financial
+asset is classified in this category if acquired principally for the purpose of selling in the short term.
+Derivatives are classified as held for trading unless they are designated as hedges. Assets in this
+category are classified as current assets if expected to be settled within 12 months, otherwise they are
+classified as non-current.
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+144
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable
+amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised
+immediately as an expense and is not subsequently reversed.
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within
+the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the
+operating segment level.
+Goodwill arising on the acquisition of subsidiaries represents the excess of the consideration transferred
+over the Group's interest in net fair value of the identifiable assets, liabilities and contingent liabilities of the
+acquiree and the fair value of the non-controlling interests in the acquiree.
+(a) Goodwill
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.12 Intangible assets
+2.11 Land use rights
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts.
+Depreciation is calculated on the straight-line method to allocate their costs net of their residual values over their
+estimated useful lives of 20-50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+2.10 Investment properties
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease.
+(ii)
+2.12 Intangible assets (Cont'd)
+The licensed online contents mainly include video and music contents. They are initially recognised and
+measured at cost or estimated fair value as acquired through business combinations. Licensed online
+contents are amortised using a straight-line method or an accelerated method which reflects the estimated
+consumption patterns.
+(i) Financial assets at fair value through profit or loss
+The Group classifies its financial assets in the following categories: financial assets at fair value through
+profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on
+the purpose for which the financial assets were acquired, management's intentions and whether the assets
+are quoted in an active market. Management determines the classification of its financial assets at initial
+recognition.
+(a) Classification
+2.15 Financial assets
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+145
+(b) Licensed online contents
+Annual Report 2017
+2.14 Impairment of non-financial assets
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium".
+The consideration paid by the Share Scheme Trust (see Note 45(e)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as "Shares held for share award
+schemes" and the amount is deducted from total equity.
+2.13 Shares held for share award schemes
+Other intangible assets are amortised over their estimated useful lives (generally three to ten years) using the
+straight-line method which reflects the pattern in which the intangible asset's future economic benefits are
+expected to be consumed.
+Other intangible assets mainly include game licences, copyrights, computer software and technology and
+non-compete agreements. They are initially recognised and measured at cost or estimated fair value of
+intangible assets acquired through business combinations.
+Other intangible assets
+(c)
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances
+indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
+which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
+asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at
+the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets
+other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting
+date.
+2.31 Revenue recognition
+2.26 Borrowings and notes payable
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.28 Current and deferred income tax (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+153
+Annual Report 2017
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred
+income tax is not accounted for if it arises from initial recognition of goodwill or the initial recognition of an asset or
+liability in a transaction other than a business combination that at the time of the transaction neither accounting
+nor taxable profit or loss is affected. Deferred income tax is determined using tax rates (and laws) that have been
+enacted or substantively enacted by the end of the reporting period and are expected to apply when the related
+deferred income tax asset is realised or the deferred income tax liability is settled.
+Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
+available against which the temporary differences can be utilised.
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
+amounts expected to be paid to the tax authorities.
+2.28 Current and deferred income tax
+The Group either (i) accounts for different components of the compound financial instruments separately or (ii)
+designates the entire financial instruments as financial assets/liabilities at fair value through profit or loss. The host
+component is recognised initially at the difference between the fair value of the compound financial instrument as
+a whole and the fair value of the embedded derivatives. The subsequent measurement of the host component and
+embedded derivatives follow the respective accounting policy of financial instruments as stated in Notes 2.15 and
+2.18.
+Compound financial instruments held by the Group comprise instruments with redemption features of associates
+that can be converted to share capital at the option of the holder.
+2.27 Compound financial instruments
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income
+statement, except to the extent that it relates to items recognised in other comprehensive income or directly in
+equity. In this case, the tax is also recognised in other comprehensive income or in equity, respectively.
+Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates,
+except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by
+the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the
+Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement
+in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future,
+deferred tax liability in relation to taxable temporary differences arising from the associate's undistributed profit is
+not recognised.
+Deferred income tax assets are recognised on deductible temporary differences arising from investments in
+subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will
+reverse in the future and there is sufficient taxable profit available against which the temporary difference can be
+utilised.
+Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
+assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes
+levied by the same taxation authority on either the taxable entity or different taxable entities where there is an
+intention to settle the balances on a net basis.
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+155
+Annual Report 2017
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees and other qualifying
+participants as consideration for equity instruments (including share options and awarded shares) of
+the Group. The fair value of the employee services and other qualifying participants' services received in
+exchange for the grant of equity instruments of the Group is recognised as an expense over the vesting
+period, which is the period over which all of the specified vesting conditions are to be satisfied, and credited
+to share premium under equity.
+Share-based compensation benefits
+(c)
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund. The Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee services in the current and prior periods. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the plan prior to vesting fully in the contributions.
+Pension obligations
+(b)
+Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made
+for the estimated liability for annual leave as a result of services rendered by employees up to the end of
+the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time of
+leave.
+(a) Employee leave entitlements
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+2
+Tencent Holdings Limited
+154
+Tencent Holdings Limited
+152
+General and specific finance costs directly attributable to the acquisition and construction of qualifying assets,
+which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
+added to the cost of those assets, until such time as the assets are substantially ready for their intended use or
+sale. During the year ended 31 December 2017, finance cost capitalised was insignificant to the Group.
+Notes payable are classified as non-current liabilities unless the Group has an unconditional obligation to settle the
+liability within 12 months after the end of the reporting period.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+150
+The Group does not recognise cash amounts deposited with banks (which are received under its payment
+business) under users' entrustment in the consolidated statement of financial position as the Group holds these
+cash amounts as a custodian according to the relevant users' agreements.
+Cash and cash equivalents include cash in hand, deposits held at call with banks, money market funds and other
+short-term highly liquid investments with initial maturities of three months or less.
+2.21 Cash and cash equivalents and restricted cash
+Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method, less provision for impairment.
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. If collection of accounts receivable is expected in one year or less, they are classified
+as current assets. Otherwise, they are presented as non-current assets.
+2.20 Accounts receivable
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average
+method and are stated at the lower of cost and net realisable value.
+2.19 Inventories
+Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised
+immediately in the consolidated income statement in "Other gains/(losses), net".
+Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the
+consolidated income statement, together with any changes in the fair value of the hedged asset or liability that are
+attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated
+and qualified as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the
+ineffective portion is recognised immediately in the consolidated income statement within “Other gains/(losses),
+net". When the forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and
+losses previously deferred in equity are transferred from equity and included in the cost of the asset.
+2.18 Derivative financial instruments and hedging activities (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+2
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
+options are shown in equity as a deduction from the proceeds.
+Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
+liability for at least 12 months after the end of the reporting period.
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan facilities to the
+extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the
+draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn
+down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility to
+which it relates.
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their terms using the
+effective interest method.
+The financial guarantee is initially recognised in the financial statements at fair value on the date the guarantee was
+given. Subsequent to initial recognition, the Company's liabilities under such guarantee are measured at the higher
+of the initial carrying amount less amortisation of fees recognised in accordance with IAS 18, and the best estimate
+of the amount required to settle the guarantee.
+The financial guarantee contract of the Group is a contract that represents guarantee provided by the Group in
+respect of a put arrangement granted by an investee to the employees of its subsidiary.
+2.25 Financial guarantee contracts
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+151
+Annual Report 2017
+The put option liabilities are current liabilities unless the put option can only be exercised 12 months after the end
+of the reporting period.
+Put option is the financial instrument granted by the Group that the counterparty may have the right to request the
+Group to purchase its own equity instruments for cash or other financial assets when certain conditions are met. If
+the Group does not have the unconditional right to avoid delivering cash or another financial asset under the put
+option, it has to recognise a financial liability at the present value of the estimated future cash outflows under the
+put option. The financial liability is initially recognised at fair value. Subsequently, if the Group revises its estimates
+of payments, the Group will adjust the carrying amount of the financial liability to reflect actual and revised
+estimated cash outflows. The Group will recalculate the carrying amount by computing the present value of revised
+estimated future cash outflows at the financial instrument's original effective interest rate and the adjustments will
+be recognised as "Other gains/(losses), net" in the consolidated income statement. If the put option expires without
+delivery, the carrying amount of the liability is reclassified as equity.
+2.24 Put option liabilities
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or
+less. If not, they are presented as non-current liabilities.
+2.23 Accounts payable
+Where any Group company purchases the Company's equity instruments, the consideration paid, including
+any directly attributable incremental costs, is deducted from equity attributable to the Company's equity holders
+as treasury shares until the shares are cancelled or reissued. Where such shares are subsequently reissued,
+any consideration received (net of any directly attributable incremental transaction costs) is included in equity
+attributable to the Company's equity holders.
+2.22 Share capital
+2.29 Employee benefits (Cont'd)
+2.29 Employee benefits
+For grant of share options, the total amount to be expensed is determined by reference to the fair value of
+the options granted by using option-pricing model, “Enhanced FAS 123" binomial model (the "Binomial
+Model"), which includes the impact of market performance conditions (such as the Company's share price)
+but excludes the impact of service condition and non-market performance conditions. For grant of award
+shares, the total amount to be expensed is determined by reference to the market price of the Company's
+shares at the grant date. The Group also adopts valuation techniques to assess the fair value of other equity
+instruments of the Group granted under the share-based compensation plans as appropriate.
+The Group principally derives revenues from provision of VAS, online advertising services and other online related
+services in the PRC.
+(a) VAS
+Revenues from VAS are derived principally from the provision of online games, community value-added
+services and applications across various online platforms.
+The VAS can be paid directly by end users by way of online payment channels or utilising the prepaid cards
+and tokens (representing a specific amount of payment unit) issued by the Group. In addition, certain VAS
+are paid through various third parties platforms.
+The Group sells the prepaid credits through various channels such as sales agents appointed by the Group,
+telecommunication operators, third party platform providers, broadband service providers and Internet cafes,
+etc. The end users can register the prepaid credits to their user accounts on the Group's online platforms
+and then gain access to the Group's paid online products or services. Receipts from the sales of prepaid
+credits are deferred and recorded as "Deferred revenue" in the consolidated statement of financial position
+(see Note 37).
+Revenue is recognised from the provision of VAS when the services are rendered. Revenue is recognised
+from the virtual products/items on the Group's online platforms over the estimated lifespans of the respective
+virtual products/items. The estimated lifespans of different virtual products/items are determined by the
+management based on either the expected user relationship periods or the stipulated period of validity of the
+relevant virtual products/items depending on the respective term of virtual products/items.
+158
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.31 Revenue recognition (Cont'd)
+(a)
+In respect of the Group's VAS services directly delivered to the Group's customers and paid through various
+third parties platforms, these third party platforms collect the relevant service fees (the "Online Service Fees")
+on behalf of the Group and they are entitled to a pre-determined percentage of commission fees (as part
+of "Channel and distribution costs"). Such Channel and distribution costs are withheld and deducted from
+the gross Online Service Fees collected by these platforms from the users, with the net amounts remitted to
+the Group. The Group recognises the Online Service Fees as revenue on a gross basis, given it acts as the
+principal in these transactions, and recognises such Channel and distribution costs as cost of revenues.
+The Group also opens its online platforms to third-party game/application developers under certain co-
+operation agreements, of which the Group pays to the third-party game/application developers a pre-
+determined percentage of the fees paid by and collected from the users of the Group's online platforms for
+the virtual products/items purchased. The Group recognises the related revenue on a gross or net basis
+depending on whether the Group is acting as a principal or an agent in the transaction. The Group also
+defers the related revenue, either on a gross or net basis, over the estimated lifespans of the respective
+virtual products/items, given there is an implicit obligation of the Group to maintain and allow access of the
+users to the games/applications operated by the developers through its online platforms.
+Determining whether revenues of the Group should be reported gross or net is based on a continuing
+assessment of various factors. The primary factor is whether the Group acting as the principal in offering
+services to the customer or as an agent in the transaction. The Group has determined that it is acting as the
+principal in offering services wherever the Group (i) is the primary obligor in the arrangement; (ii) has latitude
+in establishing the selling price; (iii) has discretion in supplier selection; and (iv) has involvement in the
+determination of product or service specifications. The Group adopts different revenue recognition methods
+based on its specific responsibilities/obligations in different VAS offerings.
+Annual Report 2017
+159
+(c) Share-based compensation benefits (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2017
+VAS (Cont'd)
+157
+Non-market performance and services conditions are included in assumptions about the number of options
+that are expected to become vested.
+Notes to the Consolidated Financial Statements
+From the perspective of the Company, the Company grants its equity instruments to employees of its
+subsidiaries to exchange for their services related to the subsidiaries. Accordingly, the share-based
+compensation expenses, which are recognised in the financial statement, are treated as part of the
+"Investments in subsidiaries" in the Company's statement of financial position.
+At each reporting period end, the Group revise their estimates of the number of options and awarded shares
+that are expected to ultimately vest. It recognises the impact of the revision to original estimates, if any, in the
+consolidated income statement of the Group, with a corresponding adjustment made to equity.
+When the options are exercised, the proceeds received net of any directly attributable transaction costs are
+credited to share capital (nominal value) and share premium.
+Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.29 Employee benefits (Cont'd)
+156
+If the Group repurchases vested equity instruments, the payment made to the employee and other qualifying
+participants shall be accounted for as a deduction from equity, except to the extent that the payment
+exceeds the fair value of the equity instruments repurchased, measured at the repurchase date. Any such
+excess shall be recognised as an expense.
+If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the terms
+had not been modified. An additional expense is recognised for any modification that increases the total
+fair value of the share-based payment arrangement, or is otherwise beneficial to the employee and other
+qualifying participants, as measured at the date of modification.
+2.30 Provisions
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably
+estimated. Provisions are not recognised for further operating losses.
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
+specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+(c) Share-based compensation benefits (Cont'd)
+Annual Report 2017
+The Group's income and operating cash flows are substantially independent from changes in market
+interest rates and the Group has no significant interest-bearing assets except for loans to investees and
+investees' shareholders, term deposits with initial terms of over three months, restricted cash and cash
+and cash equivalents, details of which have been disclosed in Notes 25, 28 and 30.
+Long-term payables
+37,973
+7,492
+10,757
+13,832
+5,892
+RMB'Million
+At 31 December 2017
+3.1
+Financial risk factors (Cont'd)
+2,345
+(a) Market risk (Cont'd)
+(iii) Interest rate risk
+Notes payable
+905
+Accounts payable, other payables
+3,984
+65,651
+89,733
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 34 and 35, which representing a substantial
+portion of the Group's debts. Borrowings and notes payable carried at floating rates expose the Group
+to cash flow interest-rate risk whereas those carried at fixed rates expose the Group to fair value
+interest-rate risk.
+65,651
+staff costs and welfare accruals)
+from customers and others,
+734
+prepayments received
+106,089
+6,109
+71,663
+10,127
+18,190
+Borrowings
+and accruals (excluding
+The Group regularly monitors its interest rate risk to identify if there are any undue exposures to
+significant interest rate movements and manages its cash flow interest rate risk by using interest rate
+swaps, whenever considered necessary.
+3.1 Financial risk factors (Cont'd)
+As at 31 December 2017 and 2016, management considers that any reasonable changes in the
+interest rates would not result in a significant change in the Group's results as the Group's exposure to
+cash flow interest-rate risk arising from its borrowings and notes payable carried at floating rates after
+considering the effect of hedging is considered to be insignificant. Accordingly, no sensitivity analysis is
+presented for interest rate risk.
+(c) Liquidity risk
+The Group aims to maintain sufficient cash and cash equivalents and marketable securities. Due to the
+dynamic nature of the underlying businesses, the Group maintains flexibility in funding by maintaining
+adequate cash and cash equivalents and marketable securities.
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date.
+Less than
+RMB'Million
+Between
+FINANCIAL RISK MANAGEMENT (Cont'd)
+1 year
+Total
+RMB'Million
+RMB'Million
+Between
+2 and 5 years
+RMB'Million
+Over 5 years
+26,304
+1 and 2 years
+During the year ended 31 December 2017, the Group entered into certain interest rate swap contracts
+to hedge its exposure arising from its borrowings carried at floating rates. Under these interest rate
+swap contracts, the Group agreed with the counterparties to exchange, at specified interval, the
+difference between fixed contract rates and floating-rate interest amounts calculated by reference
+to the agreed notional amounts. These interest rate swap contracts have the economic effect of
+converting borrowings from floating rates to fixed rates and were qualified as hedging accounting. The
+Group's outstanding interest rate swap contracts as at 31 December 2017 have been detailed in Note
+26.
+3
+Tencent Holdings Limited
+Annual Report 2017
+165
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+3.1 Financial risk factors (Cont'd)
+Credit risk
+The Group is exposed to credit risk in relation to its cash and deposits placed with banks and financial
+institutions, other debt investments, as well as accounts and other receivables. The carrying amount of each
+class of these financial assets represents the Group's maximum exposure to credit risk in relation to the
+corresponding class of financial assets. To manage this risk, deposits are mainly placed with state-owned
+financial institutions in the PRC and reputable international financial institutions outside of the PRC. There
+has been no recent history of default in relation to these financial institutions.
+The Group has policies in place to ensure that revenues of on credit terms are made to counterparties with
+an appropriate credit history and the management performs ongoing credit evaluations of its counterparties.
+The Group's online advertising that are sales to/through advertising agencies or directly to the advertisers at
+term of full advances, partial advances or sales on credit according to the Group's credit policies. The credit
+period granted to the customers is usually not more than 90 days and the credit quality of these customers
+are assessed, which takes into account their financial position, past experience and other factors. Provisions
+are made for past due balances when management considers the loss from the customers is likely. The
+Group's historical experience in collection of receivables falls within the recorded allowances.
+The Group's revenues from VAS are generally paid by end users by way of online payment channels or
+utilising the prepaid cards and tokens issued and sold by the Group, whereas the revenue from VAS that
+delivered to its end users through third party platforms were collected by these third party platform providers
+and remitted to the Group under a credit period of 30 to 120 days. In addition, the Group also sold prepaid
+credits through various channels such as sales agents, telecommunication operators, third party platform
+providers and Internet cafes, etc. Apart from certain credit periods granted to the telecommunication
+operators and third party platform providers, full advances were required from other channels.
+In view of the history of co-operation with these third party platform providers and telecommunication
+operators, and the sound financial position and collection history of receivables due from these
+counterparties, management believes that the credit risk inherent in the Group's outstanding accounts
+receivable balances from these counterparties is low (see Note 29 for details).
+166
+(b)
+83,325
+Total debts
+213,697
+2016
+RMB'Million
+RMB'Million
+97,790
+69,827
+34,115
+2017
+39,670
+109,497
+95,861
+66,863
+1.38
+1.64
+Adjusted EBITDA represents operating profit less interest income and other gains/ losses, net, and plus depreciation of property,
+plant and equipment and investment properties, amortisation of intangible assets and equity-settled share-based compensation
+131,905
+expenses.
+As at 31 December
+Total debts/Adjusted EBITDA ratio
+Notes payable (Note 35)
+Borrowings (Note 34)
+The Group monitors capital by regularly reviewing debts to adjusted earnings before interest, tax, depreciation
+and amortisation ("EBITDA") (Note) ratio, being the measure of the Group's ability to pay off all debts that reflects
+financial health and liquidity position. The total debts/adjusted EBITDA ratio calculated by dividing the total debts
+by adjusted EBITDA is as follows:
+Capital refers to equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+The Group's objectives on managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+3.2 Capital risk management
+Note:
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+167
+Annual Report 2017
+163,474
+12,508
+3
+The movement in the ratio is mainly caused by higher adjusted EBITDA compared to prior financial year.
+168
+Tencent Holdings Limited
+13,520
+Borrowings
+5,100
+917
+2,178
+2,005
+6,464
+Long-term payables
+8,224
+26,603
+6,444
+4,738
+Notes payable
+At 31 December 2016
+46,009
+51,110
+3,367
+74,461
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+Adjusted EBITDA (Note)
+79,891
+14,913
+56,162
+37,904
+37,904
+staff costs and welfare accruals)
+customers and others,
+prepayments received from
+and accruals (excluding
+Accounts payable, other payables
+14,335
+3
+RMB'Million
+Tencent Holdings Limited
+(c)
+The Group recognises (i) revenue from performance-based advertising when relevant specific performance
+measures (such as delivery of pay-for-click, pay-for-download etc.) are fulfilled; and (ii) revenue from display-
+based advertising on number of display/impression basis or ratably over the respective contractual term
+with the advertisers or their advertising agencies, depending on the contractual measures, when the related
+advertisements are displayed.
+Online advertising revenues mainly comprise revenues derived from media advertisements and from social
+and others advertisements, depending on the placement of advertising properties and inventories.
+Online advertising
+(b)
+2.31 Revenue recognition (Cont'd)
+Other revenues
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2017 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+•
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
+Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
+(level 3).
+For the year ended 31 December 2017
+As at 31 December 2017
+The Group's other revenues are primarily derived from provision of payment related services for individual
+and corporate users, cloud services and others. The Group recognises revenue when the service is rendered
+and the underlying transaction is completed.
+Interest income is recognised on a time proportion basis, taking into account of the principal outstanding and the
+effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group.
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or board of
+directors where appropriate.
+2.36 Dividends distribution
+Leases in which a significant portion of the risks and rewards of ownership are retained by lessors are classified
+as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
+charged to the consolidated income statement on a straight-line basis over the period of the lease.
+2.35 Leases
+Under these circumstances, the grants/subsidies are recognised as income or matched with the associated costs
+and expenses which the grants/subsidies are intended to compensate.
+Grants/Subsidies from government are recognised at their fair value where there is a reasonable assurance that the
+grants/subsidies will be received and the Group will comply with all attached conditions.
+2.32 Interest income
+2.34 Government grants/subsidies
+2.33 Dividend income
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+160
+Dividends are recognised as income when the right to receive payment is established. This applies even if
+they are paid out of pre-acquisition profit. However, the investment may need to be tested for impairment as a
+consequence.
+2.37 Research and development expenses
+Level 1
+RMB'Million
+RMB'Million
+508
+63,303
+83,806
+Other financial assets
+1,113
+2,296
+19,995
+3,409
+2,576
+2,576
+The fair value of financial instruments traded in active markets is determined based on quoted market prices at
+the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available
+from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
+actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for
+financial assets held by the Group is the current bid price. These instruments are included in level 1.
+Annual Report 2017
+169
+For the year ended 31 December 2017
+Other financial liabilities
+Level 2
+Available-for-sale financial assets
+2,154
+Level 3
+RMB'Million
+Total
+RMB'Million
+Available-for-sale financial assets
+53,574
+331
+As at 31 December 2016
+73,313
+Other financial assets
+- 1,806
+3,818
+5,624
+Other financial liabilities
+2,154
+127,218
+Research expenditure is recognised as an expense as incurred.
+Costs incurred on development projects (relating to the design and testing of new or improved products) are
+capitalised as intangible assets when recognition criteria are fulfilled and tests for impairment are performed
+annually. Other development expenditures that do not meet those criterias are recognised as expenses as incurred.
+Development costs previously recognised as expenses are not recognised as assets in subsequent periods.
+Annual Report 2017
+(5,470)
+(276)
+(177)
+(3,365)
+1,035
+8,606
+4,965
+Monetary liabilities, non-current
+Monetary assets, current
+As at 31 December 2016
+(19,296)
+10,524
+(5,115)
+(1,833)
+Monetary liabilities, current
+Monetary liabilities, non-current
+(4,612)
+Annual Report 2017
+164
+The Group is exposed to price risk mainly arising from investments that are classified as available-
+for-sale financial assets held by the Group (Note 24). To manage its price risk arising from the
+investments, the Group diversifies its investment portfolio. The investments are made either for
+strategic purposes, or for the purpose of achieving investment yield and balancing the Group's liquidity
+level simultaneously. Each investment is managed by senior management on a case by case basis.
+Sensitivity analysis is performed by management to assess the exposure of the Group's financial results
+to equity price risk of available-for-sale financial assets at the end of each reporting period. If equity
+prices of the respective instruments held by the Group had been 5% (2016: 5%) higher/lower as at 31
+December 2017, the other comprehensive income would have been approximately RMB4,069 million
+(2016: RMB3,879 million) higher/lower.
+Price risk
+At 31 December 2017, management considers that any reasonable changes in foreign exchange
+rates of the above currencies against the two major functional currencies would not result in a
+significant change in the Group's results, as the net carrying amounts of financial assets and liabilities
+denominated in a currency other than the respective Group's subsidiaries' function currency are
+considered to be insignificant, given the exchange rate peg between HKD and USD. Accordingly, no
+sensitivity analysis is presented for foreign exchange risk (2016: Nil).
+(ii)
+Foreign exchange risk (Cont'd)
+During the year ended 31 December 2017, the Group reported exchange gains of approximately
+RMB152 million (2016: exchange gains of approximately RMB212 million) within "Finance costs, net"
+in the consolidated income statement.
+(i)
+3.1 Financial risk factors (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+163
+(a) Market risk (Cont'd)
+(15,744)
+(2,747)
+Monetary liabilities, current
+162
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures and tries to minimise these exposures through natural hedges, wherever possible,
+and may enter into forward foreign exchange contracts, when necessary.
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to RMB, Hong Kong Dollars ("HKD"), USD and Euro
+("EUR"). Foreign exchange risk arises when future commercial transactions or recognised assets and
+liabilities are denominated in a currency that is not the respective functional currency of the Group's
+subsidiaries. The functional currency of the Company and majority of its overseas subsidiaries is USD
+whereas the functional currency of the subsidiaries which operate in the PRC is RMB.
+Foreign exchange risk
+(i)
+Market risk
+Tencent Holdings Limited
+(a)
+3.1 Financial risk factors
+FINANCIAL RISK MANAGEMENT
+3
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+161
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price
+risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to
+minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out
+by the senior management of the Group.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+1,309
+Monetary assets, non-current
+1,563
+13,795
+Monetary assets, current
+As at 31 December 2017
+RMB'Million
+Non-USD
+denominated
+denominated
+USD
+As at 31 December 2017, the Group's major monetary assets and liabilities that exposed to foreign
+exchange risk are listed below:
+Foreign exchange risk (Cont'd)
+(i)
+(a) Market risk (Cont'd)
+3.1 Financial risk factors (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+3.3 Fair value estimation
+As mentioned in Note 2.29(c), the Group has granted share options to its employees and other qualifying
+participants. The directors have adopted the Binomial Model to determine the total fair value of the options
+granted, which is to be expensed over the respective vesting periods. Significant judgement on parameters, such
+as risk free rate, dividend yield and expected volatility, is required to be made by the directors in applying the
+Binomial Model (Note 33).
+For the year ended 31 December 2017
+Revenues
+- Mainland China
+- Others
+2017
+RMB'Million
+2016
+RMB'Million
+229,767
+7,993
+144,371
+7,567
+237,760
+151,938
+Annual Report 2017
+177
+(iii)
+Notes to the Consolidated Financial Statements
+179
+Annual Report 2017
+Mainland China and Hong Kong
+Investments
+- Others
+- Mainland China
+Operating assets
+The Group also conducts operations in the United States, Europe and other regions, and holds investments (including
+investments in associates, investments in redeemable instruments of associates, investments in joint ventures and
+available-for-sale financial assets) in various territories. The geographical information on the total assets is as follows:
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in Mainland China.
+During the years ended 31 December 2017 and 2016, the place of incorporation on the total revenues is as follows:
+5 SEGMENT INFORMATION (Cont'd)
+Notes to the Consolidated Financial Statements
+gains of approximately RMB5,736 million on dilution of the Group's equity interests in certain associates which are
+principally engaged in online insurance business, online game business and search engine business, as a result of new
+shares issued by these associates upon their respective initial public offerings (Note 20);
+a gain of approximately RMB3,663 million arising from deemed disposal of an investment in redeemable instruments of
+associates which is principally engaged in the provision of automobile financing transaction services and re-designation of
+it as investment in associates due to the conversion of the redeemable instruments of the associate into ordinary shares
+upon its initial public offering;
+net gains of approximately RMB493 million on dilution of the Group's equity interests in certain associates due to new
+equity interests being issued by these associates (Note 20). These associates are principally engaged in Internet-related
+business; and
+aggregate net gains of approximately RMB3,626 million on disposal, acquisition achieved in stages or partial disposal of
+various investments of the Group.
+There are no unfulfilled conditions or contingencies related to these subsidies and tax rebates.
+For the year ended 31 December 2017
+- North America
+8,277
+2,982
+17,837
+176
+Tencent Holdings Limited
+5
+SEGMENT INFORMATION (Cont'd)
+Segment revenues
+Gross profit
+Depreciation
+Amortisation
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Year ended 31 December 2016
+VAS Online advertising
+Others
+Total
+RMB'Million
+RMB'Million
+2,591
+537
+200
+1,854
+84,499
+2,737
+5,295
+11,574
+151,938
+17,158
+26,970
+107,810
+RMB'Million
+RMB'Million
+70,188
+10,001
+- Europe
+- Others
+RMB'Million
+Gains on disposals and deemed disposals of investee companies (Note (a))
+13,518
+6,966
+Fair value gains on other financial instruments (Note 26)
+Subsidies and tax rebates (Note (b))
+Impairment provision for investee companies and intangible assets
+from acquisition (Note (c))
+Dividend income
+4,298
+658
+3,971
+380
+Donations to Tencent Charity Funds
+Others
+(2,794)
+(4,809)
+(ii)
+The disposal and deemed disposal gains during the year ended 31 December 2017 mainly comprised the following:
+(b)
+(i)
+(a)
+Note:
+RMB'Million
+3,594
+406
+254
+(570)
+(820)
+563
+1,713
+20,140
+- Asia excluding Mainland China and Hong Kong
+2016
+For the year ended 31 December 2017
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+222,714
+175,642
+60,159
+56,152
+158,474
+108,715
+52,392
+22,310
+34,276
+21,645
+26,407
+11,322
+Notes to the Consolidated Financial Statements
+OTHER GAINS, NET
+7
+Tencent Holdings Limited
+178
+Interest income mainly represents interest income from bank deposits, including bank balance and term deposits.
+2017
+INTEREST INCOME
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues during the
+years ended 31 December 2017 and 2016.
+As at 31 December 2017, the total non-current assets other than financial instruments and deferred tax assets located
+in Mainland China and other regions amounted to RMB159,563 million (2016: RMB117,415 million) and RMB42,421
+million (2016: RMB19, 115 million), respectively.
+395,899
+554,672
+113
+250
+6
+7,836
+(iv)
+1,473
+2,154
+65,599
+77,131
+Closing balance
+20
+(151)
+2,478
+(4,282)
+Currency translation differences
+(708)
+(581)
+Impairment provision
+(98)
+(271)
+5,651
+10,247
+Changes in fair value
+RMB'Million
+RMB'Million
+Opening balance
+65,599
+27,947
+2,576
+2,576
+Additions
+30,757
+2,557
+Disposals and transfers/settlements
+(25,647)
+(526)
+(491)
+31,795
+RMB'Million
+Tencent Holdings Limited
+3
+4
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+173
+Annual Report 2017
+The fair value assessment of available-for-sale financial assets and other financial assets that are measured at level
+3 fair value hierarchy requires significant estimates, which include estimating the future cash flows, determining
+appropriate discount rates and other assumptions. Changes in these assumptions and estimates could materially
+affect the respective fair value of these investments. The Group monitors its investments for impairment by
+considering factors including, but not limited to, current economic and market conditions, recent fund raising
+transactions undertaken by the investees, the operating performance of the investees including current earnings
+trends and other company-specific information.
+(c) Fair value measurement of available-for-sale financial assets and other financial assets
+3,892
+(b) Recoverability of non-financial assets and investments in redeemable instruments of associates
+The Group tests annually whether goodwill has suffered any impairment. Goodwill and other non-financial assets,
+mainly including property, plant and equipment, construction in progress, other intangible assets, investment
+properties, land use rights, and investments in associates and joint ventures, as well as investments in redeemable
+instruments of associates are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount may not be recoverable. The recoverable amounts have been determined based on value-in-
+use calculations or fair value less costs to sell. These calculations require the use of judgements and estimates.
+Judgement is required to identify any impairment indicators existing for any of the Group's goodwill, other non-
+financial assets and investments in redeemable instruments of associates, to determine appropriate impairment
+approaches, i.e., fair value less costs of disposal or value in use, for impairment review purposes, and to select
+key assumptions applied in the adopted valuation models, including discounted cash flows and market approach.
+Changing the assumptions selected by management in assessing impairment could materially affect the result
+of the impairment test and in turn affect the Group's financial condition and results of operations. If there is a
+significant adverse change in the key assumptions applied, it may be necessary to take additional impairment
+charge to the consolidated income statement.
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Cont'd)
+CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+172
+The Group will continue to monitor the average lifespans of the virtual products/items. The results may differ from
+the historical period, and any change in the estimates may result in the revenue being recognised on a different
+basis from that in prior periods.
+Significant judgements are required in determining the expected users' relationship periods, including but not
+limited to historical users' consumption patterns, churn out rate and reactivity on marketing activities, games life-
+cycle, and the Group's marketing strategy. The Group has adopted a policy of assessing the estimated lifespans
+of virtual products/items on a regular basis whenever there is any indication of change in the expected users'
+relationship periods.
+As mentioned in Note 2.31(a), the end users purchase certain virtual products/items provided on the Group's
+online platforms and the relevant revenue is recognised based on the estimated lifespans of the virtual products/
+items. The estimated lifespans of different virtual products/items are determined by the management based on
+either the expected users' relationship periods or the stipulated period of validity of the relevant virtual products/
+items depending on the respective terms of virtual products/items.
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.3 Fair value estimation (Cont'd)
+Valuation processes of the Group (Level 3)
+The Group has a team of personnel who performs valuation on these level 3 instruments for financial reporting
+purposes. The team performs valuation, or necessary updates, at least once every quarter, which coincides
+with the Group's quarterly reporting dates. On an annual basis, the team adopts various valuation techniques to
+determine the fair value of the Group's level 3 instruments. External valuation experts may also be involved and
+consulted when it is necessary.
+The components of the level 3 instruments mainly include investments in private investment funds and unlisted
+companies, convertible bonds and other financial instruments. As these instruments are not traded in an active
+market, their fair values have been determined using various applicable valuation techniques, including discounted
+cash flows approach, comparable transactions approach, and other option pricing models, etc. Major assumptions
+used in the valuation include historical financial results, assumptions about future growth rates, estimates of
+weighted average cost of capital (WACC), recent market transactions, discount for lack of marketability and other
+exposure etc. Other financial liabilities include guarantee provided by the Group on certain put arrangements of
+an associate and put options issued by the Group to certain investors of the associate, at a pre-determined pricing
+formula. The fair value of these instruments determined by the Group requires significant judgement, including
+the likelihood of non-performing by the investee company, financial performance of the investee company, market
+value of comparable companies as well as discount rate, etc.
+Annual Report 2017
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+171
+For the year ended 31 December 2017
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
+Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
+expectations of future events that are believed to be reasonable under the circumstances.
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk
+of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
+addressed below:
+(a) The estimates of the lifespans of virtual products/items provided on the Group's online platforms
+Notes to the Consolidated Financial Statements
+RMB'Million
+588
+2017
+175
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+5
+SEGMENT INFORMATION (Cont'd)
+2016
+There were no material inter-segment sales during the years ended 31 December 2017 and 2016. The revenues from
+external customers reported to the chief operating decision-makers are measured in a manner consistent with that
+applied in the consolidated income statement.
+Other information, together with the segment information, provided to the chief operating decision-makers, is measured
+in a manner consistent with that applied in these consolidated financial statements. There were no segment assets and
+segment liabilities information provided to the chief operating decision-makers.
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2017 and 2016 is as follows:
+Year ended 31 December 2017
+VAS
+RMB'Million
+Online
+advertising
+RMB'Million
+Others
+Total
+RMB'Million
+RMB'Million
+561
+1,858
+Amortisation
+Depreciation
+116,925
+9,478
+Annual Report 2017
+14,853
+Gross profit
+237,760
+43,338
+40,439
+153,983
+Segment revenues
+92,594
+"Others" primarily comprises payment related services for individual and corporate users, cloud services and other
+services.
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit of each operating segment. The selling and marketing expenses and general and administrative
+expenses are common costs incurred for these operating segments as a whole and therefore, they are not included
+in the measure of the segments' performance which is used by the chief operating decision-makers as a basis for the
+purpose of resource allocation and assessment of segment performance. Interest income, other gains/(losses), net,
+finance income/(costs), net, share of profit/(loss) of associates and joint ventures and income tax expense are also not
+allocated to individual operating segment.
+Online advertising; and
+2016
+2017
+Financial liabilities
+Financial assets
+170
+During the year ended 31 December 2017, there was no transfer between level 1 and 2 for recurring fair value
+measurements. For transfers in and out of level 3 measurements see the following table, which presents the
+changes of financial instruments in level 3 instruments for the years ended 31 December 2017 and 2016:
+Others.
+instruments.
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows
+based on observable yield curves; and
+Dealer quotes for similar instruments;
+•
+•
+If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
+Specific valuation techniques used to value financial instruments include:
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in level 2.
+(d) Share-based compensation arrangements
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.3 Fair value estimation (Cont'd)
+VAS;
+The Group has following reportable segments for the years ended 31 December 2017 and 2016:
+The chief operating decision-makers mainly include executive directors of the Company. They review the Group's internal
+reporting in order to assess performance, allocate resources, and determine the operating segments based on these
+reports.
+SEGMENT INFORMATION
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+5
+174
+The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining
+the worldwide provision for income taxes. Where the final tax outcome of these matters is different from the
+amounts that were initially recorded, such differences will impact current income tax and deferred income tax in
+the period in which such determination is made.
+(e) Income taxes
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate”) in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2017, the Expected Retention Rate of the Group and its wholly-owned subsidiaries was assessed to be
+88%-97% (2016: 88%-96%).
+The fair value of share options granted to employees and other qualifying participants determined using the
+Binomial Model was approximately HKD2,691 million (equivalent to approximately RMB2,373 million) in 2017
+(2016: HKD668 million (equivalent to approximately RMB560 million)).
+3
+Tencent Holdings Limited
+10,193
+RMB'Million
+15,744
+(598)
+10,791
+15,154
+590
+RMB'Million
+2016
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Deferred income tax (Note 27)
+Current income tax
+The income tax expense of the Group are analysed as follows:
+(a) Income tax expense (Cont'd)
+11 TAXATION (Cont'd)
+The taxation on the Group's profit before income tax differs from the theoretical amount that would arise using the
+tax rate of 25% for the year (2016: 25%), being the tax rate of the major subsidiaries of the Group before enjoying
+preferential tax treatments, as follows:
+2017
+2017
+1,157
+RMB'Million
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption
+of the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted
+by the Company (collectively forming the denominator for computing the diluted EPS). No adjustment is made to
+earnings (numerator).
+(b) Diluted
+4.383
+7.598
+Basic EPS (RMB per share)
+9,376
+9,411
+Weighted average number of ordinary shares in issue (million shares)
+41,095
+71,510
+In addition, the share options and restricted shares granted by the Company's non-wholly owned subsidiaries and
+associates should also have potential dilutive effect on the EPS. During the years ended 31 December 2017 and
+2016, these share options and restricted shares had either anti-dilutive effect or insignificant dilutive effect to the
+Group.
+Profit attributable to equity holders of the Company (RMB’Million)
+2017
+Basic earnings per share ("EPS") is calculated by dividing the profit attributable to equity holders of the Company
+by the weighted average number of ordinary shares in issue during the
+year.
+(a) Basic
+12 EARNINGS PER SHARE
+Net VAT payable amount
+5%
+Educational surcharge
+Net VAT payable amount
+7%
+City construction tax
+2016
+184
+Tencent Holdings Limited
+12 EARNINGS PER SHARE (Cont'd)
+Wages, salaries and bonuses
+RMB'Million
+RMB'Million
+2016
+2017
+4.329
+7.499
+9,494
+9,536
+118
+125
+9,411
+41,095
+71,510
+2016
+2017
+For the year ended 31 December 2017
+13 EMPLOYEE BENEFITS EXPENSES
+Diluted EPS (RMB per share)
+Weighted average number of ordinary shares in issue (million shares)
+Adjustments for share options and awarded shares (million shares)
+Weighted average number of ordinary shares for the calculation of
+diluted EPS (million shares)
+Profit attributable to equity holders of the Company (RMB'Million)
+Notes to the Consolidated Financial Statements
+(b) Diluted (Cont'd)
+Taxable advertising income
+2016
+3%
+offsetting by VAT on purchases
+Expenses not deductible for tax purposes
+(112)
+(25)
+Income not subject to tax
+(496)
+(715)
+Effects of tax holiday on assessable profit of certain subsidiaries
+(6,191)
+(10,442)
+Effects of different tax rates applicable to different subsidiaries of the Group
+1,087
+13,540
+Tax calculated at a tax rate of 25%
+54,162
+87,394
+2,522
+(821)
+51,640
+88,215
+Share of (profit)/loss of associates and joint ventures
+Profit before income tax
+RMB'Million
+21,848
+Withholding tax on earnings expected to be remitted by
+subsidiaries (Note 27)
+Unrecognised deferred income tax assets
+Sales value of goods sold and services fee income,
+6-17%
+Basis of levy
+Tax rate
+Value-added tax ("VAT")
+Category
+The operations of the Group are also mainly subject to the following taxes in the PRC:
+(b) Value-added tax and other taxes
+11 TAXATION (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+183
+Annual Report 2017
+10,193
+15,744
+(91)
+(163)
+686
+1,004
+1,700
+3,150
+Income tax expense
+Others
+Construction fee for cultural undertakings
+9,376
+FINANCE COSTS, NET
+182
+34,866
+23,433
+Content costs (excluding amortisation of intangible assets)
+28,177
+17,734
+Channel and distribution costs
+25,109
+13,133
+Bandwidth and server custody fees
+11,203
+7,876
+Promotion and advertising expenses
+13,661
+9,219
+Operating lease rentals in respect of office buildings
+1,335
+1,117
+Travelling and entertainment expenses
+1,040
+800
+Amortisation of intangible assets (Note (b) and Note 19)
+18,622
+8,930
+Depreciation of property, plant and equipment (Note 16)
+4,850
+3,699
+Auditor's remuneration
+- Audit services
+- Audit-related services
+Employee benefits expenses (Note (a) and Note 13)
+- Non-audit services
+RMB'Million
+2016
+24,194
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+7
+OTHER GAINS, NET (Cont'd)
+Note: (Cont'd)
+(c)
+The impairment provision for investee companies and intangible assets arising from acquisitions was mainly set up against the
+carrying amounts of the following items:
+Investments in associates (Note 20)
+Investments in redeemable instruments of associates (Note 22)
+Available-for-sale financial assets (Note 24)
+Others (Note 19)
+8
+EXPENSES BY NATURE
+2017
+2016
+RMB'Million
+RMB'Million
+1,277
+2,117
+607
+1,298
+671
+1,028
+239
+366
+2,794
+4,809
+2017
+RMB'Million
+76
+46
+15
+730
+91
+(2,549)
+27
+821
+(2,522)
+11 TAXATION
+(a) Income tax expense
+Income tax expense is recognised based on management's best knowledge of the income tax rates expected for
+the financial year.
+(i)
+Cayman Islands and British Virgin Islands corporate income tax
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2017 and 2016.
+(ii)
+Hong Kong profit tax
+Hong Kong profit tax has been provided for at the rate of 16.5% on the estimated assessable profit for the
+years ended 31 December 2017 and 2016.
+Annual Report 2017
+181
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+11 TAXATION (Cont'd)
+(a) Income tax expense (Cont'd)
+(iii) PRC corporate income tax
+PRC corporate income tax has been provided for at applicable tax rates under the relevant regulations
+of the PRC after considering the available preferential tax benefits from refunds and allowances, and on
+the estimated assessable profit of entities within the Group established in the PRC for the years ended 31
+December 2017 and 2016. The general PRC corporate income tax rate is 25% in 2017.
+Certain subsidiaries of the Group in the PRC were approved as High and New Technology Enterprise, and
+accordingly, they were subject to a reduced preferential corporate income tax rate of 15% for the years
+ended 31 December 2017 and 2016. Moreover, according to announcement and circular issued by relevant
+government authorities, for the year of 2015 and beyond, a software enterprise that qualifies as a national
+key software enterprise shall file its status with tax authorities for review and record in accordance with the
+relevant requirements at the time of final tax settlement each year in order to enjoy the preferential tax rate of
+10%. The PRC corporate income tax for the relevant subsidiaries of the Company filing for this preferential
+tax treatment has been provided for at their respective prevailing tax rates during the year. Upon receipt of
+notification, the relevant subsidiaries of the Company will be entitled to corporate income tax rate of 10% and
+corresponding tax adjustments will be accounted for.
+In addition, according to relevant tax circulars issued by the PRC tax authorities, certain subsidiaries of the
+Company are entitled to other tax concessions and they are exempt from corporate income tax for two years,
+followed by a 50% reduction in the applicable tax rates for the next three years, commencing from the first
+year of profitable operation, after offsetting tax losses generated in prior years.
+(iv) Corporate income tax in other countries
+(v)
+Income tax on profit arising from other jurisdictions, including the United States, Europe, East Asia and South
+America has been calculated on the estimated assessable profit for the year at the respective rates prevailing
+in the relevant jurisdictions, ranging from 12.5% to 36%.
+Withholding tax
+According to applicable tax regulations prevailing in the PRC, dividends distributed by a company established
+in the PRC to a foreign investor with respect to profit derived after 1 January 2008 are generally subject
+to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong, under the double taxation
+arrangement between the Mainland China and Hong Kong, the relevant withholding tax rate applicable to the
+Group will be reduced from 10% to 5% subject to the fulfilment of certain conditions.
+Dividends distributed from certain jurisdictions that the Group's entities operate in are also subject to
+withholding tax at respective applicable tax rates.
+RMB'Million
+RMB'Million
+2016
+2017
+13
+21
+16
+Note:
+(a)
+(b)
+During the year ended 31 December 2017, the Group incurred expenses for the purpose of research and development of
+approximately RMB17,456 million (2016: RMB11,845 million), which comprised employee benefits expenses of RMB14,766
+million (2016: RMB9,290 million).
+No significant development expenses had been capitalised for the years ended 31 December 2017 and 2016.
+Mainly included the amortisation charges of intangible assets in respect of media contents and game licences.
+180
+Tencent Holdings Limited
+9
+Interest and related expenses
+Exchange gains
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2017
+2016
+RMB'Million
+RMB'Million
+3,060
+2,167
+(152)
+(212)
+2,908
+1,955
+Interest and related expenses mainly arose from the borrowings and notes payable disclosed in Notes 34 and 35.
+10 SHARE OF PROFIT/(LOSS) OF ASSOCIATES AND JOINT VENTURES
+Share of profit/(loss) of associates (Note 20)
+Share of profit of joint ventures (Note 23)
+For the year ended 31 December 2017
+15,626
+189
+1,934
+HKD310,500,001 – HKD311,000,000
+HKD262,500,001 – HKD263,000,000
+HKD231,000,001 – HKD231,500,000
+HKD228,500,001 – HKD229,000,000
+Emolument bands
+The emoluments of the above four individuals (2016: four) fell within the following bands:
+(b) Five highest paid individuals (Cont'd)
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+187
+Annual Report 2017
+926,422
+1,142,171
+33
+39
+758
+608,757
+805,807
+10,909
+316,874
+325,416
+HKD430,000,001 – HKD430,500,000
+2016
+RMB'000
+HKD477,500,001 – HKD478,000,000
+(a) Directors' and the chief executive's emoluments
+1,176
+Ma Huateng (CEO)
+RMB'000
+Total
+in kind
+RMB'000
+(Note (i))
+RMB'000
+Allowances
+and benefits
+Salaries and Contributions to compensation
+bonuses pension plans expenses
+RMB'000 RMB'000
+RMB'000
+Fees
+Name of director
+Share-based
+1
+2|--
+1
+1
+| 21 ||
+2016
+2017
+Number of individuals
+The remuneration of every director and the CEO is set out below:
+During the year ended 31 December 2017:
+14 BENEFITS AND INTERESTS OF DIRECTORS
+2017
+RMB'000
+Allowances and benefits in kind
+Share-based compensation expenses
+227,989
+285,322
+891
+2016
+RMB'000
+2017
+RMB'000
+Tencent Holdings Limited
+186
+Share-based compensation expenses
+Contributions to pension plans
+Salaries, bonuses, allowances and benefits in kind
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services excluding the directors and the
+CEO, whose details have been reflected in Note 14(a), is as follows:
+0.5-1.5%
+10.0-12.0%
+6.0 - 11.5%
+12.0 - 20.0%
+Percentage
+(a) Senior management's emoluments
+Housing fund
+Unemployment insurance
+Medical insurance
+Pension insurance
+Majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred.
+The applicable percentages used to provide for these social security plans for the years ended 31 December 2017 and 2016 are listed
+below:
+Note:
+1,174,316
+826
+776,788
+1,460,529
+1,005,603
+Contributions to pension plans
+Salaries and bonuses
+The five individuals whose emoluments were the highest in the Group include one director during the year 2017
+(2016: one). All of these individuals including that one director (Note 14(a)) have not received any emolument
+from the Group as an inducement to join the Group during the years ended 31 December 2017 and 2016. The
+emoluments paid/payable to the remaining four (2016: four) individuals during the year were as follows:
+(b) Five highest paid individuals
+HKD215,000,001 – HKD615,000,000
+125 22
+114412
+1
+2016
+2017
+44,656
+Number of individuals
+HKD65,000,001 – HKD115,000,000
+HKD40,000,001 – HKD65,000,000
+HKD15,000,001 – HKD40,000,000
+HKD800,000 - HKD15,000,000
+Emolument bands
+The emoluments of the senior management fell within the following bands:
+(a) Senior management's emoluments (Cont'd)
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+HKD115,000,001 – HKD165,000,000
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+105
+Lau Chi Ping Martin
+2,969
+716
+lan Charles Stone
+3,896
+3,001
+895
+lain Ferguson Bruce
+122,017
+61
+93,875
+26,832
+1,249
+Lau Chi Ping Martin
+38,821
+19
+94
+37,459
+1,249
+Ma Huateng (CEO)
+(Note (i))
+RMB'000
+3,685
+RMB'000
+Li Dong Sheng
+1,438
+Mr Yang Siu Shun was appointed as independent non-executive director with effect from 1 July 2016.
+No director received any emolument from the Group as an inducement to join or leave the Group or compensation for
+loss of office. No director waived or has agreed to waive any emoluments during the years ended 31 December 2017 and
+2016.
+During the year ended 31 December 2017, 5,250,000 options were granted to one executive director of the Company
+(2016: 3,750,000 options were granted to one executive director of the Company), and 60,000 awarded shares were
+granted to four independent non-executive directors of the Company (2016: 61,474 awarded shares were granted to four
+independent non-executive directors of the Company).
+(iv)
+(iii)
+(ii)
+(i) Allowances and benefits in kind include leave pay, insurance premium and club membership.
+Note:
+171,129
+80
+101,661
+94
+64,291
+5,003
+691
+378
+313
+Yang Siu Shun (Note (iv))
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+2,019
+581
+RMB'000
+RMB'000
+RMB'000
+188
+Yang Siu Shun
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+2,532
+1,905
+627
+Li Dong Sheng
+4,647
+3,811
+836
+lan Charles Stone
+4,731
+3,811
+920
+lain Ferguson Bruce
+237,262
+65
+204,441
+31,580
+1,176
+Tencent Holdings Limited
+627
+1,406
+2,033
+RMB'000
+Total
+in kind
+expenses
+bonuses pension plans
+Fees
+Name of director
+and benefits
+Salaries and Contributions to compensation
+Allowances
+45,937
+Share-based
+(a) Directors' and the chief executive's emoluments (Cont'd)
+14 BENEFITS AND INTERESTS OF DIRECTORS (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+297,142
+65
+215,374
+105
+76,236
+5,362
+During the year ended 31 December 2016:
+Contributions to pension plans (Note)
+Annual Report 2017
+6,253
+Share-based compensation expenses
+4,455
+Welfare, medical and other expenses (Note)
+1,426
+2,400
+1,841
+Training expenses
+85
+34,866
+85
+Annual Report 2017
+185
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+23,433
+Management Discussion and Analysis
+Cost of revenues for our VAS business increased by 52% to RMB16,268 million for the fourth quarter of 2017 on a year-
+on-year basis. The increase mainly reflected greater content costs (including content costs for our live broadcast and
+subscription video streaming services), and higher channel costs for our smart phone games as a result of extended
+cooperation with third-party app stores.
+20,238
+34,897
+80%
+Cost of revenues for our online advertising business increased by 75% to RMB7,759 million for the fourth quarter of
+2017 on a year-on-year basis. The increase was primarily driven by greater investments in, and amortisation of, video
+content, and higher traffic acquisition costs due to the rapid growth of our advertising network business.
+5,080
+Cost of revenues for our other businesses increased by 114% to RMB10,870 million for the fourth quarter of 2017 on a
+year-on-year basis. The increase was mainly due to the increased scale of our payment related and cloud services.
+18
+Tencent Holdings Limited
+Other gains, net. We recorded net other gains totalling RMB7,906 million for the fourth quarter of 2017, which mainly
+consisted of net deemed disposal gains relating to the capital activities of certain investee companies including the IPOs of
+Yixin, Sea and Sogou, subsidies and tax rebates, and dividend income arising from certain investee companies.
+Selling and marketing expenses. Selling and marketing expenses increased by 35% to RMB6,022 million for the fourth quarter
+of 2017 on a year-on-year basis. The increase primarily reflected greater marketing spending on products and platforms such
+as online games, online media and payment related services. As a percentage of revenues, selling and marketing expenses
+decreased to 9% for the fourth quarter of 2017 from 10% for the fourth quarter of 2016.
+4.
+Finance costs, net. Net finance costs increased by 78% to RMB859 million for the fourth quarter of 2017 on a year-on-year
+basis. The increase mainly reflected greater interest expenses driven by higher amount of indebtedness.
+Income tax expense. Income tax expense increased by 30% to RMB3, 123 million for the fourth quarter of 2017 on a year-on-
+year basis. The increase was mainly driven by greater profit before income tax.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 98% to
+RMB20,797 million for the fourth quarter of 2017 on a year-on-year basis. Non-GAAP profit attributable to equity holders of
+the Company increased by 42% to RMB17,454 million.
+Annual Report 2017
+19
+77%
+45,420
+Non-GAAP profit attributable to equity holders of the Company
+41,447
+72,471
+352
+General and administrative expenses. General and administrative expenses increased by 28% to RMB8,811 million for the
+fourth quarter of 2017 on a year-on-year basis. The increase was primarily driven by greater R&D expenses and staff costs. As
+a percentage of revenues, general and administrative expenses decreased to 13% for the fourth quarter of 2017 from 16% for
+the fourth quarter of 2016.
+10,870
+53%
+4,424
+17
+Annual Report 2017
+Since the first quarter of 2017, we have reclassified online advertising revenues. Without the reclassification, performance-based
+advertising revenues increased by 59% to RMB8,204 million and brand display advertising revenues increased by 33% to RMB4,157
+million for the fourth quarter of 2017 on a year-on-year basis.
+3
+Revenues from our other businesses increased by 121% to RMB14,084 million for the fourth quarter of 2017 on a year-
+on-year basis. The increase was mainly driven by growth in revenues from our payment related and cloud services.
+Revenues from our online advertising business increased by 49% to RMB12,361 million for the fourth quarter of 2017
+on a year-on-year basis. Media advertising revenues grew by 22% to RMB4, 121 million, mainly benefiting from revenue
+growth from our Tencent Video, video streaming services, partly offset by the reduced advertising inventory of our news
+apps due to revamping their advertising systems. Social and others advertising revenues increased by 68% to RMB8,240
+million, primarily due to growth in advertising revenues derived from Weixin (mainly from Weixin Moments and Weixin
+Official Accounts) and our advertising network.3
+Revenues from our VAS business increased by 37% to RMB39,947 million for the fourth quarter of 2017 on a year-on-
+year basis. Online games revenues increased by 32% to RMB24,367 million. The increase primarily reflected growth in
+revenues from our existing smart phone games such as Honour of Kings, and new smart phone games such as Kings
+of Chaos and Legacy TLBB Mobile. The increase also reflected higher revenues from our PC client games such as DnF
+and LoL. Social networks revenues grew by 45% to RMB15,580 million. The increase was mainly due to higher revenues
+from digital content services such as subscription video streaming and live broadcast, as well as from in-game virtual
+item sales.
+100%
+43,864
+100%
+66,392
+15%
+6,385
+21%
+14,084
+19%
+8,288
+Management Discussion and Analysis
+961
+Cost of revenues. Cost of revenues increased by 72% to RMB34,897 million for the fourth quarter of 2017 on a year-on-year
+basis. The increase mainly reflected greater content costs, costs of payment related services, as well as channel costs. As a
+percentage of revenues, cost of revenues increased to 53% for the fourth quarter of 2017 from 46% for the fourth quarter of
+2016, primarily reflecting business mix changes, and higher channel costs for our smart phone games. The following table sets
+forth our cost of revenues by line of business for the fourth quarter of 2017 and the fourth quarter of 2016:
+Online advertising
+63%
+7,759
+37%
+10,734
+41%
+16,268
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+31 December 2016
+% of segment
+% of segment
+31 December 2017
+Unaudited
+Three months ended
+Total cost of revenues
+Others
+VAS
+41,095
+71,510
+41,447
+Investing in Al technologies for applications such as advertisement targeting, recommendation algorithms, and
+healthcare;
+Deploying our smart retail strategy to empower offline retailers by leveraging our technology services.
+The Board has recommended the payment of a final dividend of HKD0.88 per share (2016: HKD0.61 per share) for the year
+ended 31 December 2017, subject to the approval of the shareholders at the 2018 AGM. Such proposed dividend will be
+payable on 1 June 2018 to the shareholders whose names appear on the register of members of the Company on 24 May
+2018.
+APPRECIATION
+On behalf of the Board, I would like to express our gratitude to all our staff and the management team for their commitment
+for excellence, strong teamwork and valuable contribution. I would also like to thank all our shareholders and stakeholders
+for their complete confidence in and support to our Group. Looking ahead, we will continue to enhance people's quality of life
+through our innovative products and services and to develop a healthy and balanced Internet ecosystem.
+Ma Huateng
+Chairman
+Expanding our cloud infrastructure and recruiting more talent to better serve our clients;
+Hong Kong, 21 March 2018
+11
+Management Discussion and Analysis
+YEAR ENDED 31 DECEMBER 2017 COMPARED TO YEAR ENDED 31 DECEMBER 2016
+The following table sets forth the comparative figures for the years ended 31 December 2017 and 2016:
+Revenues
+Cost of revenues
+Gross profit
+Annual Report 2017
+Increasing use case scenarios for payment related services to accelerate merchant and user adoption, and
+cooperating with partners in developing Internet financial services;
+Investing in digital content, including long form and short form video content, in order to further grow our
+subscriber base;
+DIVIDEND
+12
+Chairman's Statement
+Online Advertising
+Our online advertising business achieved 49% year-on-year growth in revenues.
+For media advertising, video revenues continued to demonstrate strong growth due to popular video content such as the
+self-commissioned HoK-themed variety show "", and selected drama series. News revenues decreased year-
+on-year as we were still revamping the advertising system during the quarter. We have launched a unified advertisement
+placement platform for all news feed products.
+For social and others advertising, our advertising revenues year-on-year increase was primarily driven by higher
+advertising demand due to the enhanced targeting capability of our platforms and an expanded advertiser base
+leveraging our partner platforms. The sequential increase was mainly due to positive eCommerce seasonality. Advertising
+impressions also increased in Weixin Moments and Official Accounts, and on our mobile advertising network. We are
+now testing CPC-based advertising links in Official Accounts which connect users to advertisers' Mini Programs.
+Others
+We recorded 121% year-on-year revenue growth for other businesses, which was primarily driven by the strong growth
+of payment related and cloud services. Commercial transaction volume of Weixin Pay continued to grow at a fast pace,
+driven by offline transaction volumes, which more than doubled year-on-year.
+Tencent Cloud's global infrastructure covered 21 regions and operated 36 availability zones in the world as of end of
+2017. While we maintained our leading position in verticals such as online games and video, we achieved rapid growth
+in the financial services industry through strategic partnerships with major banks and insurance clients. In addition, we
+offered smart retail solutions targeting supermarkets, department stores and fast moving consumer goods companies.
+Company Outlook and Strategies for 2018
+Looking forward, we will more aggressively invest to strengthen our long-term competitive positions in areas including
+online video, payment services, cloud services, Al technologies and smart retail. Our development initiatives include:
+Strengthening our social platforms to encourage user sharing, enhance connections with users' daily lives and
+facilitate interactions with ecosystem partners;
+Enhancing the popularity of our games through upgrading the content of our existing titles and adding innovative
+new titles;
+10
+Tencent Holdings Limited
+Chairman's Statement
+-
+Interest income
+Other gains, net
+Selling and marketing expenses
+General and administrative expenses
+20,140
+3,594
+(17,652)
+(12,136)
+(33,051)
+(22,459)
+90,302
+56,117
+(2,908)
+(1,955)
+821
+(2,522)
+88,215
+51,640
+(15,744)
+(10,193)
+72,471
+2,619
+19%
+3,940
+116,925
+Operating profit
+Finance costs, net
+Share of profit/(loss) of associates and joint ventures
+Profit before income tax
+Income tax expense
+Profit for the year
+Attributable to:
+Equity holders of the Company
+Non-controlling interests
+Year ended 31 December
+2017
+2016
+(RMB in millions)
+237,760
+151,938
+(120,835)
+(67,439)
+84,499
+12,361
+65,126
+29,191
+37,622
+40%
+61,389
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+% of segment
+% of segment
+2016
+2017
+Year ended 31 December
+Total cost of revenues
+Others
+Online advertising
+VAS
+35%
+Cost of revenues. Cost of revenues increased by 79% to RMB120.8 billion for the year ended 31 December 2017 on a year-
+on-year basis. The increase primarily reflected greater content costs, costs of payment related services, and channel costs. As
+a percentage of revenues, cost of revenues increased to 51% for the year ended 31 December 2017 from 44% for the year
+ended 31 December 2016, mainly due to business mix changes and greater channel costs for our smart phone games. The
+following table sets forth our cost of revenues by line of business for the years ended 31 December 2017 and 2016:
+25,586
+15,396
+Finance costs, net. Net finance costs increased by 49% to RMB2,908 million for the year ended 31 December 2017 on a
+year-on-year basis. The increase was mainly driven by greater interest expenses due to higher amount of indebtedness.
+General and administrative expenses. General and administrative expenses increased by 47% to RMB33,051 million for the
+year ended 31 December 2017 on a year-on-year basis. The increase primarily reflected greater R&D expenses and staff costs
+due to our business expansion. As a percentage of revenues, general and administrative expenses decreased to 14% for the
+year ended 31 December 2017 from 15% for the year ended 31 December 2016.
+Selling and marketing expenses. Selling and marketing expenses increased by 45% to RMB17,652 million for the year ended
+31 December 2017 on a year-on-year basis. The increase mainly reflected greater marketing spending on products and
+platforms such as online games, online media and payment related services, as well as higher staff costs. As a percentage of
+revenues, selling and marketing expenses decreased to 7% for the year ended 31 December 2017 from 8% for the year ended
+31 December 2016.
+Other gains, net. We recorded net other gains totalling RMB20, 140 million for the year ended 31 December 2017, which
+primarily consisted of net deemed disposal gains arising from the capital activities of certain investee companies (such as the
+IPOs of Yixin, Netmarble, Sea, ZhongAn Insurance and Sogou), fair value gains as a result of increases in valuations of certain
+investments (in verticals such as bike sharing, healthcare and fintech), as well as subsidies and tax rebates.
+Management Discussion and Analysis
+Tencent Holdings Limited
+14
+Cost of revenues for our other businesses increased by 135% to RMB33,860 million for the year ended 31 December
+2017 on a year-on-year basis. The increase was mainly driven by the increased scale of our payment related and cloud
+services.
+Cost of revenues for our online advertising business increased by 66% to RMB25,586 million for the year ended 31
+December 2017 on a year-on-year basis. The increase primarily reflected greater investments in, and amortisation of,
+video content. Traffic acquisition costs as well as bandwidth and server custody fees also increased.
+Cost of revenues for our VAS business increased by 63% to RMB61,389 million for the year ended 31 December 2017
+on a year-on-year basis. The increase mainly reflected greater content costs (including content costs for our subscription
+video streaming and live broadcast services), and channel costs for our smart phone games, in turn due to extended
+cooperation with third-party app stores.
+67,439
+120,835
+84%
+14,421
+78%
+33,860
+57%
+63%
+Share of profit/(loss) of associates and joint ventures. We recorded share of profit of associates and joint ventures of RMB821
+million for the year ended 31 December 2017, compared to share of losses of RMB2,522 million for the year ended 31
+December 2016. Some of our investee companies registered profit as a result of improved performance and one-off gains in
+2017, compared to losses in 2016.
+Management Discussion and Analysis
+Annual Report 2017
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+% of total
+% of total
+2016
+2017
+Year ended 31 December
+Total revenues
+66%
+Online advertising
+VAS
+Revenues. Revenues increased by 56% to RMB237.8 billion for the year ended 31 December 2017 on a year-on-year basis.
+The following table sets forth our revenues by line of business for the years ended 31 December 2017 and 2016:
+Management Discussion and Analysis
+Tencent Holdings Limited
+153,983
+13
+65%
+71%
+Since the first quarter of 2017, we have reclassified online advertising revenues. Without the reclassification, performance-based
+advertising revenues increased by 67% to RMB26,296 million and brand display advertising revenues increased by 26% to RMB14,143
+million for the year ended 31 December 2017 on a year-on-year basis.
+2
+Revenues from our other businesses increased by 153% to RMB43,338 million for the year ended 31 December 2017
+on a year-on-year basis. The increase mainly reflected revenue growth from our payment related and cloud services.
+Revenues from our online advertising business increased by 50% to RMB40,439 million for the year ended 31
+December 2017 on a year-on-year basis. Media advertising revenues grew by 30% to RMB14,829 million. The
+increase mainly reflected higher traffic and revenues from our Tencent Video, video streaming services. Social and
+others advertising revenues increased by 65% to RMB25,610 million. The increase was primarily driven by growth in
+advertising revenues derived from Weixin, our other mobile apps, and our advertising network.2
+Revenues from our VAS business increased by 43% to RMB154.0 billion for the year ended 31 December 2017 on a
+year-on-year basis. Online games revenues grew by 38% to RMB97,883 million. The increase was primarily driven by
+revenue growth from our smart phone games, including existing titles such as Honour of Kings, and new titles such as
+the China version of Contra Return, Dragon Nest Mobile and Legacy TLBB Mobile. Revenues from our PC client games,
+such as DnF and LoL, also contributed to the increase. Social networks revenues increased by 52% to RMB56,100
+million. The increase was mainly driven by digital content services such as live broadcast, subscription video streaming
+and subscription music streaming, as well as from in-game virtual item sales.
+100%
+151,938
+100%
+237,760
+11%
+17,158
+18%
+43,338
+18%
+26,970
+17%
+40,439
+107,810
+Income tax expense. Income tax expense increased by 54% to RMB15,744 million for the year ended 31 December 2017 on
+a year-on-year basis. The increase primarily reflected greater profit before income tax and higher withholding tax.
+Others
+Annual Report 2017
+Non-GAAP profit attributable to equity holders of the Company
+10,523
+21,622
+(6)
+825
+10,529
+20,797
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+10,523
+21,622
+Profit for the period
+(2,402)
+(3,123)
+Income tax expense
+12,925
+17,454
+24,745
+12,332
+Tencent Holdings Limited
+60%
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 74% to
+RMB71,510 million for the year ended 31 December 2017 on a year-on-year basis. Non-GAAP profit attributable to equity
+holders of the Company increased by 43% to RMB65, 126 million for the year ended 31 December 2017.
+39,947
+(RMB in millions, unless specified)
+Amount
+revenues
+Amount
+% of total
+% of total
+31 December 2016
+31 December 2017
+Unaudited
+Three months ended
+Total revenues
+Online advertising
+Others
+VAS
+Revenues. Revenues increased by 51% to RMB66,392 million for the fourth quarter of 2017 on a year-on-year basis. The
+following table sets forth our revenues by line of business for the fourth quarter of 2017 and the fourth quarter of 2016:
+Management Discussion and Analysis
+16
+Profit before income tax
+revenues
+(120)
+(34,897)
+43,864
+66,392
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+(20,238)
+(RMB in millions)
+2017
+31 December 31 December
+Unaudited
+Three months ended
+The following table sets forth the comparative figures for the fourth quarter of 2017 and the fourth quarter of 2016:
+FOURTH QUARTER OF 2017 COMPARED TO FOURTH QUARTER OF 2016
+15
+(522)
+2016
+31,495
+Management Discussion and Analysis
+1,156
+(483)
+(859)
+Share of losses of associates and joint ventures
+Finance costs, net
+13,930
+25,724
+23,626
+(6,909)
+Operating profit
+General and administrative expenses
+(4,462)
+(6,022)
+Selling and marketing expenses
+1,022
+7,906
+Other gains, net
+653
+(8,811)
+4
+Net book amount
+23,608
+1,504
+1,334
+11,570
+Notes to the Consolidated Financial Statements
+1,923
+40,266
+194
+Tencent Holdings Limited
+19 INTANGIBLE ASSETS (Cont'd)
+For the year ended 31 December 2017
+Computer
+327
+(25)
+(747)
+(18)
+2,759
+33,549
+Licensed
+3,225
+67,689
+Accumulated amortisation and impairment
+(564)
+8
+(1,437)
+(21,961)
+(1,277)
+(27,427)
+Currency translation differences
+29
+(6)
+16
+(1,441)
+1,066
+2,196
+Game
+(162)
+(860)
+(1,508)
+(4,935)
+(495)
+(387)
+(8,347)
+Accumulated amortisation and impairment
+Currency translation differences
+2
+9
+Net book amount
+7,155
+697
+2,947
+1,219
+11
+21,777
+836
+754
+online
+Goodwill
+technology
+licences
+RMB'Million
+RMB'Million RMB'Million
+contents
+RMB'Million
+Copyrights
+Others
+Total
+RMB'Million RMB'Million
+RMB'Million
+At 1 January 2016
+Cost
+7,306
+2,087
+8,598
+software and
+24,143
+170
+At 31 December 2017
+2,352
+36,467
+Year ended 31 December 2017
+Opening net book amount
+22,927
+1,535
+1,635
+242
+7,776
+442
+2,352
+36,467
+Business combinations
+998
+45
+38
+242
+1,081
+242
+1,635
+3,665
+(1,900)
+(13,121)
+(630)
+(796)
+(18,004)
+Currency translation differences
+7,776
+209
+20
+17
+3
+260
+Net book amount
+22,927
+1,535
+10
+Cost
+Additions
+21,017
+Currency translation differences
+(180)
+(16)
+(4)
+(35)
+5
+(26)
+(239)
+(256)
+23,608
+1,504
+1,334
+11,570
+327
+1,923
+40,266
+Closing net book amount
+320
+(115)
+Impairment provision
+207
+172
+21,886
+Disposals
+(13)
+(19)
+(12)
+(124)
+(3)
+Amortisation
+(332)
+(448)
+(17,221)
+(124)
+(497)
+(18,622)
+(51)
+259
+2
+13,439
+Investments in associates
+- Listed entities
+- Unlisted entities
+At beginning of the year
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Additions (Note (i), (ii), (iii) and (iv))
+Deemed disposal gains (Note 7(a))
+Share of profit/(loss) of associates (Note 10)
+Share of other comprehensive income of associates
+Dividends
+Transfers (Note (v))
+Disposals
+Impairment provision (Note (vi))
+Currency translation differences
+20 INVESTMENTS IN ASSOCIATES
+Tencent Holdings Limited
+196
+For online literature business and online music business, management calculates value-in-use based on discounted
+cash flows calculations. The discounted cash flows calculations use cash flow projections developed based on financial
+budgets approved by management of the Group covering a five-year period. Cash flows beyond the five-year period are
+extrapolated using an estimated annual growth of not more than 5%. Pre-tax discount rates of 20% to 25% adopted for
+the online music business and the online literature business, respectively, which reflects market assessments of time
+value and the specific risks relating to the industry that the Group operates. The financial projections were determined by
+the management based on past performance and its expectation for market development.
+22,927
+1,535
+1,635
+7,776
+242
+2,352
+36,467
+At end of the year
+Annual Report 2017
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+19 INTANGIBLE ASSETS (Cont'd)
+During the year ended 31 December 2017, amortisation of RMB17,837 million (2016: RMB8,277 million) and RMB785
+million (2016: RMB653 million) were charged to cost of revenues and general and administrative expenses, respectively.
+During the year ended 31 December 2017, goodwill and other identifiable intangible assets of certain acquired business
+have been impaired to the extent of RMB239 million (2016: RMB366 million) (Note 7) as a result of significant decline
+in revenues and unsatisfactory operating performance of these business.
+Impairment tests for goodwill
+Goodwill is allocated to the Group's CGUS and most of the goodwill is related to the VAS. The recoverable amount of a
+CGU is the higher of its value-in-use and fair value less costs to sell. The key assumptions used for the calculations of the
+recoverable amounts of major CGUS are as follows:
+For online game business, management calculates the fair value less costs to sell based on ratios of EV (enterprise value)
+divided by EBITDA (earnings before interest, tax, depreciation and amortisation) of several comparable public companies
+(ranging within 16-23x) multiplied by the EBITDA of the related CGU and discounted for the lack of marketability at
+a range of 10% to 20%. The comparable public companies are chosen based on factors such as industry similarity,
+company size, profitability and financial risks.
+195
+As at 31 December
+2017
+RMB'Million
+907
+863
+(312)
+(151)
+20,825
+(1,092)
+(253)
+(2,549)
+(614)
+(2,117)
+(5,897)
+3,540
+113,779
+70,042
+Annual Report 2017
+(1,118)
+(1,277)
+Net book amount
+730
+9,892
+2016
+RMB'Million
+60,935
+38,516
+52,844
+31,526
+113,779
+2,091
+70,042
+2016
+RMB'Million
+RMB'Million
+70,042
+60,171
+19,122
+9,900
+2017
+260
+3
+17
+11,074
+125
+148
+13,247
+Disposals
+(45)
+(38)
+1,331
+(97)
+(261)
+(396)
+(7,772)
+(139)
+(362)
+(8,930)
+Impairment provision
+Amortisation
+(277)
+569
+18,923
+Year ended 31 December 2016
+Opening net book amount
+7,155
+1,219
+567
+697
+3,665
+Additions
+259
+13,439
+Business combinations
+15,896
+28
+1
+794
+2,204
+444
+444
+(2)
+(366)
+20,880
+869
+3,147
+54,211
+Accumulated amortisation and impairment
+(439)
+(1,118)
+3,515
+(1,900)
+(630)
+(796)
+(18,004)
+Currency translation differences
+209
+10
+20
+(13,121)
+(87)
+2,643
+Cost
+Currency translation differences
+198
+18
+15
+3
+6
+251
+23,157
+Closing net book amount
+1,535
+1,635
+7,776
+242
+2,352
+36,467
+At 31 December 2016
+22,927
+(439)
+(16)
+54,211
+1,136
+41
+2,090
+40,623
+Accumulated depreciation and impairment
+(1,021)
+(14,337)
+(659)
+(24)
+(1,023)
+(17,064)
+Currency translation differences
+(26)
+16
+48
+28,504
+8,852
+Cost
+At 31 December 2017
+(138)
+161
+(235)
+(4,850)
+Currency translation differences
+(30)
+(3)
+38
+(20)
+Closing net book amount
+7,831
+14,141
+493
+17
+1,115
+23,597
+(53)
+Net book amount
+7,831
+14,141
+At 1 January 2016
+Cost
+3,293
+15,165
+806
+25
+1,696
+RMB'Million
+20,985
+(699)
+(9,160)
+(432)
+197
+(694)
+(11,001)
+Currency translation differences
+Accumulated depreciation and impairment
+(4,243)
+Total
+RMB'Million
+493
+17
+1,115
+23,597
+Annual Report 2017
+191
+Notes to the Consolidated Financial Statements
+Motor Leasehold
+vehicles improvements
+RMB'Million RMB'Million
+For the year ended 31 December 2017
+Computer
+Furniture
+and office
+Buildings
+equipment
+equipment
+RMB'Million
+RMB'Million
+16 PROPERTY, PLANT AND EQUIPMENT (Cont'd)
+(228)
+Depreciation
+(47)
+Buildings
+RMB'Million
+Computer
+equipment
+RMB'Million RMB'Million
+and office
+equipment
+Motor Leasehold
+vehicles improvements
+RMB'Million RMB'Million
+Total
+RMB'Million
+At 1 January 2017
+Furniture
+Cost
+20,374
+902
+31
+1,787
+27,595
+Accumulated depreciation and impairment
+(807)
+4,501
+(11,610)
+16 PROPERTY, PLANT AND EQUIPMENT
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+14 BENEFITS AND INTERESTS OF DIRECTORS (Cont'd)
+(b) Directors' termination benefits
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(c) Consideration provided to third parties for making available directors' services
+No consideration provided to or receivable by third parties for making available directors' services subsisted at the
+end of the year or at any time during the year.
+For the year ended 31 December 2017
+(d) Information about loans, quasi-loans and other dealings in favour of directors, their controlled bodies
+corporate and connected entities
+(e) Directors' material interests in transactions, arrangements or contracts
+No significant transactions, arrangements and contracts in relation to the Group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+15 DIVIDENDS
+The dividends amounted to RMB5,052 million (2016: RMB3,699 million) were paid during the year ended 31 December
+2017.
+A final dividend in respect of the year ended 31 December 2017 of HKD0.88 per share (2016: HKD0.61 per share)
+was proposed pursuant to a resolution passed by the Board on 21 March 2018 and subject to the approval of the
+shareholders at the annual general meeting of the Company to be held on 16 May 2018 or any adjournment thereof.
+This proposed dividend is not reflected as dividend payable in the consolidated financial statements.
+190
+Tencent Holdings Limited
+No loans, quasi-loans and other dealings in favour of directors, their controlled bodies corporate and connected
+entities subsisted at the end of the year or at any time during the year.
+(46)
+(544)
+(807)
+1,048
+13,900
+Business combinations
+2
+4
+Additions
+4,372
+13
+9,678
+10
+323
+14,643
+Disposals
+(7)
+(32)
+(5)
+260
+(18)
+377
+3,694
+(13,786)
+Currency translation differences
+4
+19
+68
+91
+Net book amount
+8,768
+40
+8,768
+377
+13
+1,048
+13,900
+Year ended 31 December 2017
+Opening net book amount
+3,694
+10
+25
+(11)
+2,559
+(4,682)
+(1,710)
+(31)
+(440)
+(2)
+17
+3,204
+3,163
+As at 31 December 2017, construction in progress mainly comprised office buildings and data centres under
+construction located in the PRC.
+18 LAND USE RIGHTS
+Opening net book amount
+Additions
+Amortisation
+Closing net book amount
+2017
+4,674
+2016
+4,248
+RMB'Million
+During the year ended 31 December 2017, depreciation of RMB3,892 million (2016: RMB2,591 million), RMB134
+million (2016: RMB132 million) and RMB824 million (2016: RMB976 million) were charged to cost of revenues, selling
+and marketing expenses and general and administrative expenses, respectively.
+192
+Tencent Holdings Limited
+17 CONSTRUCTION IN PROGRESS
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+4,674
+Opening net book amount
+Transfer to property, plant and equipment
+Transfer to investment properties
+Currency translation differences
+Closing net book amount
+2017
+2016
+RMB'Million
+Additions
+13,900
+RMB'Million
+5,174
+RMB'Million
+RMB'Million RMB'Million
+online
+contents
+RMB'Million RMB'Million
+Copyrights
+Others
+Total
+RMB'Million
+licences
+RMB'Million
+Cost
+23,157
+2,643
+3,515
+20,880
+869
+3,147
+At 1 January 2017
+RMB'Million
+technology
+Game
+2,293
+46
+2,976
+(109)
+(95)
+5,111
+5,174
+Goodwill
+The land use rights represent prepaid operating lease payments in respect of land in the PRC with remaining lease
+period of 38 to 49 years. During the year ended 31 December 2017, all of the amortisation was charged to general and
+administrative expenses.
+193
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+19 INTANGIBLE ASSETS
+Computer
+Licensed
+software and
+Annual Report 2017
+Accumulated amortisation and impairment
+1,048
+377
+1,372
+5,877
+120
+10
+245
+7,624
+Disposals
+Additions
+(20)
+(22)
+(51)
+Depreciation
+(133)
+(3,150)
+(134)
+(277)
+(8)
+(3,699)
+93
+6
+Net book amount
+2,594
+5,959
+384
+9
+9,973
+Year ended 31 December 2016
+33
+Opening net book amount
+5,959
+384
+9
+1,027
+9,973
+Business combinations
+54
+2,594
+13
+Impairment
+(139)
+27,595
+Accumulated depreciation and impairment
+(807)
+(11,610)
+(544)
+(18)
+(807)
+1,787
+(13,786)
+4
+19
+68
+91
+Net book amount
+3,694
+8,768
+Currency translation differences
+Transfer to investment properties
+31
+20,374
+(1)
+(140)
+Currency translation differences
+50
+43
+102
+Closing net book amount
+902
+3,694
+377
+13
+1,048
+13,900
+At 31 December 2016
+Cost
+4,501
+8,768
+Notes to the Consolidated Financial Statements
+1,027
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+2016
+1,637
+907
+287
+62
+156,968
+1,350
+30
+730
+Listed entities
+109,681
+232,027
+62
+25
+225
+25,659
+75,184
+128,028
+Non-listed entities
+845
+118,248
+945
+71,894
+(1,141)
+For the year ended 31 December 2017
+199
+Annual Report 2017
+Management has assessed the level of influence that the Group exercises on certain associates with the respective
+shareholding below 20%, with a total carrying amount of RMB56,768 million as at 31 December 2017 (2016:
+RMB37,131 million). Management determined that it has significant influence thereon through the board representation
+or other arrangements made. Consequently, these investments have been classified as associates.
+(1,686)
+863
+(2,549)
+64,031
+58,224
+52,576
+128,265
+379
+(1,408)
+11,455
+24,846
+56,371
+Non-listed entities
+68,565
+(657)
+484
+(1,029)
+505
+33,378
+43,064
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+198
+The associates of the Group have been accounted for by using equity method based on the financial information of the associates
+prepared under the accounting policies generally consistent with the Group.
+During the year ended 31 December 2017, the Group made an aggregate impairment provision of RMB1,277 million (2016:
+RMB2,117 million) against the carrying amounts of a number of associates. The impairment losses mainly resulted from revisions
+of long-term financial outlook and changes in business models of the affected associates.
+Transfers mainly comprised re-designation of several investments from available-for-sale financial assets and investments in
+redeemable instruments of associates to investments in associates as a result of change in nature of these investments. Out of
+these investments, certain contractual rights attached to an investment consortium previously classified as available-for-sale
+financial assets and other financial assets have been changed, thus resulting in re-designation of such investment to an associate
+of the Group. The management of the Group considered that the impact to the Group is not material had this investment been
+classified as an investment in an associate since 1 January 2017.
+During the year ended 31 December 2017, the Group entered into share purchase agreements with an associate which is mainly
+engaged in online movie ticketing business to subscribe for 11.23% of its equity interests, on an outstanding basis, at a total
+consideration equivalent to approximately RMB1,897 million.
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates,
+as well as the fair value of the associates which are listed entities, are shown in aggregate as follows:
+During the year ended 31 December 2017, the Group entered into a share purchase agreement with an associate which
+operates an online ride-hailing platform in Asia other than China, to subscribe for approximately 10% of its equity interests, on an
+outstanding basis, at a cash consideration equivalent to approximately RMB2,646 million.
+(vii)
+(vi)
+(v)
+(iv)
+(iii)
+(ii)
+(i)
+Note:
+84,022
+During the year ended 31 December 2017, the Group entered into a share purchase agreement with an associate which is
+engaged in eCommerce business, to subscribe for approximately 7% of its equity interests, on an outstanding basis, at a cash
+consideration equivalent to approximately RMB3,993 million.
+Fair value
+The Group also acquired certain other associates and made additional investments in existing associates, with an aggregate
+amount of RMB10,586 million during the year ended 31 December 2017. These associates are principally engaged in online
+game business and other Internet-related businesses.
+Profit/
+(loss) from
+103,999
+Listed entities
+2017
+RMB'Million
+RMB'Million
+RMB'Million
+income
+operation
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+income/(loss) 31 December
+Liabilities
+Assets
+as at
+prehensive
+prehensive
+continuing
+of listed
+companies
+Total com-
+Revenues
+Other com-
+For the year ended 31 December 2017
+Included in non-current assets:
+As at 31 December 2017, the Group's non-current other financial assets represented the embedded derivatives
+bifurcated from their host contracts which mainly comprise the conversion options bifurcated from their corresponding
+host components that were classified as available-for-sale financial assets and investments in redeemable instruments
+of associates, and interest rate swap contracts, of RMB3,818 million (2016: RMB1, 176 million) and RMB1,300 million
+(2016: RMB584 million), respectively.
+As at 31 December 2017, the aggregate notional principal amounts of the Group's outstanding interest rate swap
+contracts, which swap the floating interest rates into fixed interest rates, were USD10,741 million (equivalent to
+approximately RMB70,184 million) (2016: USD4,001 million (equivalent to approximately RMB27,755 million)). These
+interest rate swap contracts were qualified for hedge accounting.
+Included in current assets:
+Notes to the Consolidated Financial Statements
+Annual Report 2017
+207
+26 OTHER FINANCIAL ASSETS
+As at 31 December 2017, the Group's current other financial assets represent call option rights held by the Group which
+entitle it to acquire additional equity interests in an investee company of the Group.
+For the year ended 31 December 2017
+17,110
+Tencent Holdings Limited
+206
+As at 31 December 2017, the carrying amounts of deposits and other assets (excludes prepayments and refundable
+value-added tax), were approximate to their fair values. Deposits and other assets were neither past due nor impaired.
+Their recoverability was assessed with reference to the credit status of the counterparties and credit history.
+As at 31 December 2017, the balances of loans to investees and investees' shareholders are repayable within a period of two to eight
+years (included in non-current assets), or within one year (included in current assets), and are interest-bearing at rates of not higher
+than 8.0% per annum (2016: not higher than 8.0% per annum).
+Note:
+21,481
+28,283
+14,118
+2,522
+27 DEFERRED INCOME TAXES
+Notes to the Consolidated Financial Statements
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+(376)
+Deferred income tax assets:
+2,311
+(5,975)
+(392)
+(4,777)
+(5,583)
+7,033
+9,793
+3,761
+5,283
+3,272
+There was no offsetting of deferred income tax assets and liabilities in 2017 and 2016.
+4,510
+RMB'Million
+2016
+2017
+As at 31 December
+The movements of the deferred income tax assets/liabilities account were as follows:
+- to be recovered within 12 months
+- to be recovered after more than 12 months
+Deferred income tax liabilities:
+- to be recovered within 12 months
+- to be recovered after more than 12 months
+RMB'Million
+Others
+The Group made an aggregate impairment provision of RMB671 million (2016: RMB1,028 million) against the carrying amounts
+of certain available-for-sale financial assets during the year ended 31 December 2017, with reference to their assessed fair values
+as at 31 December 2017.
+220
+Loans to investees and investees' shareholders (Note)
+3,942
+7,031
+Prepayments for media contents and game licences
+Included in non-current assets:
+RMB'Million
+2016
+RMB'Million
+2017
+As at 31 December
+2,058
+25 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+Notes to the Consolidated Financial Statements
+205
+Annual Report 2017
+(viii) Management has assessed the level of influence that the Group exercises on certain available-for-sale financial assets with
+shareholding exceeding 20%. Management determined that it has no significant influence on certain of these investees as the
+Group has neither board seats nor power to participate in decision making in these investees. Consequently, these investments
+have been classified as available-for-sale financial assets.
+During the year ended 31 December 2017, the Group made a large number of individual investments recognised as available-
+for-sale financial assets, but none of them was significant enough to trigger the disclosure requirements pursuant to Chapter 14
+of the Listing Rules at the time when the Group made such investments.
+(5,153)
+During the year ended 31 December 2017, the Group re-designated several investments to associates with an aggregate amount
+of RMB18,684 million as a result of change in nature of these investments (Note 20(v)).
+During the year ended 31 December 2017, the Group also made certain new investments and additional investments with an
+aggregate amount of approximately RMB10,623 million in listed and unlisted entities mainly operated in the United States,
+the PRC and other Asian countries. These companies are principally engaged in games, entertainment, technology, and other
+Internet-related services.
+During the year ended 31 December 2017, the Group made additional investments in an existing investee that was classified as
+available-for-sale financial assets, which is principally engaged in local life services online to offline operations in the PRC, at a
+total consideration of USD1,597 million (equivalent to approximately RMB 10,645 million).
+During the year ended 31 December 2017, the Group entered into a share purchase agreement with a company, which is
+principally engaged in provision of global music streaming subscription services, to acquire approximately 8% of its equity
+interests at a consideration of USD1,742 million (equivalent to approximately RMB11,428 million), settled in cash of USD600
+million (equivalent to approximately RMB3,936 million) and certain new shares of a non-wholly owned subsidiary at fair value of
+USD1,142 million (equivalent to approximately RMB7,492 million).
+For the year ended 31 December 2017
+1,113
+Running royalty fees for online games
+149
+Rental deposits and other deposits
+1,679
+521
+Loans to investees and investees' shareholders (Note)
+260
+579
+Refundable value-added tax
+2,293
+2,703
+Interest receivables
+2,506
+4,095
+Running royalty fees for online games
+4,659
+6,681
+Prepayments and prepaid expenses
+Included in current assets:
+7,363
+11,173
+1,623
+1,935
+Others
+685
+199
+2017
+At 1 January 2017
+RMB'Million
+757
+305
+At 1 January 2016
+9,793
+2,230
+5,565
+96
+96
+gg
+209
+Business combinations
+243
+At 31 December 2017
+(82)
+(82)
+Currency translation differences
+46
+46
+Credited to consolidated statement of changes in equity
+2,796
+(275)
+1,904
+1,902
+(93)
+4
+Credited/(charged) to consolidated income statement
+209
+The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be
+available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting
+periods. As at 31 December 2017, the Group did not recognise deferred income tax assets of RMB1,129 million (2016: RMB957
+million) in respect of cumulative tax losses amounting to RMB4,997 million (2016: RMB4,064 million). These tax losses will expire from
+2018 to 2022.
+Note:
+7,033
+2,541
+3,661
+189
+642
+At 31 December 2016
+78
+4
+71
+Currency translation differences
+3,851
+1,794
+2,057
+Other additions
+2,343
+367
+1,604
+(27)
+399
+7
+1,260
+7,033
+2,541
+61
+(66)
+3,851
+(381)
+(21)
+At end of the year
+Currency translation differences
+Other additions
+Business combinations
+362
+3,818
+164
+300
+2,451
+Withholding tax paid
+598
+(590)
+(Charged)/credited to consolidated income statement (Note 11)
+(2,911)
+1,880
+At beginning of the year
+RMB'Million
+Credited to consolidated statement of changes in equity
+1,880
+208
+Tencent Holdings Limited
+3,661
+189
+642
+Credited/(charged) to consolidated income statement
+During the year ended 31 December 2017, the Group made additional investments of approximately USD3,609 million (equivalent
+to approximately RMB24,312 million) in certain existing investees classified as available-for-sale financial assets. These investees
+are listed in the United States and principally engaged in the development and sales of electric vehicles, sustainable energy
+generation and storage equipment and social networking businesses.
+(Note)
+RMB'Million
+RMB'Million
+Total
+payments
+and others
+expenses
+RMB'Million
+Tax losses
+RMB'Million
+RMB'Million
+assets
+Accrued
+of intangible
+Share-based
+Accelerated
+amortisation
+Deferred income tax assets on temporary differences arising from
+The movements of deferred income tax assets were as follows:
+27 DEFERRED INCOME TAXES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+2016
+(vii)
+Annual Report 2017
+(v)
+As at 31 December
+As at 31 December 2017, the financial instruments of the Group is analysed as follows:
+21 FINANCIAL INSTRUMENTS BY CATEGORY
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+201
+Annual Report 2017
+The Group placed certain deposits in an associate in the ordinary course of business. During the year ended and
+as at 31 December 2017, the balances of these deposits and interest income thereon were considered to be
+insignificant.
+Other transactions
+(ii)
+2017
+The revenues recorded by the Group from the aforesaid co-operation arrangements during the years ended 31
+December 2017 and 2016 were considered to be insignificant.
+(i) Transactions related to online services
+Transactions with associates
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+(3,474)
+(12)
+(3,294)
+121
+(2,081)
+(835)
+During the year ended 31 December 2017, the Group had undertaken transactions relating to provision of online
+traffic, online advertising and other online services to certain associates (including JD.com), under but not limited
+to certain co-operation arrangements.
+260,186
+2016
+RMB'Million
+Financial liabilities at amortised cost:
+157,433
+198,403
+71,902
+105,697
+Cash and cash equivalents (Note 30(a))
+750
+1,606
+Restricted cash (Note 30(b))
+55,735
+RMB'Million
+42,089
+9,267
+9,486
+Deposits and other receivables (Note 25)
+10,152
+16,549
+Accounts receivable (Note 29)
+9,627
+22,976
+Investments in redeemable instruments of associates (Note 22)
+Financial assets classified as loans and receivables:
+Term deposits (Note 28)
+362,332
+RMB'Million
+2016
+Redeemable non-controlling interests
+Non-current liabilities
+Current liabilities
+Non-current assets
+Current assets
+Summarised consolidated balance sheet
+Set out below are the summarised financial information of JD.com extracted from its financial statements prepared under
+generally accepted accounting principles in the United States.
+Online direct sales and online marketplace
+businesses/the PRC
+18.13%
+place of operation
+Shareholders' equity
+indirectly
+Interest held
+Cayman Islands
+JD.com
+Place of
+incorporation
+Name of entity
+Particulars of a material associate of the Group, as determined by the directors, are set out below:
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+(vi)
+Principal activities/
+Summarised consolidated statements of operations
+Net revenues
+Loss from operations
+Tencent Holdings Limited
+200
+There are no material contingent liabilities relating to the Group's interests in the associates.
+RMB'Million
+2017
+Year ended 31 December
+34,258
+7,057
+14,665
+13,416
+104,843
+118,251
+53,891
+69,026
+106,932
+115,029
+RMB'Million
+RMB'Million
+2016
+2017
+As at 31 December
+Net loss
+Profit/(loss) before tax
+Notes payable (Note 35)
+34,115
+52,388
+Long-term payables (Note 36)
+749
+2,376
+62,580
+70,962
+20,477
+53,880
+1,899
+131
+163
+204
+127,218
+390
+3,065
+13,552
+45,364
+615
+305
+3,909
+2,694
+RMB'Million
+2016
+RMB'Million
+2,066
+83,806
+2017
+2016
+(iv)
+39,670
+(iii)
+(ii)
+(i)
+Note:
+24 AVAILABLE-FOR-SALE FINANCIAL ASSETS (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+83,806
+127,218
+3,364
+(6,147)
+(1,028)
+(671)
+2,567
+16,764
+(2,755)
+(23,542)
+37,319
+57,008
+44,339
+83,806
+RMB'Million
+2017
+As at 31 December
+RMB'Million
+204
+23 INVESTMENTS IN JOINT VENTURES
+During the year ended 31 December 2017, the Group also made an aggregate impairment provision of approximately
+RMB607 million (2016: RMB1,298 million) against the carrying amounts of certain investments in redeemable
+instruments of associates based on the impairment assessment performed with reference to the business performances
+and recoverable amounts of these investee companies.
+During the year ended 31 December 2017, the Group re-designated several investments from investments in
+redeemable instruments of associates to investments in associates (Note 20 (v)).
+During the year ended 31 December 2017, the Group made aggregate investments in redeemable instruments of
+associates, including additional investments in existing investees of the Group, of RMB18,487 million (2016: RMB3,628
+million).
+As at 31 December 2017, the Group's investments in redeemable instruments of associates of RMB22,976 million
+(2016: RMB9,627 million) were stated at amortised cost less impairment provision. These investments mainly comprised
+investee companies that are principally engaged in online community services, online financing business, bike sharing
+service, online games development, electric vehicle business and other Internet-related businesses. The redemption
+prices of the relevant instruments are agreed at not less than their respective original subscription prices.
+22 INVESTMENTS IN REDEEMABLE INSTRUMENTS OF ASSOCIATES
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Tencent Holdings Limited
+202
+As at 31 December 2017, financial assets and liabilities measured at fair value included other financial assets (Note 26)
+and other financial liabilities of RMB5,624 million (2016: RMB3,409 million) and RMB2, 154 million (2016: RMB2,576
+million), respectively.
+152,336
+201,418
+69,827
+97,790
+10,491
+15,566
+Other payables and accruals (excluding prepayments received from
+customers and others, staff costs and welfare accruals) (Note 39)
+Borrowings (Note 34)
+27,413
+50,085
+Accounts payable (Note 38)
+Tencent Holdings Limited
+4,935
+3,862
+As at 31 December 2017, the Group's investments in joint ventures of RMB7,826 million (2016: RMB630 million)
+mainly comprised investee companies that are principally a special purpose vehicle of which we have a majority stake
+therein for the investment in one of the telecommunication carriers in the PRC and other joint venture initiatives in other
+entertainment-related business.
+Share of profit amounting to RMB91 million was recognised during the year ended 31 December 2017 (2016: RMB27
+million) (Note 10).
+As at 31 December 2017, financial assets classified as available-for-sale were RMB127,218 million (2016: RMB83,806
+million) (Note 24).
+Annual Report 2017
+During the year ended 31 December 2017, no impairment provision was made (2016: Nil) against the carrying amounts
+of the investments in joint ventures, based on the results of impairment assessment performed on the carrying amounts
+against the respective recoverable amount.
+At end of the year
+Changes in fair value
+Disposals and transfers (Note (v))
+Additions (Note (i), (ii), (iii) and (iv))
+At beginning of the year
+Movement of available-for-sale financial assets is analysed as follows:
+Others
+Equity investments in unlisted entities
+- South Korea
+Currency translation differences
+- Japan
+- United Kingdom
+- United States of America
+– Hong Kong
+Mainland China
+Equity investments in listed entities
+24 AVAILABLE-FOR-SALE FINANCIAL ASSETS
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+203
+- Sweden
+Impairment provision (Note (vi))
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+(Note (c))
+(Note (a))
+(Note (b))
+Others
+Balance at 1 January 2017
+(6,430)
+RMB'Million
+reserve
+financial
+statutory compensation
+Investments translation
+differences
+in associates
+RMB'Million
+RMB'Million
+RMB'Million
+assets
+reserve
+Capital
+based
+PRC
+for-sale
+16,859
+Currency
+reserve
+1,321
+16,854
+1,754
+Currency translation differences
+Share-
+907
+Share of other comprehensive income of associates
+(2,561)
+available-for-sale financial assets
+Transfer to profit or loss upon disposal of
+available-for-sale financial assets
+Net gains from changes in fair value of
+Profit appropriations to PRC statutory reserves
+6,378
+Dilution of interests in subsidiaries (Note (e))
+50
+Lapse of put option granted to non-controlling interests
+(2,045)
+non-controlling interests
+Transfer of equity interests of subsidiaries to
+(952)
+non-wholly owned subsidiaries (Note (d))
+Acquisition of additional equity interests in
+Tax benefit from share-based payments of a subsidiary
+- Employee share award schemes
+- Employee share option schemes
+Value of employee services:
+23,693
+1,092
+3,363
+5,734
+Available-
+Employee share option schemes:
+32
+214
+At 31 December 2016
+non-wholly owned subsidiaries (Note 32(d))
+Acquisition of additional equity interests in
+transferred to the grantees (Note (d))
+- shares vested from share award schemes and
+- shares allotted for share award schemes (Note (c))
+- shares withheld for share award schemes (Note (b))
+- value of employee services
+Employee share award schemes:
+225
+311
+225
+Tencent Holdings Limited
+8,718,788
+- shares issued (Note (a))
+- value of employee services
+10,350
+(1,817)
+12,167
+9,403,923,992
+At 1 January 2016
+18,234
+(3,970)
+22,204
+9,499,056,887
+728
+(9,198)
+311
+OTHER RESERVES
+64,440,700
+3,453
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+216
+215
+Annual Report 2017
+During the year ended 31 December 2017, the Share Scheme Trust transferred 38,573,979 ordinary shares of the Company
+(2016: 53,989,266 ordinary shares) to the share awardees upon vesting of the awarded shares (Note 33(b)).
+During the year ended 31 December 2017, the Company allotted 17,870,595 ordinary shares (2016: 64,440,700 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the Share Award
+Schemes.
+During the year ended 31 December 2017, the Share Scheme Trust withheld 9,303,028 ordinary shares (2016: 13,242,861
+ordinary shares) of the Company for an amount of approximately HKD2,606 million (equivalent to approximately RMB2,232
+million) (2016: HKD2,267 million (equivalent to approximately RMB1,936 million)), which had been deducted from the equity.
+During the year ended 31 December 2017, 4,102,812 Post-IPO options (2016: 8,718,788 Post-IPO options) with exercise prices
+ranging from HKD26.08 to HKD174.86 (2016: HKD18.06 to HKD148.90) were exercised.
+As at 31 December 2017, the total number of issued ordinary shares of the Company included 70,675,181 shares (2016:
+82,075,537 shares) held under the Share Award Schemes.
+(d)
+(c)
+(b)
+3,453
+(a)
+31 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+14,188
+(3,136)
+17,324
+9,477,083,480
+1,785
+1,785
+617
+(617)
+(1,936)
+(1,936)
+Note:
+Other fair value gains, net
+2,929
+Tencent Holdings Limited
+Profit appropriations to PRC statutory reserves
+7,842
+subsidiaries and businesses
+Partial disposal of equity interests in
+516
+non-controlling interests
+Termination of the put option granted to
+(927)
+non-controlling interests
+Transfer of equity interests of subsidiaries to
+(2,523)
+non-wholly owned subsidiaries (Note (d))
+897
+(2,523)
+897
+394
+57
+57
+Acquisition of additional equity interests in
+Tax benefit from share-based payments of a subsidiary
+- Employee share award schemes
+- Employee share option schemes
+Value of employee services:
+9,673
+736
+2,015
+1,089
+1,607
+394
+458
+(927)
+7,842
+23,693
+1,092
+3,363
+1,754
+5,734
+1,321
+16,859
+(6,430)
+356
+356
+4,127
+863
+(1,176)
+516
+Balance at 31 December 2016
+4,127
+Currency translation differences
+863
+Share of other comprehensive income of associates
+(1,176)
+available-for-sale financial assets
+Transfer to profit or loss upon disposal of
+2.929
+728
+available-for-sale financial assets
+Net gains from changes in fair value of
+665
+665
+Other fair value gains, net
+15,106
+(11,338)
+Balance at 1 January 2016
+35,158
+1,798
+4,170
+2,273
+(3,464)
+2,228
+31,152
+(2,999)
+706
+(9,198)
+907
+(2,561)
+16,854
+32
+90
+519
+519
+6,378
+50
+(2,045)
+I
+(952)
+244
+244
+407
+407
+156
+156
+706
+OTHER RESERVES (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+(Note (c))
+(Note (b))
+(Note (a))
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Others
+reserve
+reserve
+differences
+assets in associates
+reserve
+statutory compensation
+translation
+Investments
+financial
+Capital
+based
+PRC
+Currency
+for-sale
+Share-
+Available-
+Balance at 31 December 2017
+1,398
+4,399
+(2,232)
+(16)
+362
+362
+At 31 December 2016
+Currency translation differences
+of changes in equity
+Credited to consolidated statement
+300
+(1,745)
+88
+(227)
+300
+Withholding tax paid
+(1,700)
+94
+income statement
+Credited/(charged) to consolidated
+(385)
+(385)
+Business combinations
+(3,668)
+(550)
+(198)
+(631)
+(1,975)
+(314)
+At 1 January 2016
+1
+(17)
+(607)
+(3,391)
+5,365
+6
+7
+5,409
+5,358
+RMB'Million
+2016
+RMB'Million
+2017
+As at 31 December
+Other currencies
+USD term deposits
+RMB term deposits
+(5,975)
+Included in current assets:
+RMB term deposits
+Included in non-current assets:
+An analysis of the Group's term deposits by currencies are as follows:
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+28 TERM DEPOSITS
+Tencent Holdings Limited
+210
+As at 31 December 2017, the Group recognised the relevant deferred income tax liabilities of RMB4,075 million
+(2016: RMB3,391 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable future. No
+withholding tax had been provided for the earnings of approximately RMB32,213 million (2016: RMB41,220 million)
+expected to be retained by the PRC subsidiaries and not to be remitted to a foreign investor in the foreseeable future
+based on several factors, including management's estimation of overseas funding requirements.
+(5,153)
+(461)
+(425)
+(269)
+Other currencies
+(464)
+(779)
+(151)
+Total
+Others
+investees
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+assets
+subsidiaries
+combinations
+disposals of
+financial
+in business be remitted by
+Deemed
+RMB'Million
+for-sale
+earnings
+anticipated to
+acquired
+fair value of
+tax on the
+Intangible
+assets
+Changes in
+Withholding
+Deferred income tax liabilities on temporary differences arising from
+The movements of deferred income tax liabilities were as follows:
+27 DEFERRED INCOME TAXES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+Annual Report 2017
+available-
+5,415
+RMB'Million
+(607)
+(4,075)
+(506)
+At 31 December 2017
+16
+118
+15
+118
+Currency translation differences
+of changes in equity
+Credited to consolidated statement
+2,451
+(3,386)
+(3)
+At 1 January 2017
+(354)
+Withholding tax paid
+(3,150)
+121
+income statement
+Credited/(charged) to consolidated
+(21)
+(21)
+Business combinations
+(5,153)
+(461)
+(425)
+(269)
+(3,391)
+2,451
+30,701
+46,118
+4,187
+Employee share award schemes:
+- shares issued (Note (a))
+- value of employee services
+Employee share option schemes:
+At 1 January 2017
+As at 31 December 2017 and 2016, the authorised share capital of the Company comprises 50,000,000,000 ordinary
+shares with par value of HKD0.00002 per share.
+31 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+213
+Annual Report 2017
+As at 31 December 2017, restricted deposits held at bank of RMB1,606 million (2016: RMB750 million) were
+mainly denominated in RMB.
+(b) Restricted cash
+Number of
+Approximately RMB54,894 million (2016: RMB28,154 million) and RMB11,740 million (2016: RMB1,856 million)
+of the total balance of the Group's cash and cash equivalents was denominated in RMB and placed with banks in
+Mainland China and Hong Kong, respectively.
+71,902
+105,697
+32,098
+57,419
+39,804
+48,278
+RMB'Million
+RMB'Million
+2016
+2017
+As at 31 December
+initial terms within three months
+Term deposits and highly liquid investments with
+The effective interest rate of the term deposits of the Group with initial terms within three months during the year
+ended 31 December 2017 was 2.42% (2016: 2.47%).
+Bank balances and cash
+issued and
+fully paid
+(2,232)
+4,254
+171
+1,125
+At 31 December 2017
+non-wholly owned subsidiaries (Note 32(d))
+Acquisition of additional equity interests in
+- shares vested from share award schemes and
+transferred to the grantees (Note (d))
+17,870,595
+- shares allotted for share award schemes (Note (c))
+- shares withheld for share award schemes (Note (b))
+- value of employee services
+171
+Shares held
+for share
+4,102,812
+14,188
+(3,136)
+17,324
+9,477,083,480
+RMB'Million
+Total
+award
+schemes
+RMB'Million
+premium
+RMB'Million
+RMB'Million
+capital
+ordinary shares*
+Share
+Share
+1,125
+-- (1,398)
+For the year ended 31 December 2017
+(a) Cash and cash equivalents
+2,259
+4,019
+6,394
+3,260
+RMB'Million
+RMB'Million
+2016
+2017
+As at 31 December
+Over 90 days
+61-90 days
+31 - 60 days
+0-30 days
+1,294
+Accounts receivable and their ageing analysis, based on recognition date, are as follows:
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+211
+Annual Report 2017
+Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2017, the
+carrying amounts of the term deposits with initial terms of over three months approximated their fair values.
+The effective interest rate for the term deposits of the Group with initial terms of over three months during the year ended
+31 December 2017 was 3.86% (2016: 3.41%).
+55,735
+42,089
+50,320
+36,724
+1,494
+1,836
+2,708
+29 ACCOUNTS RECEIVABLE
+Notes to the Consolidated Financial Statements
+3,497
+16,549
+30 BANK BALANCES AND CASH
+Tencent Holdings Limited
+212
+As at 31 December 2017, the carrying amounts of accounts receivable approximated their fair values.
+As at 31 December 2017, insignificant amounts of accounts receivable were past due and related impairment provision
+was recognised after assessment of the financial condition and credit quality with reference to the past history.
+Some online advertising customers and agencies are usually granted with a credit period of 90 days after full execution
+of the contracted advertisement orders. Third party platform providers and telecommunication operators usually settle
+the amounts due by them within 60 days and a period of 30 to 120 days, respectively.
+10,152
+16,549
+2,293
+4,769
+928
+564
+Others
+1,579
+Telecommunications operators
+3,140
+Third party platform providers
+4,679
+8,076
+Online advertising customers and agencies
+RMB'Million
+RMB'Million
+2016
+2017
+As at 31 December
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+Majority of the Group's accounts receivable were denominated in RMB.
+10,152
+2,252
+217
+4,254
+During the year ended 31 December 2017, a non-wholly owned subsidiary of the Group, China Literature Limited ("China
+Literature"), have undergone initial public offering by listing of certain of its new shares and sale shares on the Stock Exchange
+and thus the Group's equity interest in China Literature was diluted. Given China Literature remains a subsidiary of the Group
+following the said initial public offering, this transaction was accounted for as transaction with non-controlling interest with a gain
+of RMB2,495 million directly recognised in equity.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+32 OTHER RESERVES (Cont'd)
+Note:
+218
+(a)
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+(b)
+(c)
+(d)
+(e)
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries
+with limited liabilities in the PRC, appropriation of net profit (after offsetting accumulated losses from prior years) should be
+made by these companies to their respective Statutory Surplus Reserve Funds and the Discretionary Reserve Funds before
+distributions are made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount
+to be transferred to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance
+of the Statutory Surplus Reserve Fund reaches 50% of the registered capital, such transfer needs not to be made. Both the
+Statutory Surplus Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the
+remaining Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly owned foreign subsidiaries in the PRC, appropriation from net profit (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, such transfer needs not be made.
+219
+Share-based compensation reserve arises from share option schemes and share award schemes adopted by the subsidiaries of
+the Group (Note 33(d)).
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+Annual Report 2017
+In respect of the Post-IPO Option Scheme III which continues to be in force, the Board may, at its discretion, grant
+options to any qualifying participants to subscribe for shares in the Company, subject to the terms and conditions
+stipulated therein. The exercise price must be in compliance with the requirement under the Rules Governing
+the Listing of Securities on the Stock Exchange. In addition, the option vesting period is determined by the Board
+provided that it is not later than the last day of a 10-year period.
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV.
+The Pre-IPO Option Scheme, the Post-IPO Option Scheme I and the Post-IPO Option Scheme II expired on 31
+December 2011, 23 March 2014 and 16 May 2017, respectively. Upon the expiry of these schemes, no further
+options would be granted under these schemes, but the options granted prior to such expiry continued to be valid
+and exercisable in accordance with provisions of the schemes.
+(a) Share option schemes
+33 SHARE-BASED PAYMENTS
+On 17 May 2017, a new share option scheme ("Post-IPO Option Scheme IV") had been approved by the
+shareholders of the Company. The maximum number of shares in respect of which options may be granted under
+the Post-IPO Option Scheme IV shall not exceed 379,099,339 shares, representing 4% of the issued shares of
+the Company as at the date of shareholders' approval of the Post-IPO Option Scheme IV (the “Scheme Mandate
+Limit"). Options lapsed in accordance with the terms of the Post-IPO Option Scheme IV shall not be counted for
+the purpose of calculating the 4% limit. The Company may refresh the Scheme Mandate Limit by an ordinary
+resolution of the shareholders passed in a general meeting, provided that the Scheme Mandate Limit so refreshed
+shall not exceed 4% of the issued shares as at the date the shareholders approve the refreshing of such Scheme
+Mandate Limit. Options previously granted under any existing schemes (including options outstanding, cancelled,
+or lapsed in accordance with the relevant scheme rules or exercised options) shall not be counted for the purpose
+of calculating the limit as refreshed. Options granted under the Post-IPO Option Scheme IV will expire no later than
+the last day of the 7-year period after the date of grant of options (subject to early termination as set out in the
+terms of the Post-IPO Option Scheme IV).
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+During the year ended 31 December 2017, another non-wholly owned subsidiary of the Group issued certain new shares in
+exchange for non-controlling interest of an investee, which accounted for as available-for-sale financial assets, and the Group's
+equity interest in such non-wholly owned subsidiary was diluted accordingly. This transaction was accounted for as transaction
+with non-controlling interest with a gain of RMB4,088 million directly recognised in equity.
+During the year ended 31 December 2017, the Group has acquired non-controlling interests in certain non-wholly owned
+subsidiaries and the aggregate net excess of considerations over the carrying amounts of acquired non-controlling interests of
+RMB952 million (2016: RMB2,523 million) was recognised directly in equity. Out of which includes an agreement to entire non-
+controlling interests (including the outstanding equity-settled and cash-settled share options and restricted shares under the
+relevant employees' investment plans) in a non-wholly owned subsidiary entered into by the Group in 2015. The considerations
+were settled in cash and awarded shares of the Company. This acquisition was partially completed in 2017.
+For the year ended 31 December 2017
+(3,227,554)
+Vested but not transferred as at the end of the year
+Tencent Holdings Limited
+Number of awarded shares
+2017
+2016
+86,365,812
+91,786,907
+19,071,975
+52,371,430
+(3,803,259)
+33 SHARE-BASED PAYMENTS (Cont'd)
+63,636,254
+86,365,812
+159,893
+277,291
+At end of the year
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+(b) Share award schemes (Cont'd)
+During the year ended 31 December 2017, 60,000 awarded shares were granted to four independent non-
+executive directors of the Company (2016: 61,474 awarded shares were granted to four independent non-
+executive directors of the Company).
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date. The expected dividends during the vesting period have been taken into account when
+assessing the fair value of these awarded shares.
+(38,573,979) (53,989,266)
+Vested and transferred
+(b) Share award schemes
+Granted
+(iii) Fair value of options
+The directors of the Company have used the Binomial Model to determine the fair value of the options as at
+the respective grant dates, which is to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2017 was HKD71.30 per share (equivalent
+to approximately RMB62.86 per share) (2016: HKD56.41 per share (equivalent to approximately RMB47.33
+per share)).
+Other than the exercise price mentioned above, significant judgement on parameters, such as risk free rate,
+dividend yield and expected volatility, are required to be made by the directors in applying the Binomial
+Model, which are summarised as below.
+Weighted average share price at the grant date
+Risk free rate
+Dividend yield
+Expected volatility (Note)
+Note:
+2017
+2016
+HKD236.88
+1.39%-1.68%
+HKD160.04
+0.69%-1.08%
+0.26%-0.34%
+0.32%-0.33%
+30.00%
+35.00%
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the
+average daily trading price volatility of the shares of the Company.
+The weighted average fair value of awarded shares granted during the year ended 31 December 2017 was
+HKD274.02 per share (equivalent to approximately RMB238.37 per share) (2016: HKD165.25 per share
+(equivalent to approximately RMB141.89 per share)).
+The Company has adopted two share award schemes (the "Share Award Schemes") as of 31 December 2017,
+which are administered by an independent trustee appointed by the Group. The vesting period of the awarded
+shares is determined by the Board.
+Movements in the number of awarded shares for the years ended 31 December 2017 and 2016 are as follows:
+222
+At beginning of the year
+Lapsed
+The outstanding awarded shares as of 31 December 2017 were divided into two to five tranches on an equal basis as
+at their grant dates. The first tranche can be exercised immediately or after a specified period ranging from four months
+to four years from the grant date, and the remaining tranches will become exercisable in each subsequent year.
+Annual Report 2017
+For aligning the interests of key employees with the Group, the Group established six employees' investment
+plans in the form of limited liability partnerships in 2011, 2014, 2015, 2016 and 2017 (the "EIS") respectively.
+According to the term of the EISS, the Board may, at its absolute discretion, invite any qualifying participants of the
+Group, excluding any director of the Company, to participate in the EISS by subscribing for the partnership interest
+at cash consideration. The participating employees are entitled to all the economic benefits generated by the EISS,
+if any, after a specified vesting period under the respective EISS, ranging from four to seven years. Wholly-owned
+subsidiaries of the Company acting as general partner of these EISS administer and in essence, control the EISS.
+These EISS are therefore consolidated by the Company as structured entities.
+secured (Note (a))
+475
+82,094
+57,549
+Included in current liabilities:
+HKD bank borrowings, unsecured (Note (b))
+USD bank borrowings, unsecured (Note (b))
+1,307
+12,139
+Current portion of long-term USD bank borrowings,
+unsecured (Note (a))
+66
+139
+Current portion of long-term RMB bank borrowings,
+unsecured (Note (a))
+30
+224
+Tencent Holdings Limited
+15,696
+12,278
+97,790
+69,827
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+Non-current portion of long-term RMB bank borrowings,
+(c) Employee investment schemes
+834
+Non-current portion of long-term HKD bank borrowings,
+The related share-based compensation expenses incurred for the years ended 31 December 2017 and 2016 were
+insignificant to the Group.
+(d) Share options and share award schemes adopted by subsidiaries
+Certain subsidiaries of the Group operate their own share-based compensation plans (share option and/or share
+award schemes). Their exercise prices of the share options, as well as the vesting periods of the share options and
+awarded shares are determined by the board of directors of these subsidiaries at their sole discretion. Similar to the
+share option/award schemes adopted by the Company, the share options or restricted shares of the subsidiaries
+granted are normally vested by several tranches. Participants of some subsidiaries have the right to request the
+Group to repurchase their vested equity interests of the respective subsidiaries ("Repurchase Transaction"). The
+Group has discretion to settle the Repurchase Transaction by using either equity instruments of the Company or
+by cash. For the Repurchase Transaction which the Group has settlement options, the directors of the Company
+are currently of the view that they would be settled by equity instruments of the Company. As a result, they are
+accounted for using the equity-settled share-based payment method.
+(a) Share option schemes (Cont'd)
+223
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+33 SHARE-BASED PAYMENTS (Cont'd)
+(e) Expected retention rate of grantees
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate”) in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2017, the Expected Retention Rate of the Group's wholly-owned subsidiaries was assessed to be 88%-
+97% (2016: 88%-96%).
+34 BORROWINGS
+Included in non-current liabilities:
+Non-current portion of long-term USD bank borrowings,
+unsecured (Note (a))
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+76,326
+57,549
+Non-current portion of long-term RMB bank borrowings,
+unsecured (Note (a))
+4,459
+unsecured (Note (a))
+33 SHARE-BASED PAYMENTS (Cont'd)
+33,747,436
+Notes to the Consolidated Financial Statements
+HKD273.79
+9,219,035
+37,745,250
+(4,102,812)
+Lapsed
+HKD142.65
+(160,591)
+HKD272.36
+(63,175) (223,766)
+At 31 December 2017
+33,747,436
+HKD179.90 55,510,248 HKD31.70
+HKD273.80
+9,155,860 67,166,108
+Exercisable as at
+31 December 2017
+HKD118.70 13,152,006 HKD31.70
+1,250,000
+14,402,006
+At 1 January 2016
+Granted
+Exercised
+Lapsed
+HKD80.59 25,697,305 HKD31.70 5,000,000
+HKD160.11 11,843,070
+2,500,000
+2,500,000
+HKD31.70
+HKD120.95 31,247,436
+HKD225.44 28,526,215
+HKD49.05 (4,102,812)
+33 SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+220
+(i)
+Movements in share options
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+Post-IPO Option Scheme II
+Post-IPO Option Scheme III
+Post-IPO Option Scheme IV
+Total
+Average
+exercise
+price
+No. of
+options
+Average
+exercise
+price
+No. of
+options
+Average
+exercise
+price
+No. of
+No. of
+options
+options
+At 1 January 2017
+Granted
+Exercised
+30,697,305
+11,843,070
+HKD29.69 (6,218,788) HKD31.70
+HKD42.72
+(2,500,000)
+HKD26.08-HKD49.76
+1,633,050
+5,005,325
+HKD112.30-HKD174.86
+25,386,768
+26,242,111
+HKD225.44-HKD272.36
+37,556,725
+Post-IPO Option Scheme IV)
+HKD419.60
+89,565
+64,666,108
+34 BORROWINGS (Cont'd)
+10 years commencing from the date of
+grant of options
+(Post-IPO Option Scheme III)
+HKD31.70
+2,500,000
+2,500,000
+67,166,108
+The outstanding share options as of 31 December 2017 were divided into two to five tranches on an equal
+basis as at their grant dates. The first tranche can be exercised after a specified period ranging from one to
+five years from the grant date, and then the remaining tranches will become exercisable in each subsequent
+year.
+Annual Report 2017
+221
+2016
+For the year ended 31 December 2017
+31 December
+Range of exercise price
+(8,718,788)
+(74,151)
+(74,151)
+At 31 December 2016
+HKD120.95 31,247,436 HKD31.70 2,500,000
+33,747,436
+Exercisable as at
+31 December 2016
+HKD86.69
+9,617,778
+9,617,778
+During the year ended 31 December 2017, 5,250,000 options were granted to one director of the Company
+(2016: 3,750,000 options were granted to one director of the Company).
+As a result of the options exercised during the year ended 31 December 2017, 4,102,812 ordinary shares
+(2016: 8,718,788 ordinary shares) were issued by the Company (Note 31). The weighted average price of
+the shares at the time these options were exercised was HKD286.46 per share (equivalent to approximately
+RMB248.41 per share) (2016: HKD173.65 per share (equivalent to approximately RMB148.82 per share)).
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+33 SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+(ii) Outstanding share options
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2017 and 2016 are as follows:
+grant of options
+Expiry Date
+7 years commencing from the date of
+(Post-IPO Option Scheme II and
+Number of share options
+31 December
+2017
+31,247,436
+Note:
+The aggregate principal amounts of long-term USD bank borrowings, long-term RMB bank borrowings and long-term HKD bank
+borrowings were USD11,691 million (2016: USD8,316 million), RMB4,964 million (2016: Nil) and HKD1,000 million (2016: Nil),
+respectively. Applicable interest rates are at LIBOR/HIBOR plus 0.70% to 1.51% or a fixed interest rate of 1.875% for non-RMB
+bank borrowings and interest rates of 4.18% to 4.275% for RMB bank borrowings (31 December 2016: LIBOR plus 0.85% to
+1.51% or a fixed interest rate of 1.875% for non-RMB bank borrowings) per annum.
+410
+403
+Others (Note)
+7,085
+5,147
+29,433
+20,873
+Note:
+Others primary consist of deposits from third parties, reserve for platform services, sundry payables and other accruals.
+228
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+Interests payable
+40 CONSOLIDATED CASH FLOW STATEMENT
+Profit for the year
+For the year ended 31 December 2017
+2017
+2016
+RMB'Million
+RMB'Million
+72,471
+41,447
+Adjustments for:
+Income tax expense
+15,744
+10,193
+(a) Reconciliation of net profit to cash inflow from operating activities:
+Gains on disposals and deemed disposals of investees and businesses
+1,417
+Prepayments received from customers and others
+2,050
+1,495
+6,585
+2,363
+50,085
+27,413
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+Staff costs and welfare accruals
+416
+13,451
+Selling and marketing expense accruals
+4,414
+2,530
+Purchase of land use rights and construction related costs
+1,463
+857
+General and administrative expenses accruals
+1,149
+1,160
+Purchase consideration payables for investee companies
+1,045
+394
+8,965
+2,740
+(13,518)
+Dividend income
+(212)
+Changes in working capital:
+Accounts receivable
+(6,400)
+(2,930)
+Inventories
+(39)
+(38)
+Prepayments, deposits and other receivables
+(3,760)
+(4,108)
+Accounts payable
+(152)
+16,134
+Other payables and accruals
+8,422
+2,506
+229
+Annual Report 2017
+76,034
+120,002
+Cash generated from operating activities
+8,428
+9,117
+Deferred revenue
+49
+7,060
+(6,966)
+Exchange gains
+239
+(1,713)
+(563)
+Depreciation of property, plant and equipment and investment properties
+Amortisation of intangible assets and land use right
+Net losses on disposals of intangible assets, property,
+plant and equipment and construction in progress
+Interest income
+4,880
+3,716
+18,731
+9,025
+Equity-settled share-based compensation expenses
+Share of (profit)/loss of associates and joint ventures
+24
+60
+(3,940)
+366
+(2,619)
+4,313
+(821)
+2,522
+Impairment provision for available-for-sale financial assets,
+investments in associates, joint ventures and redeemable instruments of
+associates
+2,555
+4,443
+Fair value gains on other financial assets
+(4,298)
+(658)
+Impairment of intangible assets
+6,137
+3,030
+20,815
+38,420
+2017
+2016
+RMB'Million
+RMB'Million
+Non-current portion of long-term USD notes payable
+Non-current portion of long-term HKD notes payable
+26,697
+32,461
+2,666
+3,743
+29,363
+36,204
+Included in current liabilities:
+As at 31 December
+Current portion of long-term USD notes payable
+Current portion of long-term HKD notes payable
+3,466
+833
+4,752
+3,466
+34,115
+39,670
+The aggregate principal amounts of USD notes payable and HKD notes payable were USD4,700 million (2016:
+USD5,200 million) and HKD4,200 million (2016: HKD4,200 million), respectively. The interest rate range of the notes
+payable is from 2.30% to 4.70% (2016: 2.00% to 4.70%) per annum.
+The notes payable were repayable as follows:
+Within 1 year
+Between 1 and 2 years
+Between 2 and 5 years
+More than 5 years
+3,919
+226
+Included in non-current liabilities:
+For the year ended 31 December 2017
+The long-term bank borrowings were repayable as follows:
+Within 1 year
+Between 1 and 2 years
+Between 2 and 5 years
+More than 5 years
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+96
+139
+9,947
+35 NOTES PAYABLE
+5,376
+48,947
+5,946
+3,226
+82,190
+57,688
+(b)
+The aggregate principal amounts of short-term USD bank borrowings and short-term HKD bank borrowings were USD200 million
+(2016: USD1,750 million) and HKD17, 133 million (2016: Nil), respectively. These short-term bank borrowings were carried at
+LIBOR/HIBOR plus 0.50% to 0.55% (2016: LIBOR plus 0.70% to 0.75%) per annum.
+During the year ended 31 December 2017, the Group entered into certain interest rate swap contracts to hedge its
+exposure arising from its long-term bank borrowings carried at floating rates. The Group's outstanding interest rate swap
+contracts as at 31 December 2017 have been detailed in Note 26.
+As at 31 December 2017, the carrying amounts of borrowings approximated their fair values.
+Annual Report 2017
+225
+Notes to the Consolidated Financial Statements
+66,201
+Tencent Holdings Limited
+As at 31 December
+2017
+non-controlling shareholders of a subsidiary
+225
+203
+Others
+751
+873
+3,862
+4,935
+37 DEFERRED REVENUE
+Deferred revenue mainly represents service fees prepaid by customers for certain VAS in the form of pre-paid tokens or
+cards, virtual items and subscriptions, for which the related services had not been rendered as at 31 December 2017. It
+also includes customer loyalty incentives offered by the Group to its customers which were valued at their respective fair
+values at the inception date. As at 31 December 2017, deferred revenue also included fair value of internet traffic and
+other support to be offered to JD.com and other investee companies in the future periods measured at their respective
+inception dates, as mentioned in Note 20.
+Annual Report 2017
+227
+Present value of liabilities in relation to the put options granted to
+Notes to the Consolidated Financial Statements
+38 ACCOUNTS PAYABLE
+Accounts payable and their ageing analysis, based on recognition date, are as follows:
+0-30 days
+31 - 60 days
+61-90 days
+Over 90 days
+39 OTHER PAYABLES AND ACCRUALS
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+For the year ended 31 December 2017
+289
+3,859
+2,597
+2016
+RMB'Million
+RMB'Million
+4,752
+3,466
+13,044
+5,043
+9,833
+24,281
+6,486
+6,880
+34,115
+39,670
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+35 NOTES PAYABLE (Cont'd)
+All of these notes payable issued by the Group were unsecured.
+In May 2017, the notes payable with an aggregate principal amount of USD500 million issued in April 2014 reached
+their maturity and were repaid in full by the Group.
+As at 31 December 2017, the fair value of the notes payable amounted to RMB34,691 million (2016: RMB40,379
+million). The respective fair values are assessed based on the active market price of these notes on the reporting date or
+by making reference to similar instruments traded in the observable market.
+36 LONG-TERM PAYABLES
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+Payables relating to licensed online contents and
+running royalty fee for online games
+Purchase consideration payables for business combinations
+(a)
+For the year ended 31 December 2017
+14,293
+Other tax liabilities
+Notes to the Consolidated Financial Statements
+189
+Annual Report 2017
+the share(s) of the Company awarded under the Share Award Schemes
+PricewaterhouseCoopers, the auditor of the Company
+the audit committee of the Company
+the amended and restated articles of association of the Company adopted by
+special resolution passed on 14 May 2014
+average revenue per user
+artificial intelligence
+13 November 2013, being the date on which the Company adopted the 2013
+Share Award Scheme
+13 December 2007, being the date on which the Company adopted the 2007
+Share Award Scheme
+the bank account opened in the name of the trust pursuant to Trust Deed II,
+managed by the Trustee, and operated solely for the purposes of operating the
+2013 Share Award Scheme, which is held on trust for the benefit of Selected
+Participants and can be funded by the Company or any of its subsidiaries
+the bank account opened in the name of the Company to be operated solely for
+the purposes of operating the 2007 Share Award Scheme and the funds thereof
+to be held on trust by the Company for the Selected Participants
+239
+Product/Service provided to business customers
+the share award scheme adopted by the Company on Adoption Date II, as
+amended
+the share award scheme adopted by the Company on Adoption Date I, as
+amended
+Definition
+"Awarded Share(s)"
+"Auditor"
+"Audit Committee"
+"Articles of Association"
+"ARPU"
+"AI"
+"Adoption Date II”
+"Adoption Date I"
+the annual general meeting of the Company to be held on 16 May 2018 or any
+adjournment thereof
+ASSETS
+Non-current assets
+Intangible assets
+17
+Prepayments, deposits and other receivables
+10,108
+8,725
+Amounts due from subsidiaries
+Current assets
+56,016
+55,337
+67
+43
+464
+1,346
+54,097
+55,253
+42
+41
+RMB'Million
+RMB'Million
+2016
+2017
+As at 31 December
+Contribution to Share Scheme Trust
+Prepayments, deposits and other receivables
+Investments in associates
+Investments in subsidiaries
+"Account II"
+15
+Tencent Computer
+"2018 AGM"
+Annual Report 2017
+on an outstanding basis
+services in the PRC
+Provision of online music entertainment
+53.76%*
+USD246,558
+Established in the Cayman Islands,
+limited liability company
+Tencent Music Entertainment Group
+Provision of online literature services in the PRC
+54.74%*
+USD906,417
+237
+Established in the Cayman Islands,
+limited liability company
+in the United States
+Development and operation of online games
+100%
+USD1,306
+Established in the United States,
+limited liability company
+Riot Games, Inc.
+Design and production of advertisement
+in the PRC
+limited liability company
+Company Limited
+100%
+RMB5,000,000
+China Literature
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+45 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+"2013 Share Award Scheme"
+"2007 Share Award Scheme"
+Term
+In this annual report, unless the context otherwise requires, the following expressions shall have the following meanings:
+Definition
+Tencent Holdings Limited
+238
+During the year ended 31 December 2017, the Company contributed approximately RMB2,232 million (2016: RMB1,936
+million) to the Share Scheme Trust for financing its acquisition of the Company's shares.
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+Administering and holding the Company's shares acquired for share award
+schemes which are set up for the benefits of eligible persons of the Schemes
+Principal activities
+Share Scheme Trust
+Structured entity
+As mentioned in Note (a) above and Note 33(c), the Company has consolidated the operating entities within the Group without
+any legal interests and the EISS out of which wholly-owned subsidiaries of the Company act as general partner. In addition,
+due to the implementation of the share award schemes of the Group mentioned in Note 33(b), the Company has also set up a
+structured entity ("Share Scheme Trust”), and its particulars are as follows:
+Consolidation of structured entities
+(e)
+As at 31 December 2017, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to RMB98,144
+million were held in Mainland China and they are subject to local exchange control and other financial and treasury regulations.
+The local exchange control, and other financial and treasury regulations provide for restrictions, on payment of dividends, share
+repurchase and offshore investments, other than through normal activities.
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary's
+undertakings held directly by the parent company do not differ from its proportion of ordinary shares held. The parent company
+further does not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+Significant restrictions
+The directors of the Company considered that the non-wholly owned subsidiaries with non-controlling interests are not significant
+to the Group, therefore, no summarised financial information of these non-wholly owned subsidiaries is presented separately.
+As described in Note 1, the Company does not have legal ownership in equity of these structured entities or their subsidiaries.
+Nevertheless, under certain contractual agreements entered into with the registered owners of these structured entities, the
+Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing their
+financial and operating policies, appointing or removing the majority of the members of their controlling authorities, and casting
+the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards
+of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled
+structured entities of the Company.
+(d)
+(c)
+(b)
+(a)
+Note:
+"2B"
+"Account |"
+Cash and cash equivalents
+1,629
+Currency translation differences
+(5,052)
+Dividends paid relating to 2016
+9,392
+Profit for the year
+126
+4,031
+At 1 January 2017
+RMB'Million
+RMB'Million
+reserves
+(657)
+Other
+(b) Reserve movement of the Company
+44 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+67,768
+71,998
+Total equity and liabilities
+49,423
+45,924
+Total liabilities
+Retained
+earnings
+11,294
+At 31 December 2017
+(531)
+by the Group (%) Principal activities and place of operation
+Proportion of
+equity interest held
+Particulars of
+issued/paid-in
+capital
+and nature of legal entity
+Name
+Place of establishment
+The following is a list of principal subsidiaries of the Company as at 31 December 2017:
+45 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+235
+8,371
+Annual Report 2017
+4,031
+At 31 December 2016
+574
+Currency translation differences
+(3,699)
+Dividends paid relating to 2015
+7,258
+Profit for the year
+(448)
+472
+At 1 January 2016
+126
+14,493
+3,466
+4,752
+Annual Report 2017
+18,345
+26,074
+4,031
+8,371
+126
+(531)
+(3,136)
+(3,970)
+17,324
+22,204
+233
+Total equity
+Other reserves (b)
+Shares held for share award schemes
+Share premium
+Share capital
+Equity attributable to equity holders of the Company
+EQUITY
+67,768
+71,998
+Total assets
+11,752
+16,661
+Retained earnings (b)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+44 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+Notes payable
+363
+333
+Other payables and accruals
+7,465
+9,408
+Amounts due to subsidiaries
+Current liabilities
+38,129
+31,431
+1,925
+2,068
+Other financial liabilities
+36,204
+29,363
+Notes payable
+Non-current liabilities
+RMB'Million
+2016
+RMB'Million
+2017
+As at 31 December
+LIABILITIES
+234
+(a) Financial position of the Company (Cont'd)
+Established in the PRC,
+7,919
+(a) Financial position of the Company
+limited liability company
+Capital investment in investees
+3,027
+2,866
+3,453
+4,821
+(b) Operating lease commitments
+The future aggregate minimum lease payments under non-cancellable operating leases in respect of buildings are
+as follows:
+Contracted:
+As at 31 December
+2017
+2016
+44
+RMB'Million
+Not later than one year
+217
+302
+Later than one year and not later than five years
+502
+632
+Later than five years
+969
+1,156
+1,688
+2,090
+RMB'Million
+(c) Other commitments
+153
+1,911
+(4,967)
+4,920
+(47)
+Net cash as at 31 December 2017
+105,697
+42,540
+(15,696)
+(82,094)
+(4,752)
+(29,363)
+16,332
+Purchase of other property, plant and equipment
+Tencent Holdings Limited
+41 COMMITMENTS
+(a) Capital commitments
+Capital commitments as at 31 December 2017 and 2016 are analysed as follows:
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+Contracted:
+Construction/Purchase of buildings and purchase of land use rights
+273
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+The future aggregate minimum payments under non-cancellable bandwidth and server custody leases, online
+game and online content licensing agreements are as follows:
+Contracted:
+As at 31 December
+(USD'Million)
+Interest Rate
+(per annum)
+Due
+1,000
+2.985%
+2023
+500
+3-month USD
+2023
+LIBOR +0.605%
+2,500
+1,000
+Amount
+3.595%
+3.925%
+2038
+5,000
+The net proceeds from the issue of these four tranches of senior notes amounted to approximately USD4.981
+billion after deduction of underwriting fees, discounts and commissions but not other expenses payable in
+connection with the issuance. All of the Notes are listed on the Stock Exchange.
+(b) Investments in Wanda Commercial
+In January 2018, the Group entered into a strategy investment agreement with Dalian Wanda Commercial
+Properties Co., Ltd. ("Wanda Commercial"), a commercial property company located in the PRC, to commit to
+acquire its approximately 4.12% equity interest at a consideration of approximately RMB10 billion.
+232
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+44 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+2028
+2038 Notes
+2028 Notes
+2023 Floating Rate Notes
+2017
+2016
+RMB'Million
+RMB'Million
+Not later than one year
+6,089
+3,404
+Later than one year and not later than five years
+10,376
+4,081
+Later than five years
+2,237
+1,540
+18,702
+9,025
+Annual Report 2017
+231
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2017
+42 RELATED PARTIES TRANSACTIONS
+Except as disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest paid individuals),
+Note 14 (Benefits and interests of directors), Note 20 (Transactions with associates), Note 25 (Loans to investees and
+investees' shareholders) and Note 33 (Share-based payments) to the consolidated financial statements, the Group had
+no other material transactions with related parties during the years ended 31 December 2017 and 2016, and no other
+material balances with related parties as at 31 December 2017 and 2016.
+43 SUBSEQUENT EVENTS
+(a) Completion of USD5 billion Issue of Notes under the Programme
+On 19 January 2018, the Company issued four tranches of senior notes under the Global Medium Term Note
+Programme (the "Programme”) with an aggregate principal amount of USD5 billion set out below.
+2023 Notes
+488
+(488)
+Other non-cash movements
+4,084
+Other than the transaction with non-controlling interests described in Note 32(d) and (e), there were no material
+non-cash transactions during the year ended 31 December 2017.
+(c) Net cash reconciliation
+This section sets out an analysis of net cash and the movements in net cash for each of the years presented.
+Net cash
+230
+As at 31 December
+2017
+2016
+RMB'Million
+RMB'Million
+Cash and cash equivalents
+(b) Major non-cash transactions
+Term deposits and others
+Borrowings
+repayable after one year
+105,697
+71,902
+42,540
+55,735
+(15,696)
+(12,278)
+(82,094)
+(57,549)
+Notes payable - repayable within one year
+Borrowings - repayable within one year
+40 CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+100%
+HKD1,000
+Established in Hong Kong,
+integration services in the PRC
+Provision of information system
+100%
+(Note (a))
+limited liability company
+RMB120,000,000
+Established in the PRC,
+Tencent Cloud Computing (Beijing)
+Company Limited
+Morespark Limited
+of information technology services in the PRC
+Development of softwares and provision
+100%
+USD30,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Wuhan)
+Company Limited
+of information technology services in the PRC
+Development of softwares and provision
+100%
+USD170,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Chengdu)
+Company Limited
+of information technology services in the PRC
+by the Group (%) Principal activities and place of operation
+Development of softwares and provision
+wholly foreign owned enterprise
+Notes payable - repayable after one year
+Investment holding and provision of online
+advertisement services in Hong Kong
+Net cash
+(3,466)
+RMB'Million
+payable due
+after 1 year
+RMB'Million
+Total
+RMB'Million
+Net cash as at 31 December 2016
+71,902
+Cash flows
+36,346
+55,735
+(13,179)
+(12,278)
+(3,698)
+(57,549)
+Notes
+(3,466)
+18,140
+(28,764)
+3,450
+(5,845)
+Exchange impacts
+(2,551)
+(16)
+768
+3,731
+231
+1,921
+(36,204)
+Notes
+payable due
+within 1 year
+due after
+1 year
+RMB'Million
+due within
+1 year
+RMB'Million
+(29,363)
+(36,204)
+16,332
+18,140
+Cash and cash equivalents, term deposits and others
+148,237
+127,637
+Gross debt-fixed interest rates
+(39,257)
+(40,364)
+Gross debt-floating interest rates
+(92,648)
+(69,133)
+Net cash
+16,332
+18,140
+Cash and
+Term
+Borrowings
+Borrowings
+cash
+equivalents
+deposits and
+others
+RMB'Million
+RMB'Million
+(4,752)
+Beijing Tencent Culture Media
+Established in the PRC,
+100%
+Tencent Cyber (Shenzhen)
+Company Limited
+Provision of value-added services in the PRC
+100%
+(Note (a))
+limited liability company
+RMB10,000,000
+Established in the PRC,
+Established in the PRC,
+Beijing Starsinhand Technology
+Company Limited
+100%
+(Note (a))
+limited liability company
+RMB216,500,000
+Provision of Internet advertisement
+RMB65,000,000
+Established in the PRC,
+Provision of value-added services in the PRC
+USD30,000,000
+100%
+Development of softwares in the PRC
+USD5,000,000
+Established in the PRC,
+Tencent Technology (Shanghai)
+Company Limited
+capital
+Proportion of
+equity interest held
+issued/paid-in
+Place of establishment
+and nature of legal entity
+Name
+Particulars of
+45 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+For the year ended 31 December 2017
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+236
+wholly foreign owned enterprise
+Beijing BIZCOM Technology
+Company Limited
+100%
+Provision of value-added services in the PRC
+limited liability company
+100%
+(Note (a))
+Provision of value-added services and Internet
+advertisement services in the PRC
+Tencent Technology
+Established in the PRC,
+USD2,000,000
+100%
+Tencent Cyber (Tianjin)
+Company Limited
+Development of softwares and provision of
+information technology services in the PRC
+Shenzhen Shiji Kaixuan Technology
+Company Limited
+Established in the PRC,
+RMB11,000,000
+limited liability company
+100%
+(Note (a))
+wholly foreign owned enterprise
+Tencent Asset Management Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD90,000,000
+RMB10,290,000
+Established in the PRC,
+Nanjing Wang Dian Technology
+Company Limited
+provision of information technology
+services in the PRC
+Development and sale of softwares and
+100%
+USD1,000,000
+Established in the PRC,
+wholly foreign owned enterprise
+Tencent Technology (Beijing)
+Company Limited
+Asset management in Hong Kong
+100%
+USD100
+Established in BVI,
+limited liability company
+information technology services in the PRC
+Development of softwares and provision of
+100%
+(Note (a))
+limited liability company
+services in the PRC
+intellectual property
+peak concurrent user accounts
+personal computer
+the nomination committee of the Company
+Netmarble Games Corporation, a company incorporated under the laws of Korea
+and the shares of which are listed on the Korea Exchange
+NASDAQ Global Select Market
+the Model Code for Securities Transactions by Directors of Listed Issuers set out
+in Appendix 10 to the Listing Rules
+Multiplayer Online Battle Arena
+MIH TC Holdings Limited
+Definition
+"ROI"
+"RMB"
+"Remuneration Committee"
+"Reference Date"
+"R&D"
+"PUBG"
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the Post-IPO Share Option Scheme adopted by the Company on 17 May 2017
+the People's Republic of China
+"Pre-IPO Option Scheme"
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+PlayerUnknown's Battlegrounds
+in respect to a Selected Participant, the date of final approval by the Board of the
+total number of shares of the Company to be awarded to the relevant Selected
+Participant on a single occasion pursuant to the 2007 Share Award Scheme
+"Shenzhen Tencent Information"
+"Share Subdivision"
+"Share Award Schemes"
+"Shanghai Tencent Information"
+"SFO"
+"Selected Participant(s)"
+"Sea"
+"RPG"
+Term
+Definition
+Tencent Holdings Limited
+242
+return on investment
+the lawful currency of the PRC
+the remuneration committee of the Company
+research and development
+"Shiji Kaixuan"
+"PRC" or "China"
+"PCU"
+International Financial Reporting Standards
+internal control department of the Company
+International Accounting Standards
+internal audit department of the Company
+the Hong Kong Special Administrative Region, the PRC
+Honour of Kings
+the lawful currency of Hong Kong
+Hainan Tencent Network Information Technology Company Limited
+Guangzhou Tencent Technology Company Limited
+the Company and its subsidiaries
+in relation to any Awarded Share, the date on which the Awarded Share is, was or
+is to be granted
+Generally Accepted Accounting Principles
+Definition
+"MAU"
+"M&A"
+Instant messaging
+"Post-IPO Option Scheme I"
+"Post-IPO Option Scheme II"
+"Post-IPO Option Scheme III"
+"Post-IPO Option Scheme IV"
+the investment committee of the Company
+the Republic of Korea
+"PC"
+"Nomination Committee"
+"Netmarble"
+"NASDAQ"
+"Model Code"
+"MOBA"
+"MIH TC"
+Term
+Definition
+241
+Annual Report 2017
+monthly active user accounts
+mergers and acquisitions
+League of Legends
+the Rules Governing the Listing of Securities on the Stock Exchange
+initial public offering
+"Singapore"
+"SKT CFC"
+"SKT Co-operation Committee”
+“Sogou”
+the lawful currency of the United States
+the United States of America
+an independent trustee appointed by the Company for managing the Share Award
+Schemes
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2013 Share Award Scheme
+Tencent Technology (Wuhan) Company Limited
+Tencent Technology (Shenzhen) Company Limited
+Tencent Technology (Shanghai) Company Limited
+Tencent Music Entertainment Group, a limited liability company incorporated
+under the laws of the Cayman Islands
+Shenzhen Tencent Computer Systems Company Limited
+Tencent Technology (Chengdu) Company Limited
+charity funds established by the Group
+Definition
+"ZhongAn Insurance"
+"WFOES"
+"Wang Dian"
+value-added services
+"Yixin"
+Yixin Group Limited, a company incorporated in the Cayman Islands with limited
+liability, the shares of which are listed on the Stock Exchange
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Shenzhen Tencent
+Information, Tencent Chengdu, Chongqing Tencent Information, Shanghai
+Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network and
+Guangzhou Tencent Technology
+Facsimile: 852-25201148
+Telephone: 852-21795122
+No.1 Queen's Road East
+Wanchai, Hong Kong
+29/F., Three Pacific Place
+Tencent Holdings Limited Hong Kong Office
+Facsimile 86-755-86013399
+Telephone: 86-755-86013388
+Zipcode : 518057
+Tencent Building, Kejizhongyi Avenue, Hi-tech Park
+Nanshan District, Shenzhen, the PRC
+Tencent Group Head Office
+Website: www.tencent.com
+Tencent 腾讯
+Tencent Holdings Limited
+244
+ZhongAn Online P & C Insurance Co., Ltd., a joint stock limited company
+incorporated in the PRC with limited liability whose H shares are listed on the
+Stock Exchange
+Nanjing Wang Dian Technology Company Limited
+"VAS"
+"USD"
+"United States"
+the Republic of Singapore
+Shenzhen Shiji Kaixuan Technology Company Limited
+Shenzhen Tencent Information Technology Company Limited
+with effect from 15 May 2014, each existing issued and unissued share of
+HKD0.0001 each in the share capital of the Company was subdivided into five
+subdivided shares of HKD0.00002 each, after passing of an ordinary resolution at
+the annual general meeting of the Company held on 14 May 2014 and granting
+by the Stock Exchange of the listing of, and permission to deal in, the subdivided
+shares
+the 2007 Share Award Scheme and the 2013 Share Award Scheme
+Shanghai Tencent Information Technology Company Limited
+the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as
+amended, supplemented or otherwise modified from time to time
+any Eligible Person(s) selected by the Board to participate in the Share Award
+Schemes
+Sea Limited, a company headquartered in Singapore and listed on the New York
+Stock Exchange
+role playing game
+Definition
+"Tencent Beijing"
+"TCS Co-operation Committee"
+"TCS CFC"
+"Stock Exchange"
+the co-operation framework contract dated 28 February 2004 entered into
+between Cyber Tianjin and Shiji Kaixuan
+the co-operation committee established under the SKT CFC
+Sogou Inc., a company incorporated in the Cayman Islands and listed on the New
+York Stock Exchange
+The Stock Exchange of Hong Kong Limited
+"Trustee❞
+"Trust Deed II"
+"Tencent Wuhan"
+"Tencent Technology"
+"Tencent Shanghai"
+"Tencent Music"
+"Tencent Computer"
+"LOL"
+"Tencent Chengdu"
+Term
+Definition
+243
+Annual Report 2017
+Tencent Technology (Beijing) Company Limited
+the co-operation committee established under the TCS CFC
+the co-operation framework contract dated 28 February 2004 entered into
+between Tencent Technology and Tencent Computer
+"Tencent Charity Funds"
+"Listing Rules"
+Term
+"IPO"
+China Literature Limited, a company incorporated in the Cayman Islands with
+limited liability and the shares of which are listed on the Stock Exchange
+the corporate governance code as set out in Appendix 14 to the Listing Rules
+Cross Fire Mobile
+the board of directors of the Company
+Beijing Starsinhand Technology Company Limited
+Beijing BIZCOM Technology Company Limited
+Definition
+"ESG Reporting Guide"
+"EPS"
+"Eligible Person(s)"
+"EBITDA"
+"DnF"
+"DAU"
+"Cyber Tianjin"
+Chongqing Tencent Information Technology Company Limited
+"CRM"
+"COSO Framework"
+"Corporate Governance Committee"
+"Company Website'
+"Company"
+"CIT"
+"Chongqing Tencent Information"
+"China Literature"
+"CG Code"
+"CFM"
+"Board"
+"Beijing Starsinhand"
+"Beijing BIZCOM"
+Definition
+"Korea'
+"CPC"
+corporate income tax
+Term
+the website of the Company at www.tencent.com
+Tencent Holdings Limited, a limited liability company organised and existing
+under the laws of the Cayman Islands and the shares of which are listed on the
+Stock Exchange
+"Investment Committee"
+"IM"
+"IFRS"
+"IC"
+"IAS"
+"IA"
+“Hong Kong”
+"Hok"
+"Hainan Network"
+"Guangzhou Tencent Technology"
+"Group"
+"Grant Date"
+"GAAP"
+"HKD"
+Definition
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+the corporate governance committee of the Company
+cost per click
+customer relationship management
+Tencent Cyber (Tianjin) Company Limited
+Dungeon and Fighter
+daily active user accounts
+any person(s) eligible to participate in the respective Share Award Schemes
+earnings per share
+the environmental, social and governance reporting guide as set out in Appendix
+27 to the Listing Rules
+240
+"IP"
+Tencent Holdings Limited
+earnings before interest, tax, depreciation and amortisation
+7,080
+82,023
+Profit for the year
+72,471
+(18,112)
+22
+OTHER FINANCIAL INFORMATION
+Tencent Holdings Limited
+22
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 16% to
+RMB20,797 million for the fourth quarter of 2017 on a quarter-on-quarter basis. Non-GAAP profit attributable to equity holders
+of the Company increased by 2% to RMB17,454 million.
+2,794
+1,841
+490
+companies intangible assets
+6,253
+90,302
+Operating profit
+(RMB in millions, unless specified)
+(d)
+(c)
+Profit attributable to equity holders
+(b)
+(a)
+Non-GAAP
+provision
+Income tax expense. Income tax expense decreased by 37% to RMB3, 123 million for the fourth quarter of 2017 on a quarter-
+on-quarter basis. The decrease primarily reflected a reversal of income tax expense for our certain subsidiaries in China which
+were qualified in the fourth quarter of 2017 to enjoy a lower CIT rate.
+compensation
+As reported
+(17,816)
+Share of (loss)/profit of associates and joint ventures. We recorded share of losses of associates and joint ventures of RMB120
+million for the fourth quarter of 2017, compared to share of profit of RMB818 million for the third quarter of 2017. The change
+mainly reflected the absence of one-off gains which certain investee companies booked in the third quarter of 2017.
+Revenues from our VAS business decreased by 5% to RMB39,947 million for the fourth quarter of 2017. Online games
+revenues decreased by 9% to RMB24,367 million. The decrease mainly reflected a high base for PC games driven by
+item-sales promotion activities in the third quarter of 2017, decreased revenues from RPG and shooter genre smart
+phone games, as well as the timing of new RPG smart phone game releases and of new content for certain other smart
+phone games. Social networks revenues increased by 2% to RMB15,580 million. The increase was primarily driven by
+revenue growth from our digital content services such as subscription video streaming and live broadcast, partially offset
+by reduced in-game virtual item sales.
+Selling and marketing expenses. Selling and marketing expenses increased by 25% to RMB6,022 million for the fourth
+quarter of 2017 on a quarter-on-quarter basis. The increase was mainly driven by higher marketing spending on products and
+platforms such as payment related services and online media, as well as seasonal marketing and promotion activities for our
+online games.
+Unaudited
+Three months ended
+31 December 30 September
+Impairment
+The following table sets forth the comparative figures for the fourth quarter of 2017 and the third quarter of 2017:
+FOURTH QUARTER OF 2017 COMPARED TO THIRD QUARTER OF 2017
+Management Discussion and Analysis
+825
+41
+21,622
+18,047
+Non-GAAP profit attributable to equity holders of the Company
+17,454
+17,070
+20
+20
+Tencent Holdings Limited
+Management Discussion and Analysis
+Revenues. Revenues increased by 2% to RMB66,392 million for the fourth quarter of 2017 on a quarter-on-quarter basis.
+Revenues from our online advertising business increased by 12% to RMB12,361 million for the fourth quarter of
+2017. Media advertising revenues were RMB4,121 million, broadly stable compared to last quarter. Social and others
+advertising revenues grew by 19% to RMB8,240 million, mainly driven by higher advertising revenues derived from
+Weixin and from our advertising network, in turn benefiting from the positive seasonality of eCommerce promotional
+activities in the fourth quarter. 4
+Revenues from our other businesses increased by 17% to RMB14,084 million for the fourth quarter of 2017, primarily
+due to our payment related and cloud services.
+Cost of revenues. Cost of revenues increased by 4% to RMB34,897 million for the fourth quarter of 2017 on a quarter-on-
+quarter basis. The increase primarily reflected greater costs of payment related services, higher traffic acquisition costs, as well
+as higher bandwidth and server custody fees. As a percentage of revenues, cost of revenues increased to 53% for the fourth
+quarter of 2017 from 51% for the third quarter of 2017.
+Cost of revenues for our VAS business decreased by 4% to RMB16,268 million for the fourth quarter of 2017. The
+decrease mainly reflected lower content and channel costs, reflecting the timing of new content for our subscription
+video streaming services and fluctuation in licensed game revenues.
+4
+Since the first quarter of 2017, we have reclassified online advertising revenues. Without the reclassification, performance-based
+advertising revenues increased by 17% to RMB8,204 million and brand display advertising revenues increased by 3% to RMB4,157
+million for the fourth quarter of 2017 on a quarter-on-quarter basis.
+Annual Report 2017
+21
+Management Discussion and Analysis
+Cost of revenues for our online advertising business increased by 10% to RMB7,759 million for the fourth quarter of
+2017. The increase was mainly driven by greater traffic acquisition costs due to the rapid growth of our advertising
+network business.
+Cost of revenues for our other businesses increased by 13% to RMB10,870 million for the fourth quarter of 2017. The
+growth was mainly due to the increased scale of our payment related and cloud services.
+General and administrative expenses. General and administrative expenses decreased by 3% to RMB8,811 million for the
+fourth quarter of 2017 on a quarter-on-quarter basis, primarily reflecting the true-up of our bonus forecast at year end.
+Amortisation of
+162
+Share-based
+3,086
+65,126
+EPS (RMB per share)
+- basic
+7.598
+- diluted
+7.499
+Operating margin
+38%
+Net margin
+30%
+6.920
+6.830
+34%
+28%
+26
+Tencent Holdings Limited
+Management Discussion and Analysis
+Year ended 31 December 2016
+Adjustments
+Net
+(gains)/losses
+Share-based
+from investee
+Amortisation of
+Impairment
+As reported
+compensation
+66,404
+Unaudited
+1,706
+from investee
+(18,051)
+71,510
+(gains)/losses
+Adjustments
+Net
+Year ended 31 December 2017
+28%
+34%
+1.298
+1.313
+24%
+Net margin
+32%
+Operating margin
+1.108
+- diluted
+Management Discussion and Analysis
+1.121
+- basic
+EPS (RMB per share)
+12,332
+810
+493
+(1,440)
+1,940
+10,529
+Profit attributable to equity holders
+12,432
+828
+541
+14,946
+602
+6,875
+3,124
+31 December 30 September 31 December
+(1,440)
+Adjustments
+Net
+(gains)/losses
+Share-based
+from investee
+Amortisation of
+Impairment
+As reported
+compensation
+companies intangible assets
+provision
+Non-GAAP
+(a)
+(b)
+(c)
+(RMB in millions, unless specified)
+29
+29
+Annual Report 2017
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 126 to 127, Note 31, Note 32 and Note 44 to the consolidated financial statements
+respectively.
+As at 31 December 2017, the Company had distributable reserves amounting to RMB26,074 million (2016: RMB18,345
+million).
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+Unaudited three months ended 31 December 2017
+RESERVES
+The following tables set forth the reconciliations of the Group's non-GAAP financial measures for the fourth quarter of 2017
+and 2016, the third quarter of 2017, and the years ended 31 December 2017 and 2016 to the nearest measures prepared in
+accordance with IFRS:
+Tencent Holdings Limited
+24,024
+16,775
+89,724
+62,550
+Equity-settled share-based compensation
+1,849
+1,608
+1,720
+6,137
+4,313
+Adjusted EBITDA
+25,127
+25,632
+18,495
+95,861
+66,863
+NON-GAAP FINANCIAL MEASURES
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-GAAP financial
+measures (in terms of, operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders
+of the Company, basic EPS and diluted EPS), have been presented in this annual report. These unaudited non-GAAP financial
+measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared
+in accordance with IFRS. In addition, these non-GAAP financial measures may be defined differently from similar terms used
+by other companies.
+The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact
+of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material
+associates based on available published financials of the relevant material associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+24
+24
+Management Discussion and Analysis
+The directors have recommended the payment of a final dividend of HKD0.88 per share for the year ended 31 December
+2017. The dividend is expected to be payable on 1 June 2018 to the shareholders whose names appear on the register of
+members of the Company on 24 May 2018. The total dividend for the year under review is HKD0.88 per share.
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 122 of this
+annual report.
+RESULTS AND APPROPRIATIONS
+31 December
+Unaudited
+Audited
+Net cash
+Notes payable
+Borrowings
+Term deposits and others
+Cash and cash equivalents
+Our net cash positions as at 31 December 2017 and 30 September 2017 are as follows:
+LIQUIDITY AND FINANCIAL RESOURCES
+༄€
+27
+27
+Annual Report 2017
+Impairment provision for associates, available-for-sale financial assets, and intangible assets arising from acquisitions
+(d)
+(c) Amortisation of intangible assets resulting from acquisitions, net of related deferred tax
+Including net (gains)/losses on deemed disposals, disposals of investee companies and businesses, and fair value changes arising from
+investments
+Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives
+(b)
+(a)
+30 September
+2017
+2017
+(RMB in millions)
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations are set out in Note 5 to the consolidated financial statements.
+The principal activity of the Company is investment holding. The activities of the principal subsidiaries are set out in Note 45 to
+the consolidated financial statements.
+PRINCIPAL ACTIVITIES
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31
+December 2017.
+Directors' Report
+Tencent Holdings Limited
+28
+For the fourth quarter of 2017, the Group had free cash flow of RMB24,170 million. This was a result of net cash flow
+generated from operating activities of RMB28,594 million, offset by payments for capital expenditure of RMB4,424 million.
+As at 31 December 2017, RMB45,530 million of our financial resources (cash and cash equivalents, as well as term deposits
+and others, such as treasury investments with high liquidity) were denominated in non-RMB currencies.
+As at 31 December 2017, the Group had net cash of RMB16,332 million. The sequential decline primarily reflected payments
+for M&A initiatives, partly offset by free cash flow generation. Fair value of our stakes in listed investee companies (including
+both associates and available-for-sale financial assets, but excluding our stakes in subsidiaries such as China Literature)
+totalled RMB210.8 billion as at 31 December 2017, compared to RMB171.1 billion as at 30 September 2017.
+23,278
+18,862
+(34,645)
+(34,115)
+(97,290)
+(97,790)
+150,797
+148,237
+63,454
+42,540
+87,343
+105,697
+16,332
+Note:
+EBITDA
+18,622
+44%
+Interest expense
+839
+794
+611
+3,060
+2,167
+Net cash (c)
+16,332
+18,862
+18,140
+16,332
+18,140
+Capital expenditures (d)
+4,975
+3,492
+2,839
+13,585
+12,100
+Note:
+(a)
+40%
+EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of property, plant and
+equipment as well as investment properties, and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-
+settled share-based compensation expenses.
+42%
+38%
+Year ended
+31 December
+2017
+2017
+2016
+2017
+2016
+(RMB in millions, unless specified)
+EBITDA (a)
+23,278
+24,024
+16,775
+89,724
+62,550
+Adjusted EBITDA (a)
+25,127
+25,632
+18,495
+95,861
+66,863
+Adjusted EBITDA margin (b)
+39%
+(b)
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+(c)
+(1,156)
+(1,017)
+(653)
+(3,940)
+(2,619)
+(7,906)
+(3,918)
+(1,022)
+(20,140)
+(3,594)
+Depreciation of property, plant and
+equipment and investment properties
+1,376
+1,263
+1,007
+4,880
+3,716
+Amortisation of intangible assets
+5,240
+4,950
+3,513
+Other gains, net
+56,117
+90,302
+13,930
+Net cash represents period end balance and is calculated as cash and cash equivalents, term deposits and others, minus borrowings
+and notes payable.
+(d)
+Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress,
+investment properties, land use rights and intangible assets (excluding media contents, game licences and other contents).
+Annual Report 2017
+23
+23
+Management Discussion and Analysis
+The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
+Unaudited
+Three months ended
+8,930
+31 December 30 September 31 December
+2017
+2016
+Year ended
+31 December
+2017
+2016
+Operating profit
+Adjustments:
+Interest income
+(RMB in millions, unless specified)
+25,724
+22,746
+2017
+30%
+Management Discussion and Analysis
+4.784
+21,622
+18,047
+Attributable to:
+Equity holders of the Company
+Non-controlling interests
+20,797
+18,006
+provision
+Non-GAAP
+(d)
+Operating profit
+22,746
+1,632
+(3,169)
+110
+295
+21,614
+Profit for the period
+18,047
+1,851
+(3,475)
+Profit for the period
+395
+(4,993)
+Income tax expense
+Other gains, net
+7,906
+3,918
+Selling and marketing expenses
+(6,022)
+(4,812)
+General and administrative expenses
+(8,811)
+(9,058)
+Operating profit
+38%
+22,746
+Finance costs, net
+(859)
+(524)
+Share of (loss)/profit of associates and joint ventures
+(120)
+818
+Profit before income tax
+24,745
+23,040
+(3,123)
+1,017
+356
+Profit attributable to equity holders
+Share-based
+from investee
+Amortisation of
+Impairment
+As reported
+compensation
+companies intangible assets
+provision
+Non-GAAP
+(a)
+(b)
+(c)
+(d)
+(RMB in millions, unless specified)
+Operating profit
+13,930
+1,754
+(1,502)
+Profit for the period
+10,523
+1,980
+(gains)/losses
+17,174
+Adjustments
+Net
+Management Discussion and Analysis
+18,006
+1,816
+(3,475)
+367
+356
+17,070
+EPS (RMB per share)
+- basic
+1.912
+- diluted
+1.888
+Operating margin
+35%
+Net margin
+28%
+1.812
+1.790
+33%
+26%
+Annual Report 2017
+25
+Unaudited three months ended 31 December 2016
+1,156
+25,724
+31,495
+4,809
+397
+(7,624)
+4,455
+56,117
+Operating profit
+(RMB in millions, unless specified)
+(d)
+(c)
+(b)
+31,681
+Non-GAAP
+provision
+companies intangible assets
+Operating profit
+25,724
+1,874
+(6,281)
+112
+Three months ended
+424
+58,154
+21,853
+Profit for the year
+5,227
+4.844
+27%
+37%
+4.329
+4.383
+Net margin
+Operating margin
+- diluted
+- basic
+EPS (RMB per share)
+45,420
+5,425
+1,547
+(7,770)
+5,123
+41,095
+Profit attributable to equity holders
+45,991
+5,452
+1,651
+(7,786)
+41,447
+Profit for the period
+(a)
+2,146
+(gains)/losses
+Share-based
+from investee
+As reported compensation
+(a)
+(b)
+companies intangible assets
+(RMB in millions, unless specified)
+Amortisation of
+Impairment
+21,622
+2017
+(RMB in millions)
+Revenues
+Cost of revenues
+Gross profit
+Interest income
+66,392
+65,210
+(34,897)
+(33,529)
+Adjustments
+Net
+28%
+2017
+1.827
+33%
+(6,229)
+474
+358
+18,371
+Profit attributable to equity holders
+2,084
+(6,189)
+442
+320
+17,454
+20,797
+- basic
+1.852
+EPS (RMB per share)
+33%
+Net margin
+39%
+Unaudited three months ended 30 September 2017
+Operating margin
+2.177
+- diluted
+2.206
+Option Scheme II
+shares
+Directors' Report
+Pre-IPO
+Option Scheme
+As at 7 June 2004,
+options to subscribe for an
+aggregate of 72,386,370
+shares were outstanding.
+No further option could be
+granted under the Pre-IPO
+Option Scheme.
+Post-IPO
+Option Scheme I
+As at 16 May 2007,
+options to subscribe for an
+aggregate of 60,413,683
+shares were outstanding.
+No further option could be
+granted under the Post-
+IPO Option Scheme l.
+Post-IPO
+number of
+The maximum number of
+39
+Post-IPO
+Option Scheme III
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme III shall be
+180,093,330 shares (after
+the effect of the Share
+Subdivision), 2% of the
+relevant class of securities
+of the Company in issue
+as at 13 May 2009. The
+maximum number of
+shares which may be
+issued upon exercise of
+all outstanding options
+granted and yet to be
+exercised under the Post-
+IPO Option Scheme III
+and any other share option
+schemes, including the
+Pre-IPO Option Scheme,
+the Post-IPO Option
+Scheme I, the Post-IPO
+Option Scheme II and the
+Post-IPO Option Scheme
+IV, must not in aggregate
+exceed 30% of the issued
+shares of the Company
+from time to time (Note).
+Post-IPO
+Option Scheme IV
+The maximum number
+of shares in respect of
+which options may be
+granted under the Post-
+IPO Option Scheme IV shall
+be 379,099,339 shares,
+4% of the relevant class of
+securities of the Company
+in issue as at 17 May 2017.
+The maximum number
+of shares which may be
+issued upon exercise of all
+outstanding options granted
+and yet to be exercised
+under the Post-IPO Option
+Scheme IV and any other
+share option schemes,
+including the Pre-IPO
+Option Scheme, the Post-
+IPO Option Scheme I, the
+Post-IPO Option Scheme
+Il and the Post-IPO Option
+Scheme III, must not in
+aggregate exceed 30% of
+the issued shares of the
+Company from time to time
+(Note).
+Annual Report 2017
+Maximum
+Directors' Report
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme II shall be
+444,518,270 shares (after
+the effect of the Share
+Subdivision), 5% of the
+relevant class of securities
+of the Company in issue
+as at 16 May 2007. The
+maximum number of
+shares which may be
+issued upon exercise of
+all outstanding options
+granted and yet to be
+exercised under the Post-
+IPO Option Scheme II and
+any other share option
+schemes, including the
+Pre-IPO Option Scheme,
+the Post-IPO Option
+Scheme I, the Post-IPO
+Option Scheme III and the
+Post-IPO Option Scheme
+IV, must not in aggregate
+exceed 30% of the issued
+shares of the Company
+from time to time (Note).
+3.
+0.29
+and independent non-
+executive directors) of any
+member of the Group or
+any invested entity and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+during
+during
+Date of grant
+2017
+the year
+the year
+(Note 13)
+1 January
+during 31 December
+the year
+2017
+price
+Exercise period
+HKD
+10 July 2014
+1,540,128
+Exercise
+355,272
+As at
+Exercised
+25 Mar 2015 to
+24 Mar 2021 (Note 2)
+22 May 2014
+62,500
+62,500
+112.30
+Lapsed
+22 May 2015 to
+Annual Report 2017
+33
+Directors' Report
+As at
+Granted
+Number of share options
+21 May 2021 (Note 5)
+46,851
+1,138,005
+124.30
+148.90
+10 Jul 2016 to
+9 Jul 2022 (Note 6)
+21 Mar 2016
+6,675,000
+6,675,000
+739,804
+158.10
+6 Jul 2016
+1,418,070
+24 Mar 2017
+1,417,930
+20 Mar 2023 (Note 6)
+116,641
+21 Mar 2017 to
+32,460
+130,999
+903,263
+10 Jul 2015 to
+9 Jul 2021 (Note 6)
+12 Dec 2014
+80,650
+80,650
+116.40
+12 Dec 2016 to
+11 Dec 2021 (Note 7)
+2 Apr 2015
+525,000
+525,000
+149.80
+2 Apr 2016 to
+1 Apr 2022 (Note 6)
+10 Jul 2015
+114.52
+18,120
+3,570,000
+3,725,000
+4 Jul 2017 (Note 3)
+24 Mar 2011
+798,750
+152,500
+646,250
+38.88
+5 Jul 2013 to
+24 Mar 2014 to
+24 Mar 2011
+250,000
+250,000
+38.88
+24 Mar 2015 to
+23 Mar 2018 (Note 4)
+23 Mar 2018 (Note 3)
+15 Aug 2011
+26.08
+1,352,550
+23 Mar 2017 (Note 1)
+5 Jul 2010
+56,750
+56,750
+-- 26.08
+5 Jul 2011 to
+11,250
+5 Jul 2010
+1,057,575
+4 Jul 2017 (Note 2)
+-26.08 5 Jul 2012 to
+4 Jul 2017 (Note 1)
+5 Jul 2010
+1,363,800
+1,057,575
+77,500
+18,700
+58,800
+705,250
+135,000
+9,375
+560,875
+49.76
+13 Sep 2013 to
+13 Sep 2012
+25 Mar 2014
+12 Sep 2019 (Note 2)
+2,562,500
+114.52
+25 Mar 2015 to
+24 Mar 2021 (Note 5)
+25 Mar 2014
+2,562,500
+14 Aug 2018 (Note 3)
+15 Aug 2014 to
+37.80
+37.80
+15 Aug 2012 to
+14 Aug 2018 (Note 2)
+15 Aug 2011
+620,700
+271,825
+6,750
+342,125
+37.80
+15 Aug 2013 to
+14 Aug 2018 (Note 1)
+15 Aug 2011
+50,000
+25,000
+25,000
+155,000
+1,283,309
+174.86
+6 Jul 2017 to
+As at
+1 January
+during
+during
+during
+31 December
+Lapsed
+Exercise
+2017
+the year
+the year
+the year
+2017
+price
+USD
+Date of grant
+Exercise period
+Exercised
+As at
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 3 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+The closing price immediately before the date on which the options were granted on 24 March 2017 was HKD223.
+11.
+The closing price immediately before the date on which the options were granted on 10 July 2017 was HKD269.
+12.
+13.
+Granted
+The closing price immediately before the date on which the options were granted on 23 November 2017 was HKD426.8.
+Annual Report 2017
+35
+35
+Directors' Report
+Details of movements of share options granted to employees and certain external consultants under the share option schemes
+adopted by Tencent Music, a subsidiary of the Group, during the year ended 31 December 2017 are as follows:
+Number of share options
+The weighted average closing price immediately before the date on which the options were exercised was HKD285.5.
+Employees
+1 Mar 2015
+12,432,336
+28 Feb 2025 (Note 1)
+502,760
+9,939,200
+0.29
+1 Mar 2016 to
+28 Feb 2025 (Note 1)
+1 Mar 2016 to
+0.29
+28 Feb 2025 (Note 2)
+0.35
+1 Mar 2016 to
+28 Feb 2025 (Note 2)
+425,800
+3,444,042
+1 Mar 2016 to
+0.000083
+11,924,136
+508,200
+1 Mar 2015
+10,441,960
+1 Mar 2015
+26,880,000
+26,880,000
+1 Mar 2015
+7,482,654
+7,482,654
+30 Mar 2015
+3,869,842
+1 Jul 2015
+200,000
+1 Jul 2015
+3,600,000
+3,600,000
+For options granted with exercisable date determined based on the grant date of options, the first 50% of the total options can be
+exercised 1 year after the grant date, and the remaining 50% of the total options will become exercisable in the subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 2 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 1 year after the grant date, and each 33.33% of the total options will become exercisable in each subsequent year.
+13,405
+272.36
+10 Jul 2018 to
+9 Jul 2024 (Notes 5 and 11)
+10 Jul 2017
+9,083,270
+23 Mar 2024 (Notes 7 and 10)
+63,175
+272.36
+10 Jul 2018 to
+10 Jul 2017
+25,340
+9 Jul 2024 (Notes 6 and 11)
+25,340
+9,020,095
+24 Mar 2019 to
+225.44
+23 Mar 2024 (Notes 6 and 10)
+5 Jul 2023 (Note 6)
+1,417,930
+225.44
+24 Mar 2018 to
+23 Mar 2024 (Notes 8 and 10)
+24 Mar 2017
+21,831,440
+8,940 21,822,500
+225.44
+24 Mar 2018 to
+24 Mar 2017
+26,845
+26,845
+10 Jul 2017
+13,405
+272.36
+24 Mar 2012 to
+10 Jul 2019 to
+10 Jul 2017
+2.
+3.
+4.
+5.
+6.
+7.
+1.
+8.
+10.
+10
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 2 years after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 3 years after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 4 years after the grant date, and each 33.33% of the total options will become exercisable in each subsequent year.
+9.
+Note:
+Directors' Report
+22 Nov 2024 (Notes 5 and 12)
+7,455
+- 7,455
+272.36
+10 Jul 2020 to
+9 Jul 2024 (Notes 9 and 11)
+23 Nov 2017
+89,565
+-- 89,565
+419.60
+23 Nov 2018 to
+Total:
+22,497,436 32,495,250 4,102,812
+223,766 50,666,108
+34
+Tencent Holdings Limited
+9 Jul 2024 (Notes 7 and 11)
+Details
+- 31.70
+25,000
+10,863,902
+1,566,950
+12,430,852
+30 Jun 2016
+29 Jun 2026 (Note 1)
+30 Jun 2017 to
+0.29
+0.000083
+600,000
+30 Jun 2016
+31 May 2026 (Note 3)
+1 Jun 2017 to
+0.29
+6,521,513
+600,000
+6,521,513
+30 Jun 2017 to
+16 Jun 2017
+388,350
+8,055,153
+31 Aug 2017
+15 Jun 2027 (Note 4)
+31 Mar 2018 to
+2.53
+29 Jun 2026 (Note 1)
+9,565,716
+16 Jun 2017
+15 Jun 2027 (Note 4)
+5 Jul 2017 to
+2.53
+2,468,764
+2,468,764
+9,565,716
+1 Jun 2016
+31 May 2026 (Note 2)
+1 Jun 2017 to
+Date of grant
+Exercise
+30 Mar 2016 to
+during
+during
+during
+2017
+1 January
+Lapsed
+Exercised
+Granted
+As at
+Directors' Report
+Number of share options
+As at
+the year
+the year
+the year
+0.000083
+800,000
+800,000
+1 Jun 2016
+30 Mar 2026 (Note 1)
+31 Mar 2017 to
+0.29
+340,500
+49,500
+390,000
+31 Mar 2016
+USD
+Exercise period
+price
+2017
+7,666,803
+28 Feb 2026 (Note 2)
+0.29
+20 Dec 2017
+Post-IPO
+Post-IPO
+Option Scheme I
+Purposes
+1.
+Pre-IPO
+Option Scheme
+Details
+Post-IPO
+SUMMARY OF THE SHARE OPTION SCHEMES
+All the options can be exercised 1 year after the commencement date as specified in the relevant grant letter if a certain condition is
+satisfied.
+The first 25% of the total options can be exercised 1 year after the commencement date as specified in the grant letter, and each 6.25%
+of the total options will become exercisable in each subsequent quarter. Subject to the satisfaction of a certain condition, the entire
+vesting schedule for the remaining options will be accelerated by 1 year or the remaining options will become immediately vested.
+4.
+3.
+2.
+The first 25% of the total options can be exercised 1 year after the commencement dates as specified in the relevant grant letters, and
+each 12.5% of the total options will become exercisable in each subsequent six months.
+Subject to the satisfaction of certain conditions, the first 25% of the total options can be exercised on the dates as specified in the
+relevant grant letters, and each 25% of the total options will become exercisable in each subsequent year.
+1.
+Post-IPO
+Option Scheme III
+Any employee (whether
+full time or part time),
+executive or officer,
+director (including
+executive, non-executive
+Any senior executive or
+senior officer, director
+(including executive,
+non-executive and
+independent non-
+executive directors) of any
+member of the Group or
+any invested entity and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+entity
+and development of the
+Group or any invested
+Any employee (whether
+full time or part time),
+executive or officer,
+director (including
+executive, non-executive
+and independent non-
+executive directors) of
+any member of the Group
+or any invested entity,
+which is any entity in
+which the Group holds
+an equity interest, and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+Tencent Holdings Limited
+Option Scheme II
+38
+Any employee, consultant
+Any eligible employee,
+including executive
+directors of the Company
+Qualifying
+participants
+2.
+To recognise the contribution that certain individuals have made to the Group, to attract the best available personnel and to promote the success of
+the Group's business
+Option Scheme IV
+or director of any company
+within the Group
+Note:
+Directors' Report
+37
+2,348,099
+1 Mar 2015
+consultants
+External
+75,481,560
+4,332,270
+1 Mar 2015
+27,349,736 39,262,654
+Sub-total:
+20 Dec 2018 to
+2.53
+7,260,103
+30 Aug 2027 (Note 1)
+7,260,103
+91,726,748
+2,630,000
+19 Dec 2027 (Note 4)
+2,348,099
+Annual Report 2017
+28 Feb 2025 (Note 1)
+1 Mar 2016 to
+28 Feb 2025 (Note 1)
+80,459,659
+4,332,270
+96,704,847 27,349,736 39,262,654
+Total:
+4,978,099
+4,978,099
+Sub-total:
+0.29
+2,630,000
+1 Mar 2016 to
+0.000083
+31 Aug 2018 to
+1 Mar 2017 to
+0.29
+28 Feb 2026 (Note 1)
+20 March 2023
+(Note 3)
+24 March 2017
+5,250,000
+(Note 4)
+5,250,000
+225.44
+21 March 2017 to
+24 March 2018 to
+(Note 3)
+Total:
+11,250,000
+5,250,000
+16,500,000
+Annual Report 2017
+23 March 2024
+31
+158.10
+3,750,000
+Exercise period
+Lau Chi Ping Martin
+24 March 2010
+2,500,000
+2,500,000
+31.70
+3,750,000
+24 March 2015 to
+25 March 2014
+5,000,000
+5,000,000 114.52
+25 March 2015 to
+24 March 2021
+(Note 2)
+21 March 2016
+23 March 2020
+(Note 1)
+Directors' Report
+Note:
+1.
+As at
+during
+during 31 December
+Exercise
+Date of grant
+2017
+Lapsed
+the year
+the year
+2017
+price
+Exercise period
+HKD
+24 Mar 2010
+the year
+(Note 13)
+Exercised
+Granted
+during
+1 January
+2.
+3.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 5 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+4.
+The closing price immediately before the date on which the options were granted on 24 March 2017 was HKD223.
+5.
+No options were cancelled or lapsed during the year.
+32
+Tencent Holdings Limited
+Directors' Report
+Details of movements of share options granted to employees of the Group (apart from a director of the Company) during the
+year ended 31 December 2017 are as follows:
+Number of share options
+As at
+price
+HKD
+Exercise
+during the 31 December
+year
+2017
+year
+31 Dec 2016 to
+0.29
+2,933,281
+515,210
+3,448,491
+31 Dec 2015
+30 Dec 2025 (Note 1)
+30 Sep 2025 (Note 1)
+0.29
+780,600
+128,200
+908,800
+1 Oct 2015
+30 Jun 2025 (Note 2)
+1 Oct 2016 to
+31 Dec 2015
+345,300
+133,300
+1 Mar 2017 to
+0.29
+761,000
+114,000
+30 Dec 2025 (Note 1)
+Tencent Holdings Limited
+36
+500,000
+500,000
+1 Mar 2016
+875,000
+1 Mar 2016
+31 Dec 2016 to
+0.000083
+212,000
+1 Jul 2016 to
+25,000
+0.29
+1 Jul 2016 to
+30
+Tencent Holdings Limited
+Directors' Report
+SHARE OPTION SCHEMES
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the
+Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV. The Pre-IPO Option Scheme,
+the Post-IPO Option Scheme I and the Post-IPO Option Scheme II expired on 31 December 2011, 23 March 2014 and 16 May
+2017 respectively.
+As at 31 December 2017, there were a total of 16,500,000 outstanding share options granted to a director of the Company,
+details of which are as follows:
+Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's shares during the year
+ended 31 December 2017.
+Number of share options
+Name of director
+Date of grant
+1 January
+2017
+Granted
+during the
+Exercised
+As at
+As at
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+FINANCIAL SUMMARY
+0.29
+200,000
+29 Mar 2025 (Note 1)
+PROPERTY, PLANT AND EQUIPMENT
+Details of the movements in property, plant and equipment of the Group during the year are set out in Note 16 to the
+consolidated financial statements.
+BUSINESS REVIEW AND DIVIDEND
+Details of the business review of the Group and the proposed dividend for the year ended 31 December 2017 are set out
+under the "Chairman's Statement".
+SHARE CAPITAL
+Details of the movements in the share capital of the Company during the year are set out in Note 31 to the consolidated
+financial statements.
+SUBSIDIARIES
+Particulars of the Company's principal subsidiaries as at 31 December 2017 are set out in Note 45 to the consolidated
+financial statements.
+BORROWINGS
+Particulars of the Group's borrowings and notes payable are set out in Note 34 and Note 35 to the consolidated financial
+statements respectively.
+DONATION
+The donation made by the Group to Tencent Charity Funds in the year was RMB820 million.
+30 Jun 2025 (Note 1)
+31 December
+20,000
+10,000
+49
+49
+20,000
+21 March 2016
+2 April 2019
+2 April 2016 to
+15,000
+Annual Report 2017
+7,500
+2 April 2015
+24 March 2019
+24 March 2015 to
+20,000
+10,000
+30,000
+24 March 2014
+22,500
+Ma Huateng, age 46, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma is a deputy to the 13th National People's Congress. Mr Ma has
+a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen University and
+more than 24 years of experience in the telecommunications and Internet industries. He is a director of Advance Data Services
+Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the Company.
+Lau Chi Ping Martin, age 44, is an executive director and President of the Company. Mr Lau joined the Company in 2005 as
+the Chief Strategy and Investment Officer and was responsible for corporate strategies, investments, merger and acquisitions
+and investor relations. In 2006, Mr Lau was promoted as President of the Company to manage the day-to-day operation of
+the Company. In 2007, he was appointed as an executive director of the Company. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at McKinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from the University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. On 28 July 2011, Mr Lau was appointed as a non-executive director of Kingsoft Corporation Limited,
+an Internet based software developer, distributor and software service provider listed in Hong Kong. On 10 March 2014, Mr
+Lau was appointed as a director of JD.com, Inc., an online direct sales company in China, which has been listed on NASDAQ
+since May 2014. On 31 March 2014, Mr Lau was appointed as a director of Leju Holdings Limited, an online-to-offline real
+estate services provider in China, which has been listed on New York Stock Exchange since April 2014. On 29 December
+2017, Mr Lau was appointed as a director of Vipshop Holdings Limited, an online discount retailer company listed on the New
+York Stock Exchange. Mr Lau also serves as a director/corporate representative of certain subsidiaries of the Company.
+Jacobus Petrus (Koos) Bekker, age 65, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers. He
+serves on the boards of other companies within the group and associates, as well as other bodies. In April 2015, he became
+non-executive chair. Academic qualifications include BA Hons and honorary doctorate in commerce (Stellenbosch University),
+LLB (University of the Witwatersrand) and MBA (Columbia University, New York).
+BIOGRAPHICAL DETAILS AND OTHER INFORMATION OF DIRECTORS
+Directors' Report
+DIRECTORS AND SENIOR MANAGEMENT
+The directors and senior management of the Company during the year and up to the date of this annual report were:
+Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Independent Non-Executive Directors
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+Yang Siu Shun
+In accordance with Article 87 of the Articles of Association, Mr Li Dong Sheng and Mr lain Ferguson Bruce will retire at the
+2018 AGM and, being eligible, will offer themselves for re-election.
+The Company has received from each independent non-executive director an annual confirmation of his independence
+pursuant to Rule 3.13 of the Listing Rules and the Board considers them independent.
+48
+Tencent Holdings Limited
+lan Charles Stone
+70,000
+22,500
+20,000
+Maximum
+entitlement of
+each participant
+The number of ordinary
+shares in respect of which
+options may be granted
+shall not exceed 10% of
+the number of ordinary
+shares issued and issuable
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+under the scheme.
+5.
+Option period
+40
+40
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+7-year period after the
+date of grant of option.
+There is no minimum
+period for which an option
+must be held before it can
+be exercised.
+The option period is
+determined by the Board
+provided that the period
+during which the option
+may be exercised shall not
+be less than one year from
+the date of grant of the
+options.
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+7-year period after the
+date of grant of option.
+There is no minimum
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+10-year period after the
+date of grant of option.
+There is no minimum
+period for which an option period for which an option
+must be held before it can
+be exercised.
+must be held before it can
+be exercised.
+All the options are
+exercisable in installments
+from the commencement
+of the relevant vesting
+period until 31 December
+2011, but on the condition
+that the Company has
+been listed in a sizeable
+securities market. The
+Board may at their
+4.
+Directors' Report
+Option Scheme I
+Option Scheme
+72,500
+Total:
+24 March 2021
+24 March 2018 to
+21 March 2017 to
+Directors' Report
+Post-IPO
+Option Scheme II
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+Post-IPO
+Option Scheme III
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+Post-IPO
+Option Scheme IV
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+Details
+Pre-IPO
+Post-IPO
+discretion determine
+47
+193,606
+31 December
+Name of director
+Date of grant
+2017
+the year
+the year
+2017
+during
+Vesting period
+24 March 2014
+15,000
+5,000
+10,000
+24 March 2015 to
+24 March 2019
+2 April 2015
+Li Dong Sheng
+As at
+Vested
+Granted
+during
+21 March 2020
+24 March 2017
+20,000
+20,000
+24 March 2018 to
+24 March 2021
+Total:
+46
+Tencent Holdings Limited
+72,500
+20,000
+22,500
+70,000
+Number of Awarded Shares
+Directors' Report
+As at
+1 January
+11,250
+3,750
+7,500
+2 April 2016 to
+5,000
+2,868
+8,606
+6 July 2017 to
+6 July 2020
+10,000
+24 March 2018 to
+24 March 2021
+Total:
+11,474
+10,000
+2,868
+18,606
+Grand Total:
+192,724
+60,000
+59,118
+24 March 2017
+Annual Report 2017
+11,474
+Yang Siu Shun
+2 April 2019
+21 March 2016
+10,000
+2,500
+7,500
+21 March 2017 to
+21 March 2020
+24 March 2017
+10,000
+10,000
+24 March 2018 to
+24 March 2021
+Total:
+36,250
+10,000
+11,250
+35,000
+6 July 2016
+the specific vesting and
+15,000
+Tencent Holdings Limited
+1% of the issued shares of the
+Company as at the Adoption Date | (i.e.
+89,388,080 shares (after the effect of
+the Share Subdivision))
+2% of the issued shares of the
+Company as at the Adoption Date | (i.e.
+178,776,160 shares (after the effect of
+the Share Subdivision))
+Operation
+5.
+of each participant
+Maximum entitlement
+4.
+The Board shall select the Eligible
+Person(s) and determine the number of
+shares to be awarded.
+that can be awarded
+Maximum number of shares
+It shall be valid and effective for a period
+of 15 years from the Adoption Date I.
+Duration and Termination
+2.
+To recognise the contributions and to attract, motivate and retain eligible participants
+(including any director) of the Group
+2013 Share Award Scheme
+2007 Share Award Scheme
+3.
+The Board shall, in respect of each
+Selected Participant, cause to be paid
+the relevant amount from the Company's
+resources into the Account I or to the
+Trustee to be held on trust for the
+relevant Selected Participant for the
+purchase and/or subscription of the
+Awarded Shares as soon as practicable
+after the Reference Date.
+It shall be valid and effective unless and
+until being terminated on the earlier
+of: (i) the 15th anniversary date of the
+Adoption Date II; and (ii) such date of
+early termination as determined by the
+Board provided that such termination
+does not affect any subsisting rights of
+any Selected Participant.
+3% of the issued shares of the
+Company as at the Adoption Date II (i.e.
+278,937,260 shares (after the effect of
+the Share Subdivision))
+Voting Rights
+Vesting and Lapse
+7.
+Directors' Report
+Tencent Holdings Limited
+44
+No award may be made by the Board to
+any Selected Participant: (i) where the
+Company has information that must be
+disclosed under Rule 13.09 of the Listing
+Rules or where the Company reasonably
+believes there is inside information which
+must be disclosed under part XIVA of the
+SFO, until such inside information has
+been published on the websites of the
+Stock Exchange and the Company; (ii)
+after any inside information in relation
+to the securities of the Company has
+occurred or has become the subject of
+a decision, until such inside information
+has been published; (iii) within the period
+commencing 60 days (in the case of
+yearly results), or 30 days (in the case
+of results for half-year, quarterly or other
+interim period) immediately preceding
+the earlier of (1) the date of a meeting of
+the Board (as such date is first notified to
+the Stock Exchange) for the approval of
+the Company's results for any year, half-
+year, quarterly or other interim period
+(whether or not required under the Listing
+Rules); and (2) the deadline for the
+Company to publish its quarterly, interim
+or annual results announcement for any
+such period, and ending on the date
+of such announcement; or (iv) in any
+other circumstances where dealings by
+Selected Participant (including directors)
+are prohibited under the Listing Rules,
+the SFO or any other applicable law or
+regulation or where the requisite approval
+from any applicable regulatory authorities
+has not been granted.
+2013 Share Award Scheme
+No award shall be made by the Board
+and no instructions to acquire shares
+and allot new shares shall be given by
+the Board or the Trustee under the 2007
+Share Award Scheme where any director
+is in possession of unpublished price-
+sensitive information in relation to the
+Group or where dealings by directors
+are prohibited under any code or
+requirement of the Listing Rules and all
+applicable laws from time to time.
+2007 Share Award Scheme
+6. Restrictions
+Directors' Report
+43
+Annual Report 2017
+The Board may at any time at its
+discretion, in respect of each Selected
+Participant, cause to be paid the relevant
+amount from the Company's resources
+or any subsidiary's resources into the
+Account II for the purchase and/or
+subscription of Awarded Shares as soon
+as practicable after the Grant Date.
+The Board may, from time to time, at its
+absolute discretion select any Eligible
+Person to be a Selected Participant
+and grant to such Selected Participant
+Awarded Shares.
+1% of the issued shares of the
+Company as at the Adoption Date II (i.e.
+92,979,085 shares (after the effect of
+the Share Subdivision))
+Purpose
+1.
+The Company adopted the following two Share Award Schemes with major terms and details set out below:
+SHARE AWARD SCHEMES
+Remaining life
+8.
+Option Scheme II
+Option Scheme I
+Post-IPO
+Post-IPO
+exercise periods.
+Option Scheme
+Pre-IPO
+Details
+Directors' Report
+41
+Annual Report 2017
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Post-IPO
+Option Scheme IV
+of the scheme
+2007 Share Award Scheme
+It expired on 31 December
+2011.
+It expired on 16 May
+2017.
+Directors' Report
+Tencent Holdings Limited
+42
+Details of the valuation of share options during the year are set out in Note 33 to the consolidated financial statements.
+VALUATION OF SHARE OPTIONS
+Details of the movements in the share options during the year are set out in Note 33 to the consolidated financial statements.
+MOVEMENTS IN THE SHARE OPTIONS
+The total number of shares available for issue under the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO
+Option Scheme IV are 200,551,970, 175,093,330 and 369,880,304 respectively, which represent approximately 2.11%, 1.84% and 3.89%
+respectively of the issued shares of the Company as at the date of the annual report.
+Note:
+2017.
+commencing on 17 May
+It shall be valid and effective
+for a period of ten years
+Option Scheme IV
+Post-IPO
+Option Scheme III
+Post-IPO
+It shall be valid and
+effective for a period of ten
+years commencing on 13
+May 2009.
+It expired on 23 March
+2014.
+Awarded Shares and the related income
+derived therefrom are subject to a
+vesting scale to be determined by the
+Board at the date of grant of the award.
+Vesting of the shares will be conditional
+on the Selected Participant satisfying all
+vesting conditions specified by the Board
+at the time of making the award until
+and on each of the relevant vesting dates
+and his/her execution of the relevant
+documents to effect the transfer from the
+Trustee.
+8.
+2013 Share Award Scheme
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+Post-IPO
+Option Scheme III
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+20,000
+24 March 2017
+21 March 2020
+21 March 2017 to
+The Trustee shall not exercise the voting
+rights in respect of any shares held by it
+pursuant to the Trustee Deed I (including
+but not limited to the Awarded Shares
+and any bonus shares and scrip shares
+derived therefrom).
+the date of grant; and (iii)
+the nominal value of the
+share.
+5,000
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+Price shall be determined
+by the Board.
+Directors' Report
+Pre-IPO
+Post-IPO
+Details
+Option Scheme
+Option Scheme I
+Post-IPO
+Option Scheme II
+6.
+Acceptance
+of offer
+Options granted must be
+accepted within 15 days
+of the date of grant, upon
+payment of RMB1 per
+grant.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+7.
+Exercise price
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+20,000
+15,000
+2 April 2019
+21 March 2016
+Granted
+during
+1 January
+As at
+Number of Awarded Shares
+As at 31 December 2017, there were a total of 193,606 outstanding Awarded Shares granted to the directors of the Company,
+details of which are as follows:
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+As at
+Directors' Report
+Annual Report 2017
+During the year, a total of 21,973,407 shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV, and pursuant to the
+Share Award Schemes.
+During the year, a total of 19,071,975 Awarded Shares were granted under the 2013 Share Award Scheme and out of which,
+60,000 Awarded Shares were granted to the independent non-executive directors of the Company. Details of the movements
+in the Share Award Schemes during the year are set out in Note 33 to the consolidated financial statements.
+The Company shall comply with the relevant Listing Rules when granting the Awarded Shares. If awards are made to the
+directors or substantial shareholders of the Group, such awards shall constitute connected transaction under Chapter 14A of
+the Listing Rules and the Company shall comply with the relevant requirements under the Listing Rules.
+The Trustee does not exercise any voting
+rights in respect of any shares held
+pursuant to the Trustee Deed II or as
+nominee.
+Subject to the satisfaction of all vesting
+conditions as prescribed in the 2013
+Share Award Scheme, the Selected
+Participants will be entitled to receive the
+Awarded Shares.
+The vesting of the Awarded Shares
+is subject to the Selected Participant
+remaining at all times after the Grant
+Date and on the date of vesting, an
+Eligible Person, subject to the rules of
+the 2013 Share Award Scheme.
+45
+Name of director
+Vested
+2017
+2 April 2016 to
+15,000
+7,500
+22,500
+2 April 2015
+Date of grant
+24 March 2015 to
+20,000
+24 March 2019
+30,000
+24 March 2014
+lain Ferguson Bruce
+Vesting period
+2017
+31 December
+during
+the year
+the year
+10,000
+Tencent Holdings Limited
+Directors' Report
+Charles St Leger Searle, age 54, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, including Mail.ru Group Limited that is listed on the London Stock Exchange and MakeMyTrip Limited that is listed on
+NASDAQ. Prior to joining the Naspers Group, he held positions at Cable & Wireless plc and at Deloitte & Touche in London
+and Sydney. Mr Searle is a graduate of the University of Cape Town and a member of the Institute of Chartered Accountants
+in Australia and New Zealand. Mr Searle has more than 24 years of international experience in the telecommunications and
+Internet industries. Mr Searle also serves as a director of certain subsidiaries of the Company.
+Li Dong Sheng, age 60, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Corporation, which produces consumer electronic products. Mr Li is a non-executive director of
+Fantasia Holdings Group Co., Limited, a leading property developer and property related service provider in China that is listed
+on the Stock Exchange. Mr Li is also an independent director of Legrand, the global specialist in electrical and digital building
+infrastructures, shares of which are listed on the New York Stock Exchange Euronext. Mr Li graduated from South China
+University of Technology in 1982 with a Bachelor degree in radio technology and has more than 23 years of experience in the
+information technology field. Mr Li is the Chairman of TCL Communication Technology Holdings Limited, which was delisted
+for privatisation from the Stock Exchange on 30 September 2016. Mr Li was the Chairman and executive director of the Hong
+Kong listed TCL Multimedia Technology Holdings Limited up to 22 September 2017.
+lain Ferguson Bruce, age 77, has been an independent non-executive director since April 2004. Mr Bruce joined KPMG in
+Hong Kong in 1964 and was elected to its partnership in 1971. He was the Senior Partner of KPMG from 1991 until his
+retirement in 1996 and served as Chairman of KPMG Asia Pacific from 1993 to 1997. Since 1964, Mr Bruce has been a
+member of the Institute of Chartered Accountants of Scotland, and is a fellow of the Hong Kong Institute of Certified Public
+Accountants, with over 53 years of international experience in accounting and consulting. He is also a fellow of The Hong
+Kong Institute of Directors and the Hong Kong Securities and Investment Institute (formerly known as Hong Kong Securities
+Institute). Mr Bruce is an independent non-executive director of MSIG Insurance (Hong Kong) Limited. Mr Bruce is currently
+an independent non-executive director of Goodbaby International Holdings Limited, a manufacturer of durable juvenile
+products, The 13 Holdings Limited (formerly known as Louis XIII Holdings Limited), a construction, engineering services and
+hotel development company, and Wing On Company International Limited, a department store operating and real property
+investment company; all of these companies are publicly listed on the Stock Exchange. Mr Bruce is also an independent non-
+executive director of Yingli Green Energy Holding Company Limited, a China-based vertically integrated photovoltaic product
+manufacturer that is listed on the New York Stock Exchange. Mr Bruce was an independent non-executive director of Vitasoy
+International Holdings Limited, a beverage manufacturing company, up to 4 September 2014, and of Sands China Ltd., an
+operator of integrated resorts and casinos, up to 11 March 2016, both of these companies are publicly listed on the Stock
+Exchange. Mr Bruce was also a non-executive director of Noble Group Limited, a commodity trading company that is publicly
+listed on The Singapore Exchange Securities Trading Limited, up to 11 May 2017, and was also an independent non-executive
+director of Citibank (Hong Kong) Limited, up to 2 August 2017.
+50
+Directors' Report
+Directors' Report
+Yang Siu Shun, age 62, has been an independent non-executive director since July 2016. Mr Yang is currently serving as a
+Member of the 13th National Committee of the Chinese People's Political Consultative Conference, a Justice of the Peace in
+Hong Kong, a Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority, a Steward of the
+Hong Kong Jockey Club, the Deputy Chairman of the Council of the Open University of Hong Kong, a Board Member and the
+Audit Committee Chairman of the Hang Seng Management College and an independent non-executive director of Industrial
+and Commercial Bank of China Limited which is publicly listed on the Stock Exchange and the Shanghai Stock Exchange.
+Mr Yang retired from PricewaterhouseCoopers ("PwC") on 30 June 2015. Before his retirement, he served as the Chairman
+and Senior Partner of PwC Hong Kong, the Executive Chairman and Senior Partner of PwC China and Hong Kong, one of the
+five members of the Global Network Leadership Team of PwC and the PwC Asia Pacific Chairman. Mr Yang graduated from
+the London School of Economics and Political Science in 1978. Mr Yang is a Fellow Member of the Institute of Chartered
+Accountants in England and Wales, the Hong Kong Institute of Certified Public Accountants and the Chartered Institute of
+Management Accountants.
+Personal
+Shiji Kaixuan
+Number of shares
+and class of
+shares held
+Approximate %
+of shareholding
+54.29%
+RMB35,285,705
+(registered capital)
+RMB5,971,427
+54.29%
+(registered capital)
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests or short
+positions in any shares, underlying shares or debentures of the Company and its associated corporations as at 31 December
+2017.
+58
+Tencent Holdings Limited
+Tencent Computer
+Directors' Report
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+The reasons for using Structure Contracts
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services in
+China. As foreign-invested enterprises, the WFOEs do not have licences to provide Internet content or information services and
+other telecommunications value-added services. Accordingly, the value-added telecommunications business of the Group has
+been conducted through Tencent Computer, Shiji Kaixuan and the new operating companies (the "New OPCOS") (collectively,
+the "OPCOS") by itself or through their subsidiaries under the Structure Contracts (as defined in the section "Our History and
+Structure Structure Contracts" of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group is
+able to recognise and receive the economic benefit of the business and operations of the OPCOs. The Structure Contracts are
+also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to acquire
+the equity interests in and/or assets of the OPCOS.
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed “Our History and Structure”
+and "Structure Contracts" in the IPO prospectus. During the year ended 31 December 2017, there was no material change
+in the Structure Contracts and/or the circumstances under which they were adopted, and none of the Structure Contracts has
+been unwound as none of the restrictions that led to the adoption of Structure Contracts has been removed.
+Annual Report 2017
+59
+59
+180,000
+Personal
+↓
+lan Charles Stone
+(Note 4)
+0.005%
+470,000
+CONNECTED TRANSACTIONS
+*
+Ma Huateng
+Name of
+associated
+corporation
+240,000
+420,000
+(Note 5)
+Yang Siu Shun
+Personal
+*
+21,474
+0.0002%
+(Note 6)
+Annual Report 2017
+57
+57
+Directors' Report
+Note:
+Nature of interest
+1. Advance Data Services Limited, a British Virgin Islands company wholly-owned by Ma Huateng, holds 723,507,500 shares
+directly and 96,000,000 shares indirectly through its wholly-owned subsidiary, Ma Huateng Global Foundation.
+3.
+4.
+5.
+6.
+The interest comprises 30,468,000 shares and 16,500,000 underlying shares in respect of the share options granted pursuant
+to the Post-IPO Option Scheme II and the Post-IPO Option Scheme III. Details of the share options granted to this director are set
+out above under "Share Option Schemes".
+The interest comprises 11,300 shares and 35,000 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 400,000 shares and 70,000 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 350,000 shares and 70,000 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 2,868 shares and 18,606 underlying shares in respect of the awarded shares granted pursuant to
+the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out above under "Share Award
+Schemes".
+*
+Interests of beneficial owner
+Interests of spouse or child under 18 as beneficial owner
+(B) Long position in the shares of associated corporations of the Company
+Name of director
+2.
+Personal
+lain Ferguson Bruce
+(Note 3)
+Mr Lau Chi Ping Martin has entered into a service contract with the Company for a term of three years ending 31 December
+2018. Mr Lau is entitled to an annual bonus based on the performance of the Company in an amount to be determined by the
+Remuneration Committee. Mr Lau is entitled to participate in all employee benefit plans, programmes and arrangements of the
+Company.
+Mr Ma Huateng has entered into a service contract with the Company for a term of three years from 1 January 2016 to 31
+December 2018. The term of the service contract can be extended by agreement between the Company and Mr Ma. The
+Company may terminate the service contract by three months' written notice at any time, subject to paying his salary for the
+shorter of six months and a portion of his annual bonus for the year in which termination occurred pro rata to the portion of the
+year before the termination becomes effective.
+DIRECTORS' SERVICE CONTRACTS
+Directors' Report
+55
+Annual Report 2017
+Xi Dan, age 42, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 22 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director or officer of certain subsidiaries of the Company.
+Guo Kaitian, age 45, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of legal affairs, administration, infrastructure, procurement, public strategy, safety management
+and corporate social responsibility. Mr Guo received a Bachelor of Law degree from Zhongnan University of Economics and
+Law in 1996. Mr Guo currently serves as a director of a subsidiary of the Company.
+Directors' Report
+Tencent Holdings Limited
+54
+John Shek Hon Lo, age 49, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and served as the
+Company's Financial Controller from 2004 to 2008. Mr Lo was appointed as the Company's Vice President and Deputy Chief
+Financial Officer in 2008 and was appointed as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo
+worked in PricewaterhouseCoopers as Senior Manager (audit services). He is a Fellow of the CPA Australia, a Fellow of the
+Hong Kong Institute of Certified Public Accountants and a Fellow of the Chartered Institute of Management Accountants. Mr
+Lo received a Bachelor of Business in Accounting from Curtin University and an EMBA degree from Kellogg Graduate School
+of Management, Northwestern University and HKUST. Mr Lo currently serves as a director of certain subsidiaries of the
+Company.
+Ma Xiaoyi, age 44, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company
+since November 2008. Prior to joining the Company, Mr Ma served as a General Manager of Games Division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as a General Manager in Shanghai EasyService Technology Development
+Ltd. Mr Ma graduated from Shanghai Jiaotong University in 1997, and received an EMBA degree from Fudan University in
+2008. Mr Ma currently serves as a director of certain subsidiaries of the Company.
+David A M Wallerstein, age 43, Chief exploration Officer and Senior Executive Vice President, joined the Company in 2001. He
+drives the Company's active participation in emerging technologies, business areas, and ideas, with a passion for contributing
+to a more resilient planet. Prior to joining the Company, Mr Wallerstein worked with Naspers in China. Mr Wallerstein currently
+serves as a director of a subsidiary of the Company.
+Save as disclosed above, none of the directors who are proposed for re-election at the 2018 AGM has a service contract
+with the Company which is not determinable by the Company within one year without payment of compensation, other than
+statutory compensation.
+Lu Shan, age 43, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company in
+2000 and had served as General Manager for IM Product Divisions, Vice President for Platform Research and Development
+System and Senior Vice President for Operations Platform System. Since March 2008, Mr Lu has been in charge of
+management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge of management
+of Technical Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming Network Systems Limited. Mr
+Lu received a Bachelor of Science degree in Computer Science and Technology from University of Science and Technology of
+China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of the Company.
+53
+Annual Report 2017
+Zhang Xiaolong, age 48, Senior Executive Vice President and President of Weixin Group, joined the Company in March 2005
+and served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail service
+provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has been
+appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail. He
+is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted to
+Senior Executive Vice President, in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received his Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+Tong Tao Sang, age 44, Senior Executive Vice President, President of Social Network Group and Chairman of Tencent Music,
+joined the Company in 2005. Mr Tong started as a technical architect, and led the product development of the social network
+platform, Qzone. He drove the open platform initiative of Qzone, which led to the development of the performance advertising
+business and the cloud services. Since May 2012, Mr Tong has been responsible for the QQ messaging and Qzone social
+networking platforms, the VIP subscriptions business, QQ Music and the Tencent Cloud services. Prior to joining the Company,
+Mr Tong worked for Sendmail, Inc. on managing the product development of operator-scale messaging systems. Mr Tong also
+worked for Oracle on the development and testing of Oracle Server and Oracle Applications. Mr Tong received a Bachelor of
+Science degree in Computer Engineering from University of Michigan, Ann Arbor in 1994 and a Master of Science degree in
+Electrical Engineering from Stanford University in 1997. Mr Tong currently serves as a director of certain subsidiaries of the
+Company.
+Lau Seng Yee, age 51, Senior Executive Vice President and Chairman of Tencent Advertising, Group Marketing and Global
+Branding, joined the Company in 2006. Mr Lau serves as Chairman of Tencent Advertising, Group Marketing and Global
+Branding starting from 24 March 2017 and is responsible for overseeing the Company's Advertising, Group Marketing and
+Global Branding businesses as well as developing international strategic partnership relationship. Before that, he was in
+charge of Online Media Group. Mr Lau is a seasoned professional in the media industry with a rare 23 years of on-ground
+China market experience. In 2007, Mr Lau sat in the advisory board for ad:tech, the globally renowned organisation for Online
+Marketing. Mr Lau held the post of Vice President of China Advertising Association since 2007. Mr Lau was appointed as the
+Adjunct Professor of School of Journalism and Communication by Xiamen University in 2010 and also by Fudan University
+in 2014. Prior to joining the Company, Mr Lau was the Managing Partner of Publicis China and Chief Executive Officer for
+BBDO China, as well as a few management positions in other multinationals. Mr Lau received an EMBA degree from Rutgers
+State University of New Jersey, USA. He also completed the Advanced Marketing Management program, and the Advanced
+Management Program (AMP) in Harvard Business School. In 2011, Mr Lau was honoured by New York based AdAge
+publication as one of "The World's 21 Most Influential People in Marketing and Media Industry, 2009-2010". In 2015, he was
+named as Global Media Person of the year award by Cannes Lions International Festival of Creativity. Mr Lau currently sits as a
+board member in the Asia Pacific Advisory Board of Harvard Business School.
+Directors' Report
+Tencent Holdings Limited
+52
+Ren Yuxin, age 42, Chief Operating Officer and President of Interactive Entertainment Group, Mobile Internet Group and Online
+Media Group, joined the Company in 2000 and had served as General Manager for the Value-Added Services Development
+Division and General Manager for Interactive Entertainment Business Division. Since September 2005, Mr Ren has been
+responsible for the research and development, operations, marketing and sales of gaming products for the Interactive
+Entertainment Business. Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of
+the overall operation of the Interactive Entertainment Group, Mobile Internet Group and Social Network Group. He is also in
+charge of the operation of Online Media Group starting from 24 March 2017. Prior to joining the Company, Mr Ren has worked
+in Huawei Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from
+the University of Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International
+Business School (CEIBS) in 2008. Mr Ren currently serves as a director or officer of certain subsidiaries of the Company.
+James Gordon Mitchell, age 44, Chief Strategy Officer and Senior Executive Vice President, joined the Company in 2011. He
+is responsible for various functions, including the Company's strategic planning and implementation, investor relationships,
+and mergers, acquisitions and investment activity. Prior to joining the Company, Mr Mitchell had worked in investment
+banking for 16 years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading the bank's
+Communications, Media and Entertainment research team, which analysed Internet, entertainment and media companies
+globally. Mr Mitchell received a degree from Oxford University and holds a Chartered Financial Analyst Certification. Mr
+Mitchell currently serves as a director of certain subsidiaries of the Company.
+Xu Chenye, age 46, Chief Information Officer, oversees the strategic planning and development for the website properties
+and communities, customer relations and public relations of the Company. Mr Xu is one of the core founders and has been
+employed by the Group since 1999. Prior to that, Mr Xu had experiences in software system design, network administration
+as well as marketing and sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu
+received a Bachelor of Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree
+in Computer Science from Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of
+the Company.
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Directors' Report
+51
+Annual Report 2017
+53
+DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS
+Save as disclosed in this annual report, no transaction, arrangement or contract of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+PERMITTED INDEMNITY PROVISION
+0.0005%
+46,300
+*
+Personal
+Li Dong Sheng
+(Note 2)
+0.49%
+8.63%
+46,968,000
+819,507,500
+Corporate (Note 1)
+*
+Personal
+Lau Chi Ping Martin
+Ma Huateng
+of shareholding
+shares held
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+56
+Tencent Holdings Limited
+Directors' Report
+lan Charles Stone, age 67, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 28 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong, China, South East Asia and the Middle East. Mr Stone has more
+than 47 years of experience in the telecom and mobile industries. Mr Stone is a fellow member of The Hong Kong Institute of
+Directors. Mr Stone also serves as an independent non-executive director of a subsidiary of the Company.
+DIRECTORS' INTERESTS IN SECURITIES
+(A) Long position in the shares and underlying shares of the Company
+Number of
+shares/ underlying
+Approximate %
+Name of director
+Nature of interest
+As at 31 December 2017, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+Personal
+0.004%
+Family +
+Directors' Report
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+As at 31 December 2017, the following persons, other than the directors or chief executive of the Company, had interests or
+short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under
+section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the shares of the Company:
+Long/ short position in the shares of the Company
+Name of shareholder
+Long/ short position
+Nature of
+interest/capacity
+Number of
+shares/ underlying
+Approximate %
+shares held
+Tencent Holdings Limited
+Directors' Report
+MIH TC
+Long position
+Corporate (Note 1)
+3,151,201,900
+33.17%
+Advance Data Services Limited Long position
+Corporate (Note 2)
+819,507,500
+8.63%
+JPMorgan Chase & Co.
+of shareholding
+Save as the related parties transaction disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest
+paid individuals), Note 14 (Benefits and interests of directors), Note 20 (Transactions with associates), Note 25 (Loans to
+investees and investees' shareholders) and Note 33 (Share-based payments) to the consolidated financial statements, no
+related parties transactions disclosed in the consolidated financial statements constitutes a discloseable connected transaction
+as defined under the Listing Rules. The Company has complied with the disclosure requirements set out in Chapter 14A of the
+Listing Rules.
+Other connected transactions
+For details of the risks associated with the Structure Contracts, please refer to the section headed "Risk factors - Risks relating
+to our structure" in the IPO prospectus.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no grant of domain
+name licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no grant of domain name
+licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+grant of trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no grant of trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+42
+64
+Tencent Holdings Limited
+Directors' Report
+9.
+10.
+11.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Co-operation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and one of the WFOES,
+the parties shall cooperate in the provision of communications services. For each agreement, the WFOES shall allow the
+New OPCOS to use its and its affiliates' assets and provide services to the New OPCOs. The New OPCOS shall transfer all
+of its Surplus Cash to the WFOEs and its affiliates as consideration. Co-operation committees have also been established
+according to these agreements. During the year, revenue sharing amounting to approximately RMB4,000,000,
+RMB5,000,000, and RMB151,000,000 was paid or payable by Wang Dian to Tencent Technology, Cyber Tianjin
+and Tencent Beijing respectively. Revenue sharing amounting to approximately RMB8,000,000, RMB58,000,000,
+and RMB32,486 was paid or payable by Beijing BIZCOM to Tencent Technology, Cyber Tianjin and Tencent Beijing
+respectively. Revenue sharing amounting to approximately RMB2, RMB4,000,000, and RMB2,000,000 was paid or
+payable by Beijing Starsinhand to Tencent Technology, Cyber Tianjin, and Tencent Beijing respectively.
+Annual Report 2017
+65
+66
+99
+Directors' Report
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOS, decide to implement enforceable remedy
+(including mandatorily requiring OPCOS to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WFOES and OPCOS, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WFOES and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as "High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in
+the PRC, a number of agreements have been entered into between members of the Group whereby the Company and the
+WFOEs derive substantially all their revenues from transactions with the OPCOs. The recognition of revenues outlined in these
+intragroup contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and
+adverse impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the
+tax treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimise the risks of adjustment
+in tax treatment.
+Long position
+Beneficial owner
+345,329,671
+Investment manager
+MANAGEMENT CONTRACTS
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company were entered into or existed during the year.
+MAJOR CUSTOMERS AND SUPPLIERS
+For the year ended 31 December 2017, the five largest customers of the Group accounted for approximately 2.66% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 0.80% of the Group's
+total revenues. In addition, for the year ended 31 December 2017, the five largest suppliers of the Group accounted for
+approximately 16.40% of the Group's total purchases while the largest supplier of the Group accounted for approximately 5.20%
+of the Group's total purchases.
+None of the directors, their close associates or any shareholder (which to the knowledge of the directors owns more than 5% of
+the number of issued shares of the Company) had an interest in any of the major customers or suppliers noted above.
+880
+68
+Tencent Holdings Limited
+Directors' Report
+AUDIT COMMITTEE
+The Audit Committee, together with the Auditor, has reviewed the Group's audited consolidated financial statements for the
+year ended 31 December 2017. The Audit Committee has also reviewed the accounting principles and practices adopted by
+the Group and discussed auditing, risk management, internal control and financial reporting matters.
+COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
+Save as disclosed in the 2017 interim report and the corporate governance report in the 2016 annual report of the Company,
+none of the directors of the Company is aware of any information which would reasonably indicate that the Company has not,
+for any part of the year ended 31 December 2017, complied with the code provisions as set out in the CG Code.
+As to the deviation from code provisions A.2.1 and A.4.2 of the CG Code, the Board will continue to review the current
+structure from time to time and shall make necessary changes when appropriate and inform the shareholders accordingly.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+The Group is committed to minimising the impact on the environment from our business activities and the details of such
+efforts are set out in the section headed “Environment” in the Environmental, Social and Governance Report in this annual
+report. As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+PRE-EMPTIVE RIGHTS
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of Cayman Islands, which would
+oblige the Company to offer new shares on a pro rata basis to existing shareholders.
+Annual Report 2017
+69
+69
+Save as disclosed above, the Company had not been notified of any other persons (other than the directors or chief executive
+of the Company) who, as at 31 December 2017, had interests or short positions in the shares and underlying shares of the
+Company as recorded in the register required to be kept under section 336 of the SFO.
+Pursuant to the intellectual property transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and
+Shiji Kaixuan, Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future intellectual property rights, free
+from encumbrance (except for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of
+Cyber Tianjin's undertaking to provide certain technology and information services to Shiji Kaixuan. During the year, no
+intellectual property transfer was transacted under such arrangements, save as disclosed elsewhere in this section.
+Such short position includes derivative interests in 172,159,686 underlying shares of the Company of which 9,198,803
+underlying shares are derived from listed and physically settled derivatives, 13,810,660 underlying shares are derived from
+listed and cash settled derivatives, 26,774,810 underlying shares are derived from unlisted and physically settled derivatives and
+122,375,413 underlying shares are derived from unlisted and cash settled derivatives.
+(ii)
+90,650,033
+Trustee
+55,297
+Approved lending agent
+252,244,988
+Total (Note 3(i)):
+688,279,989
+7.25%
+Short position
+Beneficial owner
+199,724,405
+2.10%
+(Note 3(ii))
+Annual Report 2017
+67
+Directors' Report
+Note:
+1.
+2.
+3.
+MIH TC is controlled by Naspers Limited through its wholly-owned intermediary companies, MIH Services FZ LLC (formerly known
+as MIH (Mauritius) Limited), MIH Ming He Holdings Limited and MIH Holdings Proprietary Limited. As such, Naspers Limited, MIH
+Services FZ LLC, MIH Ming He Holdings Limited and MIH Holdings Proprietary Limited are deemed to be interested in the same block
+of 3,151,201,900 shares under Part XV of the SFO.
+Advance Data Services Limited holds 723,507,500 shares directly and 96,000,000 shares indirectly through its wholly-owned
+subsidiary, Ma Huateng Global Foundation. As Advance Data Services Limited is wholly-owned by Ma Huateng, Mr Ma has an interest
+in these shares as disclosed under the section of "Directors' Interests in Securities".
+(i)
+Such long position includes derivative interests in 170,400,394 underlying shares of the Company of which 11,434,756
+underlying shares are derived from listed and physically settled derivatives, 6,366,100 underlying shares are derived from listed
+and cash settled derivatives, 37,773,991 underlying shares are derived from unlisted and physically settled derivatives and
+114,825,547 underlying shares are derived from unlisted and cash settled derivatives. It also includes 252,244,988 shares in
+lending pool.
+8.
+7.
+6.
+Beijing BIZCOM
+Wang Dian
+PRC
+Provision of Internet advertisement services in the
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+Provision of value-added services and Internet
+advertisement services in the PRC
+11.43% by Xu Chenye
+22.85% by Zhang Zhidong
+54.29% by Ma Huateng
+Tencent Computer
+Business activities
+as at 31 December 2017
+Name of the operating companies
+Registered owners
+Set out below is the registered owners and business activities of the OPCOS which had entered into transactions with the Group
+during the year ended 31 December 2017:
+Particulars of the OPCOS
+Directors' Report
+Tencent Holdings Limited
+60
+60
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the Company indirectly operates the value-added telecommunication service business,
+online games, online advertising and other Internet and wireless portals in the PRC through affiliated OPCOS that hold the
+necessary licences for the existing lines of businesses.
+However, Circular 13 does not provide any interpretation of the term “foreign investors" or make a distinction between foreign
+online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether the State
+General Administration of Press, Publication, Radio, Film and Television will deem the Group's structure and operations to be
+in violation of these provisions.
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進口
+(the “Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009 provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via wholly
+owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors from
+gaining control over or participating in domestic online game operators through indirect ways such as establishing other joint
+venture companies or entering into contractual or technical arrangements with the Chinese licence holders.
+2017
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+Beijing Starsinhand
+Shiji Kaixuan
+11.43% by Chen Yidan
+Tencent Computer
+Provision of value-added services in the PRC
+Directors' Report
+Review of the transactions carried out under the Structure Contracts during the financial year
+The Company's independent non-executive directors had reviewed the Structure Contracts (as defined in the section "Our
+History and Structure - Structure Contracts" of the IPO prospectus of the Company) and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure Contracts
+and, had been operated so as to transfer by the date of this annual report Tencent Computer's and Shiji Kaixuan's Surplus
+Cash (as defined in the section “Our History and Structure - Structure Contracts" of the IPO prospectus of the Company) as
+at 31 December 2017 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology (Shenzhen)
+Company Limited in the IPO prospectus of the Company), Tencent Beijing, Shenzhen Tencent Information, Tencent Chengdu,
+Chongqing Tencent Information, Shanghai Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network and
+Guangzhou Tencent Technology. The Company's independent non-executive directors had also confirmed that no dividends
+or other distributions had been made by the OPCOS to the holders of their equity interests and the terms of any new Structure
+Contracts entered into, renewed and/or cloned during the relevant financial period are fair and reasonable so far as the Group
+was concerned and in the interests of the Company's shareholders as a whole. To this extent, similar Structure Contracts were
+entered into relating to the New OPCOS.
+The Auditor had carried out procedures on the transactions pursuant to the Structure Contracts and had provided a letter
+to the Board confirming that such transactions had been approved by the Board and had been entered into, in all material
+respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus Cash of the
+OPCOS as at 31 December 2017 to the WFOES and that no dividends or other distributions had been made by the OPCOS to
+the holders of their equity interests.
+62
+62
+Tencent Holdings Limited
+Directors' Report
+1.
+2.
+3.
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent Technology
+and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and to provide services to Tencent
+Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates as
+consideration. The parties also established the TCS Co-operation Committee according to this agreement. During the
+year, revenue sharing amounting to approximately RMB53,832,000,000, RMB2,933,000,000, RMB 16,895,000,000,
+RMB13,417,000,000, RMB6,940,000,000, RMB1,587,000,000, RMB951,000,000, RMB228,000,000,
+RMB7,414,000,000, RMB873,000,000 and RMB69,000,000 were paid or payable by Tencent Computer to Tencent
+Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu, Tencent Shanghai, Tencent Wuhan, Chongqing Tencent
+Information, Shanghai Tencent Information, Shenzhen Tencent Information, Hainan Network, and Guangzhou Tencent
+Technology respectively. In addition, during the year, Internet data center service fees amounting to approximately
+RMB674,000,000 and RMB149,000,000 were paid or payable by Tencent Computer to Cyber Tianjin and Shanghai
+Tencent Information, and IOS account usage fees amounting to RMB50,000, RMB50,000, RMB50,000 and RMB50,000
+were paid or payable to Tencent Technology, Cyber Tianjin, Tencent Beijing and Tencent Shanghai respectively.
+Transactions carried out during the year ended 31 December 2017, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+Pursuant to the amended and restated intellectual property transfer agreement dated 28 February 2004 entered
+into between Tencent Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its
+principal present and future intellectual property rights, free from encumbrances (except for licences granted in the
+ordinary course of Tencent Computer's business) in consideration of Tencent Technology's undertaking to provide
+certain technology and information services to Tencent Computer. During the year, no intellectual property transfer was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+Provision of value-added services in the PRC
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and to provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established
+the SKT Co-operation Committee according to this agreement. During the year, no service was transacted under such
+arrangements, save as disclosed elsewhere in this section.
+Provision of value-added services in the PRC
+The above OPCOS are significant to the Group as they hold relevant licences to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB139 billion for the year ended 31 December 2017 and
+approximately RMB25 billion as at 31 December 2017 respectively.
+Annual Report 2017
+61
+50% by Chen Guangyu
+50% by Tang Yibin
+4.
+Directors' Report
+63
+63
+Annual Report 2017
+5.
+Ma Huateng
+Lau Chi Ping Martin
+4/4
+4/4
+1/1
+1/1
+1/1
+1/1
+Executive directors
+1/1
+Meeting
+Committee
+Committee
+In order to take advantage of the skills, experiences and diversity of perspectives of the directors and in order to ensure that the
+directors give sufficient time and attention to the Group's affairs, we request each of the directors to disclose to the Company,
+on a quarterly basis, the number and the nature of offices held in public companies or organisations and other significant
+commitments. The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that
+the number of independent non-executive directors must represent at least one-third of the Board. The Board believes that
+the balance between the executive directors and the non-executive directors is reasonable and adequate to provide sufficient
+checks and balances that safeguard the interests of the shareholders and the Group.
+The Board values the importance of professional judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in professional, constructive and informed manner, and actively participate in Board and committee
+meetings and to bring professional judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also exercise their professional
+judgment and utilise their expertise to scrutinise the Company's performance in achieving agreed corporate goals, and monitor
+performance reporting.
+Further, in compliance with Rule 3.10 of the Listing Rules, two of our independent non-executive directors have the
+appropriate professional qualifications of accounting or related financial management expertise, and provide valuable advice
+from time to time to the Board. The Company has also received from each independent non-executive director a confirmation
+annually of his independence and the Nomination Committee has conducted an annual review and considers that all
+independent non-executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13
+of the Listing Rules in the context of the length of service of each independent non-executive director.
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Annual Report 2017
+77
+72
+Corporate Governance Report
+Appointments, Re-election and Removal
+The Board is the core of the Group's success, and with the appropriate composition of the Board, we can benefit from the right
+set of skills, experience and diversity of perspectives to take the Company forward. Therefore, it is essential for the Company to
+maintain a formal, considered and transparent procedure for the appointment of new directors to the Board. It is our corporate
+governance practice and in accordance with the Articles of Association that all directors (except for the Chairman) should be
+subject to re-election at regular intervals and the resignation and removal of any director should be explained with reasons. In
+the 2017 annual general meeting, Messrs Lau Chi Ping Martin and Charles St Leger Searle retired and were re-elected, and Mr
+Yang Siu Shun was re-elected in accordance with Article 86(3) of the Articles of Association.
+Code provision A.4.2 of the CG Code provides that all directors appointed to fill a casual vacancy should be subject to election
+by shareholders at the first general meeting after appointment. Every director, including those appointed for a specific term,
+should be subject to retirement by rotation at least once every three years.
+The Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by rotation
+nor taken into account in determining the number of directors to retire in each year. Therefore, there is a deviation from code
+provision A.4.2 of the CG Code. The Chairman is one of the founders of the Group and he plays a key role in the growth and
+development of the Group and his continuing presence in the Board is vital to the sustainable development of the Group. Given
+the importance of the Chairman's role in the development of the Group, the Board considers that the deviation from code
+provision A.4.2 of the CG Code has no material impact on the operation of the Group as a whole.
+78
+Tencent Holdings Limited
+Meeting
+==
+The Board met four times in 2017. The attendance of each director at Board, committee meetings, annual general meeting
+and extraordinary general meeting, whether in person or by means of electronic communication, is detailed in the table below:
+Attendance/ No. of Board, Committee Meetings, Annual General Meeting and Extraordinary General Meeting
+Corporate
+Annual
+Extraordinary
+Audit
+Governance
+Nomination
+Remuneration
+General
+General
+Name of director
+Board
+Committee
+Committee
+Board Activity
+Corporate Governance Report
+Ma Huateng
+As at the date of this annual report, the Board is comprised of eight directors, with two executive directors, two non-executive
+directors and four independent non-executive directors. During the year ended 31 December 2017 and up to the date of this
+annual report, there is no change to the composition of the Board.
+The Board has defined the business and governance issues for which it needs to be responsible for, and these matters are
+reviewed periodically to ensure that the Company maintains effective and up-to-date corporate governance practices. In this
+regard, the Board:
+•
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans;
+•
+approves the annual business plan and budget proposed by management;
+72
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual business plan and budget;
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned;
+approves the Company's financial statements and interim and annual reports;
+determines the Group's communication policy;
+determines director selection, orientation and evaluation;
+Tencent Holdings Limited
+Corporate Governance Report
+•
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders;
+establishes Board committees with clear terms of reference and responsibilities as appropriate;
+defines levels of delegation in respect of specific matters, with required authority to Board committees and management;
+monitors non-financial aspects pertaining to the businesses of the Group;
+considers and, if appropriate, declares the payment of dividends to shareholders; and
+regularly evaluates its own performance and effectiveness.
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once every
+two weeks or as frequent as necessary to formulate policies and make recommendations to the Board. The senior management
+team administers, enforces, interprets and supervises compliance with the internal rules and operational procedures of the
+Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate amendments to
+such rules and procedures. The senior management team reports to the Board on a regular basis and communicates with the
+Board whenever required.
+To better serve the long term interests of our stakeholders, the Board delegates certain matters requiring particular time,
+attention and expertise to its committees. The Board has determined that these matters are better dealt with by the committees
+as they require independent oversight and specialist input. As such, the Board has established five committees to assist the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. Each of the committees has its terms of reference which clearly specify its powers and authorities. All committees
+report back to the Board and make recommendations to the Board if necessary.
+The Company's governance structure of these committees can be summarised as follows:
+Audit Committee
+•
+handles the relationship with the Company's external auditor;
+•
+reviews the Company's financial information;
+exercises oversight of the Company's financial reporting system;
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategy and monitors management's
+execution of such strategy.
+reviews the work done by the Company's management with respect to risk management and internal control systems;
+and
+Responsibilities
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes
+when appropriate.
+Non-executive directors
+Directors' Report
+EMPLOYEE AND REMUNERATION POLICIES
+As at 31 December 2017, the Group had 44,796 employees (2016: 38,775). The number of employees employed by the
+Group varies from time to time depending on needs and employees are remunerated based on industry practice.
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-
+house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according
+to the assessment of individual performance.
+The total remuneration cost incurred by the Group for the year ended 31 December 2017 was RMB34,866 million (2016:
+RMB23,433 million).
+SUFFICIENCY OF PUBLIC FLOAT
+Based on information that is publicly available to the Company and within the knowledge of its directors, the directors confirm
+that the Company has maintained during the year the amount of public float as required under the Listing Rules.
+CLOSURE OF REGISTER OF MEMBERS
+(A) Entitlement to Attend and Vote at the 2018 AGM
+The register of members will be closed from Friday, 11 May 2018 to Wednesday, 16 May 2018, both days inclusive,
+during which period no transfer of shares will be registered. In order to be entitled to attend and vote at the 2018 AGM,
+all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's
+branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell
+Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Thursday, 10 May
+2018.
+(B) Entitlement to the Proposed Final Dividend
+The register of members will be closed from Wednesday, 23 May 2018 to Thursday, 24 May 2018, both days inclusive,
+during which period no transfer of shares will be registered. In order to qualify for the proposed final dividend, all duly
+completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's branch
+share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre,
+183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Monday, 21 May 2018.
+70
+70
+Tencent Holdings Limited
+AUDITOR
+Directors' Report
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2018 AGM.
+On behalf of the Board
+Ma Huateng
+Chairman
+Hong Kong, 21 March 2018
+Annual Report 2017
+71
+Corporate Governance Report
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors with a
+thorough understanding of the Group's management and how such management oversees and manages different businesses
+of the Group. Our belief is that investors will realise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will lead to public trust and will ultimately create shareholder value
+for the Group.
+CORPORATE GOVERNANCE PRACTICES
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board
+believes that throughout the year ended 31 December 2017, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions A.2.1 regarding the segregation of the roles of the chairman
+and chief executive and A.4.2 regarding the retirement and re-election of directors.
+BOARD OF DIRECTORS
+oversees the risks undertaken by the Company including determining the level of risk the Company expects to and is
+able to take.
+Annual Report 2017
+73
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+Yang Siu Shun
+1 Attended training/ seminar/ conference arranged by the Company or other external parties or read relevant materials.
+V
+V
+√
+V
+V
+Maintaining a high level of corporate governance and integrity cannot depend solely on the Board's efforts; each of the Group's
+employees is also required to contribute to such cause. A code of conduct policy with an emphasis on integrity and respect is
+distributed by the Company to all employees and forms part of their employment agreements.
+Annual Report 2017
+75
+Corporate Governance Report
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and
+compliance with the CG Code.
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+•
+review of the shareholders communication policy has been and will be conducted on a regular basis;
+training has been and will continue to be provided to directors on a timely basis, including briefing the directors on any
+updates to the Listing Rules and relevant laws;
+the company secretary attends training in compliance with the Listing Rules requirements; and
+informal updates from time to time and structured monthly updates on the Company's performance, position and
+prospects are provided to the directors.
+Chairman and Chief Executive Officer
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision
+A.2.1 of the CG Code, which provides that the roles of chairman and chief executive should be separate and should not be
+performed by the same individual. The division of responsibilities between the chairman and chief executive should be clearly
+established and set out in writing.
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be technically sophisticated and sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the roles of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as well
+as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to time to
+make presentations and answer Board's enquiries. In addition, directors are encouraged to participate actively in all Board and
+committee meetings of which they are members, and the Chairman ensures that all issues raised are properly briefed at the
+Board meetings, and he works with the senior management team to provide adequate, accurate, clear, complete and reliable
+information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is available for
+discussion for all items at the Board meetings. During the year ended 31 December 2017, the Chairman held a meeting with
+the non-executive directors (including the independent non-executive directors) without the presence of the executive directors
+as required by the Listing Rules.
+The Board is therefore of the view that there is an adequate balance of power and that appropriate safeguards are in place.
+Nevertheless, the Board will continue to regularly monitor and review the Company's current structure and to make necessary
+changes when appropriate.
+76
+Tencent Holdings Limited
+Corporate Governance Report
+Composition
+Independent non-executive directors
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+Non-executive directors
+Corporate Governance Report
+Corporate Governance Committee
+reviews the Company's corporate governance and makes recommendations to the Board;
+reviews and monitors the training and continuous professional development of the directors and senior management
+team;
+reviews and monitors the Company's policies and practices on its compliance with legal and regulatory requirements;
+develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors;
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders; and
+reviews the Company's compliance with the CG Code and disclosure in the Corporate Governance Report.
+Investment Committee
+• identifies, considers and makes recommendations on mergers, acquisitions and disposals; and
+ensures compliance with the Listing Rules and any other relevant laws and regulations on any mergers, acquisitions and
+disposals.
+Nomination Committee
+reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy;
+identifies suitable and qualified individuals and makes recommendations to the Board as to new Board members,
+by taking into account the individual's experience, knowledge, skills and background, as well as the Listing Rules
+requirements;
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders;
+assesses the independence of independent non-executive directors; and
+A list of directors and their respective biographies are set out on pages 48 to 51 of this annual report.
+reviews and monitors the implementation of the board diversity policy of the Company.
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team;
+ensures that these remuneration proposals are aligned to corporate goals and objectives; and
+ensures that no director or any of his associates is involved in deciding his own remuneration.
+74
+Tencent Holdings Limited
+Corporate Governance Report
+The major work of the committees during the year 2017 is set out on pages 80 to 83.
+All directors have full and timely access to all relevant information as well as the advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring that Board procedures and all applicable rules and regulations
+are followed. All directors may also obtain independent professional advice at the Company's expense for carrying out their
+functions.
+We believe education and training are important for maintaining an effective Board. New directors undergo an orientation
+programme designed to provide a thorough understanding of the Group's operations and businesses, and also receive a
+handbook outlining their responsibilities under the Listing Rules and applicable laws. Existing directors are provided with
+tailored training programmes covering topics such as best practices in corporate governance, legal and regulatory trends
+and, given the nature of our business, emerging technologies and products. Directors also regularly meet with the senior
+management team to understand the Group's businesses, governance policies and regulatory environment. During the year
+ended 31 December 2017, the Company arranged training on topics relating to corporate governance, legal and regulatory
+updates and product trends which are relevant to the Group's businesses. The chart below summarises the participation of
+each of the directors in continuous professional development during the year ended 31 December 2017:
+Name of director
+Participated in
+continuous professional
+development¹
+Executive directors
+Lau Chi Ping Martin
+Remuneration Committee
+Jacobus Petrus (Koos) Bekker
+1/1
+Charles St Leger Searle
+1/1
+1/1
+lan Charles Stone
+4/4
+8/8
+2/2
+1/1
+3/3
+33
+1/1
+1/1
+4/4
+8/8
+1/1
+1/1
+At the Board meetings, the Board discussed a wide range of matters, including the Group's overall strategies, financial and
+operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary,
+in consultation with the Chairman and the senior management team, prepares the agenda for each meeting and all directors
+are given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all
+applicable rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the
+Board meeting to each of the directors at least 14 days in advance of each regular Board meeting. The company secretary
+also sends the agenda, board papers and relevant information relating to the Group to each of the directors at least 3 days in
+advance of each regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial
+performance and latest developments. If any director raises any queries, steps will be taken to respond to such queries as
+promptly and fully as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director,
+such director will declare his interest and will abstain from voting on such matters. The directors may approach the Company's
+senior management team when necessary. The directors may also seek independent professional advice at the Company's
+expense in appropriate circumstances.
+Annual Report 2017
+79
+19
+4/4
+Yang Siu Shun
+2/2
+2/2
+4/4
+8/8
+4/4
+8/8
+2/2
+22
+1/1
+1/1
+1/1
+1/1
+1/1
+3/3
+==
+0/1
+0/1
+lain Ferguson Bruce
+33
+3/3
+2/4
+Li Dong Sheng
+Independent non-executive directors
+0/1
+Corporate Governance Report
+85
+On behalf of the Board, the Audit Committee assists the Board in supervising the overall risk status of the Company
+and evaluating the change in the nature and severity of the Company's major risks. The Audit Committee considers that
+management has taken appropriate measures to address and manage the significant risks that they are responsible for at a
+level acceptable to the Board.
+Below is a summary of the significant risks of the Company along with the applicable response strategies. The Company's risk
+profile may change and the list below is not intended to be exhaustive.
+1.
+Market competition and innovation risk
+2.
+The Company stays on top of the industry trends, keeps track of the development of new technologies and stays relevant
+through innovation. The Company focuses on changes in user experience, and continuously recruits more talents,
+enhances its technical capabilities and innovation environment to develop products that meet the expectations of the
+market. The Company leverages the strength of the existing platforms to seek better business partners for exploration
+of new business opportunities and better responding to the market needs. The Company has established a number of
+open platforms with the aim to promote "mutual benefit and win-win” concept, and to strengthen the cooperation with
+its business partners. For example, "Double Hundred Plan" of Tencent Westart Space, which incubates potential startup
+companies, has enhanced its collaboration with business partners and its competitiveness in the market.
+The Internet industry is highly competitive, innovative and ever-changing. The cross-sectoral expansion of non-internet
+companies adds more new participants to the market. The users' desire for innovative products and service is also
+increasing. Therefore, to attract new users while maintaining its existing market share is still one of the challenges of the
+Company. The lack of innovation or slow innovation in technology and product would impair the core competitiveness of
+the Company.
+Tencent Holdings Limited
+2B business risk
+With the rapid development of the 2B business of the Company, if the Company fails to optimise its organisational
+structure with support from professional talents to quickly explore new business operating and management models, and
+improve its cooperation mechanisms with various business partners, it may affect the continuous healthy development of
+the 2B business.
+Annual Report 2017
+The Company is accumulating and solidifying its experience in the 2B business. The Company has been proactively
+responding to the challenges by optimising its organisational structure and resource allocation, recruiting more 2B
+business professional talents and setting up appropriate mechanisms to ensure the effective operation of 2B business for
+rapid and sustained development.
+86
+In 2017, management has identified and determined eight significant risks of the Company through the risk management
+process detailed above. Comparing with 2016, "2B business risk" and "Crisis management and reputation risk" are the two
+additional risks identified and disclosed as significant risks of the Company in 2017. As the Company's business scale, scope
+and complexity have evolved, so does its external environment, management considers that the Company is still facing the
+six significant risks disclosed in 2016 - the business continuity risk stays at the similar level as last year while the other risks
+increased in different degrees.
+Corporate Governance Report
+The Audit Committee, on behalf of the Board, assesses and determines the nature and level of the risks that the
+Company is willing to take in order to achieve its business objectives and formulates appropriate response strategies
+which include designating responsible departments for handling each significant risk. The Audit Committee provides
+guidance to the Company's management to implement effective risk management system with supports from the IC.
+The anti-fraud investigation function is responsible for receiving whistleblower reports through various channels and for
+following up and investigating alleged fraudulent activities. It also assists management in promoting the "Tencent Sunshine
+Code of Conduct" (the “Sunshine Code") and the value of integrity to all employees of the Company. The IA has direct
+reporting lines to the Audit Committee.
+3.
+These systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only
+provide reasonable but not absolute assurance against material misstatement or loss.
+The Board and management have always attached significance to the Company's risk management and internal control
+systems. In 2017, the Company has invested even more resources in the continuous improvement of the risk management
+and internal control systems, which have also increased the awareness of risk management among the employees. The internal
+control function has continuously worked closely with and provided proactive supports to the business groups in their business
+development and risk management. Furthermore, the IA has also continued to promote the deployment of continuous audits
+to provide more effective and timely independent evaluations. The connection and interaction among the three lines of defence
+have been further strengthened to have more positive supports to the Company.
+84
+Tencent Holdings Limited
+Significant Risks of the Company
+Risk Management
+The Company has established a risk management system (including the "Three Lines of Defence" internal monitoring model
+as detailed above) which sets out the roles and responsibilities of each relevant party as well as the relevant risk management
+policies and processes. Each business group of the Company, on a regular basis, identifies and assesses risk factors that may
+negatively impact the achievement of its objectives, and formulates appropriate response measures. The Company's staff also
+attends training in relation to risk management and internal controls on a regular basis.
+Risk Management Process
+Being an Internet company with a wide variety of rapidly-changing businesses, the Company has adopted the following
+dynamic risk management process in response to the ever-changing risk landscape:
+Business and functional departments of each business group identify, assess and respond to risks in the course of
+operation in a systematic manner, escalating concerns and communicating results to the IC;
+The IC collects, analyses and consolidates a list of significant risks at the company level, and provides input on risk
+response strategies and control measures for such risks. These significant risks as well as the corresponding risk
+responses and control measures will be reviewed by senior management and subsequently by the Audit Committee
+before reporting to the Board;
+The IC reviews and evaluates the responses to significant risks from time to time, and reports to the Audit Committee at
+least once a year; and
+The Company is committed to continuously improving the risk management system, including structure, process and culture,
+through the enhancement of risk management ability, to ensure long-term growth and sustainable development of the
+Company's business.
+Business continuity risk
+Tencent Holdings Limited
+The stability of servers and network infrastructure for products and platforms of the Company is of vital importance for
+the successful operation of the Company's business as well as the provision of high quality user experience. Any material
+functional defect, interruption, breakdown or other issue in connection is likely to materially adversely impact the
+Company's businesses.
+With the diverse products and platforms of the Company and its expanding user base, the products and platforms of the
+Company have gained considerable influence in wider society. The Company's products and platforms are subject to
+increased scrutiny from a social responsibility perspective.
+The Company has long been endeavoring to promote the healthy development of the Internet industry, and efforts are
+being made to make the products and platforms of the Company exert a positive community influence. The Company
+pays close attention to content quality, product design and operation of the platform. The Company actively provides
+more assurance to the society by using advanced technology to prohibit any illegal and unhealthy information and
+content access the Company's platform and products. For examples, the "Tencent Game Guardian Platform" is an time
+management tool used to control the time juveniles spend on games; "Shepherd Plan" is a non-profit platform used for
+preventing the telecom fraud and internet frauds; and "QQ City Power" is another platform used to find missing children
+in China. At the same time, the Company has established a sound monitoring and reporting mechanism to deal with
+illegal and vicious information.
+The IA holds a high degree of independence and is responsible for providing an independent evaluation on the effectiveness
+of the Company's risk management and internal control systems, and monitoring management's continuous improvement over
+the risk management and internal control areas.
+8.
+Crisis management and reputation risk
+Corporate Governance Report
+88
+As one of the China's largest technology companies with a diverse portfolio of businesses, products and investments, the
+Company always attracts very high attention from the public and media. The media is diverse and information spreads
+rapidly. If the Company does not pay sufficient attention to public opinion, public relations to the crisis are not dealt
+with in a timely manner, and failure to disclose comprehensive and proper information to the public, it will damage the
+Company's reputation, brand and image, and adversely affect the business and prospects the Company.
+Internal Control
+The Company has always valued the importance of the internal control systems, and has been implementing the COSO
+Management of the Company is responsible for the design, implementation and maintenance of the effectiveness of internal
+control systems. The Board and the Audit Committee are responsible for monitoring and overseeing the performance of
+management over the internal control systems to ensure it is appropriate and effective.
+The Company's internal control systems clearly define roles and responsibilities of each party as well as authorisations and
+approvals required for key actions of the Company. Policies and procedures are put in place for the key business processes.
+This information is also clearly conveyed to employees in practice and plays an important role in internal control systems. All
+employees must strictly follow the policies which cover, amongst other things, financial, legal and operational issues that set
+the control standards for the management of each business process.
+In order to further strengthen the accountability of the management team in the internal control systems of the Company
+and to assist in determining the effectiveness of such internal control systems, the management team of each business
+group conducts self-assessment and confirms the internal control status of the business group for which it is responsible.
+The IC assists the management in preparing a self-assessment questionnaire according to the COSO Framework, and
+guides the management of each business group to carry out the self-assessment. The IC is also responsible for collecting
+and summarising the results of self-assessment. The Chief Executive Officer of the Company reviews this summarised self-
+assessment of each business group, assesses the general effectiveness of the internal control systems of the Company, and
+submits the written confirmation thereof on behalf of the senior management team of the Company to the Audit Committee and
+the Board.
+In addition, the IC supervises the establishment of the risk management and internal control systems set up by management,
+ensure that management has implemented appropriate measures and report the general situation of risk management and
+internal control of the Company to the Audit Committee on a quarterly basis. The IA, serving as the independent third line of
+defence, conducts objective evaluation on the effectiveness of the Company's risk management and internal control systems
+and reports the results to the Audit Committee.
+The Company has set up professional public relations department and teams for crisis management, with public
+relations management mechanism established. The teams have maintained close interaction with management and
+business groups. The teams gather public opinions, analyse and identify relevant information and reports their analysis
+to management to more promptly and appropriately respond to the public according to the Company's policies and
+procedures.
+Corporate Governance Report
+Social responsibility risk
+The Company has set up several professional departments and teams that work closely with management of business
+groups to monitor and identify changes in any relevant laws and regulations, so as to take appropriate actions or
+measures to ensure the Company is in compliance with applicable laws and regulations. In addition, the Company also
+actively exchanges view and information with relevant regulatory authorities on the trend and development of Internet
+industry.
+The Company has been continuously investing in the infrastructure for products and platforms of the Company to
+enhance its disaster recovery capability in order to provide stable support to the business development. Various business
+departments are also engaged in emergency procedures to ensure the smooth operation of the Company's businesses.
+In addition, the Company has established dedicated teams to develop business contingency plans and perform periodic
+drills on the plans to ensure their effectiveness.
+4.
+Acquisition and investment management risk
+With the Company's increased investment activities, it is important for the Company to adopt robust procedures in the
+formulation of investment strategies and strong treasury management, both at the investment evaluation stage as well
+as the post-investment stage. Failure to promptly manage investment risks could hinder the realization of investment
+strategies.
+The Company takes the management of investment risks seriously, and has, amongst other things, established an
+Investment Committee under the Board, dedicated an investment team to identify investment opportunities, appointed
+finance, legal and other relevant professional teams to manage relevant risks and put in place the investment risk
+evaluation and approval process. There is also a designated professional team that regularly reviews the Company's
+cash position and, continuously expands its financing channels and capabilities to meet the needs from the Company's
+business operations as well as acquisitions. The Company has also designated finance, legal and other relevant
+professional teams to support and monitor the performance of the investee companies. These teams periodically
+analyse and review relevant operating and financial information of the investee companies to ensure that they continue
+to satisfy the Company's investment strategies. Furthermore, the Company has strengthened its IT system development
+to enhance the transparency of the management process, analyse key information of investment companies in a timely
+manner, and make/take more timely and effective management decisions and actions. In addition, the Company has
+invested resources in internal audit and internal control to support the management of its controlling subsidiaries in
+establishing more sound risk management and internal control systems.
+5. Information security risk
+7.
+Protecting user data is the top priority of the Company, and the Company is fully aware that any loss or leakage of
+sensitive user information could have a significant negative impact on affected users and the Company's reputation, even
+lead to potential legal action against the Company.
+87
+Corporate Governance Report
+6.
+The Company is obliged to protect sensitive user information and as such, the Company strives to provide the highest
+level of protection to such data. In this regard, the Company has formulated policies and control measures to protect
+user data. Information security is ensured through effective management systems, encryption, access restrictions and
+process protocols. In addition, the Company performs review periodically and engages independent specialists to review
+the Company's data protection practices and provides training programmes to employees to enhance their awareness of
+information security.
+Governance policies and regulations risk
+Although the Internet and technology industry is still evolving, regulatory authorities in numerous jurisdictions have been,
+in an attempt to keep up with such evolution, developing more comprehensive and stringent regulations to regulate the
+industry. As the Company is continuously expanding its businesses in the PRC and overseas, it is required to comply
+with the new applicable laws and regulations in different jurisdictions that are specifically relevant to the Company's
+businesses, such as laws relating to data protection, Internet information security, IP, gaming and Internet finance.
+Annual Report 2017
+The Third Line of Defence mainly consists of the functions of internal audit and anti-fraud investigation under the IA.
+82
+The Second Line of Defence is mainly the IC. This line of defence is responsible for formulating policies related to the risk
+management and internal control of the Company and for planning and implementing the establishment of integrated risk
+control systems. For ensuring effective implementation of such systems, this line of defence also assists and supervises the
+first line of defence in the establishment and improvement of risk management and internal control systems.
+Corporate Governance Report
+the plans (including those for 2017), resources and work of the Company's internal auditors;
+the adequacy of resources, qualifications and training of the Group's finance department; and
+the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group.
+PricewaterhouseCoopers ("PwC") is the Group's external auditor. The Audit Committee annually reviews the relationship of
+the Company with PwC. Having also reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied with this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2018 AGM.
+Corporate Governance Committee
+•
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr lain Ferguson Bruce, Mr Ian Charles Stone and Mr Yang Siu Shun (all of them are independent
+non-executive directors). The Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+The Corporate Governance Committee's major work during the year 2017 includes the following:
+discussed on the arrangements made for directors and senior management team to attend training sessions for
+continuous professional development;
+reviewed the Company's compliance with the CG Code and disclosure in the Corporate Governance Report;
+reviewed the Company's compliance with the ESG Reporting Guide and disclosure in the Environmental, Social and
+Governance Report;
+reviewed the Company's policies and practices on corporate governance; and
+reviewed legal and regulatory compliance, including the insider dealing policy, the disclosure of inside information policy
+and the shareholders communication policy.
+The Corporate Governance Committee met twice in 2017. Individual attendance of each Corporate Governance Committee
+member is set out on page 79.
+Investment Committee
+Tencent Holdings Limited
+80
+Corporate Governance Report
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final version of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+THE COMMITTEES
+As described above, the Board has established five committees, each of which has been delegated responsibilities and reports
+back to the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and
+Remuneration Committee. The roles and functions of these committees are set out in their respective terms of reference. The
+terms of reference of each of these committees will be revised from time to time to ensure that they continue to meet the needs
+of the Company and to ensure compliance with the CG Code. The terms of reference of the Audit Committee, the Nomination
+Committee and the Remuneration Committee are available on the Company Website and the Stock Exchange's website.
+Audit Committee
+The Audit Committee comprises only non-executive directors. Its members are Mr lain Ferguson Bruce, Mr lan Charles Stone,
+Mr Yang Siu Shun (all of them are independent non-executive directors) and Mr Charles St Leger Searle (non-executive
+director). Mr lain Ferguson Bruce, who chairs the Audit Committee, and Mr Charles St Leger Searle and Mr Yang Siu Shun
+have appropriate professional qualifications and experiences in financial matters.
+80
+The Audit Committee meets not less than four times a year; in 2017 the Audit Committee met eight times. Individual
+attendance of each Audit Committee member is set out on page 79. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Head of IA and the Head of IC, and the external auditor at the
+invitation of the Audit Committee.
+•
+the 2016 annual report, including the Corporate Governance Report, the Environmental, Social and Governance Report,
+Directors' Report and the financial statements, as well as the related results announcement;
+the 2017 interim report and interim results announcement;
+the 2017 first and third quarters results announcements;
+compliance with the CG Code, the Listing Rules and relevant laws;
+in relation to the external auditor, their plans, reports and management letter, fees, involvement in non-audit services,
+and their terms of engagement;
+The Audit Committee's major work during the year 2017 includes reviewing:
+The Investment Committee comprises a majority of executive directors. Its members are Mr Lau Chi Ping Martin, Mr Ma
+Huateng and Mr Charles St Leger Searle. The Investment Committee is chaired by Mr Lau Chi Ping Martin.
+In 2017, the Investment Committee had considered and passed various resolutions on its decisions on the Group's acquisitions
+and disposals.
+Annual Report 2017
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+As part of the Board's responsibility, the Board ensures that a balanced and clear assessment of the Group's performance and
+prospects is presented. The directors acknowledge that it is their responsibility to prepare the accounts that give a true and
+fair view of the Group's financial position on a going-concern basis and other announcements and financial disclosures. To
+assist the Board in discharging its responsibilities, the senior management team provides updates to the Board from time to
+time, including the Group's business and financial position in sufficient detail, to give the directors a balanced, understandable
+and clear assessment of the performance, position and prospects of the Group. The senior management team also provides
+all necessary and relevant information to the Board, giving the directors sufficient explanation and information they need
+to discharge their responsibilities and make an informed assessment of financial and other information put before them for
+approval. The Company auditor's statement in respect of their reporting responsibilities is set out in the "Independent Auditor's
+Report".
+Adequate and effective risk management and internal control systems are key to safeguarding the achievement of the
+Company's business strategies. The risk management and internal control systems shall also ensure the achievement of the
+Company's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with applicable
+laws, regulations and policies.
+The Board acknowledges that it is the Board's responsibility to ensure that the Company has established and maintained
+adequate and effective risk management and internal control systems. The Board delegates its responsibility to the Audit
+Committee to review the practices of management with respect to risk management and internal control, including the design,
+implementation and supervision of the risk management and internal control systems. This review formally takes place on a
+quarterly basis. The Audit Committee also reviews the effectiveness of the risk management and internal control systems on an
+annual basis. The Board is responsible for overseeing the risk appetite of the Company including determining the risk level the
+Company expects and is able to take, and proactively considering, analysing and formulating strategies to manage the key risks
+that the Company is exposed to.
+Annual Report 2017
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual or any of his associates was involved in determining his own remuneration. It also ensured that
+remuneration awards were determined by reference to the performance of the individual and the Company and were aligned to
+the market practice and conditions, the Company's goals and strategies. They are designed to attract, retain and motivate high
+performing individuals, and reflect the specifics of individual roles.
+83
+To ensure that the risk management and internal control systems are effective, the Company, under the supervision and
+guidance of the Board and factoring the actual needs of the Company, has adopted the "Three Lines of Defence" internal
+monitoring model as an official organisational structure for risk management and internal control.
+The First Line of Defence -- Operation and Management
+The First Line of Defence is mainly formed by the business and functional departments of each business group of the
+Company who are responsible for the day-to-day operation and management. It is responsible for designing and implementing
+controls to address the risks.
+The Second Line of Defence
+--
+Risk Management
+Corporate Governance Report
+reviewing and endorsing the proposed adoption of the new share option schemes.
+reviewing and approving compensation awards granted to senior management team, to recognise their contributions to
+the Company and to provide incentives for future performances; and
+Corporate Governance Report
+81
+Corporate Governance Report
+Nomination Committee
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr lain Ferguson Bruce, Mr Ian Charles Stone (all three are independent non-executive directors) and Mr
+Charles St Leger Searle (non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+The Nomination Committee met once in 2017. Individual attendance of each Nomination Committee member is set out on
+page 79.
+During 2017, the Nomination Committee reviewed board composition and director succession, and the board diversity policy,
+and also considered and made recommendations to the Board on the re-appointment of the retiring directors at the 2017
+annual general meeting. The Nomination Committee has also assessed the independence of the independent non-executive
+directors and considers all of them to be independent, taking into account of the independence guidelines set out in Rule
+3.13 of the Listing Rules in the context of the length of service of each independent non-executive director. The Company
+recognises the benefits of having a diverse Board, and views diversity at Board level as a business imperative that will help
+the Company achieve its strategic objectives and maintain a competitive advantage. As such, the Board has set measurable
+objectives for the implementation of the board diversity policy to ensure that the Board has the appropriate balance of skills,
+experience and diversity of perspectives that are required to support the execution of its business strategy and maintain the
+effectiveness of the Board. The Nomination Committee is satisfied that the board diversity policy is successfully implemented
+with reference to the measurable objectives. The Nomination Committee will continue to monitor the implementation of the
+board diversity policy and will review the board diversity policy periodically to ensure its continued effectiveness.
+Remuneration Committee
+The Remuneration Committee comprises only non-executive directors. Its members are Mr lan Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). The
+Remuneration Committee is chaired by Mr Ian Charles Stone.
+The Remuneration Committee met three times in 2017. Individual attendance of each Remuneration Committee member is
+set out on page 79.
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration packages of each director.
+The Remuneration Committee's major work during the year 2017 includes the following:
+reviewing and recommending to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with a similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staff;
+reviewing and recommending to the Board on the remuneration packages for the directors;
+assessing performance and, reviewing and approving amendments to the remuneration packages for the members of
+the senior management team;
+Annual Report 2017
+Tencent Holdings Limited
+The Third Line of Defence -- Independent Assurance
+89
+Framework.
+89,042
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Charles St Leger Searle (Chairman)
+CORPORATE GOVERNANCE
+COMMITTEE
+Charles St Leger Searle
+lan Charles Stone
+INVESTMENT COMMITTEE
+lain Ferguson Bruce
+AUDIT COMMITTEE
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Independent Non-Executive Directors
+Charles St Leger Searle
+Yang Siu Shun (Chairman)
+Lau Chi Ping Martin (Chairman)
+Ma Huateng
+Charles St Leger Searle
+NOMINATION COMMITTEE
+Hutchins Drive, P.O. Box 2681
+Cricket Square
+REGISTERED OFFICE
+The Hongkong and Shanghai Banking
+Corporation Limited
+Bank of China Limited
+PRINCIPAL BANKERS
+Certified Public Accountants
+PricewaterhouseCoopers
+AUDITOR
+Li Dong Sheng
+Jacobus Petrus (Koos) Bekker
+lan Charles Stone (Chairman)
+REMUNERATION COMMITTEE
+Charles St Leger Searle
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Ma Huateng (Chairman)
+Jacobus Petrus (Koos) Bekker
+Grand Cayman KY1-1111
+Cayman Islands
+Non-Executive Directors
+Ma Huateng (Chairman)
+506,441
+101,197
+151,740
+202,435
+Total liabilities
+143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+140 CONSOLIDATED STATEMENT OF CASH FLOWS
+124,406
+137 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+133 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+132 CONSOLIDATED INCOME STATEMENT
+123 INDEPENDENT AUDITOR'S REPORT
+100 ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
+Tencent 腾讯
+Tencent Holdings Limited
+Incorporated in the Cayman Islands with limited liability
+134 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+50,035
+Current liabilities
+164,879
+Executive Directors
+DIRECTORS
+Corporate Information
+265 DEFINITION
+21,019
+32,697
+Total equity
+82,124
+122,100
+186,247
+277,093
+356,207
+Non-current liabilities
+39,007
+60,312
+108,455
+125,839
+Lau Chi Ping Martin
+騰訊控股有限公司
+TENCENT GROUP HEAD OFFICE
+No. 33 Haitian 2nd Road
+Nanshan District
+Shenzhen, 518054
+The PRC
+2,111
+2,065
+11,623
+41,447
+29,108
+23,888
+Profit for the year
+323,510
+94,466
+51,640
+36,216
+29,013
+Profit before income tax
+142,120
+116,925
+84,499
+88,215
+256,074
+174,624
+120,035
+23,810
+28,806
+41,095
+71,510
+78,719
+72,471
+149,154
+178,446
+217,080
+171,166
+306,818
+395,899
+554,672
+723,521
+Equity and liabilities
+Equity attributable to equity holders of the Company
+Non-controlling interests
+80,013
+61,232
+Tencent Binhai Towers
+48,059
+312,694
+www.tencent.com
+COMPANY WEBSITE
+Wan Chai, Hong Kong
+183 Queen's Road East
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+Services Limited
+Computershare Hong Kong Investor
+STOCK CODE
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+SMP Partners (Cayman) Limited
+Royal Bank House - 3rd Floor
+24 Shedden Road
+P.O. Box 1586
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+Hong Kong
+No. 1 Queen's Road East
+Wanchai
+29/F., Three Pacific Place
+IN HONG KONG
+PRINCIPAL PLACE OF BUSINESS
+Grand Cayman, KY1-1110
+Cayman Islands
+700
+2
+Tencent Holdings Limited
+237,760
+151,938
+102,863
+78,932
+Revenues
+RMB'Million
+Total equity and liabilities
+RMB'Million RMB'Million RMB'Million
+RMB'Million
+2018
+2017
+2016
+2015
+2014
+Year ended 31 December
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+Financial Summary
+Gross profit
+於開曼群島註冊成立的有限公司
+(Stock Code 股份代號:700)
+20th
+As at
+Year-on-
+As at
+As at
+Operating Information
+Company Business Highlights
+3.
+Quarter-on-
+Profit attributable to equity holders of the Company increased by 10% year-on-year. Non-GAAP profit attributable to
+equity holders of the Company increased by 19%.
+Revenues increased by 32% year-on-year, primarily driven by FinTech services, social and video advertising, and digital
+content subscriptions and sales.
+In fiscal year 2018
+Company Financial Performance
+2.
+Chairman's Statement
+7
+Annual Report 2018
+Operating profit increased by 8% year-on-year. Non-GAAP operating profit increased by 13% year-on-year.
+31 December
+31 December
+2018
+2.5%
+683.0
+699.8
+Smart device MAU of QQ
+0.6%
+802.6
+3.0%
+783.4
+807.1
+MAU of QQ
+(in millions, unless specified)
+change
+2018
+quarter
+30 September
+year
+change
+2017
+In addition to growing our core businesses organically, we make strategic investments in best-in-class companies so
+we can focus our management attention and company resources on our own core platforms, while capturing emerging
+opportunities in adjacent verticals through investee companies. We have invested in more than 700 companies. More
+than 100 investee companies were valued at over USD1 billion each. Among which, over 60 went public. We enrich
+our IP portfolio including games, video, music and literature via upstream investments, and broaden user reach and
+engagement via investments in vertical platforms. We work with businesses that can expand our offerings to meet
+evolving user needs, and accelerate the adoption of our enterprise services and products, such as 020 and smart retail
+companies, which has helped our payment service penetration and advertiser base expansion. And, we use investments
+as a tool for better understanding frontier technologies which will become important to our future, such as connected
+cars, Internet-facilitated healthcare, and quantum computing. Our investments have created value for our investee
+companies by offering them access to our large user base, and providing them infrastructure, technology and capital
+support to bolster their growth.
+697.9
+Tencent Cloud is the foundation for our smart industry solutions. We integrate our cloud computing technology with Al
+and data analytics capabilities, to assist the digital transformation of various industries. Our online security capabilities
+enhance the stability and reliability of our cloud solutions. During 2018, Tencent Cloud maintained market leadership
+in verticals such as online games and streaming video leveraging our industry know-how and solid infrastructure. We
+now serve over half of the China-based games companies and are expanding overseas. We expanded our customer
+base rapidly for Internet services via strategic partnership in verticals. Key categories include eCommerce, social media
+and community, handset manufacturer app stores and smart transportation. We have further expanded our presence in
+other key industries such as financial and retail sectors. We are the partner of choice for top banks including BOC, CCB
+and CMB. Majority of top online finance companies and insurance firms are our clients. Our retail cloud solutions build
+on our unique properties such as Official Accounts and Mini Programs to increase retailers' consumer engagement,
+enhance their marketing ROI via our consumer targeting and anti-fraud technologies, and upgrade internal operations
+using AI, LBS and big data technologies.
+Chairman's Statement
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2018 was
+RMB78,719 million, an increase of 10% compared with the results for the previous year. Basic and diluted EPS for the year
+ended 31 December 2018 were RMB8.336 and RMB8.228, respectively.
+RESULTS
+I am pleased to present our annual report for the year ended 31 December 2018 to the shareholders.
+Chairman's Statement
+3
+Annual Report 2018
+Comparative figures have been restated retrospectively to conform with the presentation adopted in 2015, whereas, among others,
+we have extended the definition of non-GAAP adjustments to cover that of our material associates. We adopted the new presentation
+in order to more clearly illustrate our non-GAAP financial measures, and to be more consistent with what we believe to be industry
+practice.
+The Group's non-GAAP profit attributable to equity holders of the Company for the year ended 31 December 2018 was
+RMB77,469 million, an increase of 19% compared with the results for the previous year. Non-GAAP basic and diluted EPS for
+the year ended 31 December 2018 were RMB8.203 and RMB8.097, respectively.
+723,521
+395,899
+306,818
+171,166
+367,314
+277,579
+209,652
+184,718
+554,672
+BUSINESS REVIEW AND OUTLOOK
+1.
+Company Strategic Highlights
+Tencent Holdings Limited
+6
+During 2018, we enhanced the monetisation potential of our platforms through connecting more advertisers, across
+more platforms, with more accurate user targeting capabilities. For social advertising, we increased our advertising
+inventory through adding the second ad unit in Weixin Moments, and we started to insert ad units into Mini Programs.
+For media advertising, we completed the system revamp of our news advertising in early 2018. Leveraging our enhanced
+recommendation algorithms, steady traffic growth and rising fill rates, our news feed business significantly grew its
+advertising revenues. Our video advertising outpaced the industry in terms of its revenue amount and revenue growth
+rate, due to the popularity of our content, especially self-commissioned content, and the strong growth in sponsorship
+advertising revenue. As part of the Company's strategic reorganisation, we merged our advertising sales teams to provide
+better marketing solutions, data analytics, and ad placement processes for our advertisers, thus enhancing their ROIs.
+Payment is one of the key infrastructure platforms of the Company, enabling us and our merchant partners to complete
+transactions for online and offline services. We extended our market leadership as the leading mobile payment platform
+by active users and number of transactions in China. Our total daily payment transaction volume exceeded 1 billion for
+2018, driven by rapid growth in commercial payments, which represented more than half of the number of transactions.
+Our commercial payment revenue more than doubled year-on-year in 2018. Our payment platform connects with tens
+of millions of merchants and monthly active merchants increased over 80% year-on-year in the fourth quarter of 2018.
+We boosted our payment penetration in the food and retail industries thanks to features such as our Mini Programs and
+Scan-to-Pay solution. In Hong Kong, we launched the first-of-its-kind cross-border mobile payment service in October
+2018, which enables WeChat Pay Hong Kong users to conduct RMB-denominated transactions funded by Hong Kong
+dollars. This cross-border mobile payment service now covers approximately 1 million merchants in Mainland China,
+including taxi-hailing, food ordering, and high-speed railway ticketing services. The transaction volume of WeChat Pay
+Hong Kong increased more than 10 times year-on-year. We launched WeChat Pay Malaysia services in August, offering
+online transactions such as mobile credit top-ups, flight and bus ticket purchases, and offline transactions at retail
+outlets, such as supermarkets, fashion and beauty stores. Globally, we are expanding our footprint by supporting China
+outbound travelers to make cross-border payments in overseas destinations, and we now offer real-time tax refund
+services for Weixin Pay users in over 80 airports. Weixin Pay is now available in 49 markets outside Mainland China,
+supporting cross-border payment transactions in 16 currencies.
+Leveraging our rich IP portfolio, we provide digital content to our users across online media platforms. Our total digital
+content subscription counts exceeded 100 million by the end of 2018, up 50% year-on-year. High quality content, better
+IP protection, enhanced streaming capabilities and convenience of mobile payment were the growth drivers for our digital
+content subscription business. Tencent Video is the leading online video streaming platform in China in terms of mobile
+DAU and subscriptions, generating the highest revenues in the online video market in China through subscriptions and
+advertising. TME is the leading online music entertainment platform in China, operating the country's most popular and
+innovative music apps QQ Music, Kugou Music, Kuwo Music and WeSing. In December 2018, we listed TME on the
+New York Stock Exchange. News feeds, short videos and mini videos contributed substantially to traffic on our media
+and distribution platforms including Tencent News, QQ KanDian, Mobile QQ Browser and Weishi.
+Chairman's Statement
+5
+Annual Report 2018
+We have built up a content ecosystem covering online games, literature, video, music, news and comics. For online
+games, we are the leading platform globally by revenue and users. Our technical strength supports the operation of
+multiple PC and mobile blockbuster game titles, serving hundreds of millions of active users every day. Internationally,
+our subsidiary Riot Games operates the highest-MAU PC game, League of Legends, and we operate the highest-MAU
+smart phone game, PUBG MOBILE. Through our partnerships with and investments in global leaders such as Epic
+Games (creator of Fortnite) and Supercell (creator of Clash of Clans), we support the innovation and growth of the global
+game industry. In China, our popular smart phone games expanded our user base and increased time spent. We have
+taken the lead in introducing the Healthy Gameplay System to assist parents in managing the amount of time their
+children spend playing games. We upgraded the system last September by introducing measures to strengthen real-
+name verification, and implementing game time limits for children players, as well as spending alerts to their parents.
+Our Tencent Game Guardian Platform enables parents to engage with their children and track their in-game activities
+online. We recently provided teachers access to this platform to enhance their engagement with their students who play
+games. These initiatives built a pilot case for the China game industry and, we believe, help position it for sustainable
+and healthy growth in the long run.
+Overall MAU of QQ increased to 807 million by the end of 2018. We stayed engaged with young users as QQ introduced
+innovative and Al-empowered features to make its chat experience more fun and interactive. We offer entertainment-
+oriented content in verticals including eSports, comics and live streaming services to cater to the entertainment needs of
+millennial users. In particular, we further increased the user engagement of QQ Kan Dian, a popular news feed service
+among young users, through enriching its content with video feeds.
+Mini Programs are now widely adopted by users and enterprises setting the industry trends for connecting online users to
+offline scenarios. DAU grew rapidly and daily visits per user increased by 54% year-on-year. Mini Programs cover more
+than 200 service sectors and connect with our users via multiple channels, including shortcuts in the chat interface, our
+in-app search function and offline Mini Programs QR Codes. In addition to connecting with online users, Mini Programs
+enable developers to achieve cross-platform development and instantaneous deployment for their products and services.
+We empower developers with cloud-based development kits, enhancing the development efficiency, particularly for long-
+tail developers. Daily visits to long-tail Mini Programs increased significantly, accounting for 43% of the total daily visits to
+Mini Programs.
+Our social communications platforms, Weixin and QQ, represent the largest social communities in China in terms of
+MAU. The combined MAU of Weixin and WeChat increased to approximately 1,098 million by the end of 2018. Weixin
+further penetrated lower tier cities and covered a wider age group of users. On average, over 750 million Weixin users
+read friends' posts on Moments per day.
+We made the following key achievements in our core businesses:
+Chairman's Statement
+Tencent Holdings Limited
+4
+During the year, we stepped up our investment in innovation and technologies to stay competitive in the evolving Internet
+industry. We enriched our social platforms with a broader portfolio of digital content, as well as online and offline services,
+thus deepening our connection with our users, advertisers, merchants and enterprise partners. Through these initiatives,
+we strengthened our market leadership in social, games, digital content, and payment, contributing to continuing growth
+across our core business segments.
+2018 marked the 20th anniversary of the founding of the Group. Throughout our history, we have constantly been
+embracing changes in users' needs, technologies and market conditions to stay at the forefront of our industry. In
+October, we initiated a strategic organisational upgrade to extend our strengths in the Consumer Internet and to capture
+the opportunities of the Industrial Internet. This strategic upgrade is intended to enable us to drive the convergence of
+social, content and technology trends, and to better serve enterprises, as well as consumers.
+Building on our payment user base, we offer FinTech services to under-served consumers, conveniently and at low cost.
+LiCai Tong, our wealth management platform, helped manage over RMB600 billion of customer assets as of the end of
+2018. WeBank, our associate with an online banking business, achieved rapid growth in the outstanding loan balance
+of its micro-loan product for consumers, Wei LiDai. WeBank also expanded its loan services to enterprises, serving the
+financing needs for small and micro businesses customers through Wei YeDai.
+0.3%
+Combined MAU of Weixin and WeChat
+1,097.6
+66,339
+24,737
+32,410
+45,420
+65,126
+77,469
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+78,218
+2014
+As at 31 December
+2015
+2016
+RMB'Million RMB'Million RMB'Million
+2017
+2018
+RMB'Million
+Assets
+Non-current assets
+RMB'Million
+48,194
+44,416
+21,891
+Smart communication inspires
+2018
+智慧溝通 靈感無限
+Annual Report
+CONTENTS
+2
+CORPORATE INFORMATION
+Total comprehensive income for the year
+21,975
+44,723
+48,617
+79,061
+67,760
+Total comprehensive income attributable
+to equity holders of the Company
+Non-GAAP profit attributable to
+equity holders of the Company*
+Current assets
+Total assets
+95,845
+75,321
+151,440
+155,378
+8
+4.0%
+154.1
+19.1%
+134.6
+160.3
+Fee-based VAS registered subscriptions
+0.2%
+531.1
+-3.9%
+554.0
+532.4
+Smart device MAU of Qzone
+1.4%
+1,082.5
+11.0%
+988.6
+Tencent Holdings Limited
+Profit attributable to equity holders of the Company
+Chairman's Statement
+Weixin and WeChat: Combined MAU was 1,098 million, up by 11.0% year-on-year. Hundreds of millions of social
+videos are uploaded and shared on the Weixin platform every day. We enriched our user experience via a new
+video function that allows users to share 15-second mini video clips with Al-recommended background music with
+friends. WeChat Work, an enterprise application integrated with Weixin, allows companies to deepen engagement
+with customers, digitalise user profiles for data analytics, facilitate office administration and enhance internal
+communication. It is seeing particularly rapid adoption by large enterprises, providing a showcase for SMEs.
+Approximately 80% of the top 500 enterprises in China are now registered as WeChat Work corporate users.
+246,745
+376,226
+3
+FINANCIAL SUMMARY
+4
+CHAIRMAN'S STATEMENT
+14
+MANAGEMENT DISCUSSION AND ANALYSIS
+31
+DIRECTORS' REPORT
+76
+CORPORATE GOVERNANCE REPORT
+9
+Annual Report 2018
+For 2018, our smart phone games business achieved RMB77.8 billion revenues (including smart phone games revenues
+attributable to our social networks business), up 24% year-on-year; for the fourth quarter, it achieved RMB19.0 billion
+revenues, up 12% year-on-year. We released 9 licensed games in the fourth quarter, most of which were role playing
+games. The industry regulator re-started issuing game monetisation license ("banhao") approvals in December 2018,
+after a nine-month suspension. A total of 8 Tencent games (including 7 smart phone games and 1 PC game) have
+received approval so far, including role playing games, strategy, casual and functional genres. Since there is a sizeable
+backlog for the banhao applications in the industry, our scheduled game releases will initially be slower than in some
+prior years. We have implemented our upgraded Healthy Gameplay System in 39 smart phone games, including our
+most popular titles such as Honour of Kings, QQ Speed Mobile, Cross Fire Mobile, Naruto OL Mobile and MT4. The
+system has resulted in minors spending significantly less time in the affected games, but immaterial impact on time
+spent by adult players.
+Online Games
+QQ: Smart device MAU was 699.8 million, up by 2.5% year-on-year. Smart device MAU for users aged 21 years
+or below increased by 13% year-on-year. We further increased young user stickiness by enhancing the video
+recording functions and news feed features. We launched Al-powered filters and stickers for video chat, increasing
+the number of short and mini videos shared by young users by over 50% year-on-year. For QQ KanDian, we added
+a bullet chatting function within video and enhanced video feed recommendation algorithms, boosting the click-
+through volume and increasing user time spent. QQ KanDian daily video views rose over 300% year-on-year.
+Communication and Social
+79,984
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure that the shareholders are familiar with the detailed procedures for conducting a
+poll, detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions
+from shareholders on the voting procedures will be answered before the poll voting starts. An external scrutineer will be
+appointed to monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock
+Exchange's website after each general meeting.
+Annual Report 2018 99
+3.
+Business continuity risk
+The stability of servers and network infrastructure for products and platforms of the Company is of vital importance for
+the successful operation of the Company's business as well as the provision of high-quality user experience. Any material
+functional defect, interruption, breakdown or other issue in connection is likely to materially adversely impact the
+Company's businesses.
+The Company has been continuously investing in the infrastructure for products and platforms of the Company to
+enhance its disaster recovery capability in order to provide stable support to the business development. Various business
+departments are also engaged in emergency procedures to ensure the smooth operation of the Company's businesses.
+In addition, the Company has established dedicated teams to develop business contingency plans and perform periodic
+drills on the plans to ensure their effectiveness.
+4.
+Information security risk
+Protecting user data is the top priority of the Company, and the Company is fully aware that any loss or leakage of
+sensitive user information could have a significant negative impact on the affected users and the Company's reputation,
+even lead to potential legal action against the Company.
+The Company is obliged to protect sensitive user information and as such, the Company strives to provide the highest
+level of protection on such data. In this regard, the Company has formulated policies and control measures to protect
+user data. Information security is ensured through effective management systems, encryption, access restrictions and
+process protocols. In addition, the Company performs review periodically and engages independent specialists to review
+the Company's data protection practices and provides training programmes to employees to enhance their awareness of
+information security.
+2B business risk
+The Company has actively developed various 2B businesses related to Industrial Internet. With the rapid development
+of the 2B business of the Company, if the Company fails to optimise its organisational structure with support from
+professional talents to quickly explore new business operating and management models, or improve its cooperation
+mechanisms with various business partners, it may affect the continuous healthy development of the 2B business.
+Corporate Governance Report
+The Company is accumulating and solidifying its experience in the 2B business. The Company has been proactively
+responding to the challenges by having optimised its organisational structure and resource allocation, continuously
+improving the business process, and recruiting more 2B business professional talents and setting up appropriate
+mechanisms to ensure the effective operation of the 2B business for rapid and sustained development.
+6.
+Social responsibility risk
+Corporate Governance Report
+With the diverse products and platforms of the Company and its expanding user base, the products and platforms of the
+Company have gained considerable influence in wider society. The Company's products and platforms are subject to
+increased scrutiny from a social responsibility perspective.
+The Company has long been endeavoring to promote the healthy development of the Internet industry, and efforts are
+being made to make the products and platforms of the Company exert a positive community influence. The Company
+pays close attention to content quality, product design and operation of the platform. The Company actively provides
+more assurance to the society by using advanced technology to prohibit any illegal and unhealthy information and
+content access the Company's platform and products. The Company encourages the study of key technologies and basic
+science, and actively propagates and enriches Chinese traditional culture. For example, the "Tencent Game Guardian
+Platform" is a time management tool used to control the time juveniles spend on games; "Shepherd Plan" is a non-profit
+platform used for preventing fraud; the "Xplore Prize" has been initiated by the Company in cooperation with many well-
+known scientists; and the Company has been cooperating with Forbidden City Museum to propagate excellent traditional
+culture by creative technologies. At the same time, the Company has established a sound monitoring and reporting
+mechanism to deal with illegal and vicious contents.
+7.
+Crisis management and reputation risk
+As one of the China's largest technology companies with a diverse portfolio of businesses, products and investments, the
+Company always attracts very high attention from the public and media. The media is diverse and information spreads
+rapidly. If the Company does not pay sufficient attention to public opinion, public relations to the crisis are not dealt
+with in a timely manner, and failure to disclose comprehensive and proper information to the public, it will damage the
+Company's reputation, brand and image, and adversely affect the business and prospects of the Company.
+The Company has set up professional public relations department and teams for crisis management, with public
+relations management mechanism established. The teams have maintained close interaction with management and
+business groups. The teams gather public opinions, analyse and identify relevant information and report their analysis
+to management to more promptly and appropriately respond to the public according to the Company's policies and
+procedures.
+Annual Report 2018 93
+92 Tencent Holdings Limited
+18
+5.
+91
+Corporate Governance Report
+Risk Management Process
+Being an Internet company with a wide variety of rapidly-changing businesses, the Company has adopted the following
+dynamic risk management process in response to the ever-changing risk landscape:
+Business and functional departments of each business group identify, assess and respond to risks in the course of
+operation in a systematic manner, escalating concerns and communicating results to the IC;
+The IC collects, analyses and consolidates a list of significant risks at the company level, and provides input on risk
+response strategies and control measures for such risks. These significant risks as well as the corresponding risk
+responses and control measures will be reviewed by senior management and subsequently by the Audit Committee
+before reporting to the Board;
+The IC reviews and evaluates the responses to significant risks from time to time, and reports to the Audit Committee at
+least once a year; and
+The Audit Committee, on behalf of the Board, assesses and determines the nature and level of the risks that the
+Company is willing to take in order to achieve its business objectives and formulates appropriate response strategies
+which include designating responsible departments for handling each significant risk. The Audit Committee provides
+guidance to the Company's management to implement effective risk management system with supports from the IC.
+Significant Risks of the Company
+In 2018, management has identified and determined nine significant risks of the Company through the risk management
+process detailed above. Comparing with 2017, "Fraud risk" is the one additional risk identified and disclosed as one of the
+significant risks of the Company in 2018. As the Company's business scale, scope and complexity have evolved, so does its
+external environment, management considers that the Company is still facing the eight significant risks disclosed in 2017 -
+both the “Regulatory and compliance risk” and “Social responsibility risk” have been elevated in different degrees while the
+other risks stay at the similar level as last year.
+On behalf of the Board, the Audit Committee assists the Board in supervising the overall risk status of the Company
+and evaluating the change in the nature and severity of the Company's major risks. The Audit Committee considers that
+management has taken appropriate measures to address and manage the significant risks that they are responsible for at a
+level acceptable to the Board.
+18
+90
+Corporate Governance Report
+Below is a summary of the significant risks of the Company along with the applicable response strategies. The Company's risk
+profile may change and the list below is not intended to be exhaustive.
+1.
+Regulatory and compliance risk
+Although the Internet and technology industry is still evolving, regulatory authorities in numerous jurisdictions have been,
+in an attempt to keep up with such evolution, developing more comprehensive and stringent regulations to regulate the
+industry. As the Company is continuously expanding its businesses in the PRC and overseas, it is required to comply
+with the new applicable laws and regulations in different jurisdictions that are specifically relevant to the Company's
+businesses, such as laws relating to data protection, Internet information security, IP, gaming and Internet finance. In
+addition, the uncertainty of policy direction may have an impact on the development of different industries in different
+regions.
+The Company has set up several professional departments and teams that work closely with management of business
+groups to monitor and identify changes in any relevant laws and regulations, so as to take appropriate actions or
+measures to ensure the Company is in compliance with applicable laws and regulations. We have invested abundant
+resources in many aspects to ensure the compliance of regulatory requirements. In addition, the Company also actively
+exchanges view and information with relevant regulatory authorities on the trend and development of Internet industry.
+2.
+Market competition and innovation risk
+The Company stays on top of the industry trends, keeps up with the technological trend through innovation. The
+Company focuses on changes in user experience, and continuously recruits more talents; optimises its organisational
+structure; enhances the innovation capabilities by improving talent quality and cultivating young talents; enhances its
+technical capabilities and innovation environment to develop products that meet the expectations of the market. The
+Company leverages the strength of the existing platforms to seek better business partners for exploring new business
+opportunities and better responding to the market needs. The Company has established a number of open platforms
+with the aim to promote "mutual benefit and win-win” concept, and to strengthen the cooperation with its business
+partners. For example, "Double Hundred Plan” of Tencent Westart Space, which incubates potential startup companies,
+has enhanced its collaboration with business partners and its competitiveness in the market.
+Annual Report 2018
+Tencent Holdings Limited
+Corporate Governance Report
+The Internet industry is highly competitive, innovative and ever-changing. The cross-sectoral expansion of non-Internet
+companies adds more new participants to the market. The users' desire for innovative products and service is also
+increasing. Therefore, to attract new users while maintaining its existing market share is still one of the challenges of the
+Company. The lack of innovation or slow innovation in technology and product would impair the core competitiveness of
+the Company.
+The Company has a certain scale of investment activities in diverse fields. It is important for the Company to adopt
+robust procedures in the formulation of investment strategies and strong treasury management, both at the investment
+evaluation stage as well as the post-investment stage. Failure to promptly manage investment risks could hinder the
+realization of investment strategies.
+Apart from participating in the Company's general meetings, the Company's shareholders are provided with contact details of
+the Company such as telephone number and email address which are available on the Company Website, in order to enable
+them to make any query that they may have. Shareholders may send their enquiries to the Board directly through these
+means. Shareholders may also contact the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor
+Services Limited, if they have any enquiries about their shareholdings and entitlements to dividends.
+Annual Report 2018
+97
+Corporate Governance Report
+DISCLOSURE OF OTHER INFORMATION
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. We set out this
+information below which has not been covered above.
+Model Code for Securities Transactions by Directors of Listed Issuers
+The Company has adopted the Model Code. The Company has also adopted an insider dealing policy for employees for
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exacting than those of the Model Code. The Company has made specific enquiries with the directors and
+the directors have confirmed they have complied with the Model Code throughout 2018.
+Appointment Terms of Non-Executive Directors
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his appointment.
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors
+and officers.
+External Auditor and Auditor's Remuneration
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set
+out in the "Independent Auditor's Report" on pages 123 to 131. During the year ended 31 December 2018, the remuneration
+paid/payable to the Company's external auditor, PwC, was disclosed in Note 8 to the consolidated financial statements.
+The audit and audit-related services conducted by the external auditor mainly comprise of statutory audits and reviews for
+the Group and its certain subsidiaries. The amounts of audit and audit-related services for the year ended 31 December
+2018 also included the services fees in connection with the initial public offering of a subsidiary of the Company and other
+M&A transactions. The non-audit services conducted by the external auditor mainly include professional services on risk
+management and internal control review, M&A advisory service and tax advisory service.
+98
+Tencent Holdings Limited
+Corporate Governance Report
+Framework for Disclosure of Inside Information
+The Company has in place a framework for the handling and disclosure of inside information in compliance with the SFO. The
+framework sets out the procedures and internal controls for the handling and dissemination of inside information in a timely
+manner so as to allow all the shareholders and stakeholders to assess the latest position of the Group.
+Under the framework, if an employee is aware of any project, transaction, information or situation which he thinks could
+potentially be inside information, he should contact the Head of Compliance, the General Counsel and the Company Secretary
+as soon as possible. Legal analysis and consultations with the Company's directors and senior executives will be made so as to
+identify whether any such information constitutes inside information and is required to be disclosed to the public pursuant to
+the SFO. The framework and its effectiveness are subject to review on a regular basis according to established procedures.
+99
+8. Acquisition and investment management risk
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and
+such meeting shall be held within two months after the deposit of such requisition.
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board and the senior management team. The Chairman, other members of the Board and relevant members of the
+senior management team, under normal circumstances, attend to answer questions raised and discuss matters in relation to
+the Company in an open manner. Save as Mr Li Dong Sheng, all directors attended the 2018 annual general meeting held
+on 16 May 2018, with a view to understanding the views of the Company's shareholders. The company secretary provided
+the minutes of 2018 annual general meeting to all directors to have a thorough understanding of the views of the Company's
+shareholders. The Company's external auditor will also attend the annual general meeting to answer questions relating to
+the conduct of the audit, the auditor's report and auditor independence. The Company's shareholders may also propose
+candidates for election as a director of the Company according to the following procedures, details of which are also set out on
+the Company Website.
+Directors and Officers Liability Insurance
+SHAREHOLDERS
+The Company takes the management of investment risks seriously, and has, amongst other things, established an
+Investment Committee under the Board, dedicated an investment team to identify investment opportunities, appointed
+finance, legal and other relevant professional teams to manage relevant risks and put in place the investment risk
+evaluation and approval process. There is also a designated professional team that regularly reviews the Company's
+cash position and, continuously expands its financing channels and capabilities to meet the needs from the Company's
+business operations as well as acquisitions. The Company has also designated finance, legal and other relevant
+professional teams to support and monitor the performance of the investee companies. These teams periodically analyse
+and review relevant operating and financial information of the investee companies to ensure that they continue to satisfy
+the Company's investment strategies. In addition, the Company has invested resources in internal audit and internal
+control to empower investee companies, and to continuously support the management of its controlling subsidiaries in
+establishing more sound risk management and internal control systems.
+The Company strives to provide ready, equal, regular and timely disclosure of information that is material to the investor
+community. Therefore, the Company works to maintain effective and on-going communication with shareholders so that
+they, along with prospective investors, can exercise their rights in an informed manner based on a good understanding of the
+Group's operations, businesses and financial information. The Company also encourages shareholders' active participation
+in annual general meetings and other general meetings or other proper means. As such, the Company sends notices to
+shareholders for annual general meetings at least 20 clear business days before the meeting and at least 10 clear business
+days for all other general meetings. In addition, the Company has developed and maintains the shareholders communication
+policy, which is available on the Company Website.
+9.
+Fraud risk
+In recent years, fraudulent activities have occurred frequently in the technology, media and telecom industry and
+therefore integrity has become an industrial concern. With the business development of the Company, the business
+scale and complexity have been evolved, and consequently the fraud risk inevitably increased in a certain degree. For
+example, fraudulent activities caused by collusion between suppliers/business partners and employees can have a
+negative impact on reputation and finance of the Company.
+94
+Tencent Holdings Limited
+Corporate Governance Report
+Internal Control
+The Company has always valued the importance of the internal control systems, and has been implementing the COSO
+Framework.
+Management of the Company is responsible for the design, implementation and maintenance of the effectiveness of internal
+control systems. The Board and the Audit Committee are responsible for monitoring and overseeing the performance of
+management over the internal control systems to ensure their appropriateness and effectiveness.
+The Company, with its belief in the value of integrity, has zero tolerance for fraud, and is determined to fight against
+any fraudulent activities. The Company has established effective internal control systems and is continuously improving
+it. These systems have been strengthened by systematic, transparent control methods. To enhance the awareness of
+integrity, the Company continuously conducts various training and propaganda for its employees and suppliers/business
+partners. For employees, the Company has established the Sunshine Code that the employees shall strictly follow
+during their employment and in the course of business dealing with suppliers/business partners. For suppliers/business
+partners, the Company cooperates with them to create an ecosystem with integrity. To build up a healthy and transparent
+business environment, the suppliers/business partners are required to sign the Anti-commercial Bribery Declaration.
+Furthermore, the Company has set up the anti-fraud investigation department for years to collect whistleblowing cases
+from multiple channels, and to follow up and investigate alleged fraudulent cases on a timely basis. The Company will
+terminate the employment immediately with any employee who has been found involved in any fraudulent activities.
+The Company may also pass the relevant case for juridical process according to the relevant laws under more serious
+circumstances. Any supplier/business partner found to be involved in any fraudulent activities will be blacklisted and
+deprived of the opportunity to work with the Company permanently.
+Annual Report 2018 95
+Corporate Governance Report
+In order to further strengthen the accountability of the management team in the internal control systems of the Company
+and to assist in determining the effectiveness of such internal control systems, the management team of each business
+group conducts self-assessment and confirms the internal control status of the business group for which it is responsible.
+The IC assists the management in preparing a self-assessment questionnaire according to the COSO Framework and
+guides the management of each business group to carry out the self-assessment. The IC is also responsible for collecting
+and summarising the results of self-assessment. The Chief Executive Officer of the Company reviews this summarised self-
+assessment of each business group, assesses the general effectiveness of the internal control systems of the Company and
+submits the written confirmation thereof on behalf of the senior management team of the Company to the Audit Committee and
+the Board.
+In addition, the IC supervises the establishment of the risk management and internal control systems set up by management,
+ensures that management has implemented appropriate measures and reports the general situation of risk management and
+internal control of the Company to the Audit Committee on a quarterly basis. The IA, serving as the independent third line of
+defence, conducts objective evaluation on the effectiveness of the Company's risk management and internal control systems
+and reports the results to the Audit Committee.
+Effectiveness of Risk Management and Internal Control
+The Audit Committee, on behalf of the Board, continuously reviews the risk management and internal control systems.
+The review process comprises, among other things, of meetings with management of business groups, IA, IC, legal team, and
+the external auditor, reviewing the relevant work reports and information of key performance indicators, the management self-
+assessment on internal control as detailed above and discussing the major risks with the senior management of the Company.
+The Board is of the view that throughout the year ended 31 December 2018, the risk management and internal control
+systems of the Company are effective and adequate.
+In addition, the Board believes that the Company's accounting and financial reporting functions have been performed by
+staff of the appropriate qualifications and experience and that such staff receives appropriate and sufficient training and
+development. Based on the audit report of the Audit Committee, the Board also believes that sufficient resources have been
+obtained for the Company's internal audit function and that its staff qualifications and experience, training programmes and
+budgets are sufficient.
+The Company's internal control systems clearly define roles and responsibilities of each party as well as authorisations and
+approvals required for key actions of the Company. Policies and procedures are in place for the key business processes.
+This information is also clearly conveyed to employees in practice and plays an important role in internal control systems. All
+employees must strictly follow the policies which cover, amongst other things, financial, legal and operational issues that set
+the control standards for the management of each business process.
+96 Tencent Holdings Limited
+Corporate Governance Report
+0.09
+3
+The Group's GHG inventory includes carbon dioxide, methane and nitrous oxide. GHG emissions data is presented in carbon
+dioxide equivalent and is based on the "2015 Baseline Emission Factors for Regional Power Grids in China" issued by the National
+Development and Reform Commission of China, and the "2006 IPCC Guidelines for National Greenhouse Gas Inventories" issued by
+the Intergovernmental Panel on Climate Change (IPCC). The scope of GHG emission data covers the Group's office buildings located
+in Shenzhen, Guangzhou, Shanghai, Beijing, Chengdu and Wuhan, and the main data centres which were built over the past four
+years in Mainland China.
+2
+1 Due to its business nature, the significant air emissions of the Group are GHG emissions, arising mainly from fuels and electricity
+derived from fossil fuels.
+Note:
+2.51
+5,917.28
+0.00005
+712,761.82
+2.01
+Diesel was consumed for backup generators.
+0.12
+4 Hazardous waste produced by the Group's operation mainly includes waste toner cartridge and waste ink cartridge from printing
+equipment at office buildings, as well as waste lead-acid accumulators at data centres. Waste toner cartridge and waste ink
+cartridge are collected and disposed of by printing suppliers, whereas lead-acid accumulators are disposed of by qualified waste
+recycling vendors. In 2018, there were no waste lead-acid accumulators.
+Direct energy consumption (MWh)
+5
+Non-hazardous waste produced by the Group's operation mainly includes domestic waste and non-hazardous office waste.
+Domestic waste is disposed of by the property management company and kitchen waste recycling vendors, and its data is not
+available for statistics, so we made estimation of domestic waste produced at the Group's office buildings located in Shenzhen,
+Guangzhou, Shanghai, Beijing, Chengdu and Wuhan with reference to "Handbook on Domestic Discharge Coefficiencies for
+Towns in the First Nationwide Census on Contaminant Discharge" published by the State Council. Non-hazardous office waste is
+recycled by waste recycling vendors.
+106 Tencent Holdings Limited
+2.
+Environmental, Social and Governance Report
+Energy and resources consumption
+2.1 Office Buildings
+KPIs
+Total energy consumption (MWh)
+Including: Gasoline (MWh)
+712,761.82
+Diesel (MWh)
+Natural gas (MWh)
+LO
+2,352.24
+Annual Report 2018
+191.00
+Indirect energy consumption (MWh)
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+Energy Saving Measures taken in our Data Centres
+We endeavour to fulfil our responsibility to protect the environment by applying innovative technology to our data centres and
+be the exemplar of green data centres in the PRC industry.
+T-block technology (comprising (i) photovoltaic + High Voltage Direct Current ("HVDC") technology for electrical design; (ii)
+indirect evaporative cooling units; (iii) Tnebula smart control system; and (iv) fully commercialised project delivery solution) has
+been used in the fourth generation of our data centres, including the new data centre in Shenzhen, Gui'an and Chongqing.
+We have adopted the T-base large-scale data centre campus construction model which has placed us at the leading position
+in terms of the efficient use of space and the standardisation of the construction process. It does not only shorten the
+construction cycle but also minimise the impact on the environment and increase the power usage effectiveness ("PUE") of
+our data centres. The annual average PUE of our data centres which are located in a low-altitude climate zone (including the
+one in Shenzhen) is below 1.25. Our new data centre in Gui'an is an advanced data centre with a high level of privacy, defence
+and security. It completed the test run during which the PUE was 1.12. We expect that it will serve as a highly reliable and
+environmentally friendly data centre for our Group and our business partners. We have achieved standardised application of
+the T-block technology in this project.
+We have shared our experience and technology in building green data centres with other industry players so that HVDC, micro
+module and indirect evaporative cooling technologies have been widely adopted in the PRC data centre business. We have
+also helped to establish the industry standards for HVDC and micro module technologies in order to enhance energy saving
+efforts among the industry players. In the future, we will further promote T-block technology. We will strive to enhance the
+power usage effectiveness while improving the efficiency of the data centre construction process.
+105
+Environmental, Social and Governance Report
+Table of Environmental Key Performance Indicators
+Below are the environmental key performance indicators ("KPIs”) of the Group for the year ended 31 December 2018. Unless
+otherwise specified, the following data covers the Group's operation, including office buildings and data centres, in Mainland China.
+For data of GHG emissions as well as energy and resources consumption, only the major office buildings and the main data centres
+(where were built in the past four years) are within the scope. In 2018, two new office buildings (namely Tencent Binhai Building
+and Wuhan R&D Centre) were added to the reporting scope. Please refer to the notes for the detailed scope of the data collected.
+1. Emissions
+KPIs
+47.83
+Total GHG emissions (Scopes 1 and 2) (tonnes)
+Including: Gasoline (tonnes)
+Diesel (tonnes)
+Natural gas (tonnes)
+Indirect GHG emissions (Scope 2) (tonnes)
+Including: Electricity (tonnes)
+Total GHG emissions in the office buildings per employee (tonnes per employee)
+Total GHG emissions in the office buildings per floor area (tonnes per square metre)
+Hazardous waste (tonnes)
+Hazardous waste per employee (tonnes per employee)
+Non-hazardous waste (tonnes)
+Non-hazardous waste per employee (tonnes per employee)
+715,352.89
+2,591.07
+Direct GHG emissions (Scope 1) (tonnes)
+Including: Electricity (MWh)
+The Group's water resources come from municipal water supply.
+12,852.04
+We also intend to open up our training resources to our business partners and industry players in order to enhance the market
+standard.
+As at 31 December 2018, there were approximately 700 face-to-face courses, 7,400 online courses and over 1,000 internal
+part-time instructors. Over the past decade, we ran face-to-face courses over 8,000 times per year and over 1,500 courses
+were livestreamed per year. The aggregate number of training hours of our employees in the past 10 years exceeds 5 million.
+Throughout 2018, the number of the average in-house training hours per employee was 37.1 and the percentage of employees
+who received training is 99%.
+In 2007, we founded our own corporate university, Tencent Academy. It offers different training programmes for each stage of
+an employee's career, including an induction, on-the-job training and leadership training. It has also set up an online learning
+platform and a mobile learning system in order to allow employees to learn anytime and anywhere. In 2017, one of our training
+programmes won the ATD Excellence in Practice Award by the Association for Talent Development.
+As our staff is one of our most important assets, we invest heavily in employee development and training. We encourage
+employees to attend external and internal trainings. We have adopted relevant policies to ensure that employee trainings are
+provided and managed in a systematic manner. For example, supervisors are required to assist in designing the professional
+development plans for the employees and evaluate the effectiveness of the trainings received by the employees. To ensure the
+quality of the trainings, we have also developed policies which set out requirements for the qualifications and experience of the
+instructors and the objectives of the programmes and worked with external educational institutions from time to time to jointly
+develop training programmes.
+We have a well-established performance management system. A performance assessment for each employee is conducted by
+that employee's supervisor every six months and employees are required to work with their supervisors to set a performance
+target after each assessment. Supervisors are encouraged to provide constructive feedback from time to time to assist the
+personal growth of each employee.
+Employee Development and Training
+WORKPLACE
+Environmental, Social and Governance Report
+108 Tencent Holdings Limited
+Data of packaging materials is not applicable to the Group.
+8
+Water fees in some data centres are borne by the operators and therefore such running water consumption data is not
+available. Data of running water consumed in our data centres reported here only covers the data centres whose water
+fees are borne by the Group.
+Average PUE (Power Usage Effectiveness) is yearly average data of PUE of the Group's data centres. PUE, an indicator of
+the power efficiency of a data centre, is the ratio of total amount of energy used by a data centre to the energy delivered to
+the computing equipment.
+Annual Report 2018
+Fees for diesel in some data centres are borne by the operators and therefore such diesel data is not available. Data of
+diesel consumed by our data centres reported here only covers the data centres whose diesel fees are borne by the Group.
+104
+Total energy consumption is worked out by the data of electricity and fuel with reference to the coefficients in the National
+Standards of the PRC "General Principles for Calculation of the Comprehensive Energy Consumption (GB/T 2589-2008)".
+The scope of energy and resources consumption data relating to office buildings covers those located in Shenzhen,
+Guangzhou, Shanghai, Beijing, Chengdu and Wuhan, whereas that of data centres covers the main data centres which
+were built over the past four years in Mainland China.
+7
+KPIs
+2.2 Data Centres
+5,461
+Recycled water consumption (tonnes)
+19.07
+Running water consumption per employee (tonnes per employee)
+973,413.06
+Running water consumption (tonnes)
+6
+Recycled water consumption is the recycled domestic water treated by the waste water treatment system equipped at
+Tencent Tower A and Tower B in Chengdu.
+109
+Total energy consumption (MWh)
+938,988.70
+780.24
+42.10
+12,029.70
+154,636.44
+154,636.44
+Total energy consumption per employee (MWh per employee)
+3.28
+5
+LO
+4
+3
+2
+1
+Note:
+Environmental, Social and Governance Report
+107
+Annual Report 2018
+933,813
+Running water consumption (tonnes)
+1.27~1.47
+Average PUE
+938,848.88
+Including: Electricity (MWh)
+938,848.88
+Indirect energy consumption (MWh)
+139.82
+Including: Diesel (MWh)
+139.82
+Direct energy consumption (MWh)
+167,488.48
+We monitor the levels of air pollutants such as PM2.5, PM10, carbon dioxide, carbon monoxide, sulfur dioxide, nitro dioxide
+inside and outside Tencent Building with an online monitoring system and display the data on a real-time basis. To ensure
+the air quality in the building, we have installed induced ventilation system (which regulates the ventilation automatically in
+response to the level of carbon monoxide) in the underground parking garage and fresh air ventilation system (which regulates
+the ventilation automatically in response to the level of carbon dioxide) in the office area. We have upgraded the kitchen
+ventilation units in the kitchens in our office building. The units comprise fire-resistant environmental friendly exhaust hoods to
+remove oil and purify air with photolysis purification function and the activated carbon filter and air ioniser to neutralise odors.
+The emission of cooking fumes is in compliance with the PRC national standards GB18483-2001.
+Total energy consumption per floor area (MWh per square metre)
+We have optimised the air conditioning system and the integrated building management system in order to automate the
+energy saving and monitoring process. The air conditioning system uses pumps controlled by frequency-conversion technology
+for the enhancement of energy efficiency. We have also reduced energy consumption of the air conditioning system by
+partially deploying natural ventilation in autumn and winter. We have also adopted a smart lighting system which allows remote
+automatic control over the lighting in the office area for the purpose of energy conservation.
+•
+•
+•
+Ensure our partners receive fair treatment and benefit from their collaboration with us
+Allow investee companies to maintain autonomy for their business development and meet them on a regular basis
+for exchange of industry knowledge and know-how
+Hold regular meetings with our partners to review their performance and explore possible collaboration
+opportunities
+Encourage our partners to reflect the ethics and values of our business practice
+Community
+Establish a platform for charity donations
+Promote innovation and the establishment of a legal framework to protect IP rights
+•
+Contribute to the industry and continue to provide an open platform
+Business partners (including suppliers and investee companies)
+5.
+Make protection of the environment one of our priorities
+•
+Adopt a sustainable investment strategy
+• Remain committed to environmental sustainability
+Through this approach we are able to create a favourable environment that will enable us to provide quality services to Internet
+users and promote the positive development of the wider society.
+Annual Report 2018 101
+Environmental, Social and Governance Report
+Stakeholder analysis
+We understand the importance of the feedback from our stakeholders (including our users, investors, employees and business
+partners) on our ESG performance. Therefore, we have established effective communication channels with our stakeholders (in
+alphabetical order) as follows:
+Stakeholders
+Community and public
+Employees
+Environment
+Key topics
+Charity
+Prioritise users' interests in business decision-making
+Consistently listen to the voices of our users, concurrently enhancing product and service quality
+3.
+2.
+Environmental, Social and Governance Report
+100 Tencent Holdings Limited
+Establish a diverse corporate culture
+•
+Care for employees and provide them with training and development opportunities
+•
+Operate with integrity and protect shareholders' interests
+.
+Operate in compliance with applicable laws and regulations
+Business operations
+Be honest to users and protect their interests
+1.
+We believe that it is important to formulate effective strategies to balance the economic, environmental and social benefits of
+our activities with our other business targets. We have fully integrated ESG considerations into our operations as part of our
+corporate development strategy, with a particular focus on fostering closer connections with our stakeholders, listening to the
+voices of our users, working openly with partners to overcome challenges, caring for and growing with employees, and taking
+on more responsibilities within society. The core of our ESG strategy is our vision to become the most respected Internet
+company. In pursuit of this vision, we embrace the principle of sustainability, uphold integrity and promote shared growth and
+development within the industry, and put environmental protection, staff development and community welfare at the forefront.
+We conduct and review our ESG strategy in five dimensions as detailed below.
+ESG STRATEGY, MANAGEMENT APPROACH, PRIORITIES AND OBJECTIVES
+This report aims to provide a balanced representation of the Group's ESG performance in terms of environment, workplace,
+community, supply chain management and product responsibility. We will focus on each of these areas in turn in this report,
+in particular those economic, environmental and social issues that could have a material impact on the sustainability of our
+operations and that are of interest to stakeholders.
+SCOPE OF THIS REPORT
+This report provides information on the Group's environmental, social and governance ("ESG") performance for the year of
+2018. It should be read in conjunction with this annual report, in particular the Corporate Governance Report contained in this
+annual report, as well as the sections headed "Corporate Governance" and "Culture" on the Company Website.
+OVERVIEW
+Environmental, Social and Governance Report
+0.14
+Our new office building has adopted a centralised system to collect, purify and recycle condensed water from the air
+conditioning system, and water from drinking water system, showers and cooling towers, for the purposes of flushing, watering
+plants and cleaning the parking lot. In addition, we have installed a direct drinking water system in replacement of bottled
+water. It reduces the use of plastic packaging materials and indirectly reduces the CO2 emissions generated from the delivery
+of bottled water.
+4.
+Users
+•
+Five Dimensions of our ESG Strategy
+Key communication channels
+Combat behaviours which are harmful to the interest of our partners by setting up an independent steering group
+on business ethics and anti-bribery practice
+Volunteering
+Waste management
+Supply chain management
+Anti-corruption
+Data security
+We have taken environmental protection as one of our priorities when designing our new office building, Tencent Binhai
+Building, in Shenzhen. The construction has been certified as attaining LEED-NC Gold Standard and the building has been
+under operation in accordance with LEED-EB standards. The property management company of the Shenzhen headquarters
+has obtained ISO 14001 (environmental management) certification, ISO 9001 (quality management) certification and GB/
+T 23331 (energy management system) certification. We have also implemented various measures to enhance efficiency of
+energy use and reduce water consumption and emissions.
+Energy Saving Measures taken in our New Office Building
+We recognise the importance of environmental protection and conservation of natural resources in our business operations.
+Starting from our office buildings in Shenzhen, we have implemented a number of energy-saving measures and we plan to
+adopt the same in our office spaces in other locations. We have also strived to build our data centres with environmental
+considerations as one of our key priorities.
+ENVIRONMENT
+Tencent Foundation, fundraising platform
+Environmental, Social and Governance Report
+Annual Report 2018 103
+Going forward, we will continue to enhance our corporate management system and integrate ESG considerations into our
+operations. We will closely cooperate with our stakeholders with the aim of creating a better future.
+Pollution reduction
+"Internet+" has significant implications for our ESG initiatives. Important changes can be achieved through connecting millions
+of Internet users as well as developing their modes of communication and living, and creating more exciting opportunities
+for society. In addition, through the "smart living" system in QQ and Weixin/WeChat, people and public services can be
+digitally connected, which in effect facilitate developments in transport, healthcare, environmental protection, public safety
+and other social arenas. This is important for optimising the distribution of societal resources, driving innovation in public
+services, improving service quality, breaking down communication barriers and ultimately benefiting the wider community.
+We will leverage our core capability in the Internet, technology and communication spheres to develop innovative approaches
+to resolving social issues, promoting social development and protecting the interests of the public. We also aim to drive ESG
+awareness in society, through collaborating with our stakeholders and other industry players.
+Customer satisfaction
+Our ESG Direction
+Volunteering service
+Charitable donation
+Intellectual property rights
+IP
+Employee health & safety
+Employee benefits
+Employee training &
+development
+Materiality to Tencent's ESG management
+User privacy
+Talent attraction & retention
+Diversity
+Healthy environment for users
+Our ESG strategy requires the participation of all of our product lines and platforms, and participation from across the
+wider Internet industry. We will continue to place more emphasis on ESG, and encourage every individual, enterprise and
+organisation to take part in the implementation of our ESG strategy.
+Energy management
+Product innovation
+Response to climate change
+Corporate announcements, investor conference,
+official website, regular meetings
+Fair cooperation
+Integrity
+Information transparency
+Suppliers
+Investment return
+Business strategy
+Shareholders and investors
+Social media platform, industry events, press
+conference
+Meetings, policy consultation, incident reporting,
+official visit, information disclosure
+Charity
+Product and service quality
+Environmental protection
+Compliance
+Compliance
+Corporate governance
+Non-government organisations
+and media
+Government and regulatory bodies
+Employee satisfaction survey, employee training,
+annual employee rally, face-to-face discussion
+forum, featured magazines, social media platform
+Career development
+Healthy work environment
+Employee benefits
+Environmental protection
+Regular meetings, supplier assessment, site visit
+Users
+Product and service quality
+Privacy protection
+User experience research, customer service
+hotline, online customer service, Weixin/WeChat
+and face-to-face customer support
+Materiality to Stakeholders
+In 2018, we had not only discussed the materiality of the ESG topics with our stakeholders through the abovementioned
+communication channels but also conducted an online survey to understand the topics that our stakeholders believe to be
+material to the Group's business. The results of the survey are as follows:
+Assessment on the materiality of the ESG topics
+Environmental, Social and Governance Report
+102 Tencent Holdings Limited
+1221
+Water resources
+We offer competitive pay and employee benefits to attract and retain talent. The remuneration and bonus system is
+performance-based and designed to reward employees with high performance and great potential.
+Benefits
+Compensation and Benefits
+We were awarded by zhaopin.com as the best employer in the PRC in 2018. We have also been voted as one of the best
+employers in the PRC for 13 consecutive years since 2006 in a survey jointly conducted by zhaopin.com and the Institute of
+Social Science Survey, Peking University.
+We care for the growth of our employees and provide benefits with Tencent characteristics to our employees. For example,
+we celebrate special occasions of our employees (e.g. work anniversary, wedding and festivities). We strive to create work-
+life balance and a safe and comfortable work environment for employees. Employees have the flexibility to choose the most
+suitable insurance plans and benefits for themselves and their families.
+Promotion
+The recruitment process strictly abides by the guidelines of the Group's Human Resources Department. Every job applicant
+is required to provide information on his/her education background, qualification and job experience in a recruitment
+questionnaire, which is reviewed by Human Resources Department and verified by professional background check agency.
+This allows the Group to hire suitable candidate in accordance with the job requirements and, to the extent possible, avoid
+child and forced labour.
+We had 54,309 employees as at 31 December 2018. Our employment practice is in compliance with applicable laws and
+regulations (including but not limited to those which prohibit child and forced labour) and does not discriminate on the
+grounds of gender, ethnicity, race, disability, age, religious belief, sexual orientation or family status. Diversity is well supported
+in our corporate culture.
+Equal Opportunities and Diversity
+Environmental, Social and Governance Report
+Employees may apply for promotion during their interim and year-end performance reviews, provided that they satisfy the
+requirements with regard to the length of service and performance. Depending on the practice area, the promotion will be
+reviewed and considered by different internal committees. The promotion review process is fair and open – there is a formal
+channel for our employees to provide and receive feedback. The promotion review is conducted in compliance with applicable
+laws and regulations.
+Compensation
+The basic benefits system was built and is maintained in accordance with relevant laws, regulations and market practice. In
+addition, certain special benefits are created to motivate employees and implement our strategy.
+The Tencent Foundation has set up scholarships to promote education in the PRC and other countries throughout the years.
+There are also specific donations for different education initiatives. In 2018, the Tencent Foundation donated approximately
+RMB119 million in education related projects. For example, it had cooperations with the funds set up by universities (including
+Peking University, Shenzhen University and Nanjing University) on higher education and with UNICEF on cybersecurity
+education. It also sponsored the projects led by Beijing Hefeng Art Foundation in relation to online art education.
+Community Investment
+110
+In order to encourage employees to participate in volunteer service, employees, since April 2012, have been granted one day
+of fully-paid volunteer service leave per year.
+The Tencent Volunteers' Association also established the China IT-Philanthropy Union which promotes the “Internet + Charity"
+model by holding summits and publishing white papers on the successful examples of how the information technology has
+changed the landscape of charity work.
+The Tencent Volunteers' Association combines its expertise in technology to help the community. For example, it has been
+broadcasting information on missing persons via Weixin/WeChat and QQ and with the latest facial recognition and blockchain
+technologies, the number of successful cases increased year by year.
+Over the last decade, the Tencent Volunteer's Association has been involved and contributed in the areas of online charity,
+promotion of unhindered Internet access, information technology popularisation, cybersecurity, emergency support, poverty
+relief, scholarship, environmental protection, care for elderly and children with special needs and animal protection. It
+has launched more than 200 volunteering activities. In 2016, it was awarded a spot in the list of Top 10 Best Volunteer
+Organisations in Guangdong Province.
+In 2006, some of our employees founded the Tencent Volunteers' Association on their own initiative in response to our
+corporate vision of being "the most respected Internet company". Since then, the Tencent Volunteers' Association has
+contributed more than 120,000 hours of voluntary services and the total number of participants is more than 60,000. There
+are more than 20 sub-divisions at the city level (such as Beijing, Shanghai, Chengdu, Shenzhen, Wuhan, Guangzhou and
+Hefei) and at the regional level (such as Hebei, Guangdong, Guizhou, Gansu and Yunnan).
+Volunteering
+Environmental, Social and Governance Report
+113
+Annual Report 2018
+same area.
+In 2018, the Tencent Foundation donated approximately RMB125 million to support poverty relief initiatives through various
+charitable organisations, in addition to the matching donation made by the Tencent Foundation on the "99 Charity Day" on the
+Poverty relief
+In 2018, the Tencent Foundation raised approximately RMB120 million on the "99 Charity Day" to promote philanthropy and
+innovation in charity work.
+COMMUNITY
+Community development
+Ecological conservation and cultural preservation
+Education
+In 2015, WeCountry, our open platform built on the “Internet + Village" model, was launched to offer villagers access to
+digital technology which would benefit their communities. As of 31 December 2018, 28 provincial administrative areas with
+approximately 10,000 villages (or communities) joined WeCountry platform. The number of verified villagers was approximately
+2.34 million as of 31 December 2018.
+Rural development
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+112
+In response to the recent natural disasters in the PRC as well as globally, the Tencent Foundation has created a multifaceted
+disaster relief model by combining our various products including online platforms, instant messengers, online payment
+and Internet search to help the public follow the latest news, participate in rescue efforts and make donations. In addition,
+the Tencent Foundation has made donations to support the rescue missions and post-disaster reconstructions. In 2018, it
+donated an aggregate of approximately RMB4.5 million to the China Foundation for Poverty Alleviation, the China Children and
+Teenagers' Fund and other charitable organisations in response to the earthquake in Xinjiang and the landslides in Sichuan
+and for the post-disaster child care programme following the earthquake in Ya'an city.
+Disaster relief
+In addition to promoting philanthropy through the online charity platform, the Tencent Foundation makes direct donation in the
+following areas: (i) disaster relief; (ii) rural development; (iii) education; (iv) ecological conservation and cultural preservation; (v)
+community development; and (vi) poverty relief.
+The highlight of the Tencent Foundation's charity efforts is the annual “99 Charity Day" campaign where it matches the
+donations made by the Internet users between 7 September and 9 September via its online platform. In 2018, the Tencent
+Foundation donated RMB300 million for the campaign, of which 35.2% was for education initiatives, 34.5% for medical care,
+26.1% for poverty relief and the remaining 4.2% was for environmental protection initiatives and others.
+The Tencent Foundation has also applied technology to various charitable initiatives such as WeCountry for rural development
+and Tencent Three-dimensional Disaster Relief Programme in response to recent natural disasters in China via the online
+platform. In 2018, the total number of donations made by the Internet users was approximately 69 million and the total amount
+of the funds raised was over RMB1.7 billion.
+The Tencent Foundation believes that everyone can participate in charity work anytime and anywhere through technology.
+In June 2007, the Tencent Foundation leveraged on our Internet technical capabilities and online platforms to build the first
+online public fundraising platform. It is designed, developed and operated by the Tencent Foundation while we provide server,
+broadband and other technical support for free. The platform is open for eligible charitable organisations free of charge.
+It allows charitable works to be performed more conveniently, smoothly and transparently. This is a good example of the
+application of the concept of "Internet+". As of 31 December 2018, there had been over 6,000 active charitable organisations
+and close to 16,000 charity projects in different locations with different focuses.
+We set up the Tencent Charity Foundation (the "Tencent Foundation") on 26 June 2007. It is a non-public fundraising
+foundation incorporated in the PRC and a separate legal entity. We commit to donating certain portion of our profits to the
+Tencent Foundation every year for the purpose of supporting charitable works. As of 31 December 2018, our Group and our
+employees donated approximately RMB3.5 billion and RMB68 million in total to the Tencent Foundation respectively since
+its establishment. During the year 2018, our Group and our employees donated RMB730 million and RMB840,000 to the
+Tencent Foundation respectively.
+The Tencent Foundation is keen on environmental protection and cultural preservation. In 2018, the Tencent Foundation
+donated approximately RMB5.8 million to the China Foundation For Cultural Heritage Conservation, the Paradise International
+Foundation and other ecological conservation organisations to continue to preserve and repair the Great Wall and for the
+ecological conservation project in the PRC.
+Tencent Holdings Limited
+117
+Employee Departure
+To enhance the social responsibility awareness of our employees, we have formulated a code of conduct which those
+employees engaging in procurement activities must adhere to. To minimise the ethics risks, such employees are also required
+to declare any relationship they may have with our suppliers in writing.
+Our supply chain management programme attaches supreme importance to managing the ethics risk associated with the
+relationship between our procurement employees and our business partners. It also focuses on teaching those employees who
+are involved in procurement to recognise and mitigate the inherent risks.
+SUPPLY CHAIN MANAGEMENT
+Environmental, Social and Governance Report
+Annual Report 2018
+Prohibiting the onboarding of any anonymous users or users using an obviously fictitious name for our services.
+In the course of supplier engagement, potential suppliers are required to conduct self-assessment on their commitment,
+amongst other things, to environmental protection, social responsibility, and health and safety at work (the "Self-Assessment”).
+Suppliers which are formally engaged by us are also required to agree to the terms of a declaration and undertaking in relation
+to anti-commercial bribery in doing business with our Group (the "Anti-commercial Bribery Declaration").
+Conducting regular independent testing on our AML system and providing regular AML trainings to our employees and
+counterparties; and
+Establishing processes and systems which are designed to monitor customer transactions for the purpose of identifying
+suspicious activities;
+•
+•
+Establishing a comprehensive Customer Due Diligence Programme;
+•
+Appointing AML specialists at global and country levels;
+Investigating and subsequently reporting suspicious activities to the applicable regulatory bodies;
+The key aspects of the AML Programme include but are not limited to the following:
+During the year ended 31 December 2018, all suppliers which were formally engaged had completed the Self-Assessment
+and signed the Anti-commercial Bribery Declaration. We were not aware of any material commercial bribery engaged by our
+suppliers.
+We have an internal policy which sets out the procedures for supplier onboarding. Before engaging a supplier, we will form
+a supplier assessment team to conduct the background check (including site visit) on the supplier. The team will consist of
+members from the procurement department, the requesting department, the technology department (if applicable) and the risk
+management department. The assessment results will be reported to the procurement department for a final determination.
+We normally ask for price quotations from at least three vendors. Other factors including delivery time and technical capabilities
+of the vendors will be taken into consideration when selecting vendors. If there is only one vendor available for selection as it
+dominates the relevant market or it is the only vendor with access to the required goods/services, the exclusive procurement
+arrangement with such vendor will require special approval with a satisfactory justification provided by the technology
+department or the requesting department.
+Environmental, Social and Governance Report
+Tencent embraces the value of integrity, proactivity, collaboration and innovation. To promote integrity, we have developed
+robust systems and measures to prevent, detect and deter corruption or any other fraudulent activities. Internal audit is
+conducted and risk management and risk control have been further strengthened to ensure the Group's compliance with
+ethical standards which we promote and strive to uphold.
+119
+Annual Report 2018
+The privacy policies of our various applications have been considered top-ranked in the joint review by the Cyberspace
+Administration of China, the Ministry of Industry and Information Technology of the PRC, the Ministry of Public Security of
+the PRC and the Standardisation Administration of the PRC and in the review by China Consumers Association among 100
+selected applications. Furthermore, we actively participate in shaping the development of the industry framework on privacy
+protection. For example, we are a member of the International Association of Privacy Professionals. Many of our products have
+been accredited with privacy certifications from TrustArc. Our network and data security managements have been recognised
+in the PRC and internationally and ISO certified.
+To ensure that our users understand how we protect their personal information and enhance the transparency of how we
+collect and process the data, we promote the concept of "Data for Social Good". We have published the Tencent Privacy
+Protection Whitepaper and launched the Tencent Privacy Platform (https://www.qq.com/privacy.htm) to give our users a
+comprehensive understanding of the privacy protection measures taken by Tencent. We also make our privacy protection
+policies available on our product websites and in-app products, and provide communication channels for our users to file
+complaints and raise enquiries whenever they are in doubt.
+The procurement department looks for qualified suppliers in the market and conducts standard or simplified verification on the
+suppliers depending on the duration of the cooperation, the order volume and the nature of the request. We have maintained a
+database of qualified suppliers which are ready to take orders from us.
+We provide training to our employees to enhance their privacy protection awareness and build up the cultural awareness of the
+importance of privacy protection.
+To uphold our dedication to value creation for our users, amongst other user specific aims, one of our important missions is to
+protect the privacy of user data and other sensitive information. We comply with all applicable laws on privacy protection, and
+incorporate applicable legal and regulatory requirements on privacy protection into our internal compliance policies taking into
+account the specific features of our products and services. We have also devised specific procedures to collect and process
+user data to ensure that our products and services are in compliance with applicable legal requirements.
+User Privacy
+We strive to provide the best user experience and pay high attention to the quality of our products and services. We conduct
+strict reviews of our product and service offerings and related sales, marketing and advertising strategies and materials to
+ensure their compliance with applicable laws and regulations. We also build in safeguards on user privacy, product safety and
+IP rights as described below.
+PRODUCT RESPONSIBILITY
+118 Tencent Holdings Limited
+We evaluate the performance of our suppliers from time to time and take appropriate steps to address any issues with the
+quality of the suppliers as part of our supply chain management. For suppliers with unsatisfactory performance, subject to
+applicable contractual arrangements, we may (i) discuss with them on the remedial steps to be taken by them; (ii) suspend the
+cooperation; (iii) reduce the order volume; (iv) impose penalties; or (v) suspend payment. The procurement department may
+disqualify a supplier for the following events: (i) we suffer from material economic losses as a result of the delayed delivery,
+quality issue or breach of contract by the supplier; (ii) the supplier has received the lowest rating in the rating scale for two
+consecutive quarters; and (iii) the supplier has in serious breach of business ethics.
+We have a dedicated privacy team within the Legal Department which is responsible for handling data protection matters. We
+evaluate specific products from the perspective of privacy protection on a regular basis and perform privacy risk assessments
+before the launch of new products to ensure that our products are not exposed to the risk of privacy infringement or leakage of
+user data.
+Environmental, Social and Governance Report
+In 2018, Tencent has established an Anti-Money Laundering Programme (the "AML Programme") to ensure that money
+laundering risks identified by Tencent are appropriately mitigated and to protect Tencent, its employees, shareholders and
+users from money laundering risks. The AML Programme provides guidance to all Tencent employees, requiring them to
+conduct business in accordance with applicable AML laws, rules and regulations.
+The Group is subject to and strictly abides by applicable laws and regulations in relation to cross-border and domestic
+money transmission, anti-money laundering ("AML") as well as counter-terrorist financing ("CFT") in the PRC and other
+countries where we provide payment processing services. We have fulfilled not only our legal obligations but also our social
+responsibilities.
+Tencent Holdings Limited
+114
+Annual Report 2018 111
+We strive to create casual yet sophisticated communication channels with customised contents for our employees. There
+are annual rallies for employees and management, face-to-face discussion forums, featured magazines and social media
+platforms. The corporate strategy and culture are communicated and reinforced through these products and communication
+channels.
+Communication
+Our contribution to social insurance in the PRC is in compliance with applicable laws and regulations and we offer various
+supplemental insurance benefits to employees and their families (including medical insurance, critical illness insurance,
+accident insurance and life insurance).
+Environmental, Social and Governance Report
+We have a designated team in charge of the physical and mental health of employees. We arrange annual medical checkups
+for employees and organise health seminars, fitness sessions, on-site medical consultations as well as face-to-face and
+telephone counselling from time to time.
+Occupational Health and Safety
+We also organise a wide variety of recreational and leisure activities (e.g. running, photography, music, dance, language
+classes) for employees.
+We have implemented various initiatives such as flexi-time arrangements and volunteer service leave to help employees strike
+a good work-life balance. The leave scheme allows employees to enjoy annual leave, fully-paid sick leave, half-paid leave of
+absence and fully-paid special Chinese New Year leave which are above the statutory standard. Also, female employees are
+entitled to take fully-paid maternity leave, while male employees are also entitled to take fully-paid paternity leave. Employees
+can also apply for one day of fully-paid volunteer service leave per year.
+Work-Life Balance
+We value our relationship with our employees and handle employee departure (whether by resignation or dismissal) strictly
+in accordance with applicable laws and regulations. We arrange an exit interview with each of the departing employees to
+understand the reasons for his/her departure and welcome any suggestions for improvement.
+All of our employees enter into written employment contracts which detail, among other things, the grounds for termination of
+the employment.
+We strive to provide a safe and comfortable work environment for our employees. There are well-established security and fire
+service systems and food safety monitoring system.
+As a result of the complexity of legal and regulatory compliance in multiple jurisdictions, we have dedicated more resources
+(including but not limited to human resources and system capabilities) to the compliance work in the following areas: (i)
+recruiting more AML/CFT professionals for the know-your-customer process, suspicious transaction review and analysis, and
+system infrastructure enhancement in order to enhance the effectiveness and professionalism of AML/CFT measures; (ii)
+strengthening the implementation of internal control measures in relation to sanctions compliance in order to minimise the
+relevant risks; (iii) enhancing the cooperation with regulators and law enforcement bodies on AML investigations; (iv) actively
+participating in the combats against money laundering, terrorism, tax evasion and corruption activities internationally, in order
+to prevent money laundering and upstream criminal activities; and (v) carrying out various forms of training, education, and
+public relation activities on AML for our executives, employees and users.
+Risk Management and Internal Control Policy
+Tencent Sunshine Code of Conduct
+Anti-Money Laundering
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+116
+Our risk management and internal control departments have established a procurement management control unit to optimise
+the Group's supplier management system. A new supplier synergy system has been launched for the online management of
+the entire procurement life cycle, from sourcing, selection and onboarding of suppliers, performance assessment to retiring
+suppliers. The system serves as an open platform where the suppliers can provide its corporate information to us and we
+can manage the entire bidding process online. Through a centralised system, the bidding process can be standardised and
+become more transparent. The supplier management system also provides the suppliers with a communication channel
+so that we can collect their feedback or complaints. Complaints in relation to fraudulent activities will be passed to the anti-
+fraud investigation department directly for follow-up and those non-fraud related complaints (such as unfair treatment) will be
+handled by the procurement risk management unit. The goal is to ensure that the complaints and concerns of our suppliers
+can be addressed promptly and the risk of fraud can be minimised.
+When a report of suspected fraudulent activities is received, the anti-fraud investigation department, which consists of
+professionals who used to be part of the anti-corruption function at a governmental authority or private enterprise and have
+profound knowledge in fraud risk management and solid fraud investigation experiences, is assigned to handle the investigation
+independently. After an investigation has been completed, the employee found and proven to have committed such fraud
+shall be subject to immediate dismissal. At the same time, the department in question must, with the assistance of the risk
+management and internal control departments, take corrective actions in response to the business risk or loophole identified
+during the investigation. If we find any supplier or business partner engaging in corruption or any other fraudulent activities,
+we will terminate the contracts with them immediately and never work with them again. In the event that any fraudulent activity
+violates any relevant laws or regulations, such cases shall be reported to government authorities in accordance with applicable
+laws and regulations. In order to convey a message regarding our determination to fight against fraud and to introduce our
+whistleblowing system externally, we send a letter to our suppliers and business partners and request them to complete a
+questionnaire annually. The questionnaire sets out our corporate values, the Whistleblowing Policy and the various reporting
+channels. We will understand from each of our suppliers and our business partners whether our employees have requested for
+any gift, cash or benefit during the course of business and whether it has been treated unfairly. Upon receipt of the feedback,
+we will ensure that the questions or concerns raised by our suppliers and our business partners will be addressed promptly. If
+necessary, the anti-fraud investigation department will commence an investigation formally.
+In 2016, we updated the Risk Management and Internal Control Policy (the "Policy") with a system comprising three lines of
+defence. The first line is business and functional departments. The risk management and internal control departments serve
+as the second line while the internal audit department and anti-fraud investigation department act as the third line of defence.
+The Policy sets out the roles and responsibilities of different stakeholders in risk management and control (including those
+in relation to frauds). It is emphasised in the Policy that the management of each business group is primarily responsible
+for the risk management and internal controls of its department. If any fraudulent activity is detected, the management of
+the relevant department shall improve the control procedures promptly to prevent recurrence of similar incidents. The risk
+management and internal control departments have dedicated a team to each business group to provide internal control and
+risk management support. We also apply continuous auditing to key businesses in order to detect irregularities and identify
+risks in a timely and systematic manner and to improve the effectiveness of fraud risk management and control.
+Fraud Detection and Corruption Prevention
+Anti-fraud and Whistleblowing Policy
+Environmental, Social and Governance Report
+115
+Annual Report 2018
+In 2018, in order to ensure our employees comply with the requirements and ethical standards stipulated in the Sunshine
+Code, we have requested all employees to complete the e-learning programme with a view to understanding the updated rules
+and standards of the Sunshine Code. For positions with high risk of fraud, they are required to attend face-to-face training
+course at least once a year. We also promote job rotation for these employees on a regular basis in order to minimise the risk of
+fraud.
+All employees of the entire Group are required to follow and to strictly comply with the Tencent Sunshine Code of Conduct (the
+"Sunshine Code"). It expressly prohibits all kinds of fraudulent activities, bribery, embezzlement, misappropriation, extortion,
+falsification of information and any other activities which are not in compliance with applicable laws and regulations. The
+Sunshine Code shall be reviewed annually against the changing needs of the Group and revised when appropriate, in order to
+ensure that it caters for our business development, reflects the positions under applicable laws and regulations and captures
+all kinds of fraudulent activities. In 2018, we have revised the Sunshine Code to include more specific stipulations in relation to
+each category of fraudulent activities so that our employees can understand better our expectations under the Sunshine Code.
+The revised Sunshine Code emphasises the responsibilities of the management. The immediate supervisor will be demoted
+if an employee under his management has committed a fraudulent act as a result of deficiency in the management process,
+unclear delineation of responsibilities or loopholes in the business operation. The immediate supervisor will also be required
+to come up with a remedial plan with the risk management and internal control departments and implement such plan
+within three months. The Internal Audit Committee has the discretion to make the final decision on whether such immediate
+supervisor can be resumed to his original role after the implementation of the remedial plan.
+We have published an Anti-fraud and Whistleblowing Policy (the "Whistleblowing Policy"), which clearly conveys the message
+of zero tolerance in relation to fraudulent activity to all the employees and suppliers/business partners. All employees and
+suppliers/business partners are encouraged to report genuine concerns about any existing or potential fraudulent activities and
+non-compliance. The Whistleblowing Policy expressly outlines the multiple whistleblowing channels and how the Group should
+deal with such concerns, so that employees and suppliers/business partners can report their good faith concerns without fear
+of reprisal or potential retaliation. Since 2016, we have maintained an Official Account under the name of "Sunshine Tencent"
+on Weixin to promote our anti-fraud policy and whistleblowing channels with a function to allow our business partners to report
+directly to us.
+Anti-Corruption
+Environmental, Social and Governance Report
+Fair value measurement of financial instruments, including
+financial assets at fair value through profit or loss, financial
+assets at fair value through other comprehensive income and
+other financial liabilities
+Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
+assurance conclusion thereon.
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
+in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
+knowledge obtained in the audit or otherwise appears to be materially misstated.
+If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
+required to report that fact. We have nothing to report in this regard.
+RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
+FINANCIAL STATEMENTS
+The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and
+fair view in accordance with IFRSS and the disclosure requirements of the Hong Kong Companies Ordinance, and for such
+internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are
+free from material misstatement, whether due to fraud or error.
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as
+a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
+unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
+from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report
+our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to
+any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee
+that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can
+arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
+influence the economic decisions of users taken on the basis of these consolidated financial statements.
+Annual Report 2018
+129
+Independent Auditor's Report
+Annual Report 2018 125
+We found that the results of our procedures performed to
+be materially consistent with management's supporting
+documentation.
+the data integrity of historical users' consumption patterns
+and calculation of the churn rates. We also evaluated the
+consideration made by management in determining the
+underlying assumptions for expected users' relationship
+periods with reference to historical operating and marketing
+data of the relevant games. We also assessed, on a sample
+basis, the historical accuracy of the management's estimation
+process by comparing the actual users' relationship periods
+for the year against the original estimation for selected virtual
+products/items.
+items. These judgment included (i) the determination of
+key assumptions applied in the expected users' relationship
+periods, including but not limited to historical users'
+consumption patterns, churn rates and reactivity on marketing
+activities, games life-cycle, and the Group's marketing
+strategy; and (ii) the identification of events that may trigger
+changes in the expected users' relationship periods.
+users' relationship periods for certain virtual products/ relationship periods adopted by management by testing
+We assessed, on a sample basis, the expected users'
+•
+Fair value measurement of financial instruments, including financial assets at fair value through profit or loss, financial
+assets at fair value through other comprehensive income and other financial liabilities
+124
+Tencent Holdings Limited
+Independent Auditor's Report
+Key Audit Matter
+The directors of the Company are responsible for the other information. The other information comprises all of the information
+included in the annual report other than the consolidated financial statements and our auditor's report thereon.
+Revenue recognition on provision of online games value-added
+services - estimates of the lifespans of virtual products/items
+The Group has recognised revenue from sales of virtual
+products/items to the users in respect of value-added services
+rendered on the Group's online platforms. The relevant
+revenue is recognised over the lifespans of respective virtual
+products/items which was determined by the management,
+on an item by item basis, with reference to the expected
+users' relationship periods or the stipulated period of validity
+of the relevant virtual products/items, depending on the terms
+of the virtual products/items.
+During the year ended 31 December 2018, a majority of the
+Group's revenue from value-added services was contributed
+from online games and was predominately derived from the
+sales of virtual products/items.
+We focused on this area due to the fact that management
+applied significant judgment in determining the expected
+How our audit addressed the Key Audit Matter
+We discussed with management and evaluated their
+judgment on key assumptions in determining the estimated
+lifespans of the virtual products/items that were based on the
+expected users' relationship periods.
+We tested, on a sample basis, key controls in respect of
+the recognition of revenue from sales of virtual products/
+items, including management's review and approval of
+(i) determination of the estimated lifespans of new virtual
+products/items prior to their launches; and (ii) changes in the
+estimated lifespans of existing virtual products/items based
+on periodic reassessment on any indications triggering such
+changes. We also assessed the data generated from the
+Group's information system supporting the management's
+review, including tested the information system logic for
+generation of reports, and checked, on a sample basis, the
+monthly computation of revenue recognised on selected
+virtual products/items generated directly from the Group's
+information system.
+Refer to Note 2.30(a), 4(a) and 5(b) to the consolidated
+financial statements
+• Impairment assessments of goodwill, investments in associates and joint ventures
+OTHER INFORMATION
+128 Tencent Holdings Limited
+As at 31 December 2018, the Group held significant amounts
+of goodwill, investments in associates and joint ventures
+amounting to RMB32,605 million, RMB219,215 million and
+RMB8,575 million, respectively. Impairment provision of
+RMB784 million, RMB14,069 million and RMB2,328 million
+had been recognised during the year ended 31 December
+2018 against the carrying amounts, respectively.
+We focused on this area due to the magnitude of the carrying
+amounts of these assets and the fact that significant judgment
+were required by management (i) to identify whether any
+impairment indicators existed for any of these assets during
+the year; (ii) to determine the appropriate impairment
+approaches, i.e. fair value less costs of disposal or value
+in use; and (iii) to select key assumptions to be adopted in
+the valuation models, including discounted cash flows and
+market approach, for the impairment assessments.
+How our audit addressed the Key Audit Matter
+We tested management's assessment including periodic
+impairment indications evaluation as to whether indicators
+of impairment exist by corroborating with management and
+market information.
+We also tested, on a sample basis, key controls in respect of
+the impairment assessments, including the determination of
+appropriate impairment approaches, valuation models and
+assumptions and the calculation of impairment provisions,
+which we found no material exceptions.
+Management adopted different valuation models, on a case
+by case basis, in carrying out the impairment assessments,
+mainly including discounted cash flows and market approach.
+We assessed, on a sample basis, the basis management
+used to identify separate groups of cash generating units
+that contain goodwill, the impairment approaches and
+the valuation models used in management's impairment
+assessments, which we found them to be appropriate.
+In respect of the impairment assessments of cash generating
+units that contain goodwill, investments in associates and
+investments in joint ventures using discounted cash flows,
+we assessed the key assumptions adopted including revenue
+growth rates, profit margins, discount rates and other
+assumptions by examining the approved financial/business
+forecast models, and comparing actual results for the year
+against the previous period's forecasts and the applicable
+industry/business data external to the Group. We assessed
+certain of these key assumptions with the involvement of
+our internal valuation experts. We considered that the key
+assumptions adopted by management are in line with our
+expectation and evidence obtained.
+126
+Tencent Holdings Limited
+Independent Auditor's Report
+Key Audit Matter
+Impairment assessments of goodwill, investments in associates
+and joint ventures (Cont'd)
+How our audit addressed the Key Audit Matter
+In respect of the impairment assessments of cash generating
+units that contain goodwill, investments in associates and
+investments in joint ventures using market approach, we
+assessed the valuation assumptions including the selection
+of comparable companies, recent market transactions, and
+liquidity discount for lack of marketability, etc. We assessed
+these key assumptions adopted by management with the
+involvement of our internal valuation experts based on our
+industry knowledge and independent research performed
+by us. We considered that the key assumptions adopted by
+management are in line with our expectation and evidence
+obtained.
+We independently tested, on a sample basis, the accuracy of
+mathematical calculation applied in the valuation models and
+the calculation of impairment charges. We did not identify any
+material exceptions from our testing.
+Annual Report 2018
+of Level 3 financial instruments is acceptable and the
+assumptions made by management are supported by
+available evidence.
+assumptions in the valuation.
+valuation methodology and the application of appropriate computation. We found that the valuation methodology
+We involved our internal valuation experts to discuss with
+management and assess the appropriateness of valuation
+methodology and assumptions used. We tested, on a sample
+basis, valuation of Level 3 financial instruments as at 31
+December 2018 by evaluating the underlying assumptions
+and inputs including risk-free rates, expected volatility,
+relevant underlying financial projections, and market
+information of recent transactions (such as recent fund
+raising transactions undertaken by the investees) as well as
+underlying supporting documentation. We also tested, on
+a sample basis, the arithmetical accuracy of the valuation
+In respect of the fair value measurement of Level 3 financial
+instruments, we tested the key controls, on a sample basis,
+in relation to the valuation process including the adoption
+of applicable valuation methodology and the application
+of appropriate assumptions in different circumstances, by
+inspection of the evidence of management's review, which we
+found no material exceptions.
+How our audit addressed the Key Audit Matter
+Independent Auditor's Report
+We focused on this area due to the high degree of judgment
+required in determining the respective fair values of Level 3
+financial instruments, which do not have direct open market
+quoted values, with respect to the adoption of applicable
+As at 31 December 2018, the Group's financial assets and
+financial liabilities which were carried at fair value comprised
+Refer to Notes 3.3, 4(c), 23, 24, 37 to the consolidated
+financial statements
+Key Audit Matter
+Key Audit Matter
+Independent Auditor's Report
+127
+financial assets at fair value through profit or loss, financial
+assets at fair value through other comprehensive income and
+other financial liabilities of approximately RMB97,877 million,
+RMB43,519 million and RMB4,506 million, respectively, of
+which approximately RMB83,934 million of these financial
+assets and approximately RMB4,466 million of these financial
+liabilities were measured based on significant unobservable
+inputs and classified as “Level 3 financial instruments".
+Refer to Notes 2.13(a), 2.15, 4(b), 19, 20 and 21 to the
+consolidated financial statements
+Revenue recognition on provision of online games value-added services - estimates of the lifespans of virtual products/
+items
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
+consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
+these matters.
+We actively participate in public affairs and strive to promote the awareness of IP protection in the Internet industry. As
+members of the China National Information Technology Standardisation Committee, the China Intellectual Property Society,
+the Patent Protection Association of China, the World Wide Web Consortium, the International Trademark Association and
+the China Trademark Association, we have participated in the consultations on legislative amendments to the PRC laws and
+regulations relating to patents, trademarks and anti-competition and have made recommendations in the development of
+industry standards.
+We began a comprehensive programme for the management of IP at an early stage. We have consistently applied for the
+registration of IP rights since the early stages of its establishment. With the successful development of our business, we have
+expanded our global IP portfolio to cover more than 100 countries and regions. As of 31 December 2018, we had obtained
+over 19,000 officially registered trademarks and over 9,000 issued patents. Coupled with our creation of a vast amount of
+copyrighted content, we have accumulated IP assets of considerable value. Our IP team has developed a comprehensive
+database for our patents, trademarks and copyrights and our strong data analytical skills enable us to manage and monitor
+our IP rights in a meticulous and efficient manner. To combat infringement of IP rights, our IP team has also established a
+comprehensive and efficient monitoring and maintenance system, and has devised various civil, criminal and administrative
+enforcement measures to protect our IP rights. Please see further details on the Company Website (https://www.tencent.com/
+legal/html/en-us/property.html).
+Environmental, Social and Governance Report
+Annual Report 2018 121
+We are a technology-oriented company and we stress the importance of the observation and protection of intellectual property
+("IP") rights. We have established a dedicated IP team with approximately 80 employees as of 31 December 2018 that is
+responsible for the day-to-day management of legal matters involving trademark, patent, copyright, domain names and other
+IP rights.
+Intellectual Property Rights
+Each of Weixin/WeChat and QQ provides a mechanism for users to report any fake or inappropriate content circulated on its
+platform. To protect the original user-generated content, Weixin/WeChat has launched a new feature in December 2017 for the
+Weixin/WeChat official account holders to declare the originality of the content generated by them on Weixin/WeChat so as to
+help identify and deter copyright infringement more effectively.
+Monitoring of and Protection for Original User-generated Content
+In addition, we have worked with School of Brain and Cognitive Science of Beijing Normal University and Data Centre of the
+China Internet (DCCI) to publish "Guide on Healthy Use of the Internet for Teenagers" and "Research on Online Gaming
+Behaviours of and Online Protections for Teenagers". Parents, education institutions and industry players can download these
+documents free of charge for their reference.
+To safeguard the physical and mental health of online game users and adolescents, we have implemented the real name
+system and anti-addiction system in accordance with the regulatory requirements of the PRC and strengthened the promotion
+of healthy gaming and anti-addiction through various channels. In February 2017, we launched a series of services on "Tencent
+Game Guardian Platform" (http://jiazhang.qq.com) which assists parents to monitor the gaming habits of their underage
+children. This is the platform dedicated to healthy gaming of underage children in the online game industry. In July 2017, we
+implemented the Healthy Gameplay System on Honour of Kings, which sends reminders to players or forces logout from the
+game if players spend too much time on the game in one day. In 2018, we have upgraded the Healthy Gameplay System,
+tightened the requirements for identity verification and made the system available for more games. We have also launched a
+customer service which sends reminders when a game player may have engaged in overspending and provides subsequent
+counselling.
+We have been actively implementing various measures to ensure compliance with the relevant laws, regulations and policies.
+For instance, we have already obtained the relevant credentials for operating online games, such as the Telecommunication
+Business Operation Permit, the Online Publishing Service Licence and the Internet Culture Business Permit.
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+120
+Key audit matters identified in our audit are summarised as follows:
+The laws, regulations and policies relating to online gaming mainly include: (i) "The Regulation on Internet Information Service
+of the People's Republic of China" promulgated by the State Council; (ii) "The Provisions on the Administration of Online
+Publishing Services” promulgated by the former State Administration of Press, Publication, Radio, Film and Television and the
+Ministry of Industry and Information Technology; and (iii) "The Interim Provisions on the Administration of Internet Culture",
+"The Interim Measures for the Administration of Online Games" and "The Notice on Regulating Online Game Operation and
+Strengthening Concurrent and Ex-Post Supervisions" promulgated by the former Ministry of Culture. The aims of such laws
+include the regulation of the qualifications of operating entities of online games, the regulation of the operation of online games,
+the protection for the physical and mental health of online game users and adolescents and the privacy protection of the
+personal data of users.
+One of our important businesses is our online gaming business. We need to comply with the laws, regulations and policy
+requirements in relation to online gaming in the PRC.
+Healthy Environment for our Users
+We have a designated team of staff who is responsible for handling complaints from customers who visit our offices and
+for better risk control, we have designed a set of protocols for different types of incidents.
+We have strengthened our system infrastructure which allows classification of complaints by urgency and risk level so
+that the customer service staff can better prioritise the cases and deal with the complaints in a timely manner.
+For better user experience, we have established a set of complaint handling procedures which set out clearly the
+responsibilities within the customer service department and the timeframe within which a complaint needs to be
+resolved.
+There is a designated team within the customer service department to handle complaints and deal with compensation
+requests. The team is responsible for conducting investigation based on the information provided by the complainant,
+explaining the relevant procedures to the complainant and notifying the complainant of the investigation results with the
+aim of providing him with a satisfactory solution.
+4.
+3.
+2.
+1.
+We have established the following management system to handle complaints from our customers effectively:
+The Tencent Customer Service Centre consists of more than 2,500 staff members and is responsible for handling complaints
+and responding to enquiries from customers for our businesses. We commit to providing solutions to our customers in a timely
+manner through different means including customer service hotline, online customer support, intelligent customer service,
+Weixin/WeChat and face-to-face meeting.
+Customer Service
+Environmental, Social and Governance Report
+The authorities in the PRC which regulate online gaming mainly include: (i) the State Administration of Press and Publication; (ii)
+the Ministry of Culture and Tourism; (iii) the Ministry of Industry and Information Technology; and (iv) the State Administration
+for Market Regulation.
+Looking forward, we will continue to devote great efforts and resources to observe and protect IP rights.
+Within the past decade, we had several times been awarded “China Patent Gold Awards" by the State Intellectual
+Property Office of the PRC, "China Trademark Gold Awards" jointly by World Intellectual Property Organisation and the
+State Administration for Industry & Commerce of the PRC and "China Copyright Gold Awards" by the National Copyright
+Administration of the PRC and the World Intellectual Property Organisation, signifying our contribution to the development
+of independent innovation of the PRC. We have also several times been awarded "National Copyright Demonstration Unit",
+recognising our outstanding performance in management and protection of copyright. In December 2018, two of our patents
+were awarded "China Patent Silver Award" by the State Intellectual Property Office of the PRC and this is the first time where
+an Internet security service provider in China won such title in the category of "file scanning method and system, client and
+server". In 2018, we have also entered into a patent cross licence agreement with Google.
+Tencent Holdings Limited
+KEY AUDIT MATTERS
+We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics
+for Professional Accountants ("IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the
+IESBA Code.
+Independence
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
+We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those
+standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
+of our report.
+BASIS FOR OPINION
+Independent Auditor's Report
+123
+Annual Report 2018
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group
+as at 31 December 2018, and of its consolidated financial performance and its consolidated cash flows for the year then ended
+in accordance with International Financial Reporting Standards ("IFRSS") and have been properly prepared in compliance with
+the disclosure requirements of the Hong Kong Companies Ordinance.
+Our opinion
+the notes to the consolidated financial statements, which include a summary of significant accounting policies.
+•
+122
+the consolidated statement of changes in equity for the year then ended;
+the consolidated statement of cash flows for the year then ended; and
+•
+pwc
+Independent Auditor's Report
+羅兵咸永道
+TO THE SHAREHOLDERS OF TENCENT HOLDINGS LIMITED
+(incorporated in the Cayman Islands with limited liability)
+the consolidated statement of comprehensive income for the year then ended;
+OPINION
+The consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries (the "Group") set out
+on pages 132 to 264, which comprise:
+•
+the consolidated statement of financial position as at 31 December 2018;
+•
+the consolidated income statement for the year then ended;
+•
+What we have audited
+Impairment assessments of goodwill, investments in associates
+and joint ventures
+51,298
+35
+(952)
+29,363
+723,521
+277,579
+367,314
+Total equity and liabilities
+Total liabilities
+151,740
+202,435
+42,132
+42,375
+5(c) (i)
+Deferred revenue
+934
+1,049
+Other tax liabilities
+1,200
+BB
+37
+Other financial liabilities
+8,708
+554,672
+The notes on pages 143 to 264 are an integral part of these consolidated financial statements.
+The consolidated financial statements on pages 132 to 264 were approved by the Board of Directors on 21 March 2019 and
+were signed on its behalf:
+Ma Huateng
+Share
+Share
+Non-
+Shares held for
+Attributable to equity holders of the Company
+For the year ended 31 December 2018
+Consolidated Statement of Changes in Equity
+- net losses from changes in fair value of financial assets
+associates and joint ventures
+10,210
+-share of other comprehensive income of
+Profit for the year
+Comprehensive income
+Balance at 1 January 2018
+Adjustment on adoption of IFRS 9 (Note 2.2(a))
+Balance at 31 December 2017, as previously reported
+136 Tencent Holdings Limited
+Director
+Director
+Lau Chi Ping Martin
+Other comprehensive income, net of tax:
+Notes payable
+Current income tax liabilities
+13,720
+Annual Report 2018
+125,839
+164,879
+2,391
+7,077
+5(c) (i)
+Deferred revenue
+5,975
+10,964
+27
+Deferred income tax liabilities
+2,154
+3,306
+37
+Other financial liabilities
+3,862
+4,797
+36
+Long-term payables
+135
+Consolidated Statement of Financial Position
+As at 31 December 2018
+As at 31 December
+35
+Notes payable
+15,696
+26,834
+34
+Borrowings
+29,433
+33,312
+39
+4,752
+Other payables and accruals
+73,735
+38
+Accounts payable
+Current liabilities
+RMB'Million
+RMB'Million
+Note
+2017
+2018
+50,085
+82,094
+87,437
+34
+1,421
+78,218
+66,339
+The notes on pages 143 to 264 are an integral part of these consolidated financial statements.
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+79,061
+67,760
+Total comprehensive income for the year
+6,590
+(12,224)
+(50)
+(170)
+Other fair value losses
+(16,391)
+Net losses from changes in fair value of financial assets at fair value through
+other comprehensive income
+756
+181
+(9,316)
+4,133
+(2,561)
+16,854
+907
+23
+843
+72,471
+67,760
+Annual Report 2018
+18
+800
+725
+3,163
+4,879
+17
+23,597
+35,091
+16
+Intangible assets
+Land use rights
+Investment properties
+Construction in progress
+Property, plant and equipment
+Non-current assets
+ASSETS
+RMB'Million
+2017
+RMB'Million
+Note
+2018
+As at 31 December
+As at 31 December 2018
+Consolidated Statement of Financial Position
+133
+79,061
+79,984
+RMB'Million
+RMB'Million
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+72,471
+79,984
+Profit for the year
+(15,744)
+(14,482)
+11
+Income tax expense
+88,215
+94,466
+Profit before income tax
+821
+1,487
+(2,908)
+(4,669)
+19
+10
+Share of profit of associates and joint ventures
+Finance costs, net
+90,302
+97,648
+Operating profit
+(33,051)
+78,719
+71,510
+1,265
+961
+2017
+2018
+Year ended 31 December
+Items that will not be subsequently reclassified to profit or loss
+Other fair value gains
+Net gains from changes in fair value of available-for-sale financial assets
+Transfer to profit or loss upon disposal of available-for-sale financial assets
+Currency translation differences
+Share of other comprehensive income of associates and joint ventures
+Items that may be subsequently reclassified to profit or loss
+For the year ended 31 December 2018
+Consolidated Statement of Comprehensive Income
+Other comprehensive income, net of tax:
+Profit for the year
+7,106
+132 Tencent Holdings Limited
+7.499
+8.228
+12(b)
+- diluted
+7.598
+8.336
+12(a)
+- basic
+(in RMB per share)
+Earnings per share for profit attributable to equity holders of the Company
+72,471
+79,984
+The notes on pages 143 to 264 are an integral part of these consolidated financial statements.
+19
+56,650
+40,266
+RMB'Million
+2017
+RMB'Million
+Note
+2018
+As at 31 December
+As at 31 December 2018
+Consolidated Statement of Financial Position
+EQUITY
+Tencent Holdings Limited
+134
+554,672
+723,521
+Total assets
+178,446
+217,080
+105,697
+97,814
+30
+Cash and cash equivalents
+1,606
+2,590
+30
+Restricted cash
+36,724
+Equity attributable to equity holders of the Company
+Share capital
+31
+Share premium
+Borrowings
+Non-current liabilities
+LIABILITIES
+277,093
+356,207
+21,019
+32,697
+Total equity
+Non-controlling interests
+256,074
+323,510
+202,682
+62,918
+299,660
+35,158
+729
+2.2(a), 32
+(3,970)
+(4,173)
+31
+Retained earnings
+Other reserves
+Shares held for share award schemes
+22,204
+27,294
+31
+2.2(a)
+capital
+28
+6,175
+Other financial assets
+11,173
+21,531
+25
+Prepayments, deposits and other assets
+127,218
+2.2(a)
+Available-for-sale financial assets
+43,519
+2.2(a), 24
+Financial assets at fair value through other comprehensive income
+91,702
+2.2(a), 23
+Financial assets at fair value through profit or loss
+7,826
+8,575
+21
+Investments in joint ventures
+22,976
+2.2(a)
+Investments in redeemable instruments of associates
+113,779
+219,215
+20
+Investments in associates
+2.2(a), 26
+1,693
+5,159
+Deferred income tax assets
+2.2(a), 23
+Financial assets at fair value through profit or loss
+465
+339
+2.2(a), 26
+Other financial assets
+17,110
+18,493
+25
+Prepayments, deposits and other assets
+16,549
+28,427
+Term deposits
+29
+295
+324
+Inventories
+Current assets
+376,226
+506,441
+5,365
+28
+Term deposits
+9,793
+15,755
+27
+Accounts receivable
+premium
+Transactions with equity holders
+RMB'Million
+(9,198)
+(2,561)
+(2,561)
+(2,561)
+16,854
+907
+Employee share option schemes:
+(9,198)
+Capital injection
+Total comprehensive income for the year
+- other fair value gains, net
+-currency translation differences
+available-for-sale financial assets
+- transfer to profit or loss upon disposal of
+16,854
+16,854
+Transactions with equity holders
+(118)
+(9,316)
+706
+56
+156
+1,125
+Employee share award schemes:
+- proceeds from shares issued
+- value of employee services
+60
+60
+60
+I
+79,061
+843
+78,218
+71,510
+6,708
+706
+706
+available-for-sale financial assets
+- net gains from changes in fair value of
+907
+72,471
+For the year ended 31 December 2018
+Consolidated Statement of Changes in Equity
+associates and joint ventures
+-share of other comprehensive income of
+Other comprehensive income, net of tax:
+Profit for the year
+Comprehensive income
+Balance at 1 January 2017
+Tencent Holdings Limited
+138
+356,207
+32,697
+323,510
+299,660
+20
+729
+(4,173)
+Attributable to equity holders of the Company
+171
+Shares held
+Share
+961
+71,510
+71,510
+907
+186,247
+11,623
+174,624
+136,743
+23,693
+(3,136)
+17,324
+Total interests
+equity
+RMB'Million RMB'Million RMB'Million
+Total
+controlling
+Other Retained
+reserves
+earnings
+RMB'Million RMB'Million
+Share for share
+premium award schemes
+RMB'Million RMB'Million
+capital
+RMB'Million
+Non-
+27,294
+- value of employee services
+407
+26
+2,045
+50
+(2,045)
+I
+50
+(2,045)
+4 |
+Lapse of put option granted to non-controlling interests
+Transfer of equity interests of subsidiaries to
+6,378
+Dilution of interests in subsidiaries
+6691
+13,741
+7,363
+6,378
+non-controlling interests
+ཝཱ་ལྕམ།
+76
+Total transactions with equity holders at their capacity
+Annual Report 2018 139
+The notes on pages 143 to 264 are an integral part of these consolidated financial statements.
+277,093
+21,019
+202,682 256,074
+35,158
+(3,970)
+22,204
+Balance at 31 December 2017
+11,785
+8,553
+3,232
+(5,571)
+4,757
+(834)
+4,880
+as equity holders for the year
+(133)
+(133)
+(293)
+(69)
+(1,398)
+-vesting of awarded shares
+(2,232)
+4,767
+171
+1,379
+16
+801
+(2,232)
+106
+4,661
+171
+98
+1,281
+I
+(2,232)
+- shares withheld for share award schemes
+1,398
+4,254
+1
+244
+(224)
+Disposal of subsidiaries
+28
+728
+non-wholly owned subsidiaries
+Acquisition of additional equity interests in
+(5,995)
+(943)
+(5,052)
+(5,052)
+Dividends (Note 15)
+(519)
+519
+Profit appropriations to statutory reserves
+244
+244
+'ཟླ
+Tax benefit from share-based payments of a subsidiary
+Balance at 31 December 2018
+8,493
+10,257
+9,561
+(9,561)
+through other comprehensive income to retained earnings
+Transfer of gains on disposal of financial assets at fair value
+67,760
+1,421
+66,339
+Share of other changes in net assets of associates
+78,719
+Total comprehensive income for the year
+11
+11
+11
+4,133
+452
+3,681
+(12,380)
+2,861
+2,861
+2,861
+capital
+RMB'Million
+for share
+Share
+Share
+Non-
+Shares held
+Attributable to equity holders of the Company
+-value of employee services
+– proceeds from shares issued
+Employee share award schemes:
+- value of employee services
+Employee share option schemes:
+Capital injection
+(41,522)
+For the year ended 31 December 2018
+Consolidated Statement of Changes in Equity
+137
+Annual Report 2018
+3,681
+(296) (16,391)
+(16,095)
+(16,095)
+277,093
+21,019
+256,074
+202,682
+35,158
+(3,970)
+22,204
+RMB'Million
+Total equity
+interests
+RMB'Million
+Total
+earnings
+RMB'Million RMB'Million
+reserves
+RMB'Million
+controlling
+Retained
+Other
+share award
+schemes
+RMB'Million
+(16,210)
+premium award schemes
+RMB'Million RMB'Million
+16,210
+(3,970)
+- other fair value gains, net
+-currency translation differences
+at fair value through other comprehensive income
+23
+23
+23
+79,984
+1,265
+78,719
+78,719
+23
+23
+277,093
+21,019
+256,074
+218,892
+18,948
+22,204
+Other
+reserves
+RMB'Million
+Retained
+controlling
+(31)
+(31)
+1,114
+1,664
+(550)
+(877)
+327
+27
+Dilution of interests in subsidiaries
+Partial disposal of subsidiaries
+non-wholly owned subsidiaries
+Acquisition of additional equity interests in
+Non-controlling interests arising from business combinations
+148
+(783)
+1,003
+1,003
+2,836
+(7,613)
+2,836
+8,715
+(1,764)
+(7,512)
+861
+(203)
+5,090
+as equity holders for the year
+Total transactions with equity holders at their capacity
+(406)
+(406)
+(406)
+the put option from business combination
+Recognition of financial liabilities in respect of
+1,886
+(1,886)
+(1,886)
+non-controlling interests
+Transfer of equity interests of subsidiaries to
+5,879
+RMB'Million
+(618)
+(6,995)
+5,022
+525
+525
+2,103
+57
+2,046
+- 63 -
+1,983
+525
+440
+140
+140
+RMB'Million
+Total equity
+interests
+RMB'Million
+RMB'Million
+Total
+earnings
+RMB'Million
+466
+(6,995)
+5,488
+5,765
+(517)
+517
+148
+148
+(783)
+Dividends (Note 15)
+Profit appropriations to statutory reserves
+Tax benefit from share-based payments of a subsidiary
+(783)
+Repurchase and cancellation of shares
+1,984
+(1,984)
+-vesting of awarded shares
+(2,187)
+(2,187)
+(2,187)
+- shares withheld for share award schemes
+277
+8
+5,111
+(24,233)
+2017
+RMB'Million
+Note
+2018
+Year ended 31 December
+For the year ended 31 December 2018
+Consolidated Income Statement
+131
+Annual Report 2018
+Hong Kong, 21 March 2019
+Certified Public Accountants
+PricewaterhouseCoopers
+The engagement partner on the audit resulting in this independent auditor's report is Tong Yu Keung.
+From the matters communicated with those charged with governance, we determine those matters that were of most
+significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
+matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the
+matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
+because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
+communication.
+We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
+regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
+bear on our independence, and where applicable, related safeguards.
+Independent Auditor's Report
+130 Tencent Holdings Limited
+We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
+audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
+disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
+manner that achieves fair presentation.
+concern.
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit
+evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
+on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
+to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
+disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
+date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
+disclosures made by the directors.
+Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal
+control.
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
+or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
+and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
+fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
+misrepresentations, or the override of internal control.
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
+throughout the audit. We also:
+Independent Auditor's Report
+(17,652)
+RMB'Million
+Revenues
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
+within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
+supervision and performance of the group audit. We remain solely responsible for our audit opinion.
+Online advertising
+Value-added services
+8
+20,140
+16,714
+7
+3,940
+6∞ ∞
+General and administrative expenses
+Selling and marketing expenses
+Other gains, net
+116,925
+142,120
+(120,835)
+(170,574)
+4,569
+237,760
+Others
+8
+176,646
+153,983
+40,439
+77,969
+58,079
+Cost of revenues
+Gross profit
+Interest income
+5000
+312,694
+43,338
+22,224
+(7,091)
+Payments for acquisition of financial assets
+at fair value through other comprehensive income
+Proceeds from disposals of financial assets
+(17,669)
+at fair value through other comprehensive income
+9
+(2,352)
+Payments for acquisition of investments in redeemable
+507
+Proceeds from disposals of investments in redeemable
+instruments of associates
+(16,384)
+instruments of associates
+608
+429
+at fair value through profit or loss
+Proceeds from disposals of investments in associates
+Payments for acquisition of investments in joint ventures
+Proceeds from disposals of investments in joint ventures
+Payments for acquisition of financial assets
+(54,141)
+Year ended 31 December
+at fair value through profit or loss
+(17,528)
+(2,523)
+RMB'Million
+RMB'Million
+2017
+2018
+For the year ended 31 December 2018
+Consolidated Statement of Cash Flows
+Proceeds from disposals of financial assets
+Payments for other financial assets
+Payments for loans to investees and others
+Tencent Holdings Limited
+140
+(47,716)
+4,705
+Proceeds from disposals of available-for-sale financial assets
+related derivative financial instruments
+Payments for available-for-sale financial assets and
+11,254
+Loans repayments from investees and others
+(37,776)
+Net outflow of cash in respect of disposals and
+(2,441)
+RMB'Million
+Note
+2018
+Year ended 31 December
+deemed disposals of subsidiaries
+(2,219)
+Cash flows from investing activities
+Net cash flows generated from operating activities
+2017
+Income tax paid
+Cash flows from operating activities
+For the year ended 31 December 2018
+149
+Annual Report 2018
+The Group has adopted IFRS 15 from 1 January 2018 which resulted in changes in accounting policies
+and adjustments to the amounts recognised in the consolidated financial statements. IFRS 15 establishes a
+comprehensive framework for determining when to recognise revenue and how much revenue to recognise
+through a five-step approach, provides specific guidance on contract costs and license arrangements,
+and also includes a cohesive set of disclosure requirements about revenue and cash flows arising from
+the contracts with customers of which details are disclosed in Note 5. In accordance with the transition
+provisions in IFRS 15, the Group has adopted the new rules retrospectively, and since the impact is not
+material to the consolidated financial statements of the Group, comparative figures have not been restated.
+IFRS 15 Revenue from Contracts with Customers
+(b)
+Impairment on deposits and other receivables is measured as either 12-month expected credit losses or
+lifetime expected credit loss, depending on whether there has been a significant increase in credit risk
+since the initial recognition. Based on the assessments performed by management, the changes in the loss
+allowance for deposits and other receivables were insignificant.
+Cash generated from operations
+(46)
+RMB'Million
+120,964
+Purchase of/prepayment for land use rights
+Payments for acquisition of investments in associates
+(19,850)
+(31,877)
+Purchase of/prepayment for intangible assets
+(12,108)
+28
+33
+Proceeds from disposals of property, plant and equipment
+(19,743)
+41(a)
+in progress and investment properties
+(201)
+(21)
+(3,206)
+106,140
+106,443
+(13,862)
+(14,521)
+120,002
+Purchase of property, plant and equipment, construction
+745
+33,517
+(995)
+(620)
+(5,052)
+(6,776)
+(927)
+(236)
+Net cash flows generated from financing activities
+Dividends paid to non-controlling interests
+Dividends paid to the Company's shareholders
+(946)
+non-wholly owned subsidiaries
+106
+157
+in non-wholly owned subsidiaries
+Proceeds from disposals of non-controlling interests
+6,466
+7,238
+non-wholly owned subsidiaries
+Proceeds from issuance of additional equity of
+Payments for acquisition of non-controlling interests in
+(783)
+35,380
+Annual Report 2018
+Cash and cash equivalents at end of the year
+(2,551)
+2,207
+Exchange gains/(losses) on cash and cash equivalents
+71,902
+105,697
+36,346
+(10,090)
+26,598
+Cash and cash equivalents at beginning of the year
+RMB'Million
+RMB'Million
+2017
+2018
+Year ended 31 December
+For the year ended 31 December 2018
+Consolidated Statement of Cash Flows
+141
+Net (decrease)/increase in cash and cash equivalents
+1,533
+Payments for repurchase of shares
+(1,967)
+(96,392)
+(151,913)
+Net cash flows used in investing activities
+2,009
+1,724
+Dividends received
+3,529
+4,435
+Cash flows from financing activities
+Interest received
+(67,055)
+Placement of term deposits with initial terms of over three months
+86,166
+46,227
+over three months
+Receipt from maturity of term deposits with initial terms of
+Proceeds from settlement of other financial assets
+995
+(72,520)
+(2,232)
+Proceeds from short-term borrowings
+16,676
+Shares withheld for share award schemes
+171
+525
+Proceeds from issuance of ordinary shares
+(3,450)
+(4,666)
+Repayments of notes payable
+32,547
+26,463
+Net proceeds from issuance of notes payable
+(194)
+Repayments of long-term borrowings
+For accounts receivable, the Group applies the simplified approach for expected credit losses prescribed
+by IFRS 9. Based on the assessments performed by management, the changes in the loss allowance for
+accounts receivable were not significant.
+7,237
+Proceeds from long-term borrowings
+(12,450)
+(23,545)
+Repayments of short-term borrowings
+(5,281)
+Deposits and other receivables.
+Payments for business combinations, net of cash acquired
+• Accounts receivable; and
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+145
+Annual Report 2018
+As at the reporting date, the Group has non-cancellable operating lease commitments of RMB12,294 million,
+see Note 42. Of these commitments, approximately RMB189 million relate to short-term leases which will be
+recognised on a straight-line basis as expense in profit or loss.
+The Group has set up a project team which has reviewed all of the Group's leasing arrangements effective as
+of the year of ended 31 December 2018 in light of the new lease accounting rules in IFRS 16. The standard
+will affect primarily the accounting for the Group's operating leases.
+Impact
+Consolidated Statement of Cash Flows
+2
+IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the statement of
+financial position by lessees, as the distinction between operating and finance leases is removed. Under the
+new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised.
+The only exceptions are short-term and low-value leases.
+A number of new standards and interpretations have not come into effect for the financial year beginning
+1 January 2018, and have not been early adopted by the Group in preparing the consolidated financial
+statements. None of these is expected to have a significant effect on the consolidated financial statements of
+the Group, except IFRS 16 "Lease" as set out below:
+New standards and interpretations issued but not yet effective
+(b)
+The Group has changed its accounting policies following the adoption of IFRS 9 and IFRS 15. Except IFRS
+9, the adoption of these new and amended standards does not have significant impact on the consolidated
+financial statements of the Group, details of which are disclosed in Note 2.2.
+Foreign currency transactions and advance consideration
+Classification and measurement of share-based payment transactions
+Transfers of investment property
+Revenue from contracts with customers
+Financial instruments
+Nature of change
+IFRIC 22
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+(b)
+(a) IFRS 9 Financial Instruments (Cont'd)
+2.2 Changes in accounting policies (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+146
+The Group's adoption of IFRS 9 from 1 January 2018 resulted in changes in accounting policies and
+adjustments to the amounts recognised in the consolidated financial statements. The new accounting
+policies are set out in Note 2.16 and 2.17 below. In accordance with the transitional provisions in IFRS 9,
+comparative figures have not been restated. As a result, any adjustments to carrying amounts of financial
+assets or financial liabilities were recognised at the beginning of the current year, with the difference
+recognised in opening retained earnings.
+2.1 Basis of preparation (Cont'd)
+IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of
+financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets
+and hedge accounting.
+(a)
+This note explains the impact of the adoption of IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from
+Contracts with Customers" on the Group's consolidated financial statements.
+2.2 Changes in accounting policies
+The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends
+to apply the simplified transition approach and will not restate comparative amounts for the year prior to first
+adoption. All right-of-use assets will be measured at the amount of the lease liabilities on adoption (adjusted
+for any prepaid or accrued lease expenses).
+Date of adoption by Group
+The Group's activities as a lessor are not material and hence the Group does not expect any significant
+impact on the consolidated financial statements. However, some additional disclosures will be required from
+the financial year beginning on 1 January 2019.
+For the remaining lease commitments, based on management's preliminary assessment, the Group expects
+to recognise right-of-use assets of approximately RMB10 billion and lease liabilities of approximately RMB10
+billion on 1 January 2019. The Group expects that net profit will not be materially changed as a result of
+adopting the new rules. It will result in reclassification of operating cash flows and financing cash flows
+relating to the payments of lease liabilities.
+New standards and interpretations issued but not yet effective (Cont'd)
+IFRS 9 Financial Instruments
+•
+IFRS 2 (amendment)
+IFRS 15
+Notes to the Consolidated Financial Statements
+Annual Report 2018 143
+the right to control the management, financial and operating policies of Tencent Computer.
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer; and
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable certain foreign companies to
+make investments into the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen)
+Company Limited ("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24
+February 2000. The foreign investors of the Company then subscribed to additional equity interests in the Company.
+Under a series of contractual arrangements (collectively, "Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of value-added services ("VAS") and online advertising services to users in the
+People's Republic of China (the "PRC").
+For the year ended 31 December 2018
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the Main Board of the Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+1
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+142
+The notes on pages 143 to 264 are an integral part of these consolidated financial statements.
+105,697
+97,814
+GENERAL INFORMATION
+1
+GENERAL INFORMATION (Cont'd)
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.3(a) and Note 46)
+and the formation of the Group in 2000 was accounted for as a business combination between entities under common
+control under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor
+carrying amounts. This approach was adopted because in management's belief it best reflected the substance of the
+formation.
+IFRS 9
+The following standards and amendments have been adopted by the Group for the first time for the financial
+year beginning on 1 January 2018:
+For the year ended 31 December 2018
+New and amended standards adopted by the Group
+(a)
+Basis of preparation (Cont'd)
+2.1
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+144
+The preparation of financial statements in conformity with IFRSS requires the use of certain critical accounting
+estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting
+policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
+are significant to the consolidated financial statements are disclosed in Note 4.
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards ("IFRSS"). The consolidated financial statements have been prepared
+under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit
+or loss, financial assets at fair value through other comprehensive income, other financial liabilities and derivative
+financial instruments, which are carried at fair value.
+2.1 Basis of preparation
+The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
+2
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company. See details in Note 46.
+For the year ended 31 December 2018
+Classification and measurement
+IAS 40 (amendment)
+At 1 January 2018
+(14,942)
+Reclassification of AFS to FVOCI
+16,210
+(16,210)
+Reclassification of AFS to FVPL
+- 202,682
+31,152
+Opening balance – IAS 39
+Total impact
+RMB'Million
+RMB'Million
+retained earnings
+FVOCI reserves
+AFS reserves
+At 1 January 2018
+Effect on
+Effect on
+Effect on
+RMB'Million
+The main effects resulting from this reclassification on the Group's equity are as follows:
+(31,152)
+16,210
+The Group has the following types of financial assets subject to the new expected credit loss model under
+IFRS 9:
+Management has assessed the business model and the terms relating to the collection of contractual cash
+flows applicable to the financial assets held by the Group at the date of initial application of IFRS 9 (1 January
+2018) and has classified its financial instruments into the appropriate IFRS 9 categories, which are those
+to be measured subsequently at fair value (either through other comprehensive income or through profit or
+loss), and those to be measured at amortised cost. The main effects resulting from this reclassification are as
+follows:
+Impairment of financial assets
+In prior years, the Group entered into certain interest rate swap contracts to hedge its exposure arising from
+its borrowings carried at floating rates, which were qualified as hedge accounting. The interest rate swaps in
+place as at 31 December 2017 qualified as cash flow hedges under IFRS 9 and have been thus treated as
+continuing hedges upon the adoption of the standard.
+Derivative and hedging activities
+There was no impact on the Group's accounting for financial liabilities, as the new requirements only affect
+the accounting for financial liabilities that are designated at fair value through profit or loss, while the Group
+did not have any such liabilities.
+Classification and measurement (Cont'd)
+For the year ended 31 December 2018
+14,942
+(a) IFRS 9 Financial Instruments (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+148 Tencent Holdings Limited
+Certain equity investments and debt instruments previously classified as AFS at an aggregated amount of
+RMB68,703 million were reclassified from AFS to FVPL on 1 January 2018, and accumulated fair value
+gains of RMB16,210 million were transferred from the AFS reserves to retained earnings on 1 January 2018.
+Certain equity investments of RMB58,515 million were reclassified from AFS to FVOCI on 1 January 2018,
+because these investments are not held for trading and meet the definition of equity instruments from the
+perspective of the issuer. The Group elected to classify them as FVOCI. As a result, accumulated fair value
+gains of RMB14,942 million were transferred from the AFS reserves to FVOCI reserves on 1 January 2018.
+Investments in RCPS of RMB22,976 million with embedded derivatives of RMB3,818 million previously
+recorded in OFA were considered in their entirety as a single instrument and were reclassified to FVPL as at
+1 January 2018. They do not meet the definition of equity instruments from the perspective of the issuer and
+they are not eligible to be classified as at amortised cost in accordance with IFRS 9, because their cash flows
+do not represent solely payments of principal and interest. There was no impact on the amounts previously
+recognised in profit or loss in relation to these assets from the adoption of IFRS 9.
+218,892
+14,942
+Opening balance - IFRS 9
+2.2 Changes in accounting policies (Cont'd)
+Classification and measurement (Cont'd)
+14,942
+2.2 Changes in accounting policies (Cont'd)
+(68,703)
+financial assets ("AFS") to financial
+assets at fair value through profit
+or loss ("FVPL")
+Reclassification of available-for-sale
+155,818
+5,624
+127,218
+Opening balance - IAS 39
+Total
+RMB'Million
+68,703
+FVOCI
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+FVPL
+OFA
+(a) IFRS 9 Financial Instruments (Cont'd)
+RCPS
+AFS
+RMB'Million
+Reclassification of AFS to financial
+assets at fair value through other
+comprehensive income ("FVOCI")
+22,976
+58,515
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+(58,515)
+Annual Report 2018 147
+155,818
+58,515
+95,497
+1,806
+3,818
+(3,818)
+Notes to the Consolidated Financial Statements
+assets ("OFA") to FVPL
+Opening balance - IFRS 9
+redeemable instruments of associates
+("RCPS") to FVPL
+(22,976)
+Reclassification of investments in
+Reclassification of other financial
+22,976
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+decision-makers, who are responsible for allocating resources and assessing performance of the operating
+segments and making strategic decisions. The chief operating decision-makers mainly include the executive
+directors.
+2.9 Foreign currency translation
+2.6 Investments in associates/joint ventures achieved in stages
+2.8 Segment reporting
+When the Group loses significant influence over an associate, it measures any retained investment at fair value. A
+gain or loss is recognised at any difference between the fair value of any retained interest plus any proceeds from
+disposing part of the interests in the associate and the carrying amount of the investment at the date the equity
+method of accounting was discontinued. The amounts previously recognised in other comprehensive income by an
+associate should be reclassified to the consolidated income statement or transferred to another category of equity
+as specified and permitted by applicable IFRSS when the Group loses significant influence over the associate.
+2.4 Associates (Cont'd)
+2.7 Disposal of associates
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint venture,
+is measured as the sum of the fair value of the interests previously held plus the fair value of any additional
+consideration transferred as of the date when it becomes associate/joint venture. A gain or loss on re-measurement
+of the previously held interests is taken to the consolidated income statement. Any other comprehensive income
+recognised in prior periods in relation to the previously held interests is also taken to the consolidated income
+statement. Any acquisition-related costs are expensed in the period in which the costs are incurred.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Annual Report 2018
+Notes to the Consolidated Financial Statements
+153
+Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
+Group's interests in the joint ventures. Unrealised losses are also eliminated unless the transaction provides
+evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed
+where necessary to ensure consistency with the policies adopted by the Group.
+Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures
+depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint
+arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
+Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted
+thereafter to recognise the Group's share of the post-acquisition profit or loss and movements in other
+comprehensive income. When the Group's share of losses in a joint venture equals or exceeds its interests in the
+joint venture (which includes any long-term receivables that, in substance, form part of the Group's net investment
+in the joint venture), the Group does not recognise further losses, unless it has incurred obligations or made
+payments on behalf of the joint venture.
+2.5 Joint arrangements
+Gains or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
+If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
+share of the amounts previously recognised in other comprehensive income is reclassified to consolidated income
+statement where appropriate.
+Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's
+interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an
+impairment of the asset transferred. Accounting policies of associates have been changed where necessary to
+ensure consistency with the policies adopted by the Group.
+(a) Functional and presentation currency
+For the year ended 31 December 2018
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the "functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the PRC, the Group presents its consolidated financial statements
+in Renminbi ("RMB"), unless otherwise stated.
+Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
+liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are
+recognised in other comprehensive income.
+Tencent Holdings Limited
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Annual Report 2018 155
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other financial instruments designated as hedges of such investments, are
+taken to other comprehensive income.
+(iii) All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+(ii)
+(i)
+154
+The results and financial position of all the group entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+Non-monetary items that are measured at fair value in foreign currency are translated using the exchange
+rates at the date when the fair value was determined. Translation differences on assets and liabilities carried
+at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-
+monetary financial assets and liabilities such as equity instruments held at fair value through profit or loss
+are recognised in the consolidated income statement as part of the fair value gain or loss and translation
+differences on non-monetary financial assets, such as equity instruments classified as FVOCI, are included
+in other comprehensive income.
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised in the consolidated income statement.
+Transactions and balances
+(b)
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Notes to the Consolidated Financial Statements
+(c) Group companies
+For the year ended 31 December 2018
+For the year ended 31 December 2018
+2
+2.3 Subsidiaries (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+2
+Tencent Holdings Limited
+150
+If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+Acquisition-related costs are expensed as incurred.
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred also includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities
+assumed in a business combination are measured initially at their fair values at the acquisition date.
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets.
+Business combinations
+(i)
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
+controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
+with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
+consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
+date that control ceases.
+(a) Consolidation
+2.3 Subsidiaries
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+(a) Consolidation (Cont'd)
+Notes to the Consolidated Financial Statements
+(i) Business combinations (Cont'd)
+The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
+and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value
+of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,
+non-controlling interest recognised and previously held interest measured is less than the fair value
+of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
+recognised directly in the consolidated income statement.
+Tencent Holdings Limited
+152
+The Group determines at each reporting date whether there is any objective evidence that investments accounted
+for using the equity method, including investments in associates and joint arrangements (Note 2.5), are impaired.
+If this is the case, the Group calculates the amount of impairment as the difference between the recoverable
+amount of the investment and its carrying value and recognises the amount in "Other gains/(losses), net” in the
+consolidated income statement.
+The Group's share of its associates' post-acquisition profit or loss is recognised in the consolidated income
+statement, and its share of post-acquisition movements in other comprehensive income is recognised in other
+comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the
+carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interests
+in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses,
+unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
+Associates are all entities over which the Group has significant influence but not control or joint control, generally
+but not necessarily accompanying a shareholding of between 20% and 50% of the voting rights. Investments
+in associates are accounted for using the equity method of accounting and are initially recognised at cost. The
+Group's investments in associates include underlying goodwill identified on acquisition, net of any accumulated
+impairment loss.
+2.4 Associates
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined in
+Note 46(e)), a controlled structured entity, is stated at cost in "Contribution to Share Scheme Trust”, and will
+be transferred to the "Shares held for share award schemes" under equity when the contribution is used for
+the acquisition of the Company's shares.
+(b) Separate financial statements
+2.3 Subsidiaries (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+18
+Annual Report 2018 151
+When the Group ceases to have control, any retained interest in the entity is re-measured to its
+fair value at the date when control is lost, with the change in carrying amount recognised in the
+consolidated income statement. The fair value is the initial carrying amount for the purposes of
+subsequently accounting for the retained interest as an associate, a joint venture or financial asset. In
+addition, any amounts previously recognised in other comprehensive income in respect of that entity
+are accounted for as if the Group had directly disposed of the related assets or liabilities. It means that
+amounts previously recognised in other comprehensive income are reclassified to the consolidated
+income statement or transferred to another category of equity as specified/permitted by applicable
+IFRSS.
+(iii) Disposal of subsidiaries
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions – that is, as transactions with the owners of the subsidiary in their capacity as
+owners. The difference between fair value of any consideration paid and the relevant share acquired of
+the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
+to non-controlling interests are also recorded in equity.
+(ii) Changes in ownership interests in subsidiaries without change of control
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed
+to be an asset or liability is recognised in profit or loss. Contingent consideration that is classified as
+equity is not re-measured, and its subsequent settlement is accounted for within equity.
+For the year ended 31 December 2018
+2.9 Foreign currency translation (Cont'd)
+2.10 Property, plant and equipment
+158 Tencent Holdings Limited
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might
+be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's
+carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less
+costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for
+which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill
+that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
+2.15 Impairment of non-financial assets
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium".
+The consideration paid by the Share Scheme Trust (see Note 46(e)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as “Shares held for share award
+schemes" and the amount is deducted from total equity.
+2.14 Shares held for share award schemes
+Other intangible assets are amortised over their estimated useful lives (generally one to ten years) using the
+straight-line method which reflects the pattern in which the intangible asset's future economic benefits are
+expected to be consumed.
+Other intangible assets mainly include game licences, copyrights, computer software and technology and
+non-compete agreements. They are initially recognised and measured at cost or estimated fair value of
+intangible assets acquired through business combinations.
+Other intangible assets
+(c)
+Licensed online contents mainly include video and music contents. They are initially recognised and
+measured at cost or estimated fair value as acquired through business combinations. Licensed online
+contents are amortised using a straight-line method or an accelerated method which reflects the estimated
+consumption patterns.
+(b) Licensed online contents
+2.13 Intangible assets (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+2
+For the year ended 31 December 2018
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+159
+Annual Report 2018
+• Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash
+flows represent solely payments of principal and interest are classified as and measured at amortised
+cost. A gain or loss on a debt investment measured at amortised cost which is not part of a hedging
+relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income
+from these financial assets is recognised using the effective interest rate method.
+Initial recognition and subsequent measurement of debt instruments depend on the Group's business model
+for managing the asset and the contractual cash flow characteristics of the asset. There are three categories
+into which the Group classifies its debt instruments:
+Debt instruments
+Financial assets with embedded derivatives are considered in their entirety when determining whether their
+cash flows are solely payments of principal and interest.
+The classification depends on the entity's business model for managing the financial assets and the
+contractual terms of the cash flows.
+those to be measured at amortised cost.
+those to be measured subsequently at fair value (either through other comprehensive income, or
+through profit or loss), and
+•
+•
+From 1 January 2018, the Group classifies its financial assets in the following measurement categories:
+(a) Classification and measurement
+2.16 Investments and other financial assets
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+18
+At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial
+asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition
+of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are
+expensed in profit or loss.
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable
+amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised
+immediately under "Other gains/(losses), net" and is not subsequently reversed.
+Construction in progress represents buildings under construction, which is stated at actual construction costs less
+any impairment loss. Construction in progress is transferred to property, plant and equipment when completed and
+ready for use.
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+Shorter of their useful lives and the lease term
+Leasehold improvements
+5 years
+Motor vehicles
+Furniture and office equipment
+2-5 years
+2-5 years
+20-50 years
+Buildings
+Depreciation is calculated using the straight-line method to allocate their cost net of their residual values over their
+estimated useful lives, as follows:
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
+of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the reporting period in which they are
+incurred.
+All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated
+impairment charges. Historical costs include expenditures that are directly attributable to the acquisition of the
+items.
+Annual Report 2018 157
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.15).
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+Computer equipment
+Tencent Holdings Limited
+156
+Goodwill arising on the acquisition of subsidiaries represents the excess of the consideration transferred
+plus acquisition-date fair value of the equity interests previously held by the Group and the non-controlling
+interests in the acquired entity over the fair value of the net identifiable assets of the acquiree.
+Goodwill
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within
+the entity at which the goodwill is monitored for internal management purposes.
+2.13 Intangible assets
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease.
+2.12 Land use rights
+(a)
+Depreciation is calculated on the straight-line method to allocate their costs net of their residual values over their
+estimated useful lives of 20-50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+2.11 Investment properties
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts.
+Notes to the Consolidated Financial Statements
+2
+164
+The Group either (i) accounts for different components of the hybrid financial instruments separately or (ii)
+designates the entire financial instruments as financial assets/liabilities at fair value through profit or loss.
+The host component is recognised initially at the difference between the fair value of the hybrid financial
+instrument as a whole and the fair value of the embedded derivatives. The subsequent measurement of the
+host component and embedded derivatives follow the respective accounting policy of financial instruments
+as stated in Notes 2.16(c) above and 2.17.
+Hybrid financial instruments held by the Group comprise instruments with redemption features of associates
+that can be converted to ordinary shares at the option of the holder.
+Hybrid financial instruments
+For debt securities, if any such evidence exists, the cumulative loss - measured as the difference
+between the acquisition cost (net of any principal repayment and amortisation) and the current fair
+value, less any impairment loss on that financial asset previously recognised in the consolidated
+income statement - is reclassified from equity and recognised in the consolidated income statement. If,
+in a subsequent period, the fair value of a debt instrument classified as available for sale increases and
+the increase can be objectively related to an event occurring after the impairment loss was recognised
+in the consolidated income statement, the impairment loss is reversed through the consolidated
+income statement.
+Impairment (Cont'd)
+Assets classified as AFS
+(c) Accounting policies applied until 31 December 2017 (Cont'd)
+2.16 Investments and other financial assets (Cont'd)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For equity investments, a significant or prolonged decline in the fair value of the security below its cost
+is also considered as an indication that the assets are impaired. If any such evidence of impairment
+exists, the cumulative loss - measured as the difference between the acquisition cost and the current
+fair value, less any impairment loss on that financial asset previously recognised in the consolidated
+income statement - is removed from equity and recognised in the consolidated income statement.
+Impairment losses recognised in the consolidated income statement on equity instruments are not
+reversed through the consolidated income statement.
+Tencent Holdings Limited
+The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of a
+recognised asset or liability or a highly probable forecast transaction (cash flow hedges). The Group documents
+at the inception of the hedging relationship the economic relationship between hedging instruments and hedged
+items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The
+Group documents its risk management objective and strategy for undertaking various hedge transactions at the
+inception of each hedge relationship.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.17 Derivative and hedging activities
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive
+and as financial liabilities when the fair value is negative. The method of recognising the resulting gain or loss
+depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
+hedged.
+A hedging relationship qualifies for hedge accounting if it meets all of the hedge effectiveness requirements under
+IFRS 9. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
+flow hedges is recognised through other comprehensive income within equity, while any ineffective portion is
+recognised immediately in profit or loss, within “Other gains/(losses), net".
+Gains or losses relating to the effective portion of the change in intrinsic value of the options are recognised in the
+cash flow hedge reserve within equity. The changes in the time value of the options that relate to the hedged item
+('aligned time value') are recognised within other comprehensive income in the costs of hedging reserve within
+equity.
+Amounts accumulated in equity are accounted for, depending on the nature of the underlying hedged transaction,
+as follows:
+•
+•
+For the year ended 31 December 2018
+Where the hedged item subsequently results in the recognition of a non-financial asset, the amounts
+accumulated in equity are removed from other reserves and included within the initial cost of the asset.
+These deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss.
+2
+Notes to the Consolidated Financial Statements
+Interest on loans and receivables calculated using the effective interest method is recognised in the
+consolidated income statement as part of interest income. Dividends on AFS equity instruments are
+recognised in the consolidated income statement when the Group's right to receive payments is established.
+Annual Report 2018
+For any other cash flow hedges, the gain or loss relating to the effective portion of the derivatives is
+reclassified to profit or loss at the same time when the hedged cash flows affects profit or loss.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.16 Investments and other financial assets (Cont'd)
+(c) Accounting policies applied until 31 December 2017 (Cont'd)
+Classification (Cont'd)
+(ii) Loans and receivables
+Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
+not quoted in an active market. They are included in current assets, except for those with maturities
+greater than 12 months after the end of the reporting period which are classified as non-current assets.
+The Group's loans and receivables comprise "Accounts receivable”, “Deposits and other receivables",
+"Term deposits", "Restricted cash" and "Cash and cash equivalents” in the consolidated statement of
+financial position.
+(iii) AFS
+Investments are designated as AFS if they do not have fixed maturities and fixed or determinable
+payments, and management intends to hold them for the medium to long-term. Financial assets that
+are not classified into any of the other categories are also included in the available-for-sale category.
+They are included in non-current assets unless management intends to dispose of the investment
+within 12 months after the end of the reporting period.
+Subsequent measurement
+The measurement at initial recognition did not change on adoption of IFRS 9, see description above.
+Subsequent to the initial recognition, AFS and FVPL are subsequently carried at fair value. Loans and
+receivables are subsequently carried at amortised cost using the effective interest method.
+Changes in the fair value of AFS are recognised in other comprehensive income.
+Financial assets are derecognised when the rights to receive cash flows from the investments have expired
+or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
+When AFS are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive
+income are included in the consolidated income statement as "Other gains/(losses), net”.
+163
+162 Tencent Holdings Limited
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+2.16 Investments and other financial assets (Cont'd)
+(c) Accounting policies applied until 31 December 2017 (Cont'd)
+Impairment
+The Group assesses at the end of each reporting period whether there is objective evidence that a financial
+asset or a group of financial assets is impaired.
+A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is
+objective evidence of impairment as a result of one or more events that occurred after the initial recognition
+of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows
+of the financial asset or group of financial assets that can be reliably estimated.
+•
+Assets carried at amortised cost
+Evidence of impairment may include indications that the debtor or a group of debtors is experiencing
+significant financial difficulty, default or delinquency in interest or principal payments, the probability
+that they will enter bankruptcy or other financial reorganisation, and where observable data indicate
+that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or
+economic conditions that correlate with defaults.
+For loans and receivables category, the amount of the impairment loss is measured as the difference
+between the asset's carrying amount and the present value of estimated future cash flows (excluding
+future credit losses that have not been incurred) discounted at the financial asset's original effective
+interest rate. The carrying amount of the asset is reduced and the amount of the impairment loss is
+recognised in the consolidated income statement. If a loan has a variable interest rate, the discount
+rate for measuring any impairment loss is the current effective interest rate determined under the
+contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's
+fair value using an observable market price.
+If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
+related objectively to an event occurring after the impairment was recognised (such as an improvement
+in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in
+the consolidated income statement.
+Notes to the Consolidated Financial Statements
+When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for
+hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remain
+in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the
+cumulative gain or loss and deferred costs of hedging included in equity are immediately reclassified to profit or
+loss.
+Annual Report 2018 167
+165
+the amount initially recognised less, where appropriate, the cumulative amount of income recognised in
+accordance with the principles of IFRS 15.
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.25 Financial guarantee contracts (Cont'd)
+The fair value of financial guarantees is determined based on the present value of the difference in cash flows
+between the contractual payments required under the debt instrument and the payments that would be required
+without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.
+Where guarantees in relation to loans or other payables of the investees are provided for no compensation, the fair
+value is accounted for as contributions and recognised as part of the cost of the investment.
+2.26 Borrowings, notes payable and borrowing costs
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their terms using the
+effective interest method.
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan facilities to the
+extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the
+draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn
+down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility to
+which it relates.
+Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
+liability for at least 12 months after the end of the reporting period.
+Notes payable are classified as non-current liabilities unless the Group has an unconditional obligation to settle the
+liability within 12 months after the end of the reporting period.
+General and specific finance costs directly attributable to the acquisition and construction of qualifying assets,
+which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
+added to the cost of those assets, until such time as the assets are substantially ready for their intended use or
+sale. During the year ended 31 December 2018, finance cost capitalised was insignificant to the Group.
+168 Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.27 Current and deferred income tax
+The income tax expense for the year comprises current and deferred tax, which is recognised in the consolidated
+income statement, except to the extent that it relates to items recognised in other comprehensive income or directly
+in equity. In this case, the income tax is also recognised in other comprehensive income or in equity, respectively.
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
+amounts expected to be paid to the tax authorities.
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
+deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in
+a transaction other than a business combination that at the time of the transaction neither accounting nor taxable
+profit or loss is affected. Deferred income tax is determined using tax rates (and laws) that have been enacted or
+substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax
+asset is realised or the deferred tax liability is settled.
+Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available to
+utilise those temporary differences and tax losses.
+Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates,
+except for deferred tax liability where the timing of the reversal of the temporary differences is controlled by the
+Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the
+Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement
+in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future,
+deferred tax liability in relation to taxable temporary differences arising from the associate's undistributed profit is
+not recognised.
+Deferred income tax assets are recognised on deductible temporary differences arising from investments in
+subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will
+reverse in the future and there is sufficient taxable profit available against which the temporary difference can be
+utilised.
+Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
+assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied
+by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to
+settle the balances on a net basis.
+Annual Report 2018
+169
+•
+the amount determined in accordance with the expected credit loss model under IFRS 9 and
+•
+The financial guarantee contracts are initially recognised as a financial liability at fair value on the date the
+guarantee is given. The liability is subsequently measured at the higher of:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.18 Offsetting financial instruments
+2.19 Inventories
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average
+method and are stated at the lower of cost and net realisable value.
+2.20 Accounts receivable
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. If collection of accounts receivable is expected in one year or less, they are classified
+as current assets. Otherwise, they are presented as non-current assets.
+Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method, less provision for impairment.
+2.21 Cash and cash equivalents and restricted cash
+Cash and cash equivalents include cash in hand, deposits held at call with banks, money market funds and other
+short-term highly liquid investments with initial maturities of three months or less.
+The Group does not recognise cash amounts deposited with banks (which are received under its payment
+business) under users' entrustment in the consolidated statement of financial position as the Group holds these
+cash amounts as a custodian according to the relevant users' agreements.
+2.22 Share capital
+Annual Report 2018
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
+options are shown in equity as a deduction from the proceeds.
+166 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+2.23 Accounts payable
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or
+less. If not, they are presented as non-current liabilities.
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+2.24 Put option arrangements
+Put options are financial instruments granted by the Group which permit the holders to put back to the Group their
+shares in certain subsidiaries for cash or other financial assets when certain conditions are met. If the Group does
+not have the unconditional right to avoid delivering cash or other financial assets under the put option, a financial
+liability is initially recognised at the present value of the estimated future cash outflows on exercise under the put
+option. Subsequently, if the Group revises its estimates of payments, the Group will adjust the carrying amount of
+the financial liability to reflect actual and revised estimated cash outflows. The Group will recalculate the carrying
+amount based on the present value of revised estimated future cash outflows at the financial instrument's original
+effective interest rate and the adjustment will be recognised as "Other gains/(losses), net" in the consolidated
+income statement. In the event that the put option expires unexercised, the liability is derecognised with a
+corresponding adjustment to equity.
+The put option liabilities are current liabilities unless the put option first becomes exercisable 12 months after the
+end of the reporting period.
+2.25 Financial guarantee contracts
+The Group has a financial guarantee contract that represents guarantee provided by the Group in respect of a put
+arrangement granted by an investee to the employees of its subsidiary.
+Where any Group company purchases the Company's equity instruments, the consideration paid, including
+any directly attributable incremental costs, is deducted from equity attributable to the Company's equity holders
+as treasury shares until the shares are cancelled or reissued. Where such shares are subsequently reissued,
+any consideration received (net of any directly attributable incremental transaction costs) is included in equity
+attributable to the Company's equity holders.
+For the year ended 31 December 2018
+Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
+position when there is a legally enforceable right to offset the recognised amounts and there is an intention to
+settle on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right
+must not be contingent on future events and must be enforceable in the normal course of business and in certain
+circumstances, such as default, insolvency, bankruptcy or the termination of a contract.
+Annual Report 2018 161
+160
+FVPL include financial assets designated upon initial recognition at fair value through profit or loss and
+financial assets that do not meet the criteria for amortised cost or FVOCI. Changes in the fair value of FVPL
+are recognised in "Other gains/(losses), net" in the consolidated income statement.
+Where the Group has made an irrevocable election to present fair value gains and losses on equity
+investments in other comprehensive income, there is no subsequent reclassification of fair value gains and
+losses to profit or loss following the derecognition of the investments. Dividends from such investments
+continue to be recognised in profit or loss as "Other gains/(losses), net" when the Group's right to receive
+payments is established. Equity instruments designated as FVOCI are not subject to impairment assessment.
+The Group initially recognises and subsequently measures all equity investments at fair value. Upon initial
+recognition, the Group's management can elect to classify irrevocably its equity investments as financial
+assets at FVOCI when they meet the definition of equity instrument under IAS 32 and are not held for trading.
+The classification is determined on an instrument-by-instrument basis.
+Equity instruments
+The Group reclassifies debt investments when and only when its business model for managing those assets
+changes.
+Tencent Holdings Limited
+FVPL: Financial assets that do not meet the criteria for amortised cost or FVOCI are classified as and
+measured at fair value through profit or loss. A gain or loss on a debt investment measured at fair
+value through profit or loss which is not part of a hedging relationship is recognised in profit or loss and
+presented in "Other gains/(losses), net" for the period in which it arises.
+•
+(a) Classification and measurement (Cont'd)
+2.16 Investments and other financial assets (Cont'd)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+FVOCI: Financial assets that are held for collection of contractual cash flows and for selling the
+financial assets, where the assets' cash flows represent solely payments of principal and interest, are
+classified as and measured at FVOCI. Movements in the carrying amount of these financial assets
+are taken through other comprehensive income, except for the recognition of impairment losses or
+reversals, interest income and foreign exchange gains and losses which are recognised in profit or
+loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in
+other comprehensive income is reclassified from equity to profit or loss and recognised in "Other gains/
+(losses), net" in the consolidated income statement. Interest income from these financial assets is
+recognised using the effective interest rate method. Foreign exchange gains and losses are presented
+in "finance costs, net" and impairment losses or reversals for "Other gains/(losses), net".
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+FVPL are financial assets held for trading. A financial asset is classified in this category if acquired
+principally for the purpose of selling in the short term. Derivatives are classified as held for trading
+unless they are designated as hedges. Assets in this category are classified as current assets if
+expected to be settled within 12 months, otherwise they are classified as non-current.
+(i)
+Until 31 December 2017, the Group classified its financial assets in the following categories: FVPL, loans
+and receivables and AFS. The classification depended on the purpose for which the financial assets were
+acquired, management's intentions and whether the assets are quoted in an active market. Management
+determined the classification of its financial assets at initial recognition.
+Classification
+The Group has applied IFRS 9 retrospectively, but has elected not to restate comparative information. As a
+result, the comparative information provided continues to be accounted for in accordance with the Group's
+previous accounting policy.
+Accounting policies applied until 31 December 2017
+FVPL
+Impairment on deposits and other receivables is measured as either 12-month expected credit losses or
+lifetime expected credit losses, depending on whether there has been a significant increase in credit risk
+since initial recognition. If a significant increase in credit risk of a deposit or receivable has occurred since
+initial recognition, the impairment is measured as lifetime expected credit losses.
+For accounts receivable and contract assets, the Group applies the simplified approach permitted by IFRS 9,
+which requires expected lifetime losses to be recognised since initial recognition.
+From 1 January 2018, the Group assesses on a forward-looking basis the expected credit losses associated
+with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied
+depends on whether there has been a significant increase in credit risk.
+(b) Impairment
+2.16 Investments and other financial assets (Cont'd)
+(c)
+For the year ended 31 December 2018
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or board of
+directors where appropriate.
+2.35 Dividends distribution
+Leases in which a significant portion of the risks and rewards of ownership are retained by lessors are classified
+as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
+charged to the consolidated income statement on a straight-line basis over the period of the lease.
+2.34 Leases
+Under these circumstances, the grants/subsidies are recognised as income or matched with the associated costs
+and expenses which the grants/subsidies are intended to compensate.
+Dividends are received from FVPL and FVOCI (2017: from AFS). Dividends are recognised in "Other gains/(losses),
+net" in the consolidated income statement when the right to receive payment is established. This applies even if
+they are paid out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of
+an investment. In this case, the dividend is recognised in other comprehensive income if it relates to an investment
+measured at FVOCI. However, the investment may need to be tested for impairment as a consequence.
+2.33 Government grants/subsidies
+2.32 Dividend income
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+For the year ended 31 December 2018
+2.36 Research and development expenses
+Notes to the Consolidated Financial Statements
+Grants/Subsidies from government are recognised at their fair value where there is a reasonable assurance that the
+grants/subsidies will be received and the Group will comply with all attached conditions.
+Research expenditure is recognised as an expense as incurred.
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price
+risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to
+minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out
+by the senior management of the Group.
+176 Tencent Holdings Limited
+3
+FINANCIAL RISK MANAGEMENT
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+3.1 Financial risk factors
+(a)
+Market risk
+(i)
+Foreign exchange risk
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to Hong Kong Dollars ("HKD"), USD and Euro ("EUR").
+Foreign exchange risk arises when future commercial transactions or recognised assets and
+liabilities are denominated in a currency that is not the respective functional currency of the Group's
+subsidiaries. The functional currency of the Company and majority of its overseas subsidiaries is USD
+whereas the functional currency of the subsidiaries which operate in the PRC is RMB.
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures and tries to minimise these exposures by using foreign currency forwards.
+175
+Costs incurred on development projects (relating to the design and testing of new or improved products) are
+capitalised as intangible assets when recognition criteria are fulfilled and tests for impairment are performed
+annually. Other development expenditures that do not meet those criteria are recognised as expenses as incurred.
+Development costs previously recognised as expenses are not recognised as assets in subsequent periods.
+Annual Report 2018
+The Group reports revenue on a gross or net basis depending on whether the Group is acting as a principal
+or an agent in a transaction. The Group is a principal if it controls the specified product or service before
+that product or service is transferred to a customer or it has a right to direct others to provide the product or
+service to the customer on the Group's behalf. Indicators that the Group is a principal include but not limited
+to whether the Group (i) is the primary obligor in the arrangement; (ii) has latitude in establishing the selling
+price; (iii) has discretion in supplier selection; (iv) changes the product or performs part of the service, and (v)
+has involvement in the determination of product or service specifications.
+Accounting policies applied until 31 December 2017
+Advertising contracts are signed to establish the prices and advertising services to be provided based on
+different arrangements, including display-based advertising that are display of ads for an agreed period of
+time, and performance-based advertising.
+Annual Report 2018
+173
+For the year ended 31 December 2018
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.30 Revenue recognition (Cont'd)
+(b)
+Online advertising (Cont'd)
+Revenue from display-based advertising are recognised on number of display/impression basis or ratably
+over the respective contractual term with the advertisers or their advertising agencies depending on the
+contractual measures. Revenue from performance-based advertising are recognised when relevant specific
+performance measures are fulfilled. Where the contracts include multiple performance obligations, the Group
+allocates the transaction price to each performance obligation on a relative stand-alone selling price basis,
+which is determined based on the prices charged to or expected to recover from customers.
+(c)
+Other revenues
+The Group's other revenues are primarily derived from provision of FinTech services, cloud services,
+television series and film production services and other businesses. The Group recognises other revenues
+when the respective services are rendered, or when the control of the products are transferred to customers.
+(d) Principal agent consideration
+Interest income is recognised on a time proportion basis, taking into account of the principal outstanding and the
+effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group.
+During the year ended 31 December 2018, the Group entered into foreign currency forward contracts
+in relation to projected purchases that qualify as "high probable" forecast transactions and hence
+satisfy the requirements for hedge accounting. Under the Group's policy the critical terms of the
+forwards must align with the hedged items.
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2.30 Revenue recognition (Cont'd)
+(e) Contract liabilities and contract costs
+A contract liability is the Group's obligation to transfer goods or services to a customer for which the Group
+has received consideration (or an amount of consideration is due) from the customer. The Group's contract
+liabilities mainly comprise of unamortised pre-paid tokens or cards, virtual items, Internet traffic and other
+support to be offered to certain investee companies in the future periods measured at their fair value on the
+inception dates (Note 5(c)), and customer loyalty incentives offered to the customers.
+Contract costs include incremental costs of obtaining a contract and costs to fulfil a contract with the
+customers. The contract costs are amortised using a method which is consistent with the pattern of
+recognition of the respective revenues.
+(f)
+Practical expedients and exemptions
+The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied,
+has not been disclosed, as substantially all of the Group's contracts have a duration of one year or less. The
+unsatisfied performance obligation related to cooperation arrangements with certain investees have been
+included in deferred revenue.
+2.31 Interest income
+Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial
+asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets
+the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss
+allowance). Interest income is presented as “Interest income" where it is mainly earned from financial assets that
+are held for cash management purposes.
+174 Tencent Holdings Limited
+The Group only designates the spot component of foreign currency forwards in hedge relationships.
+The spot component is determined with reference to relevant spot market exchange rates. The
+differential between the contracted forward rate and the spot market exchange rate is defined as the
+forward points. It is discounted, where material.
+RMB'Million
+Annual Report 2018
+Monetary liabilities, non-current
+13,795
+1,563
+1,309
+(2,747)
+(15,744)
+(1,833)
+(5,115)
+10,524
+(19,296)
+During the year ended 31 December 2018, the Group reported exchange gains of approximately
+RMB229 million (2017: RMB152 million) within "Finance costs, net" in the consolidated income
+statement.
+As at 31 December 2018, management considers that any reasonable changes in foreign exchange
+rates of the above currencies against the two major functional currencies would not result in a
+significant change in the Group's results, as the net carrying amounts of financial assets and liabilities
+denominated in a currency other than the respective subsidiaries' functional currency are considered
+to be not significant, given the exchange rate peg between HKD and USD. Accordingly, no sensitivity
+analysis is presented for foreign exchange risk.
+178 Tencent Holdings Limited
+Monetary liabilities, current
+Notes to the Consolidated Financial Statements
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.1 Financial risk factors (Cont'd)
+(a) Market risk (Cont'd)
+(ii)
+Price risk
+For the year ended 31 December 2018
+(iii)
+The Group is exposed to equity price risk mainly arising from investments held by the Group that
+are classified either as FVPL (Note 23) or FVOCI (Note 24). To manage its price risk arising from
+the investments, the Group diversifies its investment portfolio. The investments are made either for
+strategic purposes, or for the purpose of achieving investment yield and balancing the Group's liquidity
+level simultaneously. Each investment is managed by senior management on a case by case basis.
+Sensitivity analysis is performed by management to assess the exposure of the Group's financial results
+to equity price risk of FVPL and FVOCI (2017: AFS) at the end of each reporting period. If prices of the
+respective instruments held by the Group had been 5% (31 December 2017: 5%) higher/lower as at
+31 December 2018, profit for the year would have been approximately RMB4,794 million higher/lower
+as a result of gains/losses on financial instruments classified as at FVPL, other comprehensive income
+would have been approximately RMB2, 147 million higher/lower as a result of gains/losses on financial
+instruments classified as at FVOCI (2017: RMB4,069 million).
+Interest rate risk
+The Group's income and operating cash flows are substantially independent from changes in market
+interest rates and the Group has no significant interest-bearing assets except for loans to investees and
+investees' shareholders, term deposits with initial terms of over three months, restricted cash and cash
+and cash equivalents, details of which have been disclosed in Notes 25, 28 and 30.
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 34 and 35, representing a substantial portion
+of the Group's debts. Borrowings and notes payable carried at floating rates expose the Group to cash
+flow interest-rate risk whereas those carried at fixed rates expose the Group to fair value interest-rate
+risk.
+The Group regularly monitors its interest rate risk to identify if there are any undue exposures to
+significant interest rate movements and manages its cash flow interest rate risk by using interest rate
+swaps, whenever considered necessary.
+Annual Report 2018 179
+3
+Monetary assets, non-current
+Monetary assets, current
+As at 31 December 2017
+177
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+3
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3.1 Financial risk factors (Cont'd)
+(a) Market risk (Cont'd)
+(i)
+Foreign exchange risk (Cont'd)
+As at 31 December 2018, the Group's major monetary assets and liabilities exposed to foreign
+exchange risk are listed below:
+USD
+denominated
+Non-USD
+denominated
+Online advertising revenues mainly comprise revenues derived from media advertisements and from social
+and others advertisements, depending on the placement of advertising properties and inventories.
+RMB'Million
+As at 31 December 2018
+Monetary assets, current
+18,041
+1,994
+Monetary assets, non-current
+2,642
+Monetary liabilities, current
+(3,434)
+(4,587)
+Monetary liabilities, non-current
+(3,733)
+(9,430)
+13,516
+(12,023)
+The changes in the forward element of the foreign currency forwards that relate to hedged items
+are deferred in the costs of hedging reserve. The effects of the foreign currency related hedging
+instruments are not material to the Group's consolidated financial statements.
+Online advertising
+Notes to the Consolidated Financial Statements
+The Group adopts different revenue recognition methods based on its specific responsibilities/obligations in
+different VAS offerings.
+At each reporting period end, the Group revises the estimates of the number of options and awarded shares
+that are expected to ultimately vest. It recognises the impact of the revision to original estimates, if any, in the
+consolidated income statement of the Group, with a corresponding adjustment to equity.
+From the perspective of the Company, the grants of its equity instruments to employees of its subsidiaries are
+made in exchange for their services related to the subsidiaries. Accordingly, the share-based compensation
+expenses are treated as part of the "Investments in subsidiaries" in the Company's statement of financial
+position.
+Non-market performance and service conditions are included in assumptions about the number of options
+that are expected to become vested.
+For the year ended 31 December 2018
+Share-based compensation benefits (Cont'd)
+(c)
+2.28 Employee benefits (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+(a) Employee leave entitlements
+When the options are exercised, the proceeds received net of any directly attributable transaction costs are
+credited to share capital (nominal value) and share premium.
+Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made
+for the estimated liability for annual leave as a result of services rendered by employees up to the end of
+the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time of
+leave.
+Pension obligations
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund. The Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee services in the current and prior years. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the plans prior to vesting fully in the contributions.
+(c)
+Share-based compensation benefits
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees and other qualifying
+participants as consideration for equity instruments (including share options and awarded shares) of
+the Group. The fair value of the employee services and other qualifying participants' services received in
+exchange for the grant of equity instruments of the Group is recognised as an expense over the vesting
+period, i.e. the period over which all of the specified vesting conditions are to be satisfied, and credited to
+equity.
+For grant of share options, the total amount to be expensed is determined by reference to the fair value of
+the options granted by using option-pricing model, “Enhanced FAS 123" binomial model (the "Binomial
+Model"), which includes the impact of market performance conditions (such as the Company's share price)
+but excludes the impact of service condition and non-market performance conditions. For grant of award
+shares, the total amount to be expensed is determined by reference to the market price of the Company's
+shares at the grant date. The Group also adopts valuation techniques to assess the fair value of other equity
+instruments of the Group granted under the share-based compensation plans as appropriate.
+170 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+(b)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+(b)
+If the Group repurchases vested equity instruments, the payments made to the employees and other
+qualifying participants shall be accounted for as a deduction from equity, except to the extent that the
+payment exceeds the fair value of the equity instruments repurchased, measured at the repurchase date.
+Any such excess shall be recognised as an expense.
+2.28 Employee benefits
+2.29 Provisions
+In respect of the Group's VAS services directly delivered to the Group's customers and paid through various
+third parties platforms, these third party platforms collect the relevant service fees (the "Online Service
+Fees") on behalf of the Group and they are entitled to a pre-determined percentage of platform provider fees
+(as part of "Channel and distribution costs"). Such Channel and distribution costs are withheld and deducted
+from the gross Online Service Fees collected by these platforms from the users, with the net amounts
+remitted to the Group. The Group recognises the Online Service Fees as revenue on a gross basis, given it
+acts as the principal in these transactions based on the assessment according to the criteria stated in (d)
+below, and recognises such Channel and distribution costs as cost of revenues.
+If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the terms
+had not been modified. An additional expense is recognised for any modification that increases the total
+fair value of the share-based payment arrangement, or is otherwise beneficial to the employees and other
+qualifying participants, as measured at the date of modification.
+VAS (Cont'd)
+(a)
+2.30 Revenue recognition (Cont'd)
+For the year ended 31 December 2018
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+2
+172 Tencent Holdings Limited
+Where the contracts include multiple performance obligations, the Group allocates the transaction price to
+each performance obligation on a relative stand-alone selling price basis, which is determined based on the
+prices charged to or expected to recover from customers.
+Revenue from VAS is recognised when the Group satisfies its performance obligations by rendering services.
+Giving there is an explicit or implicit obligation of the Group to maintain the virtual products/items operated
+on the Group's platforms and allow users to gain access to them, revenue is recognised over the estimated
+lifespans of the respective virtual products/items. The estimated lifespans of different virtual products/items
+are determined by the management based on either the expected user relationship periods or the stipulated
+period of validity of the relevant virtual products/items depending on the respective term of virtual products/
+items.
+Revenues from VAS primarily include revenues from the provision of online games and social networks
+services. Online games revenues are mainly derived from sales of in-game virtual items, and social networks
+revenues are mainly derived from sales of virtual products such as VAS subscriptions across various online
+platforms, and games revenues attributable to social networks business. The Group offers virtual products/
+items to users on the Group's online platforms. The VAS fees are paid directly by end users mainly via online
+payment channels.
+Notes to the Consolidated Financial Statements
+The Group also opens its online platforms to third-party game/application developers under certain co-
+operation agreements, of which the Group pays to the third-party game/application developers a pre-
+determined percentage of the fees paid by and collected from the users of the Group's online platforms for
+the virtual products/items purchased. The Group recognises the related revenue on a gross or net basis
+depending on whether the Group is acting as a principal or an agent in the transaction.
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably
+estimated. Provisions are not recognised for future operating losses.
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+(a) VAS
+Annual Report 2018
+171
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+2.29 Provisions (Cont'd)
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
+specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+2.30 Revenue recognition
+The Group generates revenues primarily from provision of VAS, online advertising services and other online related
+services in the PRC. Revenue is recognised when the control of the goods or services is transferred to a customer.
+Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services
+may be transferred over time or at a point in time.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Cont'd)
+The Group aims to maintain sufficient cash and cash equivalents and marketable securities. Due to the
+dynamic nature of the underlying businesses, the Group maintains flexibility in funding by maintaining
+adequate cash and cash equivalents and marketable securities.
+(c)
+Liquidity risk
+Annual Report 2018
+3
+18
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+Previous accounting policy for impairment of accounts receivable and other receivables is described in note
+2.16(c).
+183
+Management considers the credit risk of other receivables is insignificant when they have a low risk of
+default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near
+term, and the loss allowance recognised is therefore limited to 12 months expected losses. In view
+of insignificant risk of default and credit risk since initial recognition, management believes that the
+expected credit loss under the 12 months expected losses method is immaterial.
+The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS
+9, which permits the use of the lifetime expected loss provision for all accounts receivable. In view of
+the sound financial position and collection history of receivables due from these counterparties and
+insignificant risk of default, to measure the expected credit losses, accounts receivable have been
+grouped based on shared credit risk characteristics and the days past due. A default on accounts
+receivable is when the counterparty fails to make contractual payments within 90 days of when they
+fall due. Accounts receivable are written off, in whole or in part, when it has exhausted all practical
+recovery efforts and has concluded that there is no reasonable expectation of recovery. Indicators
+that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor
+to engage in a repayment plan within the Group, and its failure to make contractual payments for a
+period of greater than 3 years past due. Impairment losses on accounts receivables are presented as
+net impairment losses within operating profit. Subsequent recoveries of amounts previously written off
+are credited against the same item. Management believes that the expected credit loss is immaterial
+and the credit risk inherent in the Group's outstanding accounts receivable balances due from these
+counterparties is not significant.
+3.1 Financial risk factors (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+182 Tencent Holdings Limited
+significant changes in the expected performance and behavior of the debtor, including changes
+in the payment status of the debtor.
+actual or expected significant changes in the operating results of the debtor;
+actual or expected significant adverse changes in business, financial or economic conditions that
+are expected to cause a significant change to the debtor's ability to meet its obligations;
+Other receivables at the end of each of the years are mainly comprised of loans to investees and
+investees' shareholders, rental deposits and other receivables. The Group considers the probability of
+default upon initial recognition of asset and whether there has been significant increase in credit risk
+on an ongoing basis throughout each of the years. To assess whether there is a significant increase in
+credit risk, the Group compares risk of default occurring on the assets as at the reporting date with the
+risk of default as at the date of initial recognition. Especially the following indicators are incorporated:
+Credit risk of other receivables
+(iii)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+21,309
+3.1 Financial risk factors (Cont'd)
+1,018
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date (or the earliest date a
+financial liability may become payable in the absence of a fixed maturity date). The amounts disclosed in the
+table are the contractual undiscounted cash flows.
+30,402
+4,474
+343
+Credit risk of accounts receivable (Cont'd)
+3,113
+80,724
+38,305
+14,629
+12,010
+15,780
+Other financial liabilities
+Borrowings
+Long-term payables
+Notes payable
+Non-derivatives:
+At 31 December 2018
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Over 5 years
+Between 2
+and 5 years
+Between 1
+and 2 years
+1 year
+Less than
+(c) Liquidity risk (Cont'd)
+(ii)
+1.52%
+(b)
+1:1
+2023/12/8
+2023/12/8
+1,300
+70,184
+2019/6/28~
+1,663
+77,630
+2019/6/28~
+RMB'Million
+RMB'Million
+2017
+2018
+Weighted average hedged rate for the year
+determine hedge effectiveness
+Change in value of hedged item used to
+1:1
+instruments since 1 January
+Hedge ratio
+Maturity date
+Notional amount
+Interest rate swaps
+Carrying amount
+During the year ended 31 December 2018, the Group entered into certain interest rate swap contracts
+to hedge its exposure arising from borrowings carried at floating rates. Under these interest rate swap
+contracts, the Group agreed with the counterparties to exchange, at specified interval, the difference
+between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed
+notional amounts. These interest rate swap contracts had the economic effect of converting borrowings
+from floating rates to fixed rates and were qualified for hedge accounting. Details of the Group's
+outstanding interest rate swap contracts as at 31 December 2018 have been disclosed in Note 26.
+The effects of the interest rate swaps on the Group's financial position and performance are as follows:
+(iii) Interest rate risk (Cont'd)
+(a) Market risk (Cont'd)
+3.1 Financial risk factors (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Change in fair value of outstanding hedging
+Credit risk (Cont'd)
+181
+181
+3.1 Financial risk factors (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 181
+The Group's revenues from VAS are generally paid by end users mainly via online payment channels,
+whereas the revenues from VAS delivered to its end users through third party platforms are collected
+by these third party platform providers and remitted to the Group under a credit period within 60
+days. In addition, the Group also sells prepaid credits through various channels such as sales agents,
+telecommunication operators, third party platform providers and Internet cafes, etc. Apart from certain
+credit periods granted to the telecommunication operators and third party platform providers, full
+advances are required from other channels.
+The Group's online advertising that are sales to/through advertising agencies or directly to the
+advertisers are at term of full advances, partial advances or sales on credit according to the Group's
+credit policies. The credit period granted to the customers is usually not more than 90 days and the
+credit quality of these customers are assessed, which takes into account their financial position, past
+experience and other factors.
+To manage this risk, the Group has policies in place to ensure that revenues of credit terms are made
+to counterparties with an appropriate credit history and the management performs ongoing credit
+evaluations of its counterparties. In addition, the Group has a large number of customers and there is
+no concentration of credit risk.
+Credit risk of accounts receivable
+To manage this risk, the Group only makes transactions with state-owned banks and financial
+institutions in the PRC and reputable international banks and financial institutions outside of the PRC.
+There has been no recent history of default in relation to these banks and financial institutions. The
+expected credit loss is close to zero.
+(ii)
+756
+Credit risk of cash and deposits and short-term investments
+The Group is exposed to credit risk in relation to its cash and deposits placed with banks and financial
+institutions, accounts receivable, other receivables, as well as short-term investments measured at amortised
+cost and at FVPL. The carrying amount of each class of these financial assets represents the Group's
+maximum exposure to credit risk in relation to the corresponding class of financial assets.
+(b) Credit risk
+3.1 Financial risk factors (Cont'd)
+For the year ended 31 December 2018
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+Notes to the Consolidated Financial Statements
+180 Tencent Holdings Limited
+As at 31 December 2018 and 2017, management considered that any reasonable changes in the
+interest rates would not result in a significant change in the Group's results as the Group's exposure to
+cash flow interest-rate risk arising from its borrowings and notes payable carried at floating rates after
+considering the effect of hedging is considered to be insignificant. Accordingly, no sensitivity analysis is
+presented for interest rate risk.
+Swaps currently in place cover majority of the floating-rate borrowing and notes payable principal
+outstanding.
+756
+1.60%
+(i)
+72,626
+(iii) Credit risk of other receivables (Cont'd)
+1,191
+(9,899)
+Disposals/Settlement
+3,301
+31,795
+51,185
+Additions
+2,154
+100,107
+Opening balance - IFRS 9
+22,976
+(Note 2.2(a))
+Adjustment on adoption of IFRS 9
+2,576
+2,154
+65,599
+(7,006)
+77,131
+Transfers
+(18,641)
+(4,282)
+4,946
+Currency translation differences
+(581)
+Impairment provision
+(271)
+(1,063)
+4,027
+30,485
+in profit or loss *
+Changes in fair value recognised
+6,220
+261
+other comprehensive income
+Changes in fair value recognised in
+(93,151)
+74
+Opening balance - IAS 39
+RMB'Million
+186 Tencent Holdings Limited
+If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in level 2.
+The fair value of financial instruments traded in active markets is determined with reference to quoted market
+prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly
+available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
+represent actual and regularly occurring market transactions on an arm's length basis. These instruments are
+included in level 1.
+2,154
+2,154
+Other financial liabilities
+5,624
+127,218
+73,313
+3,818
+1,806
+OFA
+331
+53,574
+AFS
+Notes to the Consolidated Financial Statements
+RMB'Million
+3
+For the year ended 31 December 2018
+RMB'Million
+2017
+2018
+2017
+2018
+Financial liabilities
+Financial assets
+During the year ended 31 December 2018, there was no transfer between level 1 and 2 for recurring fair value
+measurements. For transfers in and out of level 3 measurements see the following table, which presents the
+changes of financial instruments in level 3 instruments for the years ended 31 December 2018 and 2017:
+instruments.
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows
+based on observable yield curves; and
+•
+• Dealer quotes for similar instruments;
+Specific valuation techniques used to value financial instruments mainly include:
+3.3 Fair value estimation (Cont'd)
+FINANCIAL RISK MANAGEMENT (Cont'd)
+(151)
+Closing balance
+83,934
+volatility, the lower the fair value
+Tencent Holdings Limited
+188
+The higher the expected
+N/A
+15%
+Expected volatility
+the higher the fair value
+The higher the growth rate,
+N/A
+50%
+Growth rate of
+net profit
+related to business
+combination
+3,145
+volatility, the lower the fair value
+Notes to the Consolidated Financial Statements
+The higher the expected
+3
+4
+124,337
+(b) Credit risk (Cont'd)
+189
+Annual Report 2018
+The Group will continue to monitor the average lifespans of the virtual products/items. The results may differ from
+the historical period, and any change in the estimates may result in the revenue being recognised on a different
+basis from that in prior periods.
+Significant judgments are required in determining the expected users' relationship periods, including but not
+limited to historical users' consumption patterns, churn out rate and reactivity on marketing activities, games life-
+cycle, and the Group's marketing strategy. The Group has adopted a policy of assessing the estimated lifespans
+of virtual products/items on a regular basis whenever there is any indication of change in the expected users'
+relationship periods.
+As mentioned in Note 2.30(a), the end users purchase certain virtual products/items provided on the Group's
+online platforms and the relevant revenue is recognised based on the estimated lifespans of the virtual products/
+items. The estimated lifespans of different virtual products/items are determined by the management based on
+either the expected users' relationship periods or the stipulated period of validity of the relevant virtual products/
+items depending on the respective terms of virtual products/items.
+(a) The estimates of the lifespans of virtual products/items provided on the Group's online platforms
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk
+of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
+addressed below:
+Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
+expectations of future events that are believed to be reasonable under the circumstances.
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
+For the fair value of contingent consideration related to business combination, if growth rate of net profit had been
+5% higher or lower as at 31 December 2018, the fair value would have increased approximately RMB150 million
+or decreased approximately RMB171 million. If the expected volatility had been 5% higher or lower as at 31
+December 2018, the fair value would have decreased approximately RMB90 million or increased approximately
+RMB92 million.
+For the fair value of the Group's investments in unlisted companies, the sensitivity analysis is performed by
+management, see Note 3.1 (a) (ii) for details.
+3.3 Fair value estimation (Cont'd)
+For the year ended 31 December 2018
+FINANCIAL RISK MANAGEMENT (Cont'd)
+31% -59%
+28% 76%
+Expected volatility
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+187
+Annual Report 2018
+(271)
+(1,063)
+3,954
+6,861
+at the end of the reporting period
+attributable to balances held
+recognised in profit or loss
+*Includes unrealised gains or (losses)
+2,154
+4,466
+77,131
+3 FINANCIAL RISK MANAGEMENT (Cont'd)
+3.3 Fair value estimation (Cont'd)
+Valuation processes inputs and relationships to fair value (Level 3)
+The Group has a team of personnel who performs valuation on these level 3 instruments for financial reporting
+purposes. The team performs valuation, or necessary updates, at least once every quarter, which coincides
+with the Group's quarterly reporting dates. On an annual basis, the team adopts various valuation techniques to
+determine the fair value of the Group's level 3 instruments. External valuation experts may also be involved and
+consulted when it is necessary.
+77,131
+83,934
+Investments in unlisted
+companies
+Contingent consideration
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December 2017
+2017
+Relationship of unobservable
+inputs to fair value
+Range of inputs at 31 December
+Significant
+unobservable inputs
+Fair value as
+at 31 December
+Description
+The following table summarises the quantitative information about the significant unobservable inputs used in level
+3 fair value measurements.
+The components of the level 3 instruments mainly include investments in unlisted companies classified as FVPL
+or FVOCI, and other financial liabilities. Other financial liabilities mainly include: (i) contingent consideration
+payable related to business combination of the Group; and (ii) guarantee provided by the Group on certain put
+arrangements of an associate and put options issued by the Group to certain investors of the associate, at a pre-
+determined pricing formula. As these investments and instruments are not traded in an active market, majority of
+their fair values have been determined using applicable valuation techniques including comparable transactions
+approach and other option pricing approach. These valuation approaches require significant judgment,
+assumptions and inputs, including risk-free rates, expected volatility, relevant underlying financial projections, and
+market information of recent transactions (such as recent fund raising transactions undertaken by the investees)
+and other exposure, etc.
+2018
+4,506
+RMB'Million
+2,068
+114,271
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December
+Note:
+Total debts/Adjusted EBITDA ratio
+Adjusted EBITDA (Note)
+Total debts
+97,790
+Notes payable (Note 35)
+The Group monitors capital by regularly reviewing debts to adjusted earnings before interest, tax, depreciation
+and amortisation ("EBITDA") (Note) ratio, being the measure of the Group's ability to pay off all debts that reflects
+financial health and liquidity position. The total debts/adjusted EBITDA ratio calculated by dividing the total debts
+by adjusted EBITDA is as follows:
+Capital refers to equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+The Group's objectives on managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+3.2 Capital risk management
+For the year ended 31 December 2018
+FINANCIAL RISK MANAGEMENT (Cont'd)
+3
+Notes to the Consolidated Financial Statements
+184 Tencent Holdings Limited
+215,851
+Borrowings (Note 34)
+14,335
+65,018
+179,289
+RMB'Million
+RMB'Million
+Level 2
+Level 1
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
+(level 3).
+Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2018 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+Fair value estimation
+3.3
+34,115
+FINANCIAL RISK MANAGEMENT (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 185
+expenses.
+Adjusted EBITDA represents operating profit less interest income and other gains/(losses), net, and plus depreciation of property,
+plant and equipment and investment properties, amortisation of intangible assets and equity-settled share-based compensation
+1.38
+1.52
+95,861
+118,273
+131,905
+3
+Level 3
+RMB'Million
+85,479
+89,733
+13,832
+5,892
+Notes payable
+Non-derivatives:
+At 31 December 2017
+303,633
+38,648
+89,919
+37,374
+137,692
+10,757
+40
+31
+9
+90,310
+Other financial liabilities
+Derivatives:
+staff costs and welfare accruals)
+received from customers and others,
+accruals (excluding prepayments
+Accounts payable, other payables and
+3,748
+90,310
+26,304
+7,492
+Long-term payables
+86
+86
+Other financial liabilities
+Derivatives:
+65,651
+65,651
+staff costs and welfare accruals)
+received from customers and others,
+accruals (excluding prepayments
+Accounts payable, other payables and
+37,973
+2,068
+106,089
+6,109
+71,663
+10,127
+18,190
+Borrowings
+3,984
+734
+905
+2,345
+Other financial liabilities
+Total
+•
+As at 31 December 2018
+1,615
+4,466
+40
+2,032
+2,032
+43,519
+1,941
+97,877
+RMB'Million
+942
+81,993
+5,009
+10,875
+41,578
+Other financial liabilities
+OFA
+FVOCI
+FVPL
+(2,908)
+(4,669)
+Finance costs, net
+90,302
+(41,522)
+Operating profit
+(33,051)
+General and administrative expenses
+(17,652)
+97,648
+Share of profit of associates and joint ventures
+79,984
+821
+19
+94,466
+88,215
+Income tax expense
+(14,482)
+(24,233)
+(15,744)
+Profit for the year
+Annual Report 2018
+1,487
+Profit before income tax
+142,120
+20,140
+(2,139)
+7,906
+Selling and marketing expenses
+(5,730)
+(6,022)
+General and administrative expenses
+(11,345)
+(8,811)
+Operating profit
+17,288
+25,724
+Selling and marketing expenses
+Finance costs, net
+(859)
+Share of profit/(loss) of associates and joint ventures
+16
+(120)
+Profit before income tax
+15,932
+Revenues from our other businesses increased by 72% to RMB24,212 million for the fourth quarter of 2018 on a year-
+on-year basis. The increase mainly reflected higher revenues from our FinTech and cloud services, as well as film and
+television production business.
+116,925
+4,569
+3,940
+16,714
+(1,372)
+Revenues from our online advertising business increased by 38% to RMB17,033 million for the fourth quarter of 2018
+on a year-on-year basis. Social and others advertising revenues increased by 44% to RMB11,846 million, primarily
+contributed by an increase in advertising revenues derived from Weixin Moments, Mini Programs and QQ KanDian.
+Media advertising revenues grew by 26% to RMB5, 187 million, mainly reflecting contributions from our media platforms
+such as Tencent Video and Tencent News.
+14,084
+100%
+Unaudited
+Revenues. Revenues increased by 28% to RMB84,896 million for the fourth quarter of 2018 on a year-on-year basis. The
+following table sets forth our revenues by line of business for the fourth quarter of 2018 and the fourth quarter of 2017:
+Management Discussion and Analysis
+Tencent Holdings Limited
+18
+17,454
+19,730
+Non-GAAP profit attributable to equity holders of the Company
+21,622
+14,026
+825
+VAS
+(203)
+20,797
+14,229
+Equity holders of the Company
+Attributable to:
+21,622
+14,026
+Profit for the period
+(3,123)
+Other (losses)/gains, net
+(1,906)
+Income tax expense
+Non-controlling interests
+Revenues from our VAS business increased by 9% to RMB43,651 million for the fourth quarter of 2018 on a year-on-
+year basis. Online games revenues were RMB24,199 million, broadly stable compared to the fourth quarter of 2017.
+Social networks revenues grew by 25% to RMB19,452 million. The increase mainly reflected growth in revenues from
+digital content services such as live broadcast services and video streaming subscriptions.
+Online advertising
+Others
+Three months ended
+66,392
+24,745
+100%
+84,896
+21%
+29%
+24,212
+19%
+12,361
+20%
+17,033
+Total revenues
+60%
+51%
+43,651
+revenues
+% of total
+(RMB in millions, unless specified)
+Amount
+revenues
+Amount
+% of total
+31 December 2017
+31 December 2018
+39,947
+1,156
+56%
+31,495
+% of segment
+Amount
+revenues
+Amount
+revenues
+(RMB in millions, unless specified)
+73,961
+42%
+61,389
+40%
+37,273
+% of segment
+64%
+63%
+59,340
+76%
+33,860
+78%
+170,574
+120,835
+Cost of revenues for our VAS business increased by 20% to RMB73,961 million for the year ended 31 December 2018
+on a year-on-year basis. The increase was mainly due to greater content costs for services and products including live
+broadcast, video streaming subscriptions and online games, as well as higher channel costs for our smart phone games.
+Cost of revenues for our online advertising business increased by 46% to RMB37,273 million for the year ended 31
+December 2018 on a year-on-year basis. The increase was primarily driven by greater content costs, traffic acquisition
+costs and advertising commissions.
+Cost of revenues for our other businesses increased by 75% to RMB59,340 million for the year ended 31 December
+2018 on a year-on-year basis, mainly reflecting the increased scale of our FinTech and cloud services.
+16
+Tencent Holdings Limited
+25,586
+Management Discussion and Analysis
+2017
+Year ended 31 December
+153,983
+65%
+58,079
+19%
+40,439
+17%
+77,969
+25%
+43,338
+18%
+312,694
+2018
+100%
+100%
+Revenues from our VAS business increased by 15% to RMB176.6 billion for the year ended 31 December 2018 on a
+year-on-year basis. Online games revenues grew by 6% to RMB104.0 billion. The increase primarily reflected growth in
+revenues from our existing smart phone games such as Honour of Kings and QQ Speed Mobile, and new titles such as
+MU Awakening and QQ Dancers Mobile. Revenues from our PC client games decreased mainly due to users' time shift
+to smart phone games although some individual PC games performed robustly. Social networks revenues increased by
+30% to RMB72,654 million. The increase was mainly due to higher contributions from our digital content services such
+as live broadcast services and video streaming subscriptions, as well as from in-game virtual item sales.
+Revenues from our online advertising business increased by 44% to RMB58,079 million for the year ended 31
+December 2018 on a year-on-year basis. Social and others advertising revenues increased by 55% to RMB39,773
+million. The increase mainly reflected higher advertising revenues derived from Weixin Moments, Mini Programs and our
+mobile advertising network. Media advertising revenues grew by 23% to RMB18,306 million. The increase was primarily
+driven by greater advertising revenues from Tencent Video.
+Revenues from our other businesses increased by 80% to RMB77,969 million for the year ended 31 December 2018 on
+a year-on-year basis. The increase was mainly due to revenue growth from our FinTech and cloud services.
+Annual Report 2018
+15
+Management Discussion and Analysis
+Cost of revenues. Cost of revenues increased by 41% to RMB170.6 billion for the year ended 31 December 2018 on a year-
+on-year basis. The increase primarily reflected greater content costs, costs of FinTech services, and channel costs. As a
+percentage of revenues, cost of revenues increased to 55% for the year ended 31 December 2018 from 51% for the year
+ended 31 December 2017. The following table sets forth our cost of revenues by line of business for the years ended 31
+December 2018 and 2017:
+VAS
+Online advertising
+Others
+Total cost of revenues
+237,760
+1,350
+Other gains, net. We recorded net other gains totalling RMB16,714 million for the year ended 31 December 2018. There were
+increases in valuations for certain investee companies, including a fair value gain from Meituan Dianping upon its IPO, partly
+offset by impairment provisions for certain other investee companies.
+Finance costs, net. Net finance costs increased by 61% to RMB4,669 million for the year ended 31 December 2018 on a
+year-on-year basis. The increase primarily reflected greater interest expenses driven by higher amount of indebtedness.
+Non-GAAP profit attributable to equity holders of the Company
+Non-controlling interests
+(120,835)
+Equity holders of the Company
+176,646
+Annual Report 2018 17
+Management Discussion and Analysis
+FOURTH QUARTER OF 2018 COMPARED TO FOURTH QUARTER OF 2017
+The following table sets forth the comparative figures for the fourth quarter of 2018 and the fourth quarter of 2017:
+Unaudited
+Three months ended
+14
+31 December 31 December
+2017
+(RMB in millions)
+Revenues
+Cost of revenues
+Gross profit
+Interest income
+84,896
+66,392
+(49,744)
+(34,897)
+35,152
+2018
+Selling and marketing expenses. Selling and marketing expenses increased by 37% to RMB24,233 million for the year ended
+31 December 2018 on a year-on-year basis. The increase was mainly driven by greater marketing spending on services and
+products such as digital content services, FinTech services and smart phone games. As a percentage of revenues, selling and
+marketing expenses increased to 8% for the year ended 31 December 2018 from 7% for the year ended 31 December 2017.
+General and administrative expenses. General and administrative expenses increased by 26% to RMB41,522 million for the
+year ended 31 December 2018 on a year-on-year basis. The increase mainly reflected greater R&D expenses and staff costs
+as a result of our expanded business volume. As a percentage of revenues, general and administrative expenses decreased to
+13% for the year ended 31 December 2018 from 14% for the year ended 31 December 2017.
+Tencent Holdings Limited
+71,510
+Income tax expense. Income tax expense decreased by 8% to RMB14,482 million for the year ended 31 December 2018 on a
+year-on-year basis. The decrease was mainly due to the entitlements of preferential tax treatments and benefits.
+(RMB in millions, unless specified)
+revenues
+Amount
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 10% to
+RMB78,719 million for the year ended 31 December 2018 on a year-on-year basis. Non-GAAP profit attributable to equity
+holders of the Company increased by 19% to RMB77,469 million for the year ended 31 December 2018.
+revenues
+Amount
+% of total
+% of total
+2017
+2018
+78,719
+Year ended 31 December
+Others
+Online advertising
+VAS
+Revenues. Revenues increased by 32% to RMB312.7 billion for the year ended 31 December 2018 on a year-on-year basis.
+The following table sets forth our revenues by line of business for the years ended 31 December 2018 and 2017:
+Management Discussion and Analysis
+65,126
+77,469
+72,471
+79,984
+961
+1,265
+Total revenues
+(170,574)
+72,471
+312,694
+On behalf of the Board, I would like to thank our staff and management team for their efforts, dedication and devotion to the
+Group. I would also like to express our sincere gratitude to our shareholders and stakeholders for their unwavering support to
+the Group. We are confident that our commitment to build an ecosystem to enhance our user experience, and the strategic
+upgrade to step into the Industrial Internet era will create value for our shareholders.
+APPRECIATION
+Chairman's Statement
+12 Tencent Holdings Limited
+The Board has recommended the payment of a final dividend of HKD1.00 per share (2017: HKD0.88 per share) for the year
+ended 31 December 2018, subject to the approval of the shareholders at the 2019 AGM. Such proposed dividend will be
+payable on 31 May 2019 to the shareholders whose names appear on the register of members of the Company on 22 May
+2019.
+DIVIDEND
+For our social communications platforms, we will strengthen connections between our users with digital content, as
+well as online and offline services. We will also enhance connections with enterprises leveraging Mini Programs, Weixin
+Pay and WeChat Work. For online games, we will strengthen our game portfolio through enhancing our internal R&D
+capability and external partnerships. We will further expand our overseas business through exploring new game genres
+and strengthening our overseas publishing capability. For digital content, we will continue to invest and grow our
+subscription business. For advertising, we will strengthen our user targeting capabilities to further increase our ROIs
+to advertisers and relevance to consumers. For FinTech, we will drive innovation in our payment product development
+and add new payment use cases. We will also expand our FinTech solutions and product portfolio to cater to the wealth
+management and financial needs of our users. For cloud, we will integrate our advanced cloud computing capability,
+data analytics, Al and security solutions, to develop customised solutions for various industries such as retail, financial,
+transportation, healthcare and education. We will assist enterprises in upgrading and innovating for the digital age.
+We will enable our enterprise partners to better connect with our users via an expanding, open and connected
+ecosystem. Utilising our innovation and technology capabilities, we seek to assist a range of industries in undergoing
+digital upgrades and transformation.
+Looking ahead, we will invest in core infrastructure and frontier technologies to embrace the trend of the Industrial
+Internet, while continuing to drive the evolution of the Consumer Internet.
+Company Outlook and Strategies for 2019
+4.
+Chairman's Statement
+11
+Annual Report 2018
+Our cloud revenues increased by over 100% to RMB9.1 billion for the year 2018. Paying customers more than doubled
+year-on-year in the fourth quarter of 2018. Tencent Cloud's global infrastructure covered 25 regions and operated 53
+availability zones as of the end of 2018. We developed and launched new laaS and PaaS products in the fourth quarter.
+In addition to strengthening our leadership in games and video verticals, we further promoted our presence in financial
+and retail cloud services, leveraging our Al and security capabilities.
+As we added more use cases online and offline for our payment services, our payment active users increased robustly
+year-on-year. Users' transaction frequency and value per transaction also increased. Weixin Pay launched a new user
+interface enabling easier access to new features including virtual subsidiary cards for parents and children. We enhanced
+account management tools for merchants, including cash register, book-keeping and revenue sharing settlement
+functions. LiCaiTong enlarged its user base, reaching 100 million accumulated users by end of 2018. We expanded our
+FinTech services by rolling out LingQian Tong, which enables users to invest the unused cash balance in their Weixin Pay
+accounts in funds.
+Our other businesses grew revenues by 80% year-on-year for the year 2018, primarily contributed by FinTech and
+cloud services. The increase in FinTech revenues was driven by our take-rate on commercial transactions collected from
+merchants, cash withdrawal fees and credit card repayment charges collected from users, and the service fees from
+financial institutions for the distribution of FinTech products such as Wei LiDai and the wealth management products on
+our LiCaiTong platform. In January 2019, we completed the transition to the centralised clearing and settlement system
+and moved all custodian cash to the accounts of the People's Bank of China.
+Others
+Our online advertising business achieved RMB58.1 billion revenues, up 44% year-on-year, for 2018, and RMB17.0
+billion revenues, up 38% year-on-year, for the fourth quarter. Social and others advertising grew to RMB39.8 billion,
+up 55% year-on-year for the full year, and RMB11.8 billion, up 44% year-on-year for the fourth quarter, driven by
+Weixin Moments, Mini Programs, QQ KanDian and our mobile advertising network. We received positive feedback from
+advertisers after the launch of the second daily ad unit for Moments, and the overall ad fill rates remained high. About
+50% of Moments DAU were shown the second ad unit, and Moments ad click-through rates remained at healthy levels.
+Media advertising revenues amounted to RMB18.3 billion, up 23% for the full year, and RMB5.2 billion, up 26% for the
+fourth quarter. Among which, video advertising revenues increased by 34% year-on-year for 2018 and 21% year-on-year
+for the fourth quarter. The increase in the fourth quarter was driven by more video views and sponsorship advertising for
+our popular self-commissioned variety shows. Our news advertising revenues picked up year-on-year in the latter half of
+the year, recovering from our system revamp. Media feed advertising revenues grew by over 10 times year-on-year.
+Online Advertising
+Chairman's Statement
+Tencent Holdings Limited
+10
+Our fee-based VAS subscriptions were up by 19.1% year-on-year to 160.3 million, mainly attributable to growth in video
+and music subscriptions. Tencent Video expanded its subscription counts to 89 million, up 58% year-on-year, driven by
+premium content and cross-promotions. We released sequels to popular self-commissioned IPs, extending the longevity
+and monetisation opportunities of these IPs. These included Candle in the Tomb Season 3 in the drama category,
+the Land of Warriors Season 2 in Chinese anime, and Once Upon A Bite in documentary (whose related IP program,
+Flavorful Origins, we licensed to Netflix for distribution outside China). We upgraded our VIP loyalty program to offer
+subscribers different tiers of privileges. We maintained healthy engagement trends with video views per DAU up over
+40% year-on-year, as consumers watched more short form videos. We are the leading streaming platform for sports fans
+in China, featuring 40 top global sports IPs, including the 4 major sports leagues in the US. We distribute sports content
+in live programs, news feeds and short videos formats across Tencent Sports, Tencent News, Tencent Video, Mobile QQ
+Browser and WeiShi. Since we began licensing NBA live streaming rights in 2015, we have expanded the total audience
+size for NBA games in China. Over the period, average daily unique visitors per live-streamed NBA game in China have
+tripled.
+Digital Content
+Our PC client games business achieved approximately RMB50.6 billion revenues, down 8% year-on-year, for 2018,
+and approximately RMB11.2 billion revenues for the fourth quarter, down 13% year-on-year as users continue to shift
+time to mobile. League of Legends introduced its first season pass and increased average user time spent, with active
+users growing sequentially after a China team won the World Championship in November 2018. We released a sequel to
+NBA2K in China, significantly expanding the total user base of this popular basketball franchise. We launched two new
+internally developed PC games, Iris Fall and Bladed Fury, to better serve niche audience interests.
+In China, we increased our market share in smart phone games in terms of active users. We enhanced user engagement
+across multiple genres. For action titles, QQ Speed Mobile's anniversary promotions increased its DAU sequentially.
+Cross Fire Mobile introduced a season pass to encourage in-game engagement. For role playing games, we launched
+several IP-based games that attracted fans of popular anime and comic franchises such as Battle through the Heavens,
+Naruto OL Mobile and Samurai Spirits. For MOBA, Honour of Kings organised its flagship eSports event KPL Fall Final
+in December, attracting over 75 million unique viewers for the live broadcast. In international markets, PUBG MOBILE
+achieved breakout success, becoming the most popular game globally by MAU, and was named the Best Game of
+2018 by Google Play. Our investee companies' success added to our proven track record of working with category
+leaders in the games industry. For example, Supercell's new MOBA game Brawl Stars was the most downloaded game
+in 50 markets after its global launch in December 2018. And, Epic Games' Fortnite continued its phenomenal success,
+topping US iOS Grossing Chart in the fourth quarter. Sea's first self-developed game, Free Fire, was the fourth most
+downloaded game globally in 2018, according to App Annie.
+Chairman's Statement
+237,760
+Ma Huateng
+Chairman
+Hong Kong, 21 March 2019
+Attributable to:
+Gross profit
+Interest income
+Cost of revenues
+Revenues
+(RMB in millions)
+2017
+2018
+Year ended 31 December
+The following table sets forth the comparative figures for the years ended 31 December 2018 and 2017:
+YEAR ENDED 31 DECEMBER 2018 COMPARED TO YEAR ENDED 31 DECEMBER 2017
+Management Discussion and Analysis
+18
+13
+Other gains, net
+Annual Report 2018
+13,518
+(730)
+Others (Note (d))
+Dividend income
+2018
+Donations to Tencent Charity Funds
+2017
+RMB'Million
+RMB'Million
+28,738
+Impairment provision for investee companies and intangible assets
+arising from acquisitions (Note (b))
+(17,577)
+(2,794)
+Subsidies and tax rebates
+3,456
+3,971
+Net gains on disposals and deemed disposals of investee companies (Note (a), (c))
+Net fair value gains on other financial instruments (Note 26, 37)
+4,298
+1,019
+2,932
+(820)
+232
+1,713
+RMB'Million
+RMB'Million
+2017
+2018
+Tencent Holdings Limited
+196
+AFS
+Intangible assets arising from acquisitions
+RCPS
+Investments in joint ventures (Note 21)
+686
+Investments in associates (Note 20)
+Net fair value gains on FVPL included aggregate gains of approximately RMB22,215 million, arising from reclassification
+of several investments principally engaged in Internet-related business from FVPL to investments in associates due to the
+conversion of redeemable instruments or preferred shares into ordinary shares with board representative upon their respective
+initial public offering ("IPO”). In 2017, aggregate gains of approximately RMB3,663 million arising from the similar transactions
+were recognised in net gains on disposals and deemed disposals of investee companies.
+(b)
+(a)
+Note:
+20,140
+16,714
+Net fair value gains on FVPL (Note (a))
+254
+(1,810)
+The impairment provision for investee companies and intangible assets arising from acquisitions mainly comprised the following:
+OTHER GAINS, NET
+As at 31 December 2018, total capitalised costs to obtain or fulfill a contract with customer were immaterial.
+Interest income mainly represents interest income from bank deposits, including bank balance and term deposits.
+Contract liabilities mainly comprises of unamortised pre-paid tokens or cards, virtual items, Internet traffic
+and other support to be offered to certain investee companies in the future periods measured at their fair
+value on the inception dates (Note 20), and customer loyalty incentives offered to the customers.
+(i) Contract liabilities
+39,830
+(c) Assets and liabilities related to contracts with customers
+The Group has recognised the following liabilities related to contracts with customers under "Deferred revenue":
+As at 31 December
+2018
+2017
+RMB'Million
+(ii)
+RMB'Million
+VAS
+Online advertising
+Others
+Note:
+31,787
+34,360
+9,145
+5,238
+42,037
+Contract liabilities:
+Revenue recognised in relation to contract liabilities
+The following table shows how much of the revenue recognised in the current reporting period relates to
+carried-forward contract liabilities:
+14,069
+INTEREST INCOME
+6
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 195
+1,105
+22,184
+37,273
+143
+232
+1,597
+20,444
+34,360
+2,681
+Others
+Online advertising
+VAS
+balance at the beginning of the year:
+Revenue recognised that was included in the contract liability
+RMB'Million
+RMB'Million
+2017
+7
+2018
+For the year ended 31 December 2018
+1,180
+- Asia excluding Mainland China and Hong Kong
+30,148
+26,407
+Others
+1,760
+250
+723,521
+554,672
+Annual Report 2018
+34,515
+193
+For the year ended 31 December 2018
+5 SEGMENT INFORMATION AND REVENUES (Cont'd)
+(a) Description of segments and principal activities (Cont'd)
+As at 31 December 2018, the total non-current assets other than financial instruments and deferred tax assets
+located in Mainland China and other regions amounted to RMB282,774 million (31 December 2017: RMB159,563
+million) and RMB65,057 million (31 December 2017: RMB42,421 million), respectively.
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues
+during the years ended 31 December 2018 and 2017.
+(b) Disaggregation of revenue from contracts with customers
+In the following table, revenue of the Group from contracts with customers is disaggregated by revenue source.
+The table also includes a reconciliation to the segment information (Note 5(a)).
+2018
+2017
+Notes to the Consolidated Financial Statements
+37,451
+- Europe
+52,542
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+(b) Recoverability of non-financial assets
+The Group tests annually whether goodwill has suffered any impairment. Goodwill and other non-financial assets,
+mainly including property, plant and equipment, construction in progress, other intangible assets, investment
+properties, land use rights, as well as investments in associates and joint ventures are reviewed for impairment
+whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The
+recoverable amounts have been determined based on value-in-use calculations or fair value less costs to sell.
+These calculations require the use of judgments and estimates.
+Judgment is required to identify any impairment indicators existing for any of the Group's goodwill, other non-
+financial assets to determine appropriate impairment approaches, i.e., fair value less costs of disposal or value
+in use, for impairment review purposes, and to select key assumptions applied in the adopted valuation models,
+including discounted cash flows and market approach. Changing the assumptions selected by management
+in assessing impairment could materially affect the result of the impairment test and in turn affect the Group's
+financial condition and results of operations. If there is a significant adverse change in the key assumptions
+applied, it may be necessary to take additional impairment charge to the consolidated income statement.
+(c) Fair value measurement of FVPL, FVOCI and other financial liabilities
+The fair value assessment of FVPL, FVOCI and other financial liabilities that are measured at level 3 fair value
+hierarchy requires significant estimates, which include risk-free rates, expected volatility, relevant underlying
+financial projections, market information of recent transactions (such as recent fund raising transactions
+undertaken by the investees) and other assumptions. Changes in these assumptions and estimates could
+materially affect the respective fair value of these investments.
+(d) Share-based compensation arrangements
+As mentioned in Note 2.28(c), the Group has granted share options to its employees and other qualifying
+participants. The directors have adopted the Binomial Model to determine the total fair value of the options
+granted, which is to be expensed over the respective vesting periods. Significant judgment on parameters, such
+as risk free rate, dividend yield and expected volatility, is required to be made by the directors in applying the
+Binomial Model (Note 33).
+The fair value of share options granted to employees and other qualifying participants determined using the
+Binomial Model was approximately HKD3,533 million (equivalent to approximately RMB2,868 million) in 2018
+(2017: HKD2,691 million (equivalent to approximately RMB2,373 million)).
+190 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Cont'd)
+(d) Share-based compensation arrangements (Cont'd)
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate”) in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2018, the Expected Retention Rate of the Group and its wholly-owned subsidiaries was assessed to be
+88%-97% (31 December 2017: 88%-97%).
+(e) Income taxes
+- North America
+44,835
+RMB'Million
+2,328
+RMB'Million
+- VAS
+2017
+2018
+EXPENSES BY NATURE
+8
+Included one-off expenses of RMB1,519 million recognised by a non-wholly owned subsidiary of the Group arising from the
+issuance of ordinary shares to strategic partners.
+aggregate net gains of approximately RMB1,271 million (2017: RMB3,626 million) on disposals, acquisition achieved in
+stages or partial disposals of various investments of the Group.
+net gains of approximately RMB1,661 million (2017: RMB6,229 million) on dilution of the Group's equity interests in
+certain associates due to new equity interests being issued by these associates (Note 20). These investee companies are
+principally engaged in Internet-related business;
+The disposal and deemed disposal gains during the year ended 31 December 2018 mainly comprised the following:
+(d)
+Notes to the Consolidated Financial Statements
+(c)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+OTHER GAINS, NET (Cont'd)
+7
+2,794
+17,577
+671
+607
+239
+Note: (Cont'd)
+Tencent Holdings Limited
+194
+237,760
+Online games
+176,646
+153,983
+103,992
+97,883
+Social networks
+72,654
+56,100
+– Online advertising
+58,079
+40,439
+Media advertising
+18,306
+14,829
+Social and others advertising
+39,773
+25,610
+- Others
+77,969
+43,338
+312,694
+Revenue from contracts with customers
+1,277
+1,473
+254,992
+RMB'Million
+RMB'Million
+Employee benefits expenses (Note (a) and Note 13)
+42,153
+34,866
+Content costs (excluding amortisation of intangible assets)
+39,061
+28,177
+Channel and distribution costs
+32,821
+25,109
+Bandwidth and server custody fees
+5
+15,818
+Promotion and advertising expenses
+19,806
+13,661
+Operating lease rentals in respect of office buildings
+1,614
+1,335
+Travelling and entertainment expenses
+1,450
+1,040
+Amortisation of intangible assets (Note (b) and Note 19)
+25,616
+18,622
+11,203
+Depreciation of property, plant and equipment (Note 16)
+RMB'Million
+(a) Income tax expense (Cont'd)
+Annual Report 2018 191
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+5 SEGMENT INFORMATION AND REVENUES
+(a) Description of segments and principal activities (Cont'd)
+There were no material inter-segment sales during the years ended 31 December 2018 and 2017. The revenues
+from external customers reported to the chief operating decision-makers are measured in a manner consistent with
+that applied in the consolidated income statement.
+Other information, together with the segment information, provided to the chief operating decision-makers, is
+measured in a manner consistent with that applied in these consolidated financial statements. There were no
+segment assets and segment liabilities information provided to the chief operating decision-makers.
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2018 and 2017 is as follows:
+Year ended 31 December 2018
+VAS
+Online
+advertising
+Others
+11 TAXATION (Cont'd)
+Total
+Dividends distributed from certain jurisdictions that the Group's entities operate in are also subject to
+withholding tax at respective applicable tax rates.
+According to applicable tax regulations prevailing in the PRC, dividends distributed by a company established
+in the PRC to a foreign investor with respect to profit derived after 1 January 2008 are generally subject
+to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong, under the double taxation
+arrangement between Mainland China and Hong Kong, the relevant withholding tax rate applicable to the
+Group will be reduced from 10% to 5% subject to the fulfilment of certain conditions.
+Withholding tax
+(v)
+Income tax on profit arising from other jurisdictions, including the United States, Europe, East Asia and
+South America, has been calculated on the estimated assessable profit for the year at the respective rates
+prevailing in the relevant jurisdictions, ranging from 12.5% to 35%.
+(iv) Corporate income tax in other countries
+In addition, according to relevant tax circulars issued by the PRC tax authorities, certain subsidiaries of the
+Company are entitled to other tax concessions and they are exempt from corporate income tax for two years,
+followed by a 50% reduction in the applicable tax rates for the next three years, commencing from the first
+year of profitable operation, after offsetting tax losses generated in prior years.
+Certain subsidiaries of the Group in the PRC were approved as High and New Technology Enterprise, and
+accordingly, they were subject to a preferential corporate income tax rate of 15% for the years ended 31
+December 2018 and 2017. Moreover, according to the announcement and circular issued by relevant
+government authorities, for the year of 2015 and beyond, a software enterprise that qualifies as a national
+key software enterprise is subject to a preferential corporate income tax rate of 10%.
+PRC corporate income tax has been provided for at the applicable tax rates under the relevant regulations
+of the PRC after considering the available preferential tax benefits from refunds and allowances, and on
+the estimated assessable profit of entities within the Group established in the PRC for the years ended 31
+December 2018 and 2017. The general PRC corporate income tax rate is 25% in 2018 and 2017.
+(iii) PRC corporate income tax
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+161,903
+8,396
+4,850
+Auditor's remuneration
+2,908
+Interest and related expenses mainly arose from the borrowings and notes payable disclosed in Notes 34 and 35.
+10 SHARE OF PROFIT OF ASSOCIATES AND JOINT VENTURES
+Share of profit of associates (Note 20)
+Share of profit of joint ventures (Note 21)
+2018
+2017
+RMB'Million
+RMB'Million
+1,301
+730
+186
+4,669
+91
+821
+11 TAXATION
+(a) Income tax expense
+Income tax expense is recognised based on management's best knowledge of the income tax rates expected for
+the financial year.
+(i)
+Cayman Islands and British Virgin Islands corporate income tax
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2018 and 2017.
+(ii)
+Hong Kong profit tax
+Hong Kong profit tax has been provided for at the rate of 16.5% on the estimated assessable profit for the
+years ended 31 December 2018 and 2017.
+198 Tencent Holdings Limited
+RMB'Million
+1,487
+(152)
+(229)
+3,060
+- Audit services
+- Audit-related services
+- Non-audit services
+83
+76
+27
+15
+26
+21
+Note:
+(a)
+During the year ended 31 December 2018, the Group incurred expenses for the purpose of research and development of
+approximately RMB22,936 million (2017: RMB17,456 million), which comprised employee benefits expenses of RMB19,088
+million (2017: RMB14,766 million).
+No significant development expenses had been capitalised for the years ended 31 December 2018 and 2017.
+(b)
+Mainly included the amortisation charges of intangible assets in respect of media contents and game licences.
+Annual Report 2018 197
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+9
+FINANCE COSTS, NET
+Interest and related expenses
+Exchange gains
+2018
+2017
+RMB'Million
+RMB'Million
+4,898
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit of each operating segment. The selling and marketing expenses and general and
+administrative expenses are common costs incurred for these operating segments as a whole and therefore, they
+are not included in the measure of the segments' performance which is used by the chief operating decision-
+makers as a basis for the purpose of resource allocation and assessment of segment performance. Interest
+income, other gains/(losses), net, finance income/(costs), net, share of profit/(loss) of associates and joint ventures
+and income tax expense are also not allocated to individual operating segment.
+"Others" segment primarily comprises FinTech services, cloud services, television series and film production
+services and other services.
+Annual Report 2018 199
+Online advertising; and
+RMB'Million
+Segment revenues
+153,983
+40,439
+43,338
+237,760
+Gross profit
+92,594
+14,853
+9,478
+116,925
+Depreciation
+Amortisation
+1,858
+561
+3,892
+RMB'Million
+7,836
+Total
+advertising
+RMB'Million
+20,806
+18,629
+142,120
+Depreciation
+Amortisation
+1,996
+11,663
+1,376
+12,462
+3,658
+7,030
+573
+24,698
+Year ended 31 December 2017
+Online
+VAS
+RMB'Million
+Others
+102,685
+10,001
+192 Tencent Holdings Limited
+The Group also conducts operations in the United States of America ("United States"), Europe and other regions,
+and holds investments (including investments in associates, investments in joint ventures, FVPL, FVOCI (31
+December 2017: investments in associates, RCPs together with embedded deriatives recorded in OFA, investments
+in joint ventures, and AFS)) in various territories. The geographical information on the total assets is as follows:
+Operating assets
+- Mainland China
+- Others
+As at 31 December
+2018
+2017
+RMB'Million
+RMB'Million
+270,373
+219,285
+83,962
+59,770
+Investments
+Mainland China and Hong Kong
+237,760
+17,837
+312,694
+9,037
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+5
+SEGMENT INFORMATION AND REVENUES (Cont'd)
+(a) Description of segments and principal activities (Cont'd)
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in Mainland
+China. During the years ended 31 December 2018 and 2017, the place of incorporation on the total revenues is as
+follows:
+Revenues
+Mainland China
+- Others
+2018
+2017
+RMB'Million
+RMB'Million
+303,657
+229,767
+7,993
+Others.
+Gross profit
+77,969
+VAS;
+The Group has following reportable segments for the years ended 31 December 2018 and 2017:
+The chief operating decision-makers mainly include executive directors of the Company. They review the Group's
+internal reporting in order to assess performance, allocate resources, and determine the operating segments based
+on these reports.
+(a) Description of segments and principal activities
+SEGMENT INFORMATION AND REVENUES
+5
+The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
+worldwide provision for income taxes. Where the final tax outcome of these matters is different from the amounts
+that were initially recorded, such differences will impact current income tax and deferred income tax in the period
+in which such determination is made.
+312,694
+SEGMENT INFORMATION AND REVENUES (Cont'd)
+58,079
+176,646
+Segment revenues
+RMB'Million
+RMB'Million
+The income tax expense of the Group is analysed as follows:
+15,744
+14,482
+590
+(609)
+15,154
+RMB'Million
+RMB'Million
+The taxation on the Group's profit before income tax differs from the theoretical amount that would arise using the
+tax rate of 25% for the year (2017: 25%), being the tax rate of the major subsidiaries of the Group before enjoying
+preferential tax treatments, as follows:
+2017
+87,394
+15,091
+Profit before income tax
+2017
+2018
+23,245
+RMB'Million
+RMB'Million
+94,466
+88,215
+(1,487)
+(821)
+92,979
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Share of profit of associates and joint ventures
+(a) Income tax expense (Cont'd)
+21,848
+Effects of different tax rates applicable to different
+Current income tax
+Deferred income tax (Note 27)
+2018
+200
+15,744
+14,482
+Income tax expense
+(163)
+(266)
+Others
+1,004
+2,378
+Unrecognised deferred income tax assets
+3,150
+3,360
+subsidiaries (Note 27)
+Withholding tax on earnings expected to be remitted by
+1,087
+1,434
+Expenses not deductible for tax purposes
+(25)
+(43)
+Income not subject to tax
+(715)
+(958)
+Effects of tax holiday on assessable profit of certain subsidiaries
+11 TAXATION (Cont'd)
+(14,668)
+subsidiaries of the Group
+Tax calculated at a tax rate of 25%
+(10,442)
+393,071
+Notes to the Consolidated Financial Statements
+(iii)
+(ii) During the year ended 31 December 2018, 3,215,800 options were granted to one executive director of the
+Company (2017: 5,250,000 options were granted to one executive director of the Company), and 39,500
+awarded shares were granted to four independent non-executive directors of the Company (2017: 60,000
+awarded shares were granted to four independent non-executive directors of the Company).
+(i) Allowances and benefits in kind include leave pay, insurance premium and club membership.
+Note:
+297,142
+65
+215,374
+105
+76,236
+5,362
+2,033
+1,406
+627
+Yang Siu Shun
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+2,532
+1,905
+627
+Li Dong Sheng
+4,647
+3,811
+836
+No director received any emolument from the Group as an inducement to join or leave the Group or
+compensation for loss of office. No director waived or has agreed to waive any emoluments during the years
+ended 31 December 2018 and 2017.
+lan Charles Stone
+Annual Report 2018 207
+For the year ended 31 December 2018
+RMB'Million
+Buildings
+and office
+Computer
+Furniture
+16 PROPERTY, PLANT AND EQUIPMENT
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+208
+A final dividend in respect of the year ended 31 December 2018 of HKD1.00 per share (2017: HKD0.88 per share)
+was proposed pursuant to a resolution passed by the Board on 21 March 2019 and subject to the approval of the
+shareholders at the annual general meeting of the Company to be held on 15 May 2019 or any adjournment thereof.
+This proposed dividend is not reflected as dividend payable in the consolidated financial statements.
+A special dividend of approximately HKD250 million (equivalent to approximately RMB219 million) was declared in
+December 2018 to the shareholders of the Company by way of a distribution in respect of the separate listing of a non-
+wholly owned subsidiary on the New York Stock Exchange. Such dividend was subsequently paid by the Group in
+February 2019.
+The dividends amounting to RMB6,776 million (2017: RMB5,052 million) were paid during the year ended 31
+December 2018.
+15 DIVIDENDS
+No significant transactions, arrangements and contracts in relation to the Group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+(e) Directors' material interests in transactions, arrangements or contracts
+No loans, quasi-loans and other dealings in favour of directors, their controlled bodies corporate and connected
+entities subsisted at the end of the year or at any time during the year.
+(d) Information about loans, quasi-loans and other dealings in favour of directors, their controlled bodies
+corporate and connected entities
+No consideration provided to or receivable by third parties for making available directors' services subsisted at the
+end of the year or at any time during the year.
+(c) Consideration provided to third parties for making available directors' services
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(b) Directors' termination benefits
+14 BENEFITS AND INTERESTS OF DIRECTORS (Cont'd)
+Notes to the Consolidated Financial Statements
+4,731
+3,811
+920
+Salaries and
+Allowances
+Share-based
+Contributions
+During the year ended 31 December 2017:
+(a) Directors' and the chief executive's emoluments (Cont'd)
+14 BENEFITS AND INTERESTS OF DIRECTORS (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+206
+368,430
+145
+296,509
+118
+65,683
+5,975
+3,201
+2,325
+876
+Yang Siu Shun
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+to pension compensation
+and benefits
+Name of director
+Fees
+lain Ferguson Bruce
+237,262
+65
+204,441
+31,580
+1,176
+Lau Chi Ping Martin
+45,937
+105
+44,656
+1,176
+equipment
+RMB'Million
+Ma Huateng (CEO)
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+Total
+in kind
+expenses
+plans
+bonuses
+(Note (i))
+2,832
+equipment
+Motor Leasehold
+vehicles improvements
+RMB'Million RMB'Million
+9,313
+Cost
+At 31 December 2018
+35,091
+1,282
+18
+575
+25,581
+7,635
+Closing net book amount
+97
+32
+(3)
+69
+(1)
+Currency translation differences
+(8,396)
+(249)
+33
+(172)
+(7,322)
+(650)
+Depreciation
+44,835
+(30)
+1,370
+2,443
+209
+Annual Report 2018
+35,091
+1,282
+18
+575
+25,581
+7,635
+Net book amount
+135
+80
+13
+43
+(1)
+Currency translation differences
+(23,049)
+(1,241)
+(26)
+(808)
+(19,297)
+(1,677)
+Accumulated depreciation and impairment
+58,005
+44
+(2)
+(1)
+(25)
+Net book amount
+38
+48
+16
+(26)
+Currency translation differences
+(17,064)
+(1,023)
+(24)
+(659)
+(14,337)
+(1,021)
+Accumulated depreciation and impairment
+40,623
+2,090
+41
+1,136
+28,504
+8,852
+Cost
+At 1 January 2018
+RMB'Million
+Total
+7,831
+14,141
+493
+17
+Disposals
+19,814
+383
+3
+255
+18,716
+457
+Additions
+9
+3
+1
+RMB'Million
+3
+Business combinations
+23,597
+1,115
+17
+493
+14,141
+7,831
+Opening net book amount
+Year ended 31 December 2018
+23,597
+1,115
+2
+Tencent Holdings Limited
+2,131
+Li Dong Sheng
+3,355
+Welfare, medical and other expenses (Note)
+6,253
+7,900
+Share-based compensation expenses
+1,934
+2,553
+Contributions to pension plans (Note)
+24,194
+28,236
+Wages, salaries and bonuses
+RMB'Million
+RMB'Million
+2017
+2018
+7.499
+8.228
+9,536
+9,568
+125
+124
+9,411
+9,444
+2,400
+71,510
+Training expenses
+85
+2017
+RMB'000
+2018
+RMB'000
+Share-based compensation expenses
+Contributions to pension plans
+Salaries, bonuses, allowances and benefits in kind
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services excluding the directors and the
+CEO, whose details have been reflected in Note 14(a), is as follows:
+5.2 11.5%
+0.5-1.5%
+10.0 12.0%
+12.0 - 20.0%
+Percentage
+(a) Senior management's emoluments
+Housing fund
+Unemployment insurance
+Medical insurance
+Pension insurance
+Majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred.
+The applicable percentages used to provide for these social security plans for the years ended 31 December 2018 and 2017 are listed
+below:
+For the year ended 31 December 2018
+Note:
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+202
+34,866
+42,153
+109
+78,719
+2017
+2018
+Effective from 1 May 2018, the 17% and 11% VAT rates applicable to certain goods and services have been reduced to 16%
+and 10%, respectively.
+Note:
+Net VAT payable amount
+5%
+Educational surcharge
+Net VAT payable amount
+7%
+City construction tax
+Taxable advertising income
+3%
+Construction fee for cultural undertakings
+fee income, offsetting by VAT on purchases
+(Note)
+Sales value of goods sold and services
+6-17%
+Basis of levy
+Tax rate
+Value-added tax ("VAT")
+Category
+The operations of the Group are also mainly subject to the following taxes in the PRC:
+(b) Value-added tax and other taxes
+11 TAXATION (Cont'd)
+For the year ended 31 December 2018
+12 EARNINGS PER SHARE
+(a) Basic
+Basic earnings per share ("EPS") is calculated by dividing the profit attributable to equity holders of the Company
+by the weighted average number of ordinary shares in issue during the year.
+2018
+13 EMPLOYEE BENEFITS EXPENSES
+Diluted EPS (RMB per share)
+Weighted average number of ordinary shares for the calculation
+of diluted EPS (million shares)
+Weighted average number of ordinary shares in issue (million shares)
+Adjustments for share options and awarded shares (million shares)
+Profit attributable to equity holders of the Company (RMB'Million)
+In addition, the share options and restricted shares granted by the Company's non-wholly owned subsidiaries and
+associates should also have potential dilutive effect on the EPS. During the years ended 31 December 2018 and
+2017, these share options and restricted shares had either anti-dilutive effect or insignificant dilutive effect to the
+Group's diluted EPS.
+(b) Diluted (Cont'd)
+12 EARNINGS PER SHARE (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 201
+329,721
+by the Company (collectively forming the denominator for computing the diluted EPS). No adjustment is made to
+earnings (numerator).
+(b) Diluted
+7.598
+8.336
+Basic EPS (RMB per share)
+9,411
+9,444
+Weighted average number of ordinary shares in issue (million shares)
+71,510
+78,719
+Profit attributable to equity holders of the Company (RMB'Million)
+2017
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption
+of the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted
+701
+285,322
+891
+Total
+in kind
+expenses
+plans
+bonuses
+Fees
+Name of director
+and benefits
+to pension compensation
+Salaries and
+Allowances
+Share-based
+Contributions
+During the year ended 31 December 2018:
+The remuneration of every director and the CEO is set out below:
+(a) Directors' and the chief executive's emoluments
+14 BENEFITS AND INTERESTS OF DIRECTORS
+For the year ended 31 December 2018
+205
+Annual Report 2018
+1
+1
+2 | |--
+RMB'000
+| 21 | |
+RMB'000
+RMB'000
+5,226
+4,262
+964
+lan Charles Stone
+4,856
+-- 3,892
+964
+lain Ferguson Bruce
+313,473
+125
+283,899
+28,214
+1,235
+Lau Chi Ping Martin
+38,842
+20
+118
+37,469
+1,235
+Ma Huateng (CEO)
+(Note (i))
+RMB'000
+RMB'000
+RMB'000
+1
+2017
+2018
+2
+4
+4
+1
+1
+2018
+Number of individuals
+HKD215,000,001 ~ HKD815,000,000
+HKD115,000,001 ~ HKD165,000,000
+HKD65,000,001 ~ HKD115,000,000
+HKD40,000,001 ~ HKD65,000,000
+HKD800,000 - HKD15,000,000
+Emolument bands
+The emoluments of the senior management fell within the following bands:
+(a) Senior management's emoluments (Cont'd)
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 203
+1,460,529
+1,886,266
+1,174,316
+1,555,671
+2017
+125 22
+(b) Five highest paid individuals
+The five individuals whose emoluments were the highest in the Group include one director during the year 2018
+(2017: one). All of these individuals including that one director (Note 14(a)) have not received any emolument
+from the Group as an inducement to join the Group during the years ended 31 December 2018 and 2017. The
+emoluments paid/payable to the remaining four (2017: four) individuals during the year were as follows:
+Number of individuals
+HKD477,500,001 ~ HKD478,000,000
+HKD545,500,001 ~ HKD546,000,000
+HKD628,000,001 ~ HKD628,500,000
+HKD196,500,001 ~ HKD197,000,000
+HKD228,500,001 ~ HKD229,000,000
+HKD430,000,001 ~ HKD430,500,000
+Emolument bands
+The emoluments of the above four individuals (2017: four) fell within the following bands:
+(b) Five highest paid individuals (Cont'd)
+13 EMPLOYEE BENEFITS EXPENSES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+1,142,171
+1,373,669
+874
+39
+805,807
+968,642
+10,909
+11,872
+325,416
+2017
+RMB'000
+2018
+RMB'000
+204 Tencent Holdings Limited
+Share-based compensation expenses
+Allowances and benefits in kind
+Contributions to pension plans
+Salaries and bonuses
+84
+Notes to the Consolidated Financial Statements
+1,787
+8,768
+998
+Business combinations
+36,467
+2,352
+242
+7,776
+1,635
+1,535
+22,927
+Opening net book amount
+Year ended 31 December 2017
+36,467
+2,352
+45
+242
+1,635
+1,535
+22,927
+Net book amount
+260
+3
+17
+20
+10
+209
+Currency translation differences
+(18,004)
+(796)
+7,776
+38
+1,081
+Additions
+(256)
+(26)
+5
+(35)
+(4)
+(16)
+Currency translation differences
+(239)
+(115)
+(124)
+Impairment provision
+(18,622)
+(497)
+(124)
+(17,221)
+(448)
+(332)
+Amortisation
+(51)
+(12)
+(19)
+(13)
+Disposals
+21,886
+172
+207
+21,017
+170
+320
+(630)
+Closing net book amount
+(13,121)
+(1,118)
+497
+17,604
+1,054
+1,850
+32,605
+Net book amount
+302
+(12)
+10
+56
+17
+8
+223
+3,040
+Currency translation differences
+(1,919)
+(883)
+(33,706)
+(459)
+(2,060)
+(1,348)
+Accumulated amortisation and impairment
+96,723
+4,971
+1,370
+51,254
+1,496
+3,902
+(40,375)
+56,650
+212
+Tencent Holdings Limited
+(439)
+Accumulated amortisation and impairment
+54,211
+3,147
+869
+20,880
+3,515
+2,643
+23,157
+Cost
+At 1 January 2017
+RMB'Million
+Total
+Others
+Copyrights
+RMB'Million RMB'Million
+RMB'Million RMB'Million RMB'Million
+RMB'Million
+contents
+licences
+technology
+Goodwill
+online
+Game
+software and
+Licensed
+Computer
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+19 INTANGIBLE ASSETS (Cont'd)
+(1,900)
+33,730
+23,608
+1,334
+(1,277)
+(14,069)
+Impairment provision (Note (c))
+2,861
+Share of other changes in net assets of associates
+907
+24
+Share of other comprehensive income of associates
+730
+1,301
+Share of profit of associates (Note 10)
+9,892
+1,661
+Dividends
+Deemed disposal gains (Note 7(c))
+71,593
+Transfers (Note (b))
+19,122
+40,918
+70,042
+113,779
+Additions (Note (a))
+At beginning of the year
+RMB'Million
+RMB'Million
+2017
+2018
+113,779
+20,825
+Disposals
+Currency translation differences
+At end of the year
+new investments in other associates and additional investments in existing associates, with an aggregate amount of
+approximately RMB16,606 million. These associates are principally engaged in online games, smart retails, technology
+and other Internet-related business.
+an investment in an investment bank in the PRC of approximately RMB2,316 million to subscribe for approximately 5% of
+its equity interests on an outstanding basis; and
+subscription of certain additional shares of a leading eCommerce platform for services in the PRC upon its IPO of
+approximately RMB2,757 million. Immediately before its IPO, the Group's investment in this investee company of
+approximately RMB48,173 million was classified as FVPL (Note 20(b)), and subsequently transferred to investment in an
+associate due to the conversion of preferred shares held by the Group to ordinary shares with board representation upon
+its IPO. As at 31 December 2018, the Group's equity interests in this investee company are approximately 19% on an
+outstanding basis;
+an new investment in an online game company in the PRC of approximately RMB2,985 million to subscribe for
+approximately 12% of its equity interests on an outstanding basis;
+an additional investment in a media and entertainment company in the PRC of approximately RMB3,998 million. As at 31
+December 2018, the Group's equity interests in this investee company are approximately 43% on an outstanding basis;
+an additional investment in a media and entertainment company in the PRC of approximately RMB4,800 million which
+was previously recognised as FVPL. Subsequently, such investment of approximately RMB3,461 million was transferred to
+investment in a subsidiary through an acquisition made by a non-wholly owned subsidiary (Note 40(a));
+(vii)
+(vi)
+(v)
+(iv)
+(iii)
+(ii)
+an additional investment in an eCommerce company in the PRC of approximately RMB7,456 million. As at 31 December
+2018, the Group's equity interests in this investee company are approximately 17% on an outstanding basis;
+(i)
+During the year ended 31 December 2018, the Group's additions to investments in associates mainly comprised the following:
+(a)
+Note:
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 215
+113,779
+219,215
+(5,897)
+2,780
+(253)
+(725)
+(312)
+(908)
+219,215
+1,504
+52,844
+60,935
+4
+(25)
+8
+(18)
+16
+29
+Currency translation differences
+(27,427)
+(1,277)
+(747)
+(21,961)
+(1,441)
+(1,437)
+Net book amount
+(564)
+67,689
+3,225
+1,066
+33,549
+2,759
+2,947
+24,143
+Cost
+At 31 December 2017
+40,266
+1,923
+327
+11,570
+Accumulated amortisation and impairment
+23,608
+1,504
+1,334
+130,633
+RMB'Million
+2017
+RMB'Million
+2018
+As at 31 December
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+- Unlisted entities
+- Listed entities
+Investments in associates
+20 INVESTMENTS IN ASSOCIATES
+214 Tencent Holdings Limited
+When determining the recoverable amounts, management has not identified reasonably possible change in key
+assumptions that could cause the CGU's (group of CGUS') carrying amount to exceed the recoverable amount.
+For goodwill attributable to the Group's online game business, fair value less costs of disposal was determined based on
+ratios of EV (enterprise value) divided by EBITDA (earnings before interest, tax, depreciation and amortization) of several
+comparable public companies (ranging with 11-21x) (2017: ranging with 16-23x) multiplied by the EBITDA of the related
+CGU (group of CGUs) and discounted for the lack of marketability at a range of 10% to 20% (2017: 10% to 20%). The
+comparable public companies were chosen based on factors such as industry similarity, company size, profitability and
+financial risks.
+For goodwill attributable to the Group's online music business, online literature business and television series and film
+production business, value in use was determined using discounted cash flows calculations which derived from the five-
+year financial projections plus a terminal value related to cash flows beyond the projection period extrapolated using an
+estimated terminal growth rate of not more than 5% (2017: not more than 5%). Management leveraged their experiences
+in the industries and provided forecast based on past performance and their anticipation of future business and market
+developments. Pre-tax discount rates ranging from 15% to 25% (2017: 20% to 25%) were applied in the discounted
+cash flows calculations, which reflected assessments of time value and the specific risks relating to the respective
+industries.
+The key assumptions used for the calculation of the recoverable amounts of the CGUs under impairment testing were as
+follows:
+Goodwill was allocated to VAS segment with RMB25,672 million (31 December 2017: RMB23,608 million) and Others
+segment with RMB6,933 million (31 December 2017: Nil). The Group carries out its impairment testing on goodwill by
+comparing the recoverable amounts of CGUS or groups of CGUS to their carrying amounts. For the purpose of goodwill
+impairment review, the recoverable amount of a CGU (group of CGUS) is the higher of its value in use and fair value less
+costs of disposal.
+Impairment tests for goodwill
+During the year ended 31 December 2018, impairment losses of RMB1,181 million (2017: RMB239 million) on goodwill
+and other intangible assets were charged to the consolidated income statement under "Other gains/(losses), net",
+resulting from revisions of financial/business outlook and changes in the market environment of the underlying business.
+During the year ended 31 December 2018, amortisation of RMB24,698 million (2017: RMB17,837 million) and
+RMB918 million (2017: RMB785 million) were charged to cost of revenues and general and administrative expenses,
+respectively.
+19 INTANGIBLE ASSETS (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 213
+40,266
+1,923
+327
+11,570
+88,582
+Cost
+At 31 December 2018
+56,650
+(659)
+(14,337)
+(1,021)
+Accumulated depreciation and impairment
+Currency translation differences
+40,623
+2,090
+41
+1,136
+28,504
+8,852
+Cost
+At 31 December 2017
+23,597
+(24)
+1,115
+493
+14,141
+7,831
+Closing net book amount
+(53)
+(20)
+(3)
+(30)
+Currency translation differences
+(4,850)
+(235)
+61
+(138)
+17
+(1,023)
+(17,064)
+(26)
+2,809
+4,674
+3,163
+RMB'Million
+RMB'Million
+2017
+2018
+Closing net book amount
+Currency translation differences
+Transfer to investment properties
+Transfer to property, plant and equipment
+Additions
+Opening net book amount
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+17 CONSTRUCTION IN PROGRESS
+Tencent Holdings Limited
+210
+During the year ended 31 December 2018, depreciation of RMB7,030 million (2017: RMB3,892 million), RMB153
+million (2017: RMB134 million) and RMB1,213 million (2017: RMB824 million) were charged to cost of revenues,
+selling and marketing expenses and general and administrative expenses, respectively.
+23,597
+1,115
+17
+493
+14,141
+7,831
+Net book amount
+38
+48
+16
+(4,243)
+3,204
+(228)
+(47)
+(13,786)
+(807)
+(18)
+(544)
+(11,610)
+(807)
+Accumulated depreciation and impairment
+27,595
+31
+902
+20,374
+4,501
+Cost
+Currency translation differences
+At 1 January 2017
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+16 PROPERTY, PLANT AND EQUIPMENT (Cont'd)
+Furniture
+Computer
+and office
+Motor Leasehold
+Buildings
+equipment
+RMB'Million
+equipment
+RMB'Million RMB'Million
+vehicles improvements
+Total
+RMB'Million RMB'Million RMB'Million
+4
+19
+68
+(32)
+Disposals
+14,643
+323
+10
+260
+9,678
+4,372
+Additions
+4
+2
+2
+Business combinations
+13,900
+1,048
+13
+377
+3,694
+Opening net book amount
+Year ended 31 December 2017
+13,900
+1,048
+13
+13
+377
+8,768
+3,694
+Net book amount
+91
+Depreciation
+(1,094)
+(4,682)
+(31)
+32,232
+392
+345
+30,808
+165
+522
+Additions
+11,901
+1,440
+420
+454
+9,587
+Business combinations
+Disposals
+40,266
+327
+11,570
+1,334
+1,504
+23,608
+Opening net book amount
+Year ended 31 December 2018
+40,266
+1,923
+327
+11,570
+1,334
+1,504
+1,923
+(44)
+(1,156)
+(21)
+3,040
+497
+17,604
+1,054
+1,850
+32,605
+Closing net book amount
+298
+13
+2
+74
+14
+194
+Currency translation differences
+(1,181)
+(209)
+(1)
+(187)
+(784)
+Impairment provision
+(25,616)
+(490)
+(155)
+(24,112)
+(402)
+(457)
+Amortisation
+(1,250)
+(29)
+23,608
+Net book amount
+4
+(25)
+software and
+Licensed
+Computer
+19 INTANGIBLE ASSETS
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 211
+The land use rights represent prepaid operating lease payments in respect of land in the PRC with remaining lease
+period of 37 to 50 years.
+5,111
+7,106
+(109)
+(353)
+46
+2,348
+5,174
+5,111
+RMB'Million
+RMB'Million
+2017
+2018
+Closing net book amount
+Amortisation
+Additions
+Opening net book amount
+18 LAND USE RIGHTS
+As at 31 December 2018, construction in progress mainly comprised office buildings and data centres under
+construction located in the PRC.
+3,163
+4,879
+1
+Game
+216 Tencent Holdings Limited
+online
+technology
+8
+(18)
+16
+(6)
+29
+Currency translation differences
+(27,427)
+(1,277)
+(747)
+(21,961)
+(1,441)
+(1,437)
+(564)
+Accumulated amortisation and impairment
+67,689
+3,225
+1,066
+33,549
+2,759
+2,947
+24,143
+Cost
+At 1 January 2018
+RMB'Million
+Total
+Others
+contents Copyrights
+RMB'Million RMB'Million RMB'Million
+RMB'Million RMB'Million
+licences
+Goodwill
+RMB'Million
+Notes to the Consolidated Financial Statements
+(180)
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+Place of
+incorporation
+Meituan Dianping
+Name of entity
+Particulars of a material associate of the Group, as determined by the directors, are set out below:
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+218
+Management has assessed the level of influence that the Group exercises on certain associates with the respective
+shareholding below 20% and associates with shareholding over 50%, with total carrying amounts of RMB149,175
+million and RMB24,948 million as at 31 December 2018, respectively (31 December 2017: RMB56,768 million and
+RMB18,836 million, respectively). Management determined that it has significant influence thereon through the board
+representation or other arrangements made, and it has no control or joint control over such investees as the Group has
+no power to direct relevant activities due to other arrangements made. Consequently, these investments have been
+classified as associates.
+1,637
+907
+730
+109,681
+PRC
+118,248
+225
+25,659
+75,184
+128,028
+45
+845
+505
+84,022
+43,064
+103,999
+287
+156,968
+1,350
+Non-listed entities
+232,027
+Listed entities
+Interest held
+Principal activities/place of operation
+For the year ended 31 December 2018
+219
+Annual Report 2018
+50,245
+33,756
+Carrying amount
+Goodwill and others
+16,489
+Group's share in RMB
+19.06%
+Group's share in %
+86,510
+Net assets
+Reconciliation to carrying amounts:
+indirectly
+86,510
+2,327
+Non-current liabilities
+31,825
+Current liabilities
+Non-current assets
+73,150
+Current assets
+RMB'Million
+As at
+31 December
+2018
+Summarised consolidated balance sheet
+Set out below are the summarised financial information of Meituan Dianping extracted from its financial statements
+prepared under IFRS.
+Except Meituan Dianping, the directors of the Company considered that there is no other individual investment which
+was determined as a material associate.
+eCommerce platform for services/the PRC
+19.06%
+Total equity
+2017
+47,512
+24
+prehensive
+prehensive
+continuing
+Total com-
+Other com-
+Profit/
+(loss) from
+of stakes in
+Fair value
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates,
+as well as the fair value of our stakes in the associates which are listed entities, are shown in aggregate as follows:
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 217
+The associates of the Group have been accounted for by using equity method based on the financial information of the associates
+prepared under the accounting policies generally consistent with the Group.
+listed
+associates
+as at
+As a result, the Group made an aggregate impairment provision of RMB14,069 million (2017: RMB1,277 million) against the
+carrying amounts of certain investments in associates during the year ended 31 December 2018, which includes impairment loss
+of approximately RMB15,684 million recognised and approximately RMB1,615 million reversed. The impairment losses mainly
+resulted from revisions of financial/business outlook of the associates and changes in the market environment of the underlying
+business.
+Both external and internal sources of information of associates are considered in assessing whether there is any indication that
+the investment may be impaired, including but not limited to financial position, business performance and market capitalisation.
+The Group carries out impairment assessment on those investments with impairment indications, and the respective recoverable
+amounts of investments are determined with reference to the higher of fair value less costs of disposal and value in use.
+the Group also transferred several other investments from FVPL to investments in associates at an aggregate amount of
+approximately RMB2,009 million as a result of obtaining board representation.
+the Group transferred several investments from FVPL to investments in associates at an aggregate amount of approximately
+RMB5,426 million upon the conversion of the redeemable instruments or preferred shares into ordinary shares upon their
+IPOs, mainly comprising investee companies that are principally engaged in automotive industry; and
+an acquisition of approximately 4% in a commercial property company in the PRC at a consideration of approximately
+RMB10,266 million was carried out in certain tranches and completed in September 2018. The board representation was
+effective upon the completion of final tranche and the investment was transferred from FVPL accordingly;
+(iv)
+(iii)
+(ii)
+(i)
+During the year ended 31 December 2018, transfers comprised of associates achieved in stages of an aggregate amount of
+approximately RMB75,931 million, and associates transferred to financial instruments or subsidiaries of an aggregate amount
+of approximately RMB4,338 million. In addition to the transfer described in Note 20(a) (v) and Note 23(a) (iii), the transfers in
+relation to associates achieved in stages mainly include:
+(d)
+(c)
+(b)
+Note: (Cont'd)
+1,325
+In respect of the recoverable amount using value in use, the discounted cash flows calculations were based on cash flow
+projections estimated by management and the key assumptions adopted in these cash flow projections include revenue growth
+rate, profit margins and discount rate. The pre-tax discount rates adopted range from 15% to 20%. In respect of the recoverable
+amount based on fair value less costs of disposal, except for those listed associates using their respective market prices, the
+fair value less costs of disposal was calculated using certain key valuation assumptions including the selection of comparable
+companies, recent market transactions and liquidity discount for lack of marketability.
+Assets
+an investment in an Indian eCommerce company of approximately RMB5,386 million was transferred from FVPL, due to
+certain contractual rights attached to this investment having been changed;
+Revenues
+1,301
+Liabilities
+173,108
+216,895
+436,110
+4,637
+(1)
+47,081
+137,217
+225,799
+Non-listed entities
+187,339
+(3,312)
+25
+(3,337)
+4,638
+79,678
+income
+operation
+126,027
+income/(loss) 31 December
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+2018
+Listed entities
+210,311
+RMB'Million
+Annual Report 2018 227
+Included in non-current assets:
+As at 31 December 2018, the carrying amounts of deposits and other assets (excludes prepayments and refundable
+value-added tax), were approximate to their fair values. Deposits and other assets were neither past due nor impaired.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+Running royalty fees for online games comprises of prepaid royalty fees, unamortised running royalty fees and deferred Online
+Service Fees.
+26 OTHER FINANCIAL ASSETS
+Other financial assets were measured at their fair values.
+As at 31 December 2018, the Group's non-current other financial assets comprised interest rate swap contracts of
+RMB1,693 million for interest rate hedging purpose, which swap the floating interest rates into fixed interest rates. The
+aggregate notional principal amounts of the Group's outstanding interest rate swap contracts were USD11,311 million
+(equivalent to approximately RMB77,630 million) (31 December 2017: USD10,741 million (equivalent to approximately
+RMB70,184 million)). These interest rate swap contracts were qualified for hedge accounting. (31 December 2017: the
+Group's non-current other financial assets also included the embedded derivatives bifurcated from their host contracts
+which mainly comprised the conversion options bifurcated from their corresponding host components that were
+classified as AFS and investments in redeemable instruments of associates of RMB3,818 million.)
+27 DEFERRED INCOME TAXES
+As at 31 December 2018, the Group's current other financial assets mainly comprised call option rights held by the
+Group to acquire additional equity interests in an investee company of the Group, amounting to RMB312 million (31
+December 2017: RMB465 million).
+228 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+There was no offsetting of deferred income tax assets and liabilities in 2018 and 2017.
+Deferred income tax assets:
+As at 31 December 2018, the balances of loans to investees and investees' shareholders are mainly repayable within a period
+of one to five years (included in non-current assets), or within one year (included in current assets), and are interest-bearing at
+rates of not higher than 12.0% per annum (31 December 2017: not higher than 8.0% per annum).
+- to be recovered within 12 months
+- to be recovered after more than 12 months
+Included in current assets:
+(b)
+693
+Note:
+Refundable value-added tax
+Deferred income tax liabilities:
+915
+579
+Loans to investees and investees' shareholders (Note (a))
+225
+521
+Rental deposits and other deposits
+220
+(a)
+Dividend and other investment-related receivables
+222
+During the year ended 31 December 2018, the Group disposed of certain investments with an aggregate amount of RMB14,805
+million, which are mainly engaged in the provision of Internet-related services.
+Others
+1,863
+2,089
+18,493
+17,110
+40,024
+28,283
+338
+- to be recovered after more than 12 months
+Credited to consolidated statement of changes in equity
+The movements of the deferred income tax assets/liabilities account were as follows:
+Credited/(charged) to consolidated income statement (Note 11)
+609
+(590)
+Withholding tax paid
+1,773
+2,451
+187
+164
+Business combinations
+1,880
+Other additions
+At end of the year
+(501)
+(21)
+(986)
+(109)
+(66)
+4,791
+3,818
+2,703
+Currency translation differences
+- to be recovered within 12 months
+3,818
+RMB'Million
+As at 31 December
+2018
+2017
+RMB'Million
+RMB'Million
+7,216
+4,510
+8,539
+5,283
+At beginning of the year
+15,755
+(9,834)
+(5,583)
+(1,130)
+(392)
+(10,964)
+(5,975)
+2018
+2017
+RMB'Million
+9,793
+1,697
+(i)
+4,095
+(v)
+(iv)
+(iii)
+(ii)
+(b)
+Annual Report 2018
+a new investment in a retail company in the PRC of approximately RMB4,216 million to acquire approximately 5% of its
+equity interests on an outstanding basis;
+During the year ended 31 December 2018, the Group's additions to FVOCI mainly comprised the following:
+(a)
+(vi)
+Note:
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+43,519
+2,516
+(22,200)
+(16,578)
+3,577
+58,515
+17,689
+RMB'Million
+24 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (Cont'd)
+2018
+an additional investment in an Internet-related company in the United States of approximately RMB3,712 million to further
+acquire approximately 3% of its equity interests on an outstanding basis;
+an additional investment in a media and entertainment company listed on the New York Stock Exchange of approximately
+RMB2,508 million, to further acquire certain equity interests;
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December
+Included in current assets:
+Others
+Prepayments for capital investments in investees
+Running royalty fees for online games (Note (b))
+a new investment in an online game company in France of approximately RMB2,900 million, to acquire approximately 5%
+of its equity interests on an outstanding basis;
+Loans to investees and investees' shareholders (Note (a))
+Included in non-current assets:
+25 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+226
+During the year ended 31 December 2018, the Group partially disposed of certain listed investments, with total gains of
+approximately RMB9,561 million on disposals of FVOCI transferred from other reserves to retained earnings.
+certain new investments and additional investments with an aggregate amount of approximately RMB2,162 million, most
+of which are principally engaged in technology services and operate in the PRC.
+an additional investment in a media and entertainment company in the PRC of approximately RMB2, 191 million, to
+acquire approximately 7% of its equity interests on an outstanding basis; and
+Prepayments for media contents and game licences
+43,519
+1,941
+41,578
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+224
+Management has assessed the level of influence that the Group exercises on certain FVPL with shareholding exceeding 20%.
+Since these investments are either held in form of redeemable instruments or interests in limited life partnership without
+significant influence, these investments have been classified as FVPL.
+During the year ended 31 December 2018, the Group made a large number of individual investments recognised as FVPL, but
+none of them was significant enough to trigger the disclosure requirements pursuant to Chapter 14 of the Listing Rules at the
+time when the Group made such investments.
+3,864
+2,058
+99
+149
+For the year ended 31 December 2018
+619
+3,297
+1,901
+21,531
+11,173
+Prepayments and prepaid expenses
+7,532
+6,681
+Running royalty fees for online games (Note (b))
+5,230
+34
+24 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
+FVOCI include the following:
+Equity investments in listed entities
+3,093
+5,365
+33,120
+RMB'Million
+2018
+225
+Annual Report 2018
+As at 31 December
+At end of the year
+Currency translation differences
+Disposals (Note (b))
+Changes in fair value
+Transfers (Note 23(b))
+Additions (Note (a))
+Adjustment on adoption of IFRS 9 (Note 2.2(a))
+At beginning of the year
+Movement of FVOCI is analysed as follows:
+Others
+- France
+- Mainland China
+United States
+Interest receivables
+229
+Transactions with associates
+2,590
+2,154
+279,168
+203,572
+The Group's exposure to various risks associated with the financial instruments is discussed in Note 3. The maximum
+exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
+mentioned above.
+Annual Report 2018
+221
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+23 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
+FVPL include the following:
+Included in non-current assets:
+Investments in listed entities
+- Japan
+4,506
+- United Kingdom
+- Sweden
+- Mainland China
+– Hong Kong
+- South Korea
+As at 31 December
+2018
+RMB'Million
+3,360
+2,613
+1,442
+539
+537
+398
+234
+- United States
+Other financial liabilities
+15,566
+16,841
+RCPS
+22,976
+FVPL (Note 23)
+97,877
+FVOCI (Note 24)
+43,519
+OFA (Note 26)
+AFS
+2,032
+5,624
+127,218
+345,934
+331,245
+Financial liabilities
+Financial liabilities at amortised cost:
+Borrowings (Note 34)
+Notes payable (Note 35)
+114,271
+97,790
+65,018
+34,115
+Long-term payables (Note 36)
+4,797
+3,862
+Accounts payable (Note 38)
+73,735
+50,085
+Other payables and accruals (excluding prepayments received from customers
+and others, staff costs and welfare accruals) (Note 39)
+9,123
+1,606
+Investments in unlisted entities
+Others
+(ii)
+an additional investment in a real estate 020 platform of approximately RMB3,478 million. As at 31 December 2018, the
+Group's equity interests in this investee company are approximately 7% on an outstanding basis;
+(iii)
+(iv)
+an investment in a media and entertainment company of approximately RMB2,922 million to subscribe for approximately
+35% of its equity interests in form of preferred shares, on an outstanding basis. Immediately before its IPO, the Group's
+investment in this investee company of approximately RMB4,671 million was classified as FVPL and subsequently
+transferred to investment in an associate due to the conversion of preferred shares held by the Group to ordinary shares
+upon its IPO. As at 31 December 2018, the Group's equity interests in this investee company are approximately 32% on
+an outstanding basis;
+additional equity interests obtained in a disposal of the equity interests in an investee company, to another investee
+company of the Group at a total consideration of approximately USD551 million (equivalent to approximately RMB3,481
+million) comprised of cash and its equity interests. The acquirer is principally engaged in the provision of Internet-related
+services, and the investment in this acquirer was reclassified to investment in an associate due to the conversion of
+preferred shares held by the Group to ordinary shares with board representation upon its IPO as described in Note 20(a) (v)
+above;
+Annual Report 2018 223
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+23 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Cont'd)
+Note: (Cont'd)
+(a)
+(Cont'd)
+an investment in a commercial property company in the PRC which was carried out in certain tranches and completed in
+September 2018 as detailed in Note 20(b) (i);
+(v)
+(c)
+(d)
+(e)
+(vi)
+(vii)
+an additional investment in an Asian online game company of approximately RMB2,799 million. Subsequent to the
+additional investment, the Group obtained the board representation and the investment was transferred to investment in
+an associate accordingly;
+an additional investment in a media and entertainment company of approximately RMB2,536 million. As at 31 December
+2018, the Group's equity interests in this investee company are approximately 14% on an outstanding basis; and
+new investments and additional investments with an aggregate amounts of approximately RMB36,263 million in listed and
+unlisted entities mainly operated in the United States, the PRC and other Asian countries. These companies are principally
+engaged in online games, entertainment, technology and other Internet-related business.
+During the year ended 31 December 2018, in addition to the transfers of FVPL to investments in associates with an aggregate
+amount of approximately RMB75,931 million described in Note 20(b) above, the transfers mainly include:
+(i)
+(ii)
+the Group designated certain investments with an aggregate amount of approximately RMB3,577 million as FVOCI upon
+their IPOs, and these investments were previously recorded as FVPL due to the form of redeemable instruments or
+preferred shares; and
+the Group also transferred certain investments with an aggregate amount of approximately RMB692 million from
+investments in associates to FVPL as a result of changes in nature of these investments.
+(b)
+(i)
+During the year ended 31 December 2018, the Group's additions to FVPL mainly comprised the following:
+(a)
+4,345
+91,702
+Included in current assets:
+Treasury investments and others
+222 Tencent Holdings Limited
+6,175
+97,877
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+23 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Cont'd)
+Movement of FVPL is analysed as follows:
+At beginning of the year
+Adjustment on adoption of IFRS 9 (Note 2.2(a))
+Additions (Note (a))
+Transfers (Note (b))
+Changes in fair value (Note 7(a))
+Disposals (Note (c))
+Currency translation differences
+At end of the year
+Note:
+2018
+RMB'Million
+95,497
+60,807
+(78,816)
+28,738
+(14,805)
+6,456
+97,877
+78,234
+Restricted cash (Note 30(b))
+7,031
+21 INVESTMENTS IN JOINT VENTURES
+22 FINANCIAL INSTRUMENTS BY CATEGORY
+For the year ended 31 December 2018
+Tencent Holdings Limited
+220
+During the year ended 31 December 2018, the Group made an aggregate impairment provision of RMB2,328 million
+(2017: Nil) against the carrying amounts of the investments in joint ventures, based on the respective assessed
+recoverable amount.
+Share of profit amounting to RMB186 million was recognised during the year ended 31 December 2018 (2017: RMB91
+million) (Note 10).
+As at 31 December 2018, the Group's investments in joint ventures of RMB8,575 million (31 December 2017:
+RMB7,826 million) mainly comprised a special purpose vehicle of which we have a majority stake therein for the
+investment in one of the telecommunication carriers in the PRC and other joint venture initiatives in new retail and
+entertainment-related businesses.
+During the year ended 31 December 2018, the Group had undertaken transactions relating to provision of FinTech
+services, online traffic, online advertising and other online services to certain associates (including Meituan Dianping),
+under but not limited to certain co-operation arrangements. The revenues recorded by the Group from the aforesaid co-
+operation arrangements during the years ended 31 December 2018 and 2017 were considered to be insignificant.
+13,652
+There were no material contingent liabilities relating to the Group's interests in the associates.
+As at 31 December 2018, the fair value of the investment in Meituan Dianping which is a listed entity was RMB40,261
+million.
+20 INVESTMENTS IN ASSOCIATES (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+105,697
+As at 31 December 2018, the financial instruments of the Group is analysed as follows:
+Financial assets
+Notes to the Consolidated Financial Statements
+As at 31 December
+97,814
+Cash and cash equivalents (Note 30(a))
+16,549
+28,427
+Accounts receivable (Note 29)
+Financial assets at amortised cost:
+62,918
+Term deposits (Note 28)
+42,089
+9,486
+10,757
+Deposits and other receivables (Note 25)
+RMB'Million
+RMB'Million
+2017
+2018
+(a) Cash and cash equivalents
+2017
+2018
+As at 31 December
+terms within three months
+Term deposits and highly liquid investments with initial
+Bank balances and cash
+RMB'Million
+30 BANK BALANCES AND CASH
+Share premium
+RMB'Million
+As of 31 December 2017, impairment provision was recognised after assessment of the financial condition and credit
+quality with reference to the past history. Beginning from 1 January 2018, the Group applies the simplified approach
+permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the assets. The
+provision matrix is determined based on historical observed default rates over the expected life of the receivables with
+similar credit risk characteristics and is adjusted for forward-looking estimates. The historical observed default rates are
+updated and changes in the forward-looking estimates are analysed at year end. For the year ended 31 December 2018
+and 2017, loss allowance made against the gross amounts of accounts receivable were not significant, and provision
+matrix is not presented.
+Some online advertising customers and agencies are usually granted with a credit period within 90 days after full
+execution of the contracted advertisement orders. Third party platform providers usually settle the amounts due by
+them within 60 days. Other customers, mainly including content production related customers and FinTech and cloud
+customers, are usually granted with a credit period within 90 days.
+29 ACCOUNTS RECEIVABLE (Cont'd)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 233
+16,549
+28,427
+1,455
+RMB'Million
+As at 31 December 2018, the carrying amounts of accounts receivable approximated their fair values.
+38,696
+- shares issued (Note (a))
+59,118
+Share capital
+paid ordinary
+shares*
+Shares held
+Number of
+issued and fully
+(783)
+2,946
+- value of employee services
+Employee share option schemes:
+At 1 January 2018
+As at 31 December 2018 and 2017, the authorised share capital of the Company comprises 50,000,000,000 ordinary
+shares with par value of HKD0.00002 per share.
+31 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+234 Tencent Holdings Limited
+As at 31 December 2018, restricted deposits held at bank of RMB2,590 million (31 December 2017: RMB1,606
+million) were mainly denominated in RMB.
+(b) Restricted cash
+Approximately RMB31,015 million (31 December 2017: RMB54,894 million) and RMB3,349 million (31
+December 2017: RMB11,740 million) of the total balance of the Group's cash and cash equivalents was
+denominated in RMB and placed with banks in Mainland China and Hong Kong, respectively.
+The effective interest rate of the term deposits of the Group with initial terms within three months during the year
+ended 31 December 2018 was 3.59% (2017: 2.42%).
+105,697
+97,814
+57,419
+48,278
+3,140
+Credited/(charged) to consolidated
+1,716
+18,234
+1,983
+6,891,249
+525
+1,983
+525
+Employee share award schemes:
+- value of employee services
+- shares withheld for share award schemes (Note (b))
+(3,970)
+5,022
+(2,187)
+(2,187)
+- shares allotted for share award schemes (Note (c))
+17,206,955
+- shares vested from share award schemes
+and transferred to the grantees (Note (d))
+Repurchase and cancellation of shares (Note (e))
+(1,984)
+1,984
+(2,848,000)
+5,022
+3,877
+22,204
+Total
+RMB'Million
+4,260
+2,162
+5,400
+Others
+Third party platform providers
+FinTech and cloud customers
+Credited to consolidated statement of
+changes in equity
+Currency translation differences
+9,499,056,887
+170
+17
+17
+At 31 December 2018
+At 1 January 2017
+income statement
+Credited to consolidated statement of
+changes in equity
+for share
+award schemes
+RMB'Million
+170
+RMB'Million
+Withholding tax paid
+At 31 December 2017
+RMB'Million
+Included in non-current assets:
+RMB term deposits
+Other currencies
+Included in current assets:
+RMB term deposits
+USD term deposits
+Other currencies
+- 5,358
+7
+2017
+5,365
+30,701
+6,349
+4,187
+1,389
+1,836
+62,918
+36,724
+62,918
+42,089
+The effective interest rate for the term deposits of the Group with initial terms of over three months during the year ended
+31 December 2018 was 4.08% (2017: 3.86%).
+55,180
+Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2018, the
+carrying amounts of the term deposits with initial terms of over three months approximated their fair values.
+RMB'Million
+As at 31 December
+(3,386)
+2,451
+2,451
+Credited to consolidated statement of changes in equity
+118
+118
+Currency translation differences
+15
+16
+At 31 December 2017
+2018
+(506)
+(151)
+(779)
+(464)
+(5,975)
+As at 31 December 2018, the Group recognised the relevant deferred income tax liabilities of RMB5,668 million (31
+December 2017: RMB4,075 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable
+future. No withholding tax had been provided for the earnings of approximately RMB13,685 million (31 December 2017:
+RMB32,213 million) expected to be retained by the PRC subsidiaries and not to be remitted to a foreign investor in the
+foreseeable future based on several factors, including management's estimation of overseas funding requirements.
+Annual Report 2018 231
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+28 TERM DEPOSITS
+An analysis of the Group's term deposits by currencies are as follows:
+(4,075)
+(3)
+232
+29 ACCOUNTS RECEIVABLE
+11,200
+4,399
+7,695
+6,394
+4,201
+2,259
+5,331
+3,497
+28,427
+16,549
+Over 90 days
+Majority of the Group's accounts receivable were denominated in RMB.
+As at 31 December
+2018
+2017
+RMB'Million
+RMB'Million
+Online advertising customers and agencies
+11,944
+8,076
+Content production related customers
+(783)
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+Tencent Holdings Limited
+61 - 90 days
+~ 30 days
+Accounts receivable
+Loss allowance
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+As at 31 December
+2018
+2017
+RMB'Million
+RMB'Million
+29,784
+31 - 60 days
+17,429
+(880)
+28,427
+16,549
+Accounts receivable and their ageing analysis, based on recognition date, are as follows:
+As at 31 December
+2018
+2017
+RMB'Million
+RMB'Million
+0~
+(1,357)
+(354)
+(3,150)
+121
+230
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+27 DEFERRED INCOME TAXES (Cont'd)
+The movements of deferred income tax liabilities were as follows:
+Intangible
+assets acquired
+Deferred income tax liabilities on temporary differences arising from
+Withholding
+tax on the
+in business
+combinations
+The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be
+available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting
+periods. As at 31 December 2018, the Group did not recognise deferred income tax assets of RMB1,351 million (31 December 2017:
+RMB1,129 million) in respect of cumulative tax losses amounting to RMB6,277 million (31 December 2017: RMB4,997 million). These
+tax losses will expire from 2019 to 2023.
+earnings
+anticipated to
+be remitted
+by subsidiaries
+Deemed
+disposals of
+Accelerated
+(2017: AFS)
+investees tax depreciation
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Others
+RMB'Million
+Change in
+fair value of
+FVPL and FVOCI
+Total
+RMB'Million
+9,793
+5,565
+Note:
+4,404
+91
+8,078
+3,182
+15,755
+642
+189
+3,661
+2,541
+2,230
+7,033
+(93)
+1,904
+(275)
+2,796
+46
+46
+(82)
+(82)
+1,902
+96
+1,260
+At 1 January 2018
+(506)
+(4,075)
+(14)
+143
+(126)
+At 31 December 2018
+(892)
+(5,668)
+(1,299)
+(919)
+(1,634)
+(552)
+(104)
+(10,964)
+(607)
+(3,391)
+(269)
+(425)
+(461)
+(5,153)
+Business combinations
+(21)
+(21)
+Credited/(charged) to consolidated income statement
+At 1 January 2017
+(6)
+Currency translation differences
+(986)
+(151)
+(779)
+(464)
+(5,975)
+Business combinations
+(563)
+(563)
+Credited/(charged) to consolidated income statement
+178
+(3,360)
+(75)
+(139)
+(1,634)
+(74)
+(5,104)
+Withholding tax paid
+1,773
+1,773
+Credited to consolidated statement of changes in equity
+17
+17
+Other additions
+(986)
+Currency translation differences
+Acquisition of additional equity interests in
+(5)
+327
+156
+156
+Acquisition of additional equity interests in
+Tax benefit from share-based payments of a subsidiary
+- Employee share award schemes
+- Employee share option schemes
+Value of employee services:
+407
+23,693
+3,363
+1,754
+5,734
+1,321
+16,859
+(6,430)
+Balance at 1 January 2017
+1,092
+(Note (c))
+407
+244
+Other fair value gains, net
+Currency translation differences
+associates and joint ventures
+Share of other comprehensive income of
+Transfer to profit or loss upon disposal of AFS
+Net gains from changes in fair value of AFS
+Profit appropriations to PRC statutory reserves
+244
+6,378
+50
+Lapse of put option granted to non-controlling interests
+(2,045)
+non-controlling interests
+Transfer of equity interests of subsidiaries to
+(952)
+non-wholly owned subsidiaries
+Dilution of interests in subsidiaries
+(Note (b))
+(Note (a))
+RMB'Million
+OTHER RESERVES (Cont'd)
+32
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+729
+བྷཌ། ༄།
+3,681
+Investments
+23
+Annual Report 2018
+1,809
+4,847
+2,790
+217
+5,112
+(10,714)
+237
+in associates
+Currency
+PRC Share-based
+Total
+RMB'Million
+RMB'Million
+Others
+reserves
+reserves
+RMB'Million
+RMB'Million
+differences
+ventures
+RMB'Million
+RMB'Million
+RMB'Million
+AFS
+reserves
+statutory compensation
+translation
+and joint
+Capital
+16,854
+(3,332)
+(2,561)
+(9,198)
+amortisation of
+intangible assets
+Share-based
+Accelerated
+Business combinations
+At 1 January 2018
+Deferred income tax assets on temporary differences arising from
+The movements of deferred income tax assets were as follows:
+Accrued
+27 DEFERRED INCOME TAXES (Cont'd)
+Notes to the Consolidated Financial Statements
+5,713
+non-wholly owned subsidiaries
+2,513
+Annual Report 2018 239
+an equity transaction of a non-wholly owned subsidiary described in Note 7(d), which results in the transaction with non-
+controlling interests of approximately RMB1,121 million.
+a non-wholly owned subsidiary of the Group, Tencent Music Entertainment Group ("TME"), have undergone initial public
+offering by listing of certain of its new shares on the New York Stock Exchange with proceeds of approximately RMB3,520
+million, and thus the Group's equity interest in TME was diluted. Given TME remains a subsidiary of the Group following
+the said initial public offering, this transaction was accounted for as transaction with non-controlling interest with a gain of
+RMB1,312 million directly recognised in equity; and
+For the year ended 31 December 2018
+(ii)
+Tax losses
+RMB'Million
+2,502
+income statement
+Credited/(charged) to consolidated
+62
+62
+9,793
+2,230
+expenses
+5,565
+1,902
+(Note)
+RMB'Million
+Total
+payments
+and others
+RMB'Million
+RMB'Million
+RMB'Million
+96
+(i)
+During the year ended 31 December 2018, the dilution of interests in subsidiaries mainly comprised the following:
+The Group has elected to recognise changes in the fair value of certain investment in equity instruments in other comprehensive
+income, as explained in Note 2.16. These changes are accumulated with FVOCI reserve with equity. The Group transfers
+amounts from this reserve to retained earnings when the relevant equity instruments are derecognised.
+238
+4,170
+2,273
+(3,464)
+2,228
+31,152
+(2,999)
+Tencent Holdings Limited
+Balance at 31 December 2017
+16,854
+519
+519
+6,378
+50
+(2,045)
+(952)
+(2,561)
+907
+(9,198)
+706
+706
+Share-based compensation reserve arises from share option schemes and share award schemes adopted by the subsidiaries of
+the Group (Note 33(d)).
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly owned foreign subsidiaries in the PRC, appropriation from net profit (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, such transfer needs not be made.
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries
+with limited liabilities in the PRC, appropriation of net profit (after offsetting accumulated losses from prior years) should be
+made by these companies to their respective Statutory Surplus Reserve Funds and the Discretionary Reserve Funds before
+distributions are made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount
+to be transferred to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance
+of the Statutory Surplus Reserve Fund reaches 50% of the registered capital, such transfer needs not to be made. Both the
+Statutory Surplus Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the
+remaining Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+(e)
+(d)
+(c)
+(b)
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+(a)
+Note:
+32 OTHER RESERVES (Cont'd)
+35,158
+1,798
+*། |
+907
+Balance at 31 December 2018
+703
+Other fair value gains, net
+32
+236 Tencent Holdings Limited
+During the year ended 31 December 2018, the Company repurchased 2,848,000 of its own shares from the market which were
+subsequently cancelled. The shares were acquired at prices ranging from HKD265.20 to HKD333.40, with an average price of
+HKD311.38 per share.
+During the year ended 31 December 2018, the Share Scheme Trust transferred 31,446,159 ordinary shares of the Company
+(2017: 38,573,979 ordinary shares) to the share awardees upon vesting of the awarded shares (Note 33(b)).
+During the year ended 31 December 2018, the Company allotted 17,206,955 ordinary shares (2017: 17,870,595 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the Share Award
+Schemes.
+During the year ended 31 December 2018, the Share Scheme Trust withheld 6,839,643 ordinary shares (2017: 9,303,028
+ordinary shares) of the Company for an amount of approximately HKD2,550 million (equivalent to approximately RMB2,187
+million) (2017: HKD2,606 million (equivalent to approximately RMB2,232 million)), which had been deducted from the equity.
+During the year ended 31 December 2018, 6,891,249 Post-IPO options (2017: 4,102,812 Post-IPO options) with exercise prices
+ranging from HKD31.70 to HKD272.36 (2017: HKD26.08 to HKD174.86) were exercised.
+OTHER RESERVES
+As at 31 December 2018, the total number of issued ordinary shares of the Company included 63,275,620 shares (31 December
+2017: 70,675,181 shares) held under the Share Award Schemes.
+(d)
+(c)
+(b)
+(a)
+Note:
+31 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (Cont'd)
+For the year ended 31 December 2018
+(e)
+Annual Report 2018 235
+Notes to the Consolidated Financial Statements
+Investments
+Others
+reserves
+reserves
+differences
+RMB'Million
+PRC Share-based
+statutory compensation
+translation
+and joint
+ventures
+RMB'Million
+For the year ended 31 December 2018
+RMB'Million
+RMB'Million
+FVOCI
+AFS
+reserves
+Capital
+Currency
+in associates
+RMB'Million
+18,234
+(3,970)
+22,204
+1,125
+171
+Employee share award schemes:
+- value of employee services
+- shares withheld for share award schemes (Note (b))
+- shares allotted for share award schemes (Note (c))
+17,870,595
+171
+- shares vested from share award schemes
+At 31 December 2017
+4,254
+4,254
+(2,232)
+(2,232)
+(1,398)
+11
+and transferred to the grantees (Note (d))
+Acquisition of additional equity interests in
+non-wholly owned subsidiaries
+4,102,812
+1,125
+- shares issued (Note (a))
+9,499,056,887
+728
+728
+1,398
+327
+At 31 December 2018
+9,520,307,091
+27,294
+(4,173)
+23,121
+At 1 January 2017
+9,477,083,480
+17,324
+(3,136)
+14,188
+Employee share option schemes:
+- value of employee services
+(Note (a))
+(Note (b))
+Notes to the Consolidated Financial Statements
+RMB'Million
+2,861
+associates and joint ventures
+Share of other comprehensive income of
+fair value of FVOCI
+Net losses from changes in
+statutory reserves
+Profit appropriations to PRC
+63
+2,836
+Dilution of interests in subsidiaries
+(406)
+business combination
+respect of the put option from
+Recognition of the financial liabilities in
+(1,886)
+to non-controlling interests
+(Note (e))
+63
+466
+466
+3,681
+Currency translation differences
+RMB'Million RMB'Million
+(Note (c))
+23
+(16,095)
+(16,095)
+517
+517
+--517
+2,836
+(406)
+(1,886)
+(877)
+49
+148
+148
+48
+Transfer of equity interests of subsidiaries
+(877)
+2,861
+Acquisition of additional equity interests in
+Balance at 1 January 2018
+(16,210)
+14,942
+(31,152)
+(Note 2.2(a))
+Adjustment on adoption of IFRS 9
+35,158
+1,798
+4,170
+2,273
+(3,464)
+2,228
+31,152
+(2,999)
+non-wholly owned subsidiaries
+Balance at 31 December 2017,
+Total
+RMB'Million
+(2,999)
+14,942
+as previously reported
+(3,464)
+of a subsidiary
+2,228
+- Employee share award schemes
+- Employee share option schemes
+Value of employee services:
+net assets of associates
+Share of other changes in
+(9,561)
+Tax benefit from share-based payments
+retained earnings (Note (d))
+Transfer of gains on disposal of FVOCI to
+18,948
+1,798
+4,170
+2,273
+(9,561)
+7 years commencing from the date of
+grant of options
+HKD37.80-HKD49.76
+22,875
+1,633,050
+HKD403.16~HKD444.20
+HKD112.30~HKD174.86
+23,504,535
+HKD225.44~HKD272.36
+(Post-IPO Option Scheme II and
+36,475,949
+37,556,725
+Post-IPO Option Scheme IV)
+HKD354.00~HKD386.60
+2017
+5,191,480
+25,386,768
+2018
+Outstanding share options
+Expiry Date
+22,581,405
+1,250,000
+14,402,006
+During the year ended 31 December 2018, 3,215,800 options were granted to an executive director of the
+Company (2017: 5,250,000 options were granted to an executive director of the Company).
+As a result of the options exercised during the year ended 31 December 2018, 6,891,249 ordinary shares
+(2017: 4,102,812 ordinary shares) were issued by the Company (Note 31). The weighted average price of
+the shares at the time these options were exercised was HKD399.37 per share (equivalent to approximately
+RMB325.67 per share) (2017: HKD286.46 per share (equivalent to approximately RMB248.41 per share)).
+Annual Report 2018 241
+Notes to the Consolidated Financial Statements
+Range of exercise price
+For the year ended 31 December 2018
+(a) Share option schemes (Cont'd)
+(ii)
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2018 and 2017 are as follows:
+Number of share options
+31 December
+31 December
+HKD118.70 13,152,006 HKD31.70
+33 SHARE-BASED PAYMENTS (Cont'd)
+89,565
+Movements in the number of awarded shares for the years ended 31 December 2018 and 2017 are as follows:
+64,666,108
+Weighted average share price at the grant date
+HKD405.00
+Risk free rate
+1.77%~2.27%
+HKD236.88
+1.39%-1.68%
+Dividend yield
+0.24%~0.25%
+2017
+30.00%
+Expected volatility (Note)
+Note:
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the
+average daily trading price volatility of the shares of the Company.
+(b) Share award schemes
+The Company has adopted two share award schemes (the “Share Award Schemes") as of 31 December 2018,
+which are administered by an independent trustee appointed by the Group. The vesting period of the awarded
+shares is determined by the Board.
+At beginning of the year
+31 December 2017
+0.26% 0.34%
+30.00%
+2018
+For the year ended 31 December 2018
+(iii) Fair value of options (Cont'd)
+10 years commencing from the date of
+grant of options
+(Post-IPO Option Scheme III)
+HKD31.70
+87,776,244
+2,500,000
+67,166,108
+The outstanding share options as of 31 December 2018 were divided into two to five tranches on an equal
+basis as at their grant dates. The first tranche can be exercised after a specified period ranging from ten
+months to three years from the grant date, and then the remaining tranches will become exercisable in each
+subsequent year.
+(iii)
+Fair value of options
+The directors of the Company have used the Binomial Model to determine the fair value of the options as at
+the respective grant dates, which is to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2018 was HKD127.43 per share (equivalent
+to approximately RMB103.46 per share) (2017: HKD71.30 per share (equivalent to approximately
+RMB62.86 per share)).
+Other than the exercise price mentioned above, significant judgment on parameters, such as risk free rate,
+dividend yield and expected volatility, are required to be made by the directors in applying the Binomial
+Model, which are summarised as below.
+242
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+33 SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+87,776,244
+Exercisable as at
+For the year ended 31 December 2018
+HKD273.80 9,155,860
+No. of
+options
+Average
+exercise
+price
+No. of
+options
+Average
+exercise
+price
+No. of
+exercise
+price
+No. of
+options
+At 1 January 2018
+HKD179.90
+55,510,248
+HKD31.70
+Granted
+2,500,000 HKD273.80
+HKD405.73
+options
+Average
+Total
+Post-IPO Option Scheme IV
+Notes to the Consolidated Financial Statements
+Granted
+33 SHARE-BASED PAYMENTS
+(a) Share option schemes
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV.
+The Pre-IPO Option Scheme, the Post-IPO Option Scheme I and the Post-IPO Option Scheme II expired on 31
+December 2011, 23 March 2014 and 16 May 2017, respectively. Upon the expiry of these schemes, no further
+options would be granted under these schemes, but the options granted prior to such expiry continued to be valid
+and exercisable in accordance with provisions of the schemes.
+In respect of the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV which continue to be in
+force, the Board may, at its discretion, grant options to any qualifying participants to subscribe for shares in the
+Company, subject to the terms and conditions stipulated therein. The exercise price must be in compliance with
+the requirement under the Rules Governing the Listing of Securities on the Stock Exchange. In addition, the option
+vesting period is determined by the Board provided that it is not later than the last day of a 10-year period for
+the Post-IPO Option Scheme III and a 7-year period for the Post-IPO Option Scheme IV after the date of grant of
+option.
+240 Tencent Holdings Limited
+33 SHARE-BASED PAYMENTS (Cont'd)
+(a) Share option schemes (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+(i)
+Movements in share options
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+Post-IPO Option Scheme ||
+Post-IPO Option Scheme III
+Exercised
+67,166,108
+Lapsed/forfeited
+(3,966,835)
+(44,403)
+2,500,000
+33,747,436
+HKD273.79 9,219,035
+37,745,250
+Exercised
+HKD49.05 (4,102,812)
+(4,102,812)
+HKD31.70
+Lapsed/forfeited
+(160,591)
+HKD272.36
+(63,175)
+(223,766)
+At 31 December 2017
+HKD179.90 55,510,248 HKD31.70
+2,500,000
+HKD142.65
+31,247,436
+28,526,215
+HKD225.44
+Granted
+HKD31.70
+(2,500,000)
+HKD272.36
+HKD298.36
+9,155,860
+27,723,850 27,723,850
+(424,414) (6,891,249)
+(178,062) (222,465)
+67,166,108
+At 31 December 2018
+HKD185.25 51,499,010
+HKD374.52
+36,277,234 87,776,244
+Exercisable as at
+31 December 2018
+HKD160.50 22,419,156
+HKD274.86
+1,760,025 24,179,181
+At 1 January 2017
+HKD120.95
+HKD110.85
+HKD136.67
+Lapsed/forfeited
+1,307
+At end of the year
+26,697
+2,797
+2,666
+51,298
+29,363
+Included in current liabilities:
+Current portion of long-term USD notes payable
+13,720
+3,919
+48,501
+Current portion of long-term HKD notes payable
+13,720
+4,752
+65,018
+34,115
+The aggregate principal amounts of USD notes payable and HKD notes payable were USD9, 100 million (31 December
+2017: USD4,700 million) and HKD3,200 million (31 December 2017: HKD4,200 million), respectively. Applicable
+interest rates are at 2.875% ~ 4.70% and 3-month USD LIBOR + 0.605% (31 December 2017: 2.30% ~ 4.70%) per
+annum.
+The notes payable were repayable as follows:
+Within 1 year
+Between 1 and 2 years
+833
+Between 2 and 5 years
+Non-current portion of long-term USD notes payable
+Non-current portion of long-term HKD notes payable
+RMB'Million
+96
+18,640
+9,947
+68,797
+66,201
+5,946
+93,872
+82,190
+(b)
+RMB'Million
+The aggregate principal amounts of short-term USD bank borrowings, short-term RMB bank borrowings and short-term HKD
+bank borrowings were USD2,390 million (31 December 2017: USD200 million), RMB628 million (31 December 2017: Nil)
+and HKD3,850 million (31 December 2017: HKD17, 133 million), respectively. These short-term bank borrowings were carried
+at LIBOR/HIBOR + 0.50% ~0.55% or a fixed interest rate of 5.22% ~ 5.44% (31 December 2017: LIBOR/HIBOR + 0.50% ~
+0.55%) per annum.
+As at 31 December 2018, the carrying amounts of borrowings approximated their fair values.
+Annual Report 2018 247
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+35 NOTES PAYABLE
+Included in non-current liabilities:
+As at 31 December
+2018
+2017
+During the year ended 31 December 2018, the Group entered into certain interest rate swap contracts to hedge its
+exposure arising from its long-term bank borrowings carried at floating rates. The Group's outstanding interest rate swap
+contracts as at 31 December 2018 have been detailed in Note 26.
+248 Tencent Holdings Limited
+As at 31 December
+2018
+2.985%
+2023
+2023 Floating Rate Notes
+500
+3-month USD LIBOR + 0.605%
+2023
+2028 Notes
+2,500
+3.595%
+1,000
+2028
+1,000
+3.925%
+2038
+5,000
+In March 2018, the notes payable with an aggregate principal amount of USD600 million issued in September 2012
+reached their maturity and were repaid in full by the Group.
+In September 2018, the notes payable with an aggregate principal amount of HKD1,000 million issued in September
+2015 reached their maturity and were repaid in full by the Group.
+As at 31 December 2018, the fair value of the notes payable amounted to RMB62,820 million (31 December 2017:
+RMB34,691 million). The respective fair values are assessed based on the active market price of these notes on the
+reporting date or by making reference to similar instruments traded in the observable market.
+Annual Report 2018
+249
+2038 Notes
+2023 Notes
+Due
+(per annum)
+2017
+RMB'Million
+RMB'Million
+13,720
+4,752
+10,335
+13,044
+10,258
+9,833
+30,705
+6,486
+65,018
+34,115
+35 NOTES PAYABLE (Cont'd)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+All of these notes payable issued by the Group were unsecured.
+On 19 January 2018, the Company issued four tranches of senior notes under the Global Medium Term Note
+Programme with aggregate principal amounts of USD5 billion as set out below:
+Amount
+Interest Rate
+(USD'Million)
+6,435
+Vested and transferred
+RMB'Million
+2017
+(c) Employee investment schemes
+For aligning the interests of key employees with the Group, the Group established six employees' investment
+plans in the form of limited liability partnerships in 2011, 2014, 2015, 2016 and 2017 (the “EIS") respectively.
+According to the term of the EISS, the Board may, at its absolute discretion, invite any qualifying participants of the
+Group, excluding any director of the Company, to participate in the EISS by subscribing for the partnership interest
+at cash consideration. The participating employees are entitled to all the economic benefits generated by the EISS,
+if any, after a specified vesting period under the respective EISS, ranging from four to seven years. Wholly-owned
+subsidiaries of the Company acting as general partner of these EISS administer and in essence, control the EISs.
+These EISS are therefore consolidated by the Company as structured entities.
+The related share-based compensation expenses incurred for the years ended 31 December 2018 and 2017 were
+insignificant to the Group.
+244
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+33 SHARE-BASED PAYMENTS (Cont'd)
+(d) Share options and share award schemes adopted by subsidiaries
+The outstanding awarded shares as of 31 December 2018 were divided into one to five tranches on an equal
+basis as at their grant dates. The first tranche can be exercised immediately or after a specified period ranging
+from four months to three years from the grant date, and the remaining tranches will become exercisable in each
+subsequent year.
+Certain subsidiaries of the Group operate their own share-based compensation plans (share option and/or share
+award schemes). Their exercise prices of the share options, as well as the vesting periods of the share options and
+awarded shares are determined by the respective board of directors of these subsidiaries at their sole discretion.
+The share options or restricted shares of the subsidiaries granted are normally vested by several tranches.
+Participants of some subsidiaries have the right to request the Group to repurchase their vested equity interests
+of the respective subsidiaries ("Repurchase Transaction"). The Group has discretion to settle the Repurchase
+Transaction by using either equity instruments of the Company or by cash. For the Repurchase Transaction which
+the Group has settlement options, the directors of the Company are currently of the view that they would be settled
+by equity instruments of the Company. As a result, they are accounted for using the equity-settled share-based
+payment method.
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate”) in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2018, the Expected Retention Rate of the Group's wholly-owned subsidiaries was assessed to be
+88% 97% (31 December 2017: 88%~97%).
+Annual Report 2018 245
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+34 BORROWINGS
+Included in non-current liabilities:
+As at 31 December
+2018
+2017
+(e) Expected retention rate of grantees
+RMB'Million
+The weighted average fair value of awarded shares granted during the year ended 31 December 2018 was
+HKD374.32 per share (equivalent to approximately RMB316.30 per share) (2017: HKD274.02 per share
+(equivalent to approximately RMB238.37 per share)).
+During the year ended 31 December 2018, 39,500 awarded shares were granted to four independent non-
+executive directors of the Company (2017: 60,000 awarded shares were granted to four independent non-
+executive directors of the Company).
+Number of awarded shares
+2018
+2017
+63,636,254
+86,365,812
+20,940,149
+19,071,975
+(2,882,349)
+(3,227,554)
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date. The expected dividends during the vesting period have been taken into account when
+assessing the fair value of these awarded shares.
+(31,446,159) (38,573,979)
+63,636,254
+Vested but not transferred as at the end of the year
+45,432
+159,893
+Annual Report 2018 243
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+33 SHARE-BASED PAYMENTS (Cont'd)
+(b) Share award schemes (Cont'd)
+50,247,895
+RMB'Million
+Non-current portion of long-term USD bank borrowings, unsecured (Note (a))
+Non-current portion of long-term RMB bank borrowings,
+70,938
+332
+30
+475
+246 Tencent Holdings Limited
+26,834
+15,696
+114,271
+97,790
+34 BORROWINGS (Cont'd)
+- secured (Note (a))
+Notes to the Consolidated Financial Statements
+Note:
+(a)
+The aggregate principal amounts of long-term USD bank borrowings, long-term RMB bank borrowings and long-term HKD
+bank borrowings were USD11,156 million (31 December 2017: USD11,691 million), RMB11,996 million (31 December 2017:
+RMB4,964 million) and HKD6,070 million (31 December 2017: HKD1,000 million), respectively. Applicable interest rates are at
+LIBOR/HIBOR + 0.70% ~ 1.51% or a fixed interest rate of 1.875% for non-RMB bank borrowings, and interest rates of 4.18%
+~ 9.00% for RMB bank borrowings (31 December 2017: LIBOR/HIBOR + 0.70% ~ 1.51% or a fixed interest rate of 1.875% for
+non-RMB bank borrowings and interest rates of 4.18% ~ 4.275% for RMB bank borrowings) per annum.
+The long-term bank borrowings were repayable as follows:
+Within 1 year
+Between 1 and 2 years
+Between 2 and 5 years
+More than 5 years
+As at 31 December
+2018
+For the year ended 31 December 2018
+- unsecured (Note (a))
+Current portion of long-term RMB bank borrowings,
+66
+76,326
+― unsecured (Note (a))
+11,189
+4,459
+- secured (Note (a))
+475
+Non-current portion of long-term HKD bank borrowings, unsecured (Note (a))
+5,310
+834
+87,437
+82,094
+Included in current liabilities:
+USD bank borrowings, unsecured (Note (b))
+16,403
+HKD bank borrowings, unsecured (Note (b))
+3,368
+14,293
+RMB bank borrowings, unsecured (Note (b))
+628
+Current portion of long-term USD bank borrowings, unsecured (Note (a))
+5,628
+RMB'Million
+More than 5 years
+(c)
+(a) Step-up acquisition of New Classics Media (Cont'd)
+47
+24
+Interest income
+(4,569)
+(3,940)
+Equity-settled share-based compensation expenses
+7,869
+6,137
+Other expenses in relation to equity transactions of an investee company
+1,519
+Share of profit of associates and joint ventures
+(1,487)
+(821)
+Impairment provision for investments in associates, joint ventures (2017:
+investments in associates, joint ventures, AFS and RCPS)
+16,397
+2,555
+Inventories
+(6,400)
+(10,302)
+Accounts receivable
+Changes in working capital:
+(152)
+equipment
+(228)
+239
+1,181
+Impairment of intangible assets
+(4,298)
+(29,757)
+Net fair value gains on FVPL and other financial instruments
+Exchange gains
+Net losses on disposals of intangible assets and property, plant and
+18,731
+25,825
+Adjustments for:
+Profit for the year
+(a) Reconciliation of net profit to cash inflow from operating activities:
+41 CONSOLIDATED CASH FLOW STATEMENT
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+For the year ended 31 December 2018
+254
+The revenue and the results contributed by these acquired subsidiaries for the period since respective acquisition
+date were insignificant to the Group. The Group's revenue and results for the year would not be materially different
+if these acquisitions had occurred on 1 January 2018.
+During the year ended 31 December 2018, the Group also acquired certain insignificant subsidiaries. The
+aggregate considerations for these acquisitions was approximately RMB3,077 million, fair value of net assets
+acquired (including identifiable intangible assets), non-controlling interests and goodwill recognised were
+approximately RMB1,426 million, RMB1,003 million and RMB2,654 million, respectively.
+The related transaction costs of the Step-up Acquisition are not material to the Group's consolidated financial statements.
+Other business combination
+The financial impacts recorded as "Other gains, net" during the year ended 31 December 2018 for the difference between the
+fair value of the Previously Held Interests and the existing carrying amount of investment in an associate at the Acquisition Date
+were insignificant.
+The revenue and the results contributed by New Classics Media to the Group for the period since the Acquisition Date were
+insignificant. The Group's revenue and results for the year would not be materially different should the Step-up Acquisition have
+otherwise occured on 1 January 2018.
+Pursuant to the share purchase agreement, the consideration will be settled by a combination of cash and new shares paid and
+issued by China Literature and will be subject to the earn-out mechanism set forth in the share purchase agreement. "Monte
+Carlo Simulation Method" was used in this exercise to measure the value of the contingent consideration. The future net profit
+of New Classics Media was simulated in numerous scenarios based on the assumptions of growth rate and volatility of net profit
+of New Classics Media. For each scenario, the consideration to be paid in the form of cash and shares would be determined in
+accordance with the earn-out mechanism set out in the share purchase agreement. Such consideration was then discounted
+at a rate that reflects the associated risk of the payment to arrive the present value of consideration in a scenario. The value of
+contingent consideration was obtained by the average of the present value of considerations in these scenarios. As at 31 October
+2018, other financial liabilities of approximately RMB3,301 million in relation to this arrangement was recognised in the Group's
+consolidated statement of financial position based on the earn-out mechanism.
+The related transaction costs of these business combinations were not material to the Group's consolidated
+financial statements.
+(29)
+2018
+RMB'Million
+4,880
+8,423
+Depreciation of property, plant and equipment and investment properties
+Amortisation of intangible assets and land use rights
+(1,713)
+(686)
+(13,518)
+2017
+(2,932)
+15,744
+14,482
+Income tax expense
+72,471
+79,984
+RMB'Million
+Net gains on disposals and deemed disposals of investee companies
+Dividend income
+(39)
+Prepayments, deposits and other receivables
+(4,050)
+(29,363)
+(51,298)
+Notes payable repayable after one year
+(4,752)
+(13,720)
+repayable within one year
+Net (debt)/cash
+Notes payable
+(87,437)
+(15,696)
+(26,834)
+42,540
+69,305
+105,697
+(82,094)
+97,814
+(12,170)
+Cash and cash equivalents, term deposits and others
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+256 Tencent Holdings Limited
+16,332
+(12,170)
+Net (debt)/cash
+16,332
+(92,648)
+Gross debt-floating interest rates
+(39,257)
+(74,910)
+Gross debt-fixed interest rates
+148,237
+167,119
+(104,379)
+Note:
+Borrowings - repayable after one year
+Term deposits and others
+Cash generated from operating activities
+9,117
+(505)
+Deferred revenue
+189
+(19)
+120,964
+Other tax liabilities
+(3,154)
+Other payables and accruals
+16,134
+22,955
+Accounts payable
+(3,760)
+8,422
+Borrowings repayable within one year
+120,002
+Notes to the Consolidated Financial Statements
+Cash and cash equivalents
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December
+Annual Report 2018 255
+Net (debt)/cash
+(c) Net (debt)/cash reconciliation
+Other than the transaction with non-controlling interests described in Note 32(e) and 40(a), there were no material
+non-cash transactions during the year ended 31 December 2018.
+(b) Major non-cash transactions
+CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
+41
+For the year ended 31 December 2018
+This section sets out an analysis of net cash/(debt) and the movements in net cash/(debt) for each of the years
+presented.
+(b)
+40 BUSINESS COMBINATION (Cont'd)
+For the year ended 31 December 2018
+RMB'Million
+2017
+2018
+As at 31 December
+50,085
+73,735
+RMB'Million
+6,585
+2,050
+1,557
+3,030
+6,264
+38,420
+56,506
+9,408
+RMB'Million
+Staff costs and welfare accruals
+13,451
+951
+Interests payable
+1,463
+1,065
+Purchase of construction related costs
+1,045
+15,929
+1,277
+1,149
+1,650
+General and administrative expenses accruals
+4,414
+3,038
+Selling and marketing expense accruals
+Purchase consideration payables for investee companies
+410
+RMB'Million
+2018
+225
+393
+2,597
+1,415
+Payables relating to media contents and running royalty fee for online games
+Present value of liabilities in relation to the put options granted to non-controlling
+shareholders of subsidiaries
+336
+Others
+2,018
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December
+36 LONG-TERM PAYABLES
+Purchase consideration payables for investee companies
+2017
+971
+4,797
+As at 31 December
+39 OTHER PAYABLES AND ACCRUALS
+Over 90 days
+61 - 90 days
+31 - 60 days
+0 ~ 30 days
+704
+Accounts payable and their ageing analysis, based on recognition date, are as follows:
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+250 Tencent Holdings Limited
+As at 31 December 2018, it mainly comprised of the contingent consideration in relation to the acquisition of equity
+interests from shareholders of an associate of the Group (Note 40).
+37 OTHER FINANCIAL LIABILITIES
+3,862
+38 ACCOUNTS PAYABLE
+41
+Prepayments received from customers and others
+416
+608
+2,449
+Intangible assets and prepayments (mainly include television series and film rights)
+Other assets
+741
+Intangible assets arising from acquisition
+1,527
+Deferred revenue and other payables and accruals
+Accounts receivable
+Cash and cash equivalents
+Recognised amounts of identifiable assets acquired and liabilities assumed:
+5,139
+Total consideration attributable to the Company's equity holders
+(4,070)
+Non-controlling interests
+1,006
+9,209
+(2,173)
+Other liabilities
+Notes to the Consolidated Financial Statements
+253
+Annual Report 2018
+5,139
+6,933
+(4,068)
+Borrowings
+2,274
+(290)
+(1,363)
+Goodwill
+Non-controlling interests
+Total identifiable net assets
+Deferred income tax liabilities
+(231)
+542
+2,945
+3,301
+40 BUSINESS COMBINATION
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+Annual Report 2018 251
+Others primary consist of deposits from third parties, reserve for platform services, sundry payables and other accruals.
+Note:
+(a) Step-up acquisition of New Classics Media
+29,433
+7,085
+8,101
+759
+Others (Note)
+non-controlling shareholders of subsidiaries
+Liabilities in relation to the put options granted to
+33,312
+Fair value of the Previously Held Interests (Note 20(a) (ii))
+On 31 October 2018 (the "Acquisition Date"), the Group's non-wholly owned subsidiary, China Literature Limited
+("China Literature"), acquired entire equity interests in New Classic Media Holdings Limited ("New Classics
+Media"), an existing associate of the Group, which is engaged in the production and distribution of television series,
+web series and films in the PRC (the "Step-up Acquisition"). The investment in New Classics Media was initially
+accounted for as FVPL, and subsequently reclassified as an associate of the Group due to additional investments
+and board representation. Immediately before the Step-up Acquisition, the Group held 44.08% equity interests
+in New Classics Media (the "Previously Held Interests"). Upon completion of the Step-up Acquisition, the Group
+indirectly held approximately 56% equity interests in New Classics Media through China Literature and accounted
+for it as a subsidiary of the Group. The Group expects the acquisition of New Classics Media to further increase its
+market share in entertainment industry.
+The following table summarises the purchase consideration, fair value of assets acquired, liabilities assumed and
+the non-controlling interest recognised as at the Acquisition Date.
+Contingent consideration (Note)
+1,431
+Ordinary shares issued by China Literature
+1,532
+Cash paid
+Total consideration:
+Goodwill of approximately RMB6,933 million was recognised as a result of the Step-up Acquisition. It was mainly
+attributable to the operating synergies and economies of scale expected to be derived from combining the
+operations. None of the goodwill is expected to be deductible for income tax purpose. The Group chose to record
+the non-controlling equity interests in New Classics Media at fair value on Acquisition Date.
+RMB'Million
+As at 31 October
+For the year ended 31 December 2018
+(a) Step-up acquisition of New Classics Media (Cont'd)
+40 BUSINESS COMBINATION (Cont'd)
+Notes to the Consolidated Financial Statements
+252 Tencent Holdings Limited
+2018
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+(c) Other commitments
+2,279
+Later than five years
+9,822
+8,332
+Later than one year and not later than five years
+5,279
+7,260
+Not later than one year
+Contracted:
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December
+The future aggregate minimum payments under non-cancellable bandwidth, online game licensing and media
+contents agreements are as follows:
+Other non-cash movements
+(488)
+3,053
+12,294
+970
+2,264
+2,236
+17,871
+17,337
+258 Tencent Holdings Limited
+95
+Contribution to Share Scheme Trust
+41
+55,253
+60,770
+Investments in subsidiaries
+Intangible assets
+42
+Non-current assets
+RMB'Million
+RMB'Million
+Later than five years
+2017
+As at 31 December
+ASSETS
+(a) Financial position of the Company
+45 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+There were no material subsequent events during the period from 31 December 2018 to the approval date of these
+financial statements by the Board of Directors on 21 March 2019.
+44 SUBSEQUENT EVENTS
+Except as disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest paid individuals),
+Note 14 (Benefits and interests of directors), Note 20 (Transactions with associates), Note 25 (Loans to investees and
+investees' shareholders) and Note 33 (Share-based payments) to the consolidated financial statements, the Group had
+no other material transactions with related parties during the years ended 31 December 2018 and 2017, and no other
+material balances with related parties as at 31 December 2018 and 2017.
+43 RELATED PARTIES TRANSACTIONS
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+2018
+1,056
+7,398
+Later than one year and not later than five years
+2017
+2018
+As at 31 December
+Capital investment in investees
+Purchase of other property, plant and equipment
+Construction/purchase of buildings and purchase of land use rights
+Contracted:
+Capital commitments as at 31 December 2018 and 2017 are analysed as follows:
+Capital commitments
+(a)
+RMB'Million
+42 COMMITMENTS
+(29,363)
+(4,752)
+(82,094)
+(15,696)
+42,540
+105,697
+31 December 2017
+Net cash as at
+(47)
+4,920
+16,332
+43
+RMB'Million
+273
+1,027
+2,632
+Not later than one year
+RMB'Million
+RMB'Million
+2017
+2018
+As at 31 December
+Contracted:
+The future aggregate minimum lease payments under non-cancellable operating leases in respect of buildings and
+server custody leases, are as follows:
+2,219
+(b) Operating lease commitments
+For the year ended 31 December 2018
+Notes to the Consolidated Financial Statements
+257
+Annual Report 2018
+3,453
+11,339
+3,027
+8,763
+153
+357
+42 COMMITMENTS
+(4,967)
+60,907
+Current assets
+(4,752)
+(29,363)
+16,332
+Cash flows
+(10,090)
+24,811
+(2,724)
+(7,237)
+4,666
+(32,547)
+(23,121)
+Exchange impacts
+2,207
+1,954
+(1,559)
+(3,598)
+(957)
+(2,011)
+(3,964)
+Other non-cash movements
+(6,855)
+(82,094)
+CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
+(15,696)
+42,540
+Net (debt)/cash reconciliation (Cont'd)
+Cash and cash
+Term deposits
+Borrowings
+Borrowings
+equivalents
+and others
+due within 1 year
+due after 1 year
+Notes payable
+due within 1 year
+5,492
+Notes payable
+Total
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Net cash as at 1 January 2018
+105,697
+due after 1 year
+(12,677)
+12,623
+(1,417)
+(16)
+768
+3,731
+231
+1,921
+4,084
+259
+Annual Report 2018
+71,998
+113,054
+(2,551)
+Total assets
+52,147
+7,919
+63
+Cash and cash equivalents
+17
+6
+Prepayments, deposits and other receivables
+8,725
+52,078
+Amounts due from subsidiaries
+16,661
+55,337
+Exchange impacts
+3,450
+Net debt as at
+31 December 2018
+97,814
+69,305
+(26,834)
+(87,437)
+(13,720)
+(51,298)
+(12,170)
+Net cash as at 1 January 2017
+(5,845)
+71,902
+(12,278)
+(57,549)
+(3,466)
+(36,204)
+18,140
+Cash flows
+36,346
+(13,179)
+(3,698)
+(28,764)
+55,735
+488
+the lawful currency of the PRC
+Riot Games, Inc., a Company established in US
+"PRC" or "China"
+"Post-IPO Option Scheme I"
+"Post-IPO Option Scheme II"
+"Post-IPO Option Scheme III"
+"Post-IPO Option Scheme IV"
+"PC"
+"PaaS"
+"020"
+Term
+Definition
+268 Tencent Holdings Limited
+the nomination committee of the Company
+NASDAQ Global Select Market
+the Model Code for Securities Transactions by Directors of Listed Issuers set out
+in Appendix 10 to the Listing Rules
+Multiplayer Online Battle Arena
+MIH TC Holdings Limited
+Meituan Dianping, a limited liability company incorporated in the Cayman Islands
+and the shares of which are listed on the Stock Exchange
+monthly active user accounts
+mergers and acquisitions
+the Rules Governing the Listing of Securities on the Stock Exchange
+"Pre-IPO Option Scheme"
+"PUBG"
+"QR Codes"
+"R&D"
+"Reference Date"
+the remuneration committee of the Company
+Sea Limited, a company headquartered in Singapore and listed on the New York
+Stock Exchange
+Annual Report 2018 269
+in respect to a Selected Participant, the date of final approval by the Board of the
+total number of shares of the Company to be awarded to the relevant Selected
+Participant on a single occasion pursuant to the 2007 Share Award Scheme
+research and development
+Quick Response Codes
+PlayerUnknown's Battlegrounds
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+Location Based Service
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the Post-IPO Share Option Scheme adopted by the Company on 17 May 2017
+the People's Republic of China
+Platform-as-a-Service
+online-to-offline, or offline-to-online
+Definition
+"Sea"
+"ROI"
+"RMB"
+"Riot Games"
+"Remuneration Committee"
+personal computer
+the environmental, social and governance reporting guide as set out in Appendix
+27 to the Listing Rules
+King Pro League
+intellectual property
+internal control department of the Company
+International Accounting Standards
+Infrastructure-as-a-Service
+internal audit department of the Company
+"IFRS"
+"IC"
+"IAS"
+"laas"
+"IA"
+the Hong Kong Special Administrative Region, the PRC
+“Hong Kong”
+the lawful currency of Hong Kong
+Hainan Tencent Network Information Technology Company Limited
+Guian New Area Tencent Cyber Company Limited
+Guangzhou Tencent Technology Company Limited
+the Company and its subsidiaries
+in relation to any Awarded Share, the date on which the Awarded Share is, was or
+is to be granted
+International Financial Reporting Standards
+Annual Report 2018 267
+Definition
+Term
+the investment committee of the Company
+Instant messaging
+Definition
+"Nomination Committee"
+"NASDAQ"
+"Model Code"
+"MOBA"
+"MIH TC"
+initial public offering
+"Meituan Dianping"
+"M&A"
+"Listing Rules'
+"LBS"
+"KPL"
+"IPO"
+"IP"
+"Investment Committee"
+"IM"
+"MAU"
+return on investment
+"Cyber Tianjin❞
+100%
+Asset management in Hong Kong
+Established in BVI,
+limited liability company
+Tencent Technology (Beijing)
+Company Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD1,000,000
+100%
+Development and sale of softwares and
+provision of information technology
+services in the PRC
+Nanjing Wang Dian Technology
+Company Limited
+Established in the PRC,
+limited liability company
+100%
+RMB10,290,000
+Provision of value-added services in the PRC
+Beijing BIZCOM Technology
+Company Limited
+Established in the PRC,
+limited liability company
+RMB1,216,500,000
+100%
+(Note (a))
+Provision of value-added services in the PRC
+Beijing Starsinhand Technology
+Company Limited
+Established in the PRC,
+limited liability company
+RMB10,000,000
+100%
+(Note (a))
+100% Provision of value-added services in the PRC
+(Note (a))
+USD100
+Development of softwares and provision of
+Established in the PRC,
+RMB65,000,000
+limited liability company
+100%
+(Note (a))
+Provision of value-added services and
+Internet advertisement services in the PRC
+Tencent Technology
+Established in the PRC,
+USD2,000,000
+100%
+wholly foreign owned enterprise
+information technology services in the PRC
+Development of softwares and provision of
+information technology services in the PRC
+Established in the PRC,
+RMB11,000,000
+limited liability company
+100%
+(Note (a))
+Provision of Internet advertisement
+services in the PRC
+Tencent Cyber (Tianjin) Company
+Limited
+Tencent Asset Management Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD90,000,000
+100%
+Shenzhen Shiji Kaixuan
+Technology Company Limited
+262 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+USD30,000,000
+100%
+Development of softwares and provision of
+information technology services in the PRC
+Tencent Cloud Computing (Beijing)
+Company Limited
+Morespark Limited
+Established in the PRC,
+RMB142,500,000
+limited liability company
+100%
+(Note (a))
+Provision of information system
+integration services in the PRC
+Established in Hong Kong,
+Established in the PRC,
+wholly foreign owned enterprise
+HKD1,000
+limited liability company
+Investment holding and provision of online
+advertisement services in Hong Kong
+Beijing Tencent Culture Media
+Company Limited
+Established in the PRC,
+RMB5,000,000
+100%
+limited liability company
+Design and production of advertisement
+in the PRC
+Riot Games, Inc.
+China Literature
+100%
+Tencent Technology (Wuhan)
+Company Limited
+Development of softwares and provision of
+information technology services in the PRC
+100%
+46 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+Particulars of
+Place of establishment
+issued/paid-in
+Proportion of
+equity interest held
+Name
+and nature of legal entity
+capital
+by the Group (%) Principal activities and place of operation
+Tencent Cyber (Shenzhen)
+Company Limited
+Established in the PRC,
+USD30,000,000
+100%
+Development of softwares in the PRC
+wholly foreign owned enterprise
+Tencent Technology (Shanghai)
+Company Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD5,000,000
+100%
+Development of softwares and provision of
+information technology services in the PRC
+Tencent Technology (Chengdu)
+Company Limited
+Established in the PRC,
+wholly foreign owned enterprise
+USD220,000,000
+Tencent Computer
+Established in the United States,
+limited liability company
+Established in the Cayman Islands,
+limited liability company
+by the Group (%) Principal activities and place of operation
+and nature of legal entity
+26,074
+LIABILITIES
+Non-current liabilities
+Notes payable
+51,298
+29,363
+Other financial liabilities
+1,164
+2,068
+52,462
+28,385
+31,431
+Amounts due to subsidiaries
+17,454
+9,408
+Other payables and accruals
+1,033
+333
+Notes payable
+13,720
+4,752
+32,207
+Current liabilities
+14,493
+8,371
+(531)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+45 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+(a) Financial position of the Company (Cont'd)
+EQUITY
+Equity attributable to equity holders of the Company
+As at 31 December
+2018
+RMB'Million
+2017
+5,443
+RMB'Million
+Share premium
+Shares held for share award schemes
+Other reserves (b)
+Retained earnings (b)
+Total equity
+27,294
+22,204
+(4,173)
+(3,970)
+(179)
+Share capital
+Total liabilities
+84,669
+45,924
+4,031
+126
+Profit for the year
+9,392
+Dividends paid relating to 2016
+(5,052)
+Currency translation differences
+(657)
+At 31 December 2017
+8,371
+At 1 January 2017
+(531)
+261
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+46 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+The following is a list of principal subsidiaries of the Company as at 31 December 2018:
+Particulars of
+Place of establishment
+issued/paid-in
+Proportion of
+equity interest held
+Name
+Annual Report 2018
+(179)
+5,443
+At 31 December 2018
+Total equity and liabilities
+113,054
+71,998
+260
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2018
+45 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (Cont'd)
+(b) Reserve movement of the Company
+Retained
+earnings
+Other
+reserves
+RMB'Million
+RMB'Million
+At 1 January 2018
+8,371
+(531)
+Profit for the year
+4,067
+Dividends paid relating to 2017
+(6,995)
+Currency translation differences
+352
+capital
+USD1,306
+financial technology
+earnings before interest, tax, depreciation and amortisation
+the board of directors of the Company
+Beijing Starsinhand Technology Company Limited
+Beijing BIZCOM Technology Company Limited
+Definition
+"Eligible Person(s)"
+"EBITDA"
+"DnF"
+"DAU"
+Generally Accepted Accounting Principles
+"Corporate Governance Committee"
+"Company Website'
+"Company"
+"CMB"
+"Chongqing Tencent Information"
+"China Literature"
+"CG Code"
+"CCB"
+"BOC"
+"Board"
+"Beijing Starsinhand"
+"Beijing BIZCOM"
+Term
+Definition
+Annual Report 2018 265
+the share(s) of the Company awarded under the Share Award Schemes
+PricewaterhouseCoopers, the auditor of the Company
+the audit committee of the Company
+Bank of China Limited
+China Construction Bank Corporation
+the corporate governance code as set out in Appendix 14 to the Listing Rules
+China Literature Limited, a non-wholly owned subsidiary of the Company, which is
+incorporated in the Cayman Islands with limited liability and the shares of which
+are listed on the Stock Exchange
+Chongqing Tencent Information Technology Company Limited
+earnings per share
+State of Maryland, US
+Epic Games, Inc., a Maryland corporation organized under the general laws of the
+Definition
+"HKD"
+"Hainan Network"
+"Guian New Area Tencent Cyber"
+"Guangzhou Tencent Technology"
+"Group"
+"Grant Date'
+"GAAP"
+"FinTech"
+"ESG Reporting Guide"
+the amended and restated articles of association of the Company adopted by
+special resolution passed on 14 May 2014
+"EPS"
+Term
+Definition
+266 Tencent Holdings Limited
+any person(s) eligible to participate in the respective Share Award Schemes
+Development and operation of online games
+Dungeon and Fighter
+daily active user accounts
+Tencent Cyber (Tianjin) Company Limited
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+the corporate governance committee of the Company
+the website of the Company at www.tencent.com
+Tencent Holdings Limited, a limited liability company organised and existing
+under the laws of the Cayman Islands and the shares of which are listed on the
+Stock Exchange
+China Merchants Bank Co., Ltd.
+"Epic Games"
+artificial intelligence
+"COSO Framework"
+13 November 2013, being the date on which the Company adopted the 2013
+Share Award Scheme
+As mentioned in Note (a) above and Note 33(c), the Company has consolidated the operating entities within the Group without
+any legal interests and the EISS out of which wholly-owned subsidiaries of the Company act as general partner. In addition,
+due to the implementation of the share award schemes of the Group mentioned in Note 33(b), the Company has also set up a
+structured entity ("Share Scheme Trust”), and its particulars are as follows:
+Consolidation of structured entities
+(e)
+As at 31 December 2018, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to RMB86,468
+million were held in Mainland China and they are subject to local exchange control and other financial and treasury regulations.
+The local exchange control, and other financial and treasury regulations provide for restrictions, on payment of dividends, share
+repurchase and offshore investments, other than through normal activities.
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary's
+undertakings held directly by the parent company do not differ from its proportion of ordinary shares held. The parent company
+further does not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+Significant restrictions
+The directors of the Company considered that the non-wholly owned subsidiaries with non-controlling interests are not significant
+to the Group, therefore, no summarised financial information of these non-wholly owned subsidiaries is presented separately.
+As described in Note 1, the Company does not have legal ownership in equity of these structured entities or their subsidiaries.
+Nevertheless, under certain contractual agreements entered into with the registered owners of these structured entities, the
+Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing their
+financial and operating policies, appointing or removing the majority of the members of their controlling authorities, and casting
+the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards
+of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled
+structured entities of the Company.
+(d)
+(c)
+(b)
+(a)
+Note:
+46 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (Cont'd)
+Structured entity
+For the year ended 31 December 2018
+Annual Report 2018 263
+on an outstanding basis
+available-for-sale financial assets
+Provision of online music entertainment
+services in the PRC
+limited liability company
+50.08%*
+USD269,025
+Established in the Cayman Islands,
+TME (Note (b))
+Provision of online literature services in the PRC
+55.59%*
+USD102,255
+in the United States
+Notes to the Consolidated Financial Statements
+Share Scheme Trust
+*
+Administering and holding the Company's shares acquired for share award schemes
+which are set up for the benefits of eligible persons of the Schemes
+Principal activities
+13 December 2007, being the date on which the Company adopted the 2007
+Share Award Scheme
+the bank account opened in the name of the trust pursuant to Trust Deed II,
+managed by the Trustee, and operated solely for the purposes of operating the
+2013 Share Award Scheme, which is held on trust for the benefit of Selected
+Participants and can be funded by the Company or any of its subsidiaries
+the bank account opened in the name of the Company to be operated solely for
+the purposes of operating the 2007 Share Award Scheme and the funds thereof
+to be held on trust by the Company for the Selected Participants
+Product/Service provided to business customers
+the annual general meeting of the Company to be held on 15 May 2019 or any
+adjournment thereof
+the share award scheme adopted by the Company on Adoption Date I, as
+amended
+Definition
+"Awarded Share(s)"
+"Auditor"
+"Audit Committee"
+"Articles of Association"
+"AI"
+"AFS"
+the share award scheme adopted by the Company on Adoption Date II, as
+amended
+"Adoption Date I"
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+"Adoption Date II”
+During the year ended 31 December 2018, the Company contributed approximately RMB2, 187 million (2017: RMB2,232
+million) to the Share Scheme Trust for financing its acquisition of the Company's shares.
+264 Tencent Holdings Limited
+In this annual report, unless the context otherwise requires, the following expressions shall have the following meanings:
+Term
+Definition
+"2013 Share Award Scheme"
+"2019 AGM"
+"2B"
+"Account |"
+"Account II"
+"2007 Share Award Scheme"
+the 2007 Share Award Scheme and the 2013 Share Award Scheme
+"Supercell"
+with effect from 15 May 2014, each existing issued and unissued share of
+HKD0.0001 each in the share capital of the Company was subdivided into five
+subdivided shares of HKD0.00002 each, after passing of an ordinary resolution at
+the annual general meeting of the Company held on 14 May 2014 and granting
+by the Stock Exchange of the listing of, and permission to deal in, the subdivided
+shares
+Shanghai Tencent Information Technology Company Limited
+the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as
+amended, supplemented or otherwise modified from time to time
+any Eligible Person(s) selected by the Board to participate in the Share Award
+Schemes
+Definition
+"TCS CFC"
+"Stock Exchange"
+"Shiji Kaixuan"
+"SME"
+"SKT Co-operation Committee”
+"SKT CFC"
+"Singapore"
+"Shenzhen Tencent Network"
+"Shenzhen Tencent Information"
+Shenzhen Tencent Information Technology Company Limited
+"Share Subdivision"
+“Sogou”
+Shenzhen Tencent Network Information Technology Company Limited
+"Tencent Charity Funds"
+the Republic of Singapore
+"Share Award Schemes"
+"Tencent Chengdu❞
+Definition
+charity funds established by the Group
+Tencent Technology (Beijing) Company Limited
+Definition
+"Tencent Beijing"
+Term
+Shenzhen Shiji Kaixuan Technology Company Limited
+270 Tencent Holdings Limited
+"TCS Co-operation Committee”
+the co-operation framework contract dated 28 February 2004 entered into
+between Tencent Technology and Tencent Computer
+Supercell Oy, a private company incorporated in Finland
+The Stock Exchange of Hong Kong Limited
+Sogou Inc., a company incorporated in the Cayman Islands and listed on the New
+York Stock Exchange
+small and medium enterprise
+the co-operation committee established under the SKT CFC
+the co-operation framework contract dated 28 February 2004 entered into
+between Cyber Tianjin and Shiji Kaixuan
+the co-operation committee established under the TCS CFC
+"Shanghai Tencent Information"
+"Tencent Shanghai"
+"Selected Participant(s)"
+Annual Report 2018 271
+Definition
+Term
+"WFOES"
+Definition
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Shenzhen Tencent
+Information, Tencent Chengdu, Chongqing Tencent Information, Shanghai
+Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network,
+Guangzhou Tencent Technology, Shenzhen Tencent Network and Guian New
+Area Tencent Cyber
+272 Tencent Holdings Limited
+Tencent 腾讯
+Nanjing Wang Dian Technology Company Limited
+Website: www.tencent.com
+Tencent Binhai Towers, No. 33 Haitian 2nd Road
+Nanshan District, Shenzhen, the PRC
+Zipcode : 518054
+Telephone: 86-755-86013388
+Facsimile: 86-755-86013399
+Tencent Holdings Limited Hong Kong Office
+29/F., Three Pacific Place
+No.1 Queen's Road East
+Wanchai, Hong Kong
+Telephone: 852-21795122
+Facsimile 852-25201148
+Tencent Group Head Office
+"SFO"
+Yixin Group Limited, a company incorporated in the Cayman Islands with limited
+liability and the shares of which are listed on the Stock Exchange
+the lawful currency of the United States
+Term
+Definition
+"Tencent Technology"
+"Tencent Wuhan"
+"TME"
+"Trust Deed II"
+"Trustee"
+"United States" or "US"
+value-added services
+"USD"
+"Yixin"
+"Wang Dian"
+Tencent Technology (Chengdu) Company Limited
+Shenzhen Tencent Computer Systems Company Limited
+Tencent Technology (Shanghai) Company Limited
+Tencent Technology (Shenzhen) Company Limited
+Tencent Technology (Wuhan) Company Limited
+Tencent Music Entertainment Group, a limited liability company incorporated
+under the laws of the Cayman Islands and listed on the New York Stock Exchange
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2013 Share Award Scheme
+an independent trustee appointed by the Company for managing the Share Award
+Schemes
+the United States of America
+"VAS"
+"Tencent Computer"
+We continue to closely monitor the performance of our investment portfolio and strategically make investments, M&A, and
+explore opportunities in monetising some of the existing investments if appropriate opportunities in the market arise.
+Management Discussion and Analysis
+2,146
+21,622
+Profit for the period
+21,853
+424
+112
+(6,281)
+1,874
+25,724
+Operating profit
+(RMB in millions, unless specified)
+(d)
+(c)
+(b)
+(a)
+Non-GAAP
+provision
+Impairment
+investee Amortisation of
+companies intangible assets
+compensation
+As reported
+Share-based
+losses from
+Net (gains)/
+Adjustments
+Unaudited three months ended 31 December 2017
+Management Discussion and Analysis
+25%
+28%
+(6,229)
+474
+358
+18,371
+Non-GAAP
+provision
+Impairment
+investee Amortisation of
+companies intangible assets
+Share-based
+compensation
+As reported
+losses from
+Net (gains)/
+Adjustments
+Year ended 31 December 2018
+28%
+33%
+1.827
+1.852
+2.061
+33%
+39%
+Operating margin
+2.177
+- diluted
+2.206
+- basic
+EPS (RMB per share)
+17,454
+320
+442
+(6,189)
+2,084
+20,797
+Profit attributable to equity holders
+Net margin
+2.085
+29%
+35%
+investee Amortisation of
+companies intangible assets
+As reported compensation
+Share-based
+losses from
+Net (gains)/
+24%
+26%
+2.065
+2.087
+Adjustments
+Unaudited three months ended 30 September 2018
+17%
+Net margin
+20%
+Impairment
+provision
+Operating margin
+- diluted
+1.505
+- basic
+EPS (RMB per share)
+19,730
+1,008
+1,814
+(125)
+2,804
+14,229
+20,240
+936
+1,882
+517
+1.489
+(a)
+Non-GAAP
+(RMB in millions, unless specified)
+2.440
+2.469
+Tencent Holdings Limited
+26
+Net margin
+Operating margin
+- diluted
+- basic
+EPS (RMB per share)
+19,710
+12,862
+876
+(20,819)
+3,458
+(a)
+23,333
+20,423
+13,411
+916
+(20,840)
+3,531
+23,405
+Profit for the period
+22,563
+13,513
+127
+(20,949)
+2,011
+27,861
+Operating profit
+Profit attributable to equity holders
+2,879
+(b)
+(d)
+Impairment provisions for associates, joint ventures, AFS (2017) and intangible assets arising from acquisitions
+(d)
+Amortisation of intangible assets resulting from acquisitions, net of related deferred tax
+(c)
+Including net (gains)/losses on deemed disposals/disposals of investee companies, fair value changes arising from investee companies,
+and other expenses in relation to equity transactions of investee companies
+Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives
+(b)
+(a)
+Note:
+28%
+34%
+6.830
+6.920
+30%
+38%
+7.499
+7.598
+Net margin
+Operating margin
+- diluted
+- basic
+EPS (RMB per share)
+65,126
+3,086
+1,706
+(18,051)
+6,875
+71,510
+Profit attributable to equity holders
+28
+Tencent Holdings Limited
+Management Discussion and Analysis
+INVESTMENTS HELD
+821
+1,487
+(2,794)
+(17,577)
+Impairment provision for investee companies and intangible assets from acquisitions
+Share of profit of associates and joint ventures
+4,298
+29,757
+Net fair value gains
+13,518
+2,932
+Net gains on disposals and deemed disposals of investee companies
+1,713
+686
+Dividend income
+66,404
+RMB'Million
+2018
+2017
+(Classified by nature of income)
+Income of Principal Investment
+We recorded return from our investment portfolio amounted to RMB17,285 million for the year ended 31 December 2018,
+with a decrease of 2% compared to last year. Details of our return from investment portfolio are as follows:
+The fair value of our stakes in listed investee companies (excluding subsidiaries) amounted to RMB238,040 million as at 31
+December 2018 (31 December 2017: RMB210,848 million). Other than Meituan Dianping as disclosed in Note 20 to the
+consolidated financial statements, none of the carrying amount of any of our investments (including listed investee companies)
+constitutes 5% or more of our total assets as at 31 December 2018.
+We manage our investment portfolio with a primary objective to strengthen our leading position in core businesses and
+complement our "Connection" strategy in various industries, particularly in social and digital content, 020 and smart retail
+sectors. We also invest in transportation, FinTech, cloud and other sectors.
+Changes in respective items in the consolidated statement of financial position have been disclosed in the notes to the
+consolidated financial statements in this annual report.
+other financial assets (2017).
+investments in redeemable instruments of associates (2017); and
+financial assets at fair value through profit or loss and through other comprehensive income;
+available-for-sale financial assets (2017);
+investments in associates and joint ventures which are accounted for by using equity method;
+As at 31 December 2018, our investment portfolio amounted to approximately RMB369,186 million (31 December 2017:
+RMB275,617 million) as recorded in the consolidated statement of financial position under various categories including:
+RMB'Million
+3,124
+1,841
+(18,112)
+Net margin
+31%
+Operating margin
+8.228
+- diluted
+8.336
+- basic
+EPS (RMB per share)
+77,469
+17,157
+3,964
+(32,696)
+10,325
+78,719
+26%
+Profit attributable to equity holders
+17,633
+4,142
+(32,121)
+10,654
+79,984
+Profit for the year
+92,481
+17,577
+524
+(31,168)
+7,900
+97,648
+Operating profit
+(RMB in millions, unless specified)
+80,292
+(c)
+8.203
+30%
+7,080
+72,471
+Profit for the year
+82,023
+2,794
+490
+(17,816)
+6,253
+90,302
+Operating profit
+(RMB in millions, unless specified)
+(d)
+(c)
+(b)
+8.097
+(a)
+provision
+Impairment
+investee Amortisation of
+companies intangible assets
+compensation
+As reported
+Share-based
+losses from
+Net (gains)/
+Adjustments
+Year ended 31 December 2017
+Management Discussion and Analysis
+27
+Annual Report 2018
+26%
+Non-GAAP
+14,026
+Profit for the period
+22,388
+23,333
+14,229
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+23,405
+14,026
+Profit for the period
+(3,228)
+(1,906)
+Income tax expense
+26,633
+15,932
+Profit before income tax
+264
+16
+Share of profit of associates and joint ventures
+(1,492)
+(1,372)
+Finance costs, net
+27,861
+17,288
+Operating profit
+(10,890)
+(11,345)
+General and administrative expenses
+(6,573)
+(5,730)
+Selling and marketing expenses
+(203)
+72
+14,026
+23,405
+27,180
+EBITDA (a)
+2017
+31 December
+2018
+Year ended
+(RMB in millions, unless specified)
+2017
+2018
+2018
+31 December 30 September 31 December
+Three months ended
+Unaudited
+OTHER FINANCIAL INFORMATION
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 39% to
+RMB14,229 million for the fourth quarter of 2018 on a quarter-on-quarter basis. The decrease was greatly affected by non-
+cash expenses related to capital raising at a subsidiary in the fourth quarter of 2018 versus higher fair value gains from certain
+investee companies (including a fair value gain from Meituan Dianping upon its IPO) in the third quarter of 2018. Non-GAAP
+profit attributable to equity holders of the Company was RMB19,730 million, essentially flat quarter-on-quarter.
+8,762
+Income tax expense. Income tax expense decreased by 41% to RMB1,906 million for the fourth quarter of 2018 on a quarter-
+on-quarter basis. The decrease was primarily driven by reversals of income tax provisions resulting from the entitlements of
+preferential tax treatments and benefits, partly offset by greater withholding tax.
+Management Discussion and Analysis
+Annual Report 2018 23
+Selling and marketing expenses. Selling and marketing expenses decreased by 13% to RMB5,730 million for the fourth
+quarter of 2018 on a quarter-on-quarter basis. The decrease mainly reflected lower advertising and promotion expenses,
+resulting from internal initiatives to reduce less effective marketing campaigns.
+Other (losses)/gains, net. We recorded net other losses of RMB2, 139 million for the fourth quarter of 2018, which primarily
+consisted of one-off expenses in respect of the issuance of ordinary shares to strategic partners recognised by TME, as well as
+impairment provisions for certain investee companies, reflecting revisions of their financial outlook and changes in the market
+environment.
+Cost of revenues for our other businesses increased by 19% to RMB18,614 million for the fourth quarter of 2018. The
+growth primarily derived from our FinTech services, film and television production business and cloud services.
+Cost of revenues for our online advertising business increased by 5% to RMB10,800 million for the fourth quarter of
+2018. The increase was mainly due to greater advertising commissions and traffic acquisition costs, partly offset by lower
+content costs.
+Cost of revenues for our VAS business increased by 6% to RMB20,330 million for the fourth quarter of 2018. The
+increase was primarily driven by greater content costs for our live broadcast services, music services and smart phone
+games.
+Revenues from our online advertising business increased by 5% to RMB17,033 million for the fourth quarter of 2018.
+Social and others advertising revenues grew by 6% to RMB11,846 million. The increase mainly reflected higher
+advertising revenues derived from Weixin. Media advertising revenues increased by 2% to RMB5,187 million.
+Revenues from our other businesses increased by 19% to RMB24,212 million for the fourth quarter of 2018. The
+increase was mainly due to growth in revenues from film and television production business, FinTech and cloud services.
+Cost of revenues. Cost of revenues increased by 10% to RMB49,744 million for the fourth quarter of 2018 on a quarter-
+on-quarter basis. The increase primarily reflected greater content costs, costs of FinTech services and channel costs. As a
+percentage of revenues, cost of revenues increased to 59% for the fourth quarter of 2018 from 56% for the third quarter of
+2018.
+Revenues. Revenues increased by 5% to RMB84,896 million for the fourth quarter of 2018 on a quarter-on-quarter basis.
+Revenues from our VAS business were RMB43,651 million for the fourth quarter of 2018, broadly stable compared to
+the previous quarter. Online games revenues decreased by 6% to RMB24,199 million. The decrease mainly reflected
+lower revenues from our PC client games such as DnF. Social networks revenues increased by 7% to RMB19,452
+million. The increase was primarily driven by revenue growth from our digital content services such as live broadcast
+services and video streaming subscriptions.
+Management Discussion and Analysis
+22 Tencent Holdings Limited
+19,710
+19,730
+Non-GAAP profit attributable to equity holders of the Company
+General and administrative expenses. General and administrative expenses increased by 4% to RMB11,345 million for the
+fourth quarter of 2018 on a quarter-on-quarter basis. The increase mainly reflected greater spending on staff fringe benefits
+and conference fees.
+(2,139)
+Other (losses)/gains, net
+1,082
+34,897
+49,744
+77%
+10,870
+77%
+18,614
+63%
+7,759
+63%
+10,800
+41%
+16,268
+47%
+20,330
+Cost of revenues for our VAS business increased by 25% to RMB20,330 million for the fourth quarter of 2018 on a year-
+on-year basis. The increase was primarily due to greater content costs for video streaming subscriptions, live broadcast
+services and online games. Channel costs for our smart phone games also increased.
+(RMB in millions, unless specified)
+Amount
+revenues
+Amount
+% of segment
+% of segment
+31 December 2017
+31 December 2018
+Three months ended
+Total cost of revenues
+Others
+Online advertising
+VAS
+Unaudited
+Cost of revenues. Cost of revenues increased by 43% to RMB49,744 million for the fourth quarter of 2018 on a year-on-year
+basis. The increase mainly reflected greater content costs, costs of FinTech services, as well as channel costs. As a percentage
+of revenues, cost of revenues increased to 59% for the fourth quarter of 2018 from 53% for the fourth quarter of 2017. The
+following table sets forth our cost of revenues by line of business for the fourth quarter of 2018 and the fourth quarter of 2017:
+revenues
+27,568
+Cost of revenues for our online advertising business increased by 39% to RMB10,800 million for the fourth quarter of
+2018 on a year-on-year basis. The increase was mainly due to greater content costs and advertising commissions.
+20
+1,350
+35,480
+35,152
+(45,115)
+(49,744)
+80,595
+84,896
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2018
+2018
+Cost of revenues for our other businesses increased by 71% to RMB18,614 million for the fourth quarter of 2018 on a
+year-on-year basis. The increase was primarily driven by the scale expansion of our FinTech and cloud services, as well
+as film and television production business.
+31 December 30 September
+The following table sets forth the comparative figures for the fourth quarter of 2018 and the third quarter of 2018:
+FOURTH QUARTER OF 2018 COMPARED TO THIRD QUARTER OF 2018
+Management Discussion and Analysis
+21
+Annual Report 2018
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 32%
+to RMB14,229 million for the fourth quarter of 2018 on a year-on-year basis. The decrease was greatly affected by non-cash
+expenses related to capital raising at a subsidiary in the fourth quarter of 2018, coupled with substantial deemed disposal
+gains relating to the capital activities of certain investee companies (such as the IPOs of Yixin, Sea and Sogou) in the fourth
+quarter of 2017. Non-GAAP profit attributable to equity holders of the Company increased by 13% to RMB19,730 million.
+Income tax expense. Income tax expense decreased by 39% to RMB1,906 million for the fourth quarter of 2018 on a year-on-
+year basis. The decrease mainly reflected the entitlements of preferential tax treatments and benefits.
+Finance costs, net. Net finance costs increased by 60% to RMB1,372 million for the fourth quarter of 2018 on a year-on-year
+basis. The increase was primarily due to greater interest expenses as a result of higher amount of indebtedness.
+General and administrative expenses. General and administrative expenses increased by 29% to RMB11,345 million for
+the fourth quarter of 2018 on a year-on-year basis. The increase mainly reflected greater R&D expenses and staff costs.
+As a percentage of revenues, general and administrative expenses were 13% for the fourth quarter of 2018, broadly stable
+compared to the fourth quarter of 2017.
+Selling and marketing expenses. Selling and marketing expenses decreased by 5% to RMB5,730 million for the fourth quarter
+of 2018 on a year-on-year basis. The decrease was primarily driven by the reduction of advertising and promotion expenses
+due to internal initiatives to reduce less effective marketing campaigns. As a percentage of revenues, selling and marketing
+expenses decreased to 7% for the fourth quarter of 2018 from 9% for the fourth quarter of 2017.
+Other (losses)/gains, net. We recorded net other losses of RMB2, 139 million for the fourth quarter of 2018, which primarily
+consisted of one-off expenses in respect of the issuance of ordinary shares to strategic partners recognised by TME, as well as
+impairment provisions for certain investee companies, reflecting revisions of their financial outlook and changes in the market
+environment.
+Management Discussion and Analysis
+Tencent Holdings Limited
+20
+Unaudited
+Three months ended
+23,278
+110,404
+89,724
+29,701
+Adjusted EBITDA
+6,137
+7,869
+1,849
+2,009
+2,521
+Equity-settled share-based compensation
+89,724
+110,404
+23,278
+27,568
+27,180
+EBITDA
+29,577
+18,622
+5,240
+7,230
+6,583
+Amortisation of intangible assets
+4,880
+8,423
+1,376
+2,321
+2,520
+equipment and investment properties
+Depreciation of property, plant and
+(20,140)
+(16,714)
+(7,906)
+25,616
+(8,762)
+25,127
+95,861
+864
+198
+1,579
+2,459
+17,288
+Operating profit
+(c)
+Non-GAAP
+provision
+(RMB in millions, unless specified)
+companies intangible assets
+(b)
+(a)
+compensation
+118,273
+As reported
+Amortisation of
+investee
+Share-based
+losses from
+Net (gains)/
+Adjustments
+Unaudited three months ended 31 December 2018
+The following tables set forth the reconciliations of the Group's non-GAAP financial measures for the fourth quarter of 2018
+and 2017, the third quarter of 2018, and the years ended 31 December 2018 and 2017 to the nearest measures prepared in
+accordance with IFRS:
+Management Discussion and Analysis
+25
+Annual Report 2018
+The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impacts
+of M&A transactions. In addition, non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material
+associates based on available published financials of the relevant material associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-GAAP financial
+measures (in terms of, operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders
+of the Company, basic EPS and diluted EPS), have been presented in this annual report. These unaudited non-GAAP financial
+measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared
+in accordance with IFRS. In addition, these non-GAAP financial measures may be defined differently from similar terms used
+by other companies.
+NON-GAAP FINANCIAL MEASURES
+Impairment
+Annual Report 2018 29
+2,139
+(4,569)
+13,585
+23,941
+4,975
+5,974
+4,564
+Capital expenditures (d)
+16,332
+(12,170)
+16,332
+(29,227)
+(12,170)
+Net (debt)/cash (c)
+3,060
+4,898
+Note:
+839
+1,345
+Interest and related expenses
+40%
+38%
+38%
+37%
+35%
+Adjusted EBITDA margin (b)
+95,861
+118,273
+25,127
+29,577
+29,701
+Adjusted EBITDA (a)
+1,298
+(3,940)
+(a)
+(b)
+(1,156)
+(1,082)
+(1,350)
+Other losses/(gains), net
+90,302
+97,648
+2017
+31 December
+2018
+Year ended
+25,724
+27,861
+17,288
+(RMB in millions, unless specified)
+2017
+EBITDA consists of operating profit less interest income and other gains/losses, net, and plus depreciation of property, plant and
+equipment as well as investment properties, and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-
+settled share-based compensation expenses.
+2018
+31 December 30 September 31 December
+Three months ended
+Unaudited
+Interest income
+Operating profit
+Adjustments:
+The following table reconciles our operating profit to our EBITDA and adjusted EBITDA for the periods presented:
+Management Discussion and Analysis
+Tencent Holdings Limited
+24
+Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress,
+investment properties, land use rights and intangible assets (excluding media contents, game licenses and other contents).
+Net (debt)/cash represents period end balance and is calculated as cash and cash equivalents, plus term deposits and others, minus
+borrowings and notes payable.
+(d)
+(c)
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+2018
+Profit attributable to equity holders
+105,394
+50,666,108 24,508,050 4,391,249 222,465 70,560,444
+24 March 2018 to
+23 March 2024
+(Note 3)
+3,215,800
+(Note 5)
+3,215,800
+410.00
+9 April 2019 to
+8 April 2025
+(Note 3)
+16,500,000 3,215,800 2,500,000 17,215,800
+Annual Report 2018
+35
+Directors' Report
+Note:
+1.
+2.
+3.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 5 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+The closing price immediately before the date on which the options were exercised on 28 March 2018 was HKD432.2.
+4.
+5.
+The closing price immediately before the date on which the options were granted on 9 April 2018 was HKD405.8.
+6.
+No options were cancelled or lapsed during the year.
+Details of movements of share options granted to employees of the Group (apart from a director of the Company) during the
+year ended 31 December 2018 are as follows:
+Number of share options
+225.44
+Lapsed/
+5,250,000
+20 March 2023
+the year
+2018
+price
+HKD
+Exercise period
+Lau Chi Ping Martin
+24 March 2010
+2,500,000
+2,500,000
+(Note 4)
+31.70
+24 March 2015 to
+23 March 2020
+(Note 1)
+25 March 2014
+5,000,000
+5,000,000
+114.52
+25 March 2015 to
+24 March 2021
+(Note 2)
+21 March 2016
+3,750,000
+3,750,000
+158.10
+21 March 2017 to
+24 March 2017
+5,250,000
+9 April 2018
+Total:
+(Note 3)
+As at
+1 January
+Granted
+during
+15 Aug 2013 to
+14 Aug 2018 (Note 3)
+15 Aug 2011
+25,000
+25,000
+37.80
+15 Aug 2014 to
+14 Aug 2018 (Note 1)
+13 Sep 2012
+560,875
+538,000
+22,875
+49.76
+13 Sep 2013 to
+12 Sep 2019 (Note 2)
+25 Mar 2014
+2,562,500
+20,000
+2,542,500
+114.52
+25 Mar 2015 to
+24 Mar 2021 (Note 4)
+25 Mar 2014
+3,570,000
+425,000
+3,145,000
+114.52
+37.80
+342,125
+342,125
+15 Aug 2011
+Exercised
+forfeited
+As at
+during
+during 31 December
+Exercise
+Date of grant
+2018
+the year
+the year
+the year
+2018
+price
+the year
+Exercise period
+HKD
+24 Mar 2011
+646,250
+646,250
+38.88
+24 Mar 2014 to
+23 Mar 2018 (Note 1)
+15 Aug 2011
+58,800
+58,800
+37.80
+15 Aug 2012 to
+14 Aug 2018 (Note 2)
+(Note 16)
+25 Mar 2015 to
+2018
+Name of director
+For the fourth quarter of 2018, the Group had free cash flow of RMB28,623 million. This was a result of net cash flow
+generated from operating activities of RMB33,221 million, offset by payments for capital expenditure of RMB4,598 million.
+30
+Tencent Holdings Limited
+Directors' Report
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31
+December 2018.
+PRINCIPAL ACTIVITIES
+The principal activity of the Company is investment holding. The activities of the principal subsidiaries are set out in Note 46 to
+the consolidated financial statements.
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations are set out in Note 5 to the consolidated financial statements.
+RESULTS AND APPROPRIATIONS
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 133 of this
+annual report.
+The directors have recommended the payment of a final dividend of HKD1.00 per share for the year ended 31 December
+2018. The dividend is expected to be payable on 31 May 2019 to the shareholders whose names appear on the register of
+members of the Company on 22 May 2019. The total dividend for the year under review is HKD1.00 per share.
+RESERVES
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+As at 31 December 2018, the Company had distributable reserves amounting to RMB28,385 million (2017: RMB26,074
+million).
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 137 to 139, Note 31, Note 32 and Note 45 to the consolidated financial statements
+respectively.
+PROPERTY, PLANT AND EQUIPMENT
+Details of the movements in property, plant and equipment of the Group during the year are set out in Note 16 to the
+consolidated financial statements.
+Annual Report 2018 31
+Directors' Report
+BUSINESS REVIEW AND DIVIDEND
+A fair review of the business of the Group, comprising a discussion and analysis of the Group's performance during the
+year, particulars of important events affecting the Group that have occurred since the end of the financial year 2018 and an
+indication of likely future development in the business of the Group as well as the proposed dividend for the year ended 31
+December 2018 are set out in the "Chairman's Statement" on pages 4 to 13 of this annual report. An analysis using financial
+key performance indicators is set out in the "Management Discussion and Analysis" on pages 14 to 30 of this annual report.
+Discussions on the Group's environmental policies and performance, and an account of the Group's key relationships with
+its stakeholders are set out in the "Environmental, Social and Governance Report" on pages 100 to 122 of this annual report.
+Details regarding the Group's compliance with the relevant laws and regulations which have a significant impact on the Group
+are also set out in the "Environmental, Social and Governance Report" on pages 100 to 122 and the "Corporate Governance
+Report" on pages 76 to 99 as well as on page 73 of this annual report. A description of the principal risks and uncertainties
+facing the Group is set out in "Corporate Governance Report" on pages 76 to 99 of this annual report. All such discussions
+form part of this report.
+SHARE CAPITAL
+Details of the movements in the share capital of the Company during the year are set out in Note 31 to the consolidated
+financial statements.
+SUBSIDIARIES
+Particulars of the Company's principal subsidiaries as at 31 December 2018 are set out in Note 46 to the consolidated
+financial statements.
+BORROWINGS
+Particulars of the Group's borrowings and notes payable are set out in Note 34 and Note 35 to the consolidated financial
+statements respectively.
+As at 31 December 2018, the Group had net debt of RMB12,170 million, compared to net debt of RMB29,227 million as of
+30 September 2018. The sequential decrease in indebtedness was mainly due to free cash flow generation, proceeds from
+TME's capital raising activities and disposals of our stakes in certain investee companies, partially offset by payments for M&A
+initiatives and media content.
+DONATION
+273,104
+(29,227)
+Total:
+Management Discussion and Analysis
+LIQUIDITY AND FINANCIAL RESOURCES
+Our cash positions as at 31 December 2018 and 30 September 2018 are as follows:
+Cash and cash equivalents
+Term deposits and others
+Borrowings
+Notes payable
+Net debt
+Fair value of our stakes in listed investee companies (excluding subsidiaries)
+31 December
+Audited
+Unaudited
+30 September
+2018
+2018
+(RMB in millions)
+97,814
+69,305
+39,079
+167,119
+144,473
+(114,271)
+(108,543)
+(65,018)
+(65,157)
+(12,170)
+238,040
+The donation made by the Group to Tencent Charity Funds in the year was RMB730 million.
+32
+Tencent Holdings Limited
+Directors' Report
+USE OF PROCEEDS FROM IPO OF NON-WHOLLY OWNED SUBSIDIARY
+The use of proceeds of TME and China Literature, our non-wholly owned subsidiaries, are set out below:
+TME
+The American depository shares of TME were listed on the New York Stock Exchange on 12 December 2018 and the net
+proceeds raised by TME during its IPO were approximately USD509 million (equivalent to approximately RMB3,500 million).
+As at 31 December 2018, TME has not yet used any of the proceeds received from the IPO. TME will apply the net proceeds
+in the manner as set out in its IPO prospectus.
+China Literature
+The shares of China Literature, were listed on the Stock Exchange on 8 November 2017 and the net proceeds raised by China
+Literature during its IPO were approximately HKD7,235 million (equivalent to approximately RMB6, 145 million).
+As at 31 December 2018, China Literature had used:
+approximately RMB345.4 million for expanding its online reading business and sales and marketing activities;
+approximately RMB200.9 million for expanding its involvement in the development of derivative entertainment products
+adapted from its online literary titles; and
+approximately RMB1,734.9 million for funding its potential investments, acquisitions and strategic alliances.
+The remaining balance of the net proceeds was placed with banks. China Literature will apply the remaining net proceeds in
+the manner as set out in its IPO prospectus.
+34
+Tencent Holdings Limited
+Directors' Report
+SHARE OPTION SCHEMES
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the
+Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV. The Pre-IPO Option Scheme,
+the Post-IPO Option Scheme I and the Post-IPO Option Scheme II expired on 31 December 2011, 23 March 2014 and 16 May
+2017 respectively.
+As at 31 December 2018, there were a total of 17,215,800 outstanding share options granted to a director of the Company,
+details of which are as follows:
+Number of share options
+As at
+1 January
+Granted
+during
+Exercised
+As at
+during 31 December
+Exercise
+Annual Report 2018 33
+On 19 January 2018, the Company issued four tranches of senior notes under the Global Medium Term Note Programme for
+the Company's general corporate purposes. Details of the issuance of debt securities are set out in Note 35 to the consolidated
+financial statements.
+ISSUANCE OF DEBT SECURITIES
+Save as disclosed above and in Note 31 to the consolidated financial statements, neither the Company nor any of its
+subsidiaries has purchased, sold or redeemed any of the Company's shares during the year ended 31 December 2018.
+Directors' Report
+FINANCIAL SUMMARY
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+During the year ended 31 December 2018, the Company repurchased 2,848,000 shares on the Stock Exchange for an
+aggregate consideration of approximately HKD886.8 million before expenses. The repurchased shares were subsequently
+cancelled. The repurchase was effected by the Board for the enhancement of shareholder value in the long term. Details of the
+shares repurchased are as follows:
+Purchase consideration per share
+Aggregate
+No. of shares
+Month of purchase in 2018
+purchased
+Highest
+price paid
+consideration
+paid
+Date of grant
+HKD
+HKD
+September
+1,668,500
+333.40
+October
+1,179,500
+322.80
+306.00
+265.20
+535,627,842
+351,174,951
+Total:
+2,848,000
+886,802,793
+HKD
+24 Mar 2021 (Note 2)
+Lowest
+price paid
+36
+Exercised
+during
+forfeited
+As at
+Date of grant
+2018
+the year
+the year
+during 31 December
+the year
+2018
+Exercise
+price
+Exercise period
+(Note 16)
+HKD
+23 Nov 2017
+89,565
+89,565
+419.60
+23 Nov 2018 to
+16 Jan 2018
+155,050
+22 Nov 2024 (Note 4)
+-- 155,050
+444.20
+16 Jan 2019 to
+15 Jan 2025 (Notes 4 and 9)
+9 Apr 2018
+2,082,920
+Granted
+during
+- 2,082,920
+1 January
+Lapsed/
+272.36
+10 Jul 2018 to
+9 Jul 2024 (Note 4)
+10 Jul 2017
+9,020,095
+424,414
+137,532
+8,458,149
+272.36
+10 Jul 2018 to
+10 Jul 2017
+25,340
+10 Jul 2017
+7,455
+9 Jul 2024 (Note 5)
+25,340
+272.36
+10 Jul 2019 to
+9 Jul 2024 (Note 6)
+7,455
+272.36
+10 Jul 2020 to
+9 Jul 2024 (Note 8)
+Annual Report 2018
+37
+Directors' Report
+Number of share options
+As at
+410.00
+9 Apr 2019 to
+8 Apr 2025 (Notes 7 and 10)
+43,890
+21 Jun 2025 (Notes 4 and 12)
+30,870 5,128,760
+386.60
+6 Jul 2019 to
+5 Jul 2025 (Notes 5 and 13)
+8,050
+386.60
+6 Jul 2020 to
+5 Jul 2025 (Notes 6 and 13)
+9,660
+34,230
+386.60
+6 Jul 2021 to
+5 Jul 2025 (Notes 8 and 13)
+24 Aug 2018
+17,780
+-- 17,780
+354.00
+24 Aug 2019 to
+24 Aug 2018
+2,660
+23 Aug 2025 (Notes 4 and 14)
+-- 2,660
+354.00
+6 Jul 2019 to
+18
+6 Jul 2018
+- 8,050
+6 Jul 2018
+5,159,630
+9 Apr 2018
+235,515
+-- 235,515
+410.00
+9 Apr 2019 to
+8 Apr 2025 (Notes 4 and 10)
+9 Apr 2018
+16,692,585
+-- 16,692,585
+410.00
+9 Apr 2019 to
+24 May 2018
+26,390
+13,405
+22 Jun 2018
+8 Apr 2025 (Notes 5 and 10)
+26,390
+407.00
+24 May 2019 to
+--13,055
+23 May 2025 (Notes 4 and 11)
+22 Jun 2019 to
+21 Jun 2025 (Notes 7 and 12)
+22 Jun 2018
+70,525
+-- 70,525
+403.16 22 Jun 2019 to
+6 Jul 2018
+13,055
+13,405
+403.16
+23 Mar 2024 (Note 5)
+642,339
+124.30
+10 Jul 2015 to
+9 Jul 2021 (Note 5)
+12 Dec 2014
+80,650
+40,300
+40,350
+116.40
+12 Dec 2016 to
+11 Dec 2021 (Note 6)
+2 Apr 2015
+525,000
+-- - 525,000
+149.80
+2 Apr 2016 to
+1 Apr 2022 (Note 5)
+10 Jul 2015
+739,804
+170,705
+14,070 555,029
+148.90
+10 Jul 2016 to
+9 Jul 2022 (Note 5)
+21 Mar 2016
+6,675,000
+550,000
+26,313
+469,353
+1,138,005
+10 Jul 2014
+Tencent Holdings Limited
+Number of share options
+10 Jul 2017
+Directors' Report
+Lapsed/
+As at
+Granted
+Exercised
+forfeited
+As at
+1 January
+during
+during
+6,125,000
+Date of grant
+the year
+the year
+(Note 16)
+during 31 December
+the year
+Exercise
+2018
+price
+HKD
+22 May 2014
+62,500
+62,500
+112.30
+22 May 2015 to
+21 May 2021 (Note 4)
+2018
+158.10
+Exercise period
+20 Mar 2023 (Note 5)
+12.
+The closing price immediately before the date on which the options were granted on 24 May 2018 was HKD407.
+11.
+The closing price immediately before the date on which the options were granted on 9 April 2018 was HKD405.8.
+10.
+9.
+The closing price immediately before the date on which the options were granted on 16 January 2018 was HKD433.2.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 3 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 50% of the total options can be
+exercised 1 year after the grant date, and the remaining 50% of the total options will become exercisable in the subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 2 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 1 year after the grant date, and each 33.33% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 2 years after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+The closing price immediately before the date on which the options were granted on 22 June 2018 was HKD396.8.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+7.
+6.
+5.
+4.
+3.
+2.
+1.
+Note:
+Directors' Report
+21 Mar 2017 to
+5 Jul 2025 (Notes 14 and 15)
+38
+Tencent Holdings Limited
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 3 years after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+13.
+8.
+14.
+4,020
+162,472
+The closing price immediately before the date on which the options were granted on 6 July 2018 was HKD385.6.
+1,283,309
+6 Jul 2016
+1,116,817
+174.86
+6 Jul 2017 to
+5 Jul 2023 (Note 5)
+1,417,930
+125,080
+1,292,850
+225.44
+24 Mar 2018 to
+24 Mar 2017
+24 Mar 2017 21,822,500
+The closing price immediately before the date on which the options were granted on 24 August 2018 was HKD359.
+15.
+Subject to the satisfaction of certain conditions, the first 25% of the total options can be exercised on the dates as specified in the
+relevant grant letters, and each 25% of the total options will become exercisable in each subsequent year.
+16.
+23 Mar 2024 (Note 7)
+Annual Report 2018
+39
+The weighted average closing price immediately before the date on which the options were exercised was HKD398.8.
+24 Mar 2018 to
+393,750
+225.44
+21,428,750
+Exercise
+2018
+(Note 4)
+price Exercise period
+(Note 4)
+1 Mar 2016 to
+External
+consultants
+1 Mar 2015
+28 Feb 2025 (Note 1)
+2,348,099
+0.000076
+207,701
+207,701
+2,348,099
+1 Mar 2015
+USD
+during 31 December
+the year
+Granted Exercised
+the year
+16 Oct 2028 (Note 5)
+Annual Report 2018
+2,630,000
+2,175,612 87,759,473
+41
+Directors' Report
+Anti-dilution
+Number of share options
+Lapsed/
+As at adjustments
+forfeited
+As at
+1 January
+during
+during
+during
+Date of grant
+2018
+the year
+the year
+232,650
+Directors' Report
+2,714,940
+Tencent Holdings Limited
+SUMMARY OF THE SHARE OPTION SCHEMES
+Pre-IPO
+Details
+Option Scheme
+1.
+Purposes
+Post-IPO
+42
+Option Scheme I
+Post-IPO
+Option Scheme II
+Option Scheme III
+Post-IPO
+Option Scheme IV
+75,481,560 6,676,301 7,777,224
+To recognise the contribution that certain individuals have made to the Group, to attract the best available personnel and to promote the success of
+نه
+Post-IPO
+The first 25% of the total options can be exercised 2 years after the commencement dates as specified in the relevant grant letters, and
+each 25% of the total options will become exercisable in each subsequent year.
+In May 2018, in order to offset the dilution effect resulting from the share dividend distributed in December 2017, TME made certain
+adjustments pursuant to the anti-dilution clause under the share option schemes, to the number of share options outstanding, the
+applicable exercise price and the number of shares available for issuance for future share options under its share option schemes.
+Subject to the satisfaction of certain conditions, the first 25% of the total options can be exercised on the dates as specified in the
+relevant grant letters, and each 25% of the total options will become exercisable in each subsequent year.
+0.27
+1 Mar 2016 to
+28 Feb 2025 (Note 1)
+Sub-total:
+4,978,099
+440,351
+355,411 5,063,039
+Total:
+80,459,659
+7,116,652 7,777,224
+2,531,023 92,822,512
+Note:
+1.
+2.
+3.
+4.
+5.
+The first 25% of the total options can be exercised 1 year after the commencement dates as specified in the relevant grant letters, and
+each 12.5% of the total options will become exercisable in each subsequent six months.
+All the options can be exercised 1 year after the commencement date as specified in the relevant grant letter if a certain condition is
+satisfied.
+147,710
+Sub-total:
+0.000076
+7.14
+USD
+30 Jun 2016
+600,000
+53,070
+653,070
+30 Jun 2017 to
+29 Jun 2026 (Note 1)
+30 Jun 2016
+(Note 4)
+10,863,902
+624,943 11,200,035
+30 Jun 2017 to
+29 Jun 2026 (Note 1)
+16 Jun 2017
+2,468,764
+218,362
+2,687,126
+2.32
+961,076
+5 Jul 2017 to
+(Note 4)
+2018
+Anti-dilution
+the Group's business
+Lapsed/
+As at adjustments
+1 January
+Granted Exercised
+forfeited
+As at
+price Exercise period
+during
+during
+during 31 December
+Exercise
+2018
+the year
+the year
+the year
+the year
+during
+12 Jul 2020 to
+15 Jun 2027 (Note 3)
+9,565,716
+1,300,000
+4.04
+16 Apr 2019 to
+15 Apr 2028 (Note 3)
+3 Sep 2018
+460,724
+460,724
+2.69 3 Sep 2019 to
+1,300,000
+2 Sep 2028 (Note 3)
+2,319,000
+2,319,000
+7.14
+12 Jul 2019 to
+17 Oct 2018
+3,697,500
+16 Oct 2028 (Note 3)
+3,697,500
+17 Oct 2018
+16 Jun 2017
+16 Apr 2018
+20 Dec 2018 to
+846,088
+10,411,804
+2.32
+31 Mar 2018 to
+15 Jun 2027 (Note 3)
+31 Aug 2017
+7,666,803
+678,087
+19 Dec 2027 (Note 3)
+-576,297
+0.27
+31 Aug 2018 to
+30 Aug 2027 (Note 1)
+20 Dec 2017
+7,260,103
+642,177
+7,902,280
+2.32
+7,768,593
+Qualifying
+participants
+Remaining life of
+the scheme
+Any employee, consultant
+or director of any company
+within the Group
+Post-IPO
+Details
+Option Scheme
+Option Scheme I
+Option Scheme II
+Post-IPO
+Option Scheme III
+Post-IPO
+Post-IPO
+Option Scheme IV
+It expired on 31 December
+2011.
+It expired on 23 March
+2014.
+It expired on 16 May
+2017.
+It shall be valid and
+effective for a period of ten
+years commencing on 13
+May 2009.
+It shall be valid and
+effective for a period of ten
+years commencing on 17
+May 2017.
+Note:
+The total number of shares available for issue under the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and Post-IPO Option
+Scheme IV are 200,551,970, 175,093,330 and 342,156,454 respectively, which represent approximately 2.11%, 1.84% and 3.59%
+respectively of the issued shares of the Company as at the date of this annual report.
+8.
+MOVEMENTS IN THE SHARE OPTIONS
+Pre-IPO
+Tencent Holdings Limited
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+Post-IPO
+Option Scheme III
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+Directors' Report
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+share.
+Post-IPO
+Option Scheme IV
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+the date of grant; and (iii)
+the nominal value of the
+share.
+46
+the date of grant; and (iii)
+the nominal value of the
+Details of the movements in the share options during the year are set out in Note 33 to the consolidated financial statements.
+VALUATION OF SHARE OPTIONS
+Details of the valuation of share options during the year are set out in Note 33 to the consolidated financial statements.
+The Board shall, in respect of each
+Selected Participant, cause to be paid
+the relevant amount from the Company's
+resources into the Account I or to the
+Trustee to be held on trust for the
+relevant Selected Participant for the
+purchase and/or subscription of the
+Awarded Shares as soon as practicable
+after the Reference Date.
+It shall be valid and effective unless and
+until being terminated on the earlier
+of: (i) the 15th anniversary date of the
+Adoption Date II; and (ii) such date of
+early termination as determined by the
+Board provided that such termination
+does not affect any subsisting rights of
+any Selected Participant.
+3% of the issued shares of the
+Company as at the Adoption Date II (i.e.
+278,937,260 shares (after the effect of
+the Share Subdivision))
+1% of the issued shares of the
+Company as at the Adoption Date II (i.e.
+92,979,085 shares (after the effect of
+the Share Subdivision))
+The Board may, from time to time, at its
+absolute discretion select any Eligible
+Person to be a Selected Participant
+and grant to such Selected Participant
+Awarded Shares.
+The Board may at any time at its
+discretion, in respect of each Selected
+Participant, cause to be paid the relevant
+amount from the Company's resources
+or any subsidiary's resources into the
+Account II for the purchase and/or
+subscription of Awarded Shares as soon
+as practicable after the Grant Date.
+48
+Tencent Holdings Limited
+The Board shall select the Eligible
+Person(s) and determine the number of
+shares to be awarded.
+6.
+Directors' Report
+2007 Share Award Scheme
+No award shall be made by the Board
+and no instructions to acquire shares
+and allot new shares shall be given by
+the Board or the Trustee under the 2007
+Share Award Scheme where any director
+is in possession of unpublished price-
+sensitive information in relation to the
+Group or where dealings by directors
+are prohibited under any code or
+requirement of the Listing Rules and all
+applicable laws from time to time.
+2013 Share Award Scheme
+No award may be made by the Board to
+any Selected Participant: (i) where the
+Company has information that must be
+disclosed under Rule 13.09 of the Listing
+Rules or where the Company reasonably
+believes there is inside information which
+must be disclosed under Part XIVA of
+the SFO, until such inside information
+has been published on the websites of
+the Stock Exchange and the Company;
+(ii) after any inside information in relation
+to the securities of the Company has
+occurred or has become the subject of
+a decision, until such inside information
+has been published; (iii) within the
+period commencing 60 days (in the case
+of yearly results), or 30 days (in the case
+of results for half-year, quarterly or other
+interim period) immediately preceding
+the earlier of (1) the date of a meeting of
+the Board (as such date is first notified
+to the Stock Exchange) for the approval
+of the Company's results for any year,
+half-year, quarterly or other interim
+period (whether or not required under
+the Listing Rules); and (2) the deadline
+for the Company to publish its quarterly,
+interim or annual results announcement
+for any such period, and ending on the
+date of such announcement; or (iv) in
+any other circumstances where dealings
+by Selected Participant (including
+directors) are prohibited under the Listing
+Rules, SFO or any other applicable law
+or regulation or where the requisite
+approval from any applicable regulatory
+authorities has not been granted.
+Annual Report 2018 49
+Directors' Report
+Restrictions
+1% of the issued shares of the
+Company as at the Adoption Date | (i.e.
+89,388,080 shares (after the effect of
+the Share Subdivision))
+2% of the issued shares of the
+Company as at the Adoption Date | (i.e.
+178,776,160 shares (after the effect of
+the Share Subdivision))
+Operation
+Annual Report 2018
+47
+Directors' Report
+SHARE AWARD SCHEMES
+The Company adopted the following two Share Award Schemes with major terms and details set out below:
+1.
+Purpose
+2007 Share Award Scheme
+2013 Share Award Scheme
+To recognise the contributions and to attract, motivate and retain eligible participants
+(including any director) of the Group
+2.
+Duration and Termination
+It shall be valid and effective for a period
+of 15 years from the Adoption Date I.
+3.
+Maximum number of shares
+that can be awarded
+4.
+Maximum entitlement of each
+participant
+5.
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+Any eligible employee,
+including executive
+directors of the Company
+date of grant, which must
+the date of grant; and (iii)
+the nominal value of the
+share.
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme II shall be
+444,518,270 shares (after
+the effect of the Share
+Subdivision), 5% of the
+relevant class of securities
+of the Company in issue
+as at 16 May 2007. The
+maximum number of
+shares which may be
+issued upon exercise of
+all outstanding options
+granted and yet to be
+exercised under the Post-
+IPO Option Scheme II and
+any other share option
+schemes, including the
+Pre-IPO Option Scheme,
+the Post-IPO Option
+Scheme I, the Post-IPO
+Option Scheme III and the
+Post-IPO Option Scheme
+IV, must not in aggregate
+exceed 30% of the issued
+shares of the Company
+from time to time (Note).
+Post-IPO
+Option Scheme III
+The maximum number of
+shares in respect of which
+options may be granted
+under the Post-IPO
+Option Scheme III shall be
+180,093,330 shares (after
+the effect of the Share
+Subdivision), 2% of the
+relevant class of securities
+of the Company in issue
+as at 13 May 2009. The
+maximum number of
+shares which may be
+issued upon exercise of
+all outstanding options
+granted and yet to be
+exercised under the Post-
+IPO Option Scheme III
+and any other share option
+schemes, including the
+Pre-IPO Option Scheme,
+the Post-IPO Option
+Scheme I, the Post-IPO
+Option Scheme II and the
+Post-IPO Option Scheme
+IV, must not in aggregate
+exceed 30% of the issued
+shares of the Company
+from time to time (Note).
+Post-IPO
+Option Scheme IV
+Option Scheme II
+The maximum number
+of shares in respect of
+which options may be
+granted under the Post-
+IPO Option Scheme IV
+shall be 379,099,339
+shares, 4% of the relevant
+class of securities of the
+Company in issue as at 17
+May 2017. The maximum
+number of shares which
+may be issued upon
+exercise of all outstanding
+options granted and yet
+to be exercised under the
+Post-IPO Option Scheme
+IV and any other share
+option schemes, including
+the Pre-IPO Option
+Scheme, the Post-IPO
+Option Scheme I, the Post-
+IPO Option Scheme II and
+Post-IPO Option Scheme
+III, must not in aggregate
+exceed 30% of the issued
+shares of the Company
+from time to time (Note).
+Tencent Holdings Limited
+Details
+Pre-IPO
+Option Scheme
+Post-IPO
+Option Scheme I
+4.
+Maximum
+entitlement of
+each participant
+44
+The number of ordinary
+shares in respect of which
+options may be granted
+shall not exceed 10% of
+the number of ordinary
+shares issued and issuable
+Post-IPO
+Option Scheme I
+Any employee (whether
+full time or part time),
+executive or officer,
+director (including
+executive, non-executive
+and independent non-
+executive directors) of
+any member of the Group
+or any invested entity,
+which is any entity in
+which the Group holds
+an equity interest, and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+Any senior executive or
+senior officer, director
+(including executive,
+non-executive and
+independent non-
+executive directors) of any
+member of the Group or
+any invested entity and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+Any employee (whether
+full time or part time),
+executive or officer,
+director (including
+executive, non-executive
+and independent non-
+executive directors) of any
+member of the Group or
+any invested entity, and
+any consultant, adviser
+or agent of any member
+of the Board, who have
+contributed or will
+contribute to the growth
+and development of the
+Group or any invested
+entity
+Annual Report 2018
+43
+As at 16 May 2007,
+options to subscribe for an
+aggregate of 60,413,683
+shares were outstanding.
+No further option could be
+granted under the Post-
+IPO Option Scheme l.
+Directors' Report
+3.
+Maximum
+number of
+shares
+Pre-IPO
+Option Scheme
+As at 7 June 2004,
+options to subscribe for an
+aggregate of 72,386,370
+shares were outstanding.
+No further option could be
+granted under the Pre-IPO
+Option Scheme.
+Post-IPO
+Details
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+under the scheme.
+5.
+Directors' Report
+Pre-IPO
+Post-IPO
+Post-IPO
+Option Scheme II
+Details
+Option Scheme
+Option Scheme I
+45
+6.
+Options granted must be
+accepted within 15 days
+of the date of grant, upon
+payment of RMB1 per
+grant.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per
+grant.
+7.
+Exercise price
+Price shall be determined
+by the Board.
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated
+in the Stock Exchange's
+daily quotations sheets
+for the five business days
+immediately preceding
+Acceptance of
+offer
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+7-year period after the
+date of grant of option.
+There is no minimum
+period for which an option
+must be held before it can
+be exercised.
+Annual Report 2018
+must be held before it can
+be exercised.
+Option period
+All the options are
+exercisable in installments
+from the commencement
+of the relevant vesting
+period until 31 December
+2011, but on the condition
+that the Company has
+been listed in a sizeable
+securities market. The
+Board may at their
+discretion determine
+the specific vesting and
+exercise periods.
+Directors' Report
+Post-IPO
+Option Scheme II
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+Post-IPO
+Option Scheme III
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+Post-IPO
+Option Scheme IV
+1% of the issued shares of
+the Company from time to
+time within any 12-month
+period up to the date of
+the latest grant
+The option period is
+determined by the Board
+provided that the period
+during which the option
+may be exercised shall not
+be less than one year from
+the date of grant of the
+options.
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+7-year period after the
+date of grant of option.
+There is no minimum
+The option period is
+determined by the Board
+provided that it is not later
+than the last day of the
+10-year period after the
+date of grant of option.
+There is no minimum
+period for which an option period for which an option
+must be held before it can
+be exercised.
+Stock Exchange's daily
+quotations sheet on the
+Number of share options
+0.27
+18,750
+212,000
+304,608
+230,750
+0.000076
+31 Dec 2016 to
+30 Dec 2025 (Note 1)
+1 Mar 2016
+761,000
+67,270
+81,627
+746,643
+0.27
+1 Mar 2017 to
+28 Feb 2026 (Note 1)
+31 Mar 2016
+340,500
+30,115
+575 370,040
+0.27
+31 Mar 2017 to
+30 Mar 2026 (Note 1)
+31 Dec 2015
+1 Jun 2016
+30 Dec 2025 (Note 1)
+0.27
+30 Mar 2016 to
+29 Mar 2025 (Note 1)
+1 Jul 2015
+200,000
+17,690
+- - 142,590
+75,100
+0.27
+1 Jul 2016 to
+30 Jun 2025 (Note 1)
+1 Oct 2015
+780,600
+69,000
+57,720 791,880
+0.27
+1 Oct 2016 to
+30 Sep 2025 (Note 1)
+31 Dec 2015
+2,933,281
+259,242
+-- 155,837 3,036,686
+31 Dec 2016 to
+6,521,513
+576,827
+7,098,340
+2018
+Exercise
+during 31 December
+the year
+the year
+the year
+the year
+2018
+Date of grant
+during
+during
+during
+1 January
+As at
+forfeited
+Granted Exercised
+As at adjustments
+Lapsed/
+Anti-dilution
+Number of share options
+Details of movements of share options granted to employees and certain external consultants under the share option schemes
+adopted by TME, a subsidiary of the Group, during the year ended 31 December 2018 are as follows:
+Directors' Report
+(Note 4)
+price
+(Note 4)
+USD
+Exercise period
+Employees
+0.27
+1 Jun 2017 to
+31 May 2026 (Note 2)
+40
+Tencent Holdings Limited
+Date of grant
+3,444,042
+30 Mar 2015
+28 Feb 2025 (Note 1)
+1 Mar 2016 to
+0.27
+0.27
+879,143
+9,939,200
+1 Mar 2015
+28 Feb 2025 (Note 1)
+1 Mar 2016 to
+0.000076
+33,587 12,945,345
+1,054,796
+11,924,136
+1 Mar 2015
+41,712 10,776,631
+3,748,650
+2018
+6,500
+9 April 2019 to
+9 April 2022
+Total:
+18,606
+10,000
+5,368
+23,238
+Grand Total:
+10,000
+193,606
+74,118
+158,988
+52 Tencent Holdings Limited
+Directors' Report
+DIRECTORS AND SENIOR MANAGEMENT
+The directors and senior management of the Company during the year and up to the date of this annual report were:
+Executive Directors
+Ma Huateng (Chairman)
+39,500
+6,500
+10,000
+24 March 2018 to
+9 April 2019 to
+9 April 2022
+Total:
+35,000
+6,500
+13,750
+27,750
+Yang Siu Shun
+9 April 2018
+6 July 2016
+2,868
+5,738
+6 July 2017 to
+6 July 2020
+24 March 2017
+10,000
+2,500
+7,500
+8,606
+Lau Chi Ping Martin
+9 April 2018
+24 March 2018 to
+21 March 2020
+21 March 2017 to
+10,000
+5,000
+15,000
+21 March 2016
+24 March 2017
+2 April 2019
+7,500
+7,500
+15,000
+2 April 2015
+24 March 2019
+24 March 2015 to
+2 April 2016 to
+10,000
+20,000
+15,000
+24 March 2014
+lan Charles Stone
+52,500
+27,500
+10,000
+70,000
+5,000
+Total:
+9 April 2019 to
+10,000
+10,000
+9 April 2018
+24 March 2021
+24 March 2018 to
+9 April 2022
+20,000
+10,000
+24 March 2014
+50
+During the year, a total of 24,098,204 shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV, and pursuant to the
+Share Award Schemes.
+During the year, a total of 20,940,149 Awarded Shares were granted under the 2013 Share Award Scheme and out of which,
+39,500 Awarded Shares were granted to the independent non-executive directors of the Company. Details of the movements
+in the Share Award Schemes during the year are set out in Note 33 to the consolidated financial statements.
+The Company shall comply with the relevant Listing Rules when granting the Awarded Shares. If awards are made to the
+directors or substantial shareholders of the Group, such awards shall constitute connected transaction under Chapter 14A of
+the Listing Rules and the Company shall comply with the relevant requirements under the Listing Rules.
+The Trustee does not exercise any voting
+rights in respect of any shares held
+pursuant to the Trustee Deed II or as
+nominee.
+Subject to the satisfaction of all vesting
+conditions as prescribed in the 2013
+Share Award Scheme, the Selected
+Participants will be entitled to receive the
+Awarded Shares.
+Tencent Holdings Limited
+The vesting of the Awarded Shares
+is subject to the Selected Participant
+remaining at all times after the Grant
+Date and on the date of vesting, an
+Eligible Person, subject to the rules of
+the 2013 Share Award Scheme.
+The Trustee shall not exercise the voting
+rights in respect of any shares held by it
+pursuant to the Trustee Deed I (including
+but not limited to the Awarded Shares
+and any bonus shares and scrip shares
+derived therefrom).
+Awarded Shares and the related income
+derived therefrom are subject to a
+vesting scale to be determined by the
+Board at the date of grant of the award.
+Vesting of the shares will be conditional
+on the Selected Participant satisfying all
+vesting conditions specified by the Board
+at the time of making the award until
+and on each of the relevant vesting dates
+and his/her execution of the relevant
+documents to effect the transfer from the
+Trustee.
+2007 Share Award Scheme
+8. Voting Rights
+7. Vesting and Lapse
+Directors' Report
+2013 Share Award Scheme
+20,000
+Directors' Report
+Number of Awarded Shares
+lain Ferguson Bruce
+Vesting period
+2018
+31 December
+during
+the year
+the year
+As at 31 December 2018, there were a total of 158,988 outstanding Awarded Shares granted to the directors of the Company,
+details of which are as follows:
+2018
+Name of director
+As at
+Vested
+Granted
+during
+1 January
+As at
+Date of grant
+10,000
+10,000
+24 March 2015 to
+5,000
+5,000
+10,000
+24 March 2014
+Li Dong Sheng
+Vesting period
+24 March 2015 to
+the year
+2018
+Date of grant
+Name of director
+31 December
+during
+As at
+the year
+Vested
+24 March 2019
+7,500
+7,500
+2,500
+10,000
+24 March 2017
+21 March 2020
+21 March 2017 to
+2 April 2015
+5,000
+7,500
+21 March 2016
+2 April 2019
+2 April 2016 to
+3,750
+3,750
+2,500
+Granted
+during
+Number of Awarded Shares
+1 January
+24 March 2017
+21 March 2020
+21 March 2017 to
+10,000
+5,000
+15,000
+20,000
+21 March 2016
+2 April 2016 to
+7,500
+7,500
+15,000
+2 April 2015
+24 March 2019
+2 April 2019
+5,000
+15,000
+24 March 2018 to
+As at
+Directors' Report
+51
+Annual Report 2018
+55,500
+27,500
+13,000
+70,000
+Total:
+9 April 2022
+9 April 2019 to
+13,000
+13,000
+9 April 2018
+24 March 2021
+24 March 2021
+Non-Executive Directors
+24 March 2021
+Charles St Leger Searle
+Directors' Report
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Xu Chenye, age 47, Chief Information Officer, oversees the strategic planning and development for the website properties
+and communities, customer relations and public relations of the Company. Mr Xu is one of the core founders and has been
+employed by the Group since 1999. Prior to that, Mr Xu had experiences in software system design, network administration
+as well as marketing and sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu
+received a Bachelor of Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree
+in Computer Science from Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of
+the Company.
+Ren Yuxin, age 43, Chief Operating Officer and President of Platform & Content Group and Interactive Entertainment Group,
+joined the Company in 2000 and had served as General Manager for the Value-Added Services Development Division and
+General Manager for Interactive Entertainment Business Division. Since September 2005, Mr Ren has been responsible for the
+research and development, operations, marketing and sales of gaming products for the Interactive Entertainment Business.
+Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of the overall operation of the
+Platform & Content Group and Interactive Entertainment Group. Prior to joining the Company, Mr Ren has worked in Huawei
+Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from University of
+Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International Business School
+(CEIBS) in 2008. Mr Ren currently serves as a director or officer of certain subsidiaries of the Company.
+James Gordon Mitchell, age 45, Chief Strategy Officer and Senior Executive Vice President, joined the Company in 2011. He
+is responsible for various functions, including the Company's strategic planning and implementation, investor relationships,
+and mergers, acquisitions and investment activity. Prior to joining the Company, Mr Mitchell had worked in investment
+banking for 16 years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading the bank's
+Communications, Media and Entertainment research team, which analysed Internet, entertainment and media companies
+globally. Mr Mitchell received a degree from Oxford University and holds a Chartered Financial Analyst Certification. Mr
+Mitchell currently serves as a director of certain subsidiaries of the Company.
+Annual Report 2018
+57
+40
+Directors' Report
+Lau Seng Yee, age 52, Senior Executive Vice President and Chairman of Tencent Advertising and of Group Marketing and
+Global Branding and has been affiliated with Tencent Group as a member of their top management steering committee
+since 2006. He served for 11 years as the President of Online Media Group before assuming his current dual chairmanship
+corporate roles in 2017. As Chairman of Advertising and of Group Marketing and Global Branding, he plays a key leadership
+role in enhancing synergies of Tencent's advertising properties across different business groups and in managing Tencent's
+international strategic partnerships on behalf of Tencent's leadership team. Mr Lau represents the Company as a champion
+for the cause of using technology for universal good, particularly for how technology could be better utilised for a sustainable
+development of human society. Professionally, Mr Lau was recognised as the "Global Media Person of the Year" by the Cannes
+Lions in 2015. In 2018, he became one of the founding members of the Global CMO Growth Council, a board featuring 25
+top marketing leaders who share the vision and passion to transform the professional practices of marketing. He has agreed
+to serve as a global board member for the United Nation's World Food Program, an initiative targeting the global eradication of
+hunger by 2030. Mr Lau is a graduate of University of Kebangsaan in Malaysia and received an EMBA degree from Rutgers
+University in New Jersey, which in 2017 named him as a Distinguished Alumnus. He completed the Advanced Management
+Program at the Harvard Business School and serves as a board member of that school's Asia-Pacific Advisory Board.
+Tong Tao Sang, age 45, Senior Executive Vice President, President of Cloud and Smart Industries Group and Chairman of
+TME, is leading the Industrial Internet strategy and the enterprise businesses for Tencent. Mr Tong manages the security labs,
+the multi-media lab, and Youtu Al lab, and he is one of the co-chairs of Tencent's technology council. Mr Tong joined the
+Company as a technical architect in 2005, and had previously led QQ, Qzone, QQshow, and their advertising and value added
+services. Prior to joining the Company, Mr Tong worked for Sendmail, Inc. on managing the product development of operator-
+scale messaging systems. Mr Tong also worked for Oracle on the development and testing of Oracle Server and Oracle
+Applications. Mr Tong received a Bachelor of Science degree in Computer Engineering from University of Michigan, Ann Arbor
+in 1994 and a Master of Science degree in Electrical Engineering from Stanford University in 1997. Mr Tong currently serves
+as a director of certain subsidiaries of the Company.
+58
+Tencent Holdings Limited
+Directors' Report
+Lu Shan, age 44, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company in
+2000 and had served as General Manager for IM Product Divisions, Vice President for Platform Research and Development
+System and Senior Vice President for Operations Platform System. Since March 2008, Mr Lu has been in charge of
+management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge of management
+of Technical Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming Network Systems Limited. Mr
+Lu received a Bachelor of Science degree in Computer Science and Technology from University of Science and Technology of
+China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of the Company.
+David A M Wallerstein, age 44, Chief exploration Officer and Senior Executive Vice President, joined the Company in 2001. He
+drives the Company's active participation in emerging technologies, business areas, and ideas, with a passion for contributing
+to a more resilient planet. Prior to joining the Company, Mr Wallerstein worked with Naspers in China. Mr Wallerstein currently
+serves as a director of a subsidiary of the Company.
+Ma Xiaoyi, age 45, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company
+since November 2008. Prior to joining the Company, Mr Ma served as a General Manager of Games Division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as a General Manager in Shanghai EasyService Technology Development
+Ltd. Mr Ma graduated from Shanghai Jiaotong University in 1997, and received an EMBA degree from Fudan University in
+2008. Mr Ma currently serves as a director of certain subsidiaries of the Company.
+John Shek Hon Lo, age 50, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and served as the
+Company's Financial Controller from 2004 to 2008. Mr Lo was promoted to the Company's Vice President and Deputy Chief
+Financial Officer in 2008 and was appointed as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo
+worked in PricewaterhouseCoopers as Senior Manager (audit services). He is a Fellow of the CPA Australia, a Fellow of the
+Hong Kong Institute of Certified Public Accountants, a Fellow of the Chartered Institute of Management Accountants and a
+Member of the Association of Chartered Certified Accountants. Mr Lo received a Bachelor of Business degree in Accounting
+from Curtin University and an EMBA degree from Kellogg Graduate School of Management, Northwestern University and
+HKUST. Mr Lo currently serves as a director of certain subsidiaries of the Company.
+Annual Report 2018 59
+Jacobus Petrus (Koos) Bekker
+56 Tencent Holdings Limited
+Yang Siu Shun, age 63, has been an independent non-executive director since July 2016. Mr Yang is currently serving as a
+Member of the 13th National Committee of the Chinese People's Political Consultative Conference, a Justice of the Peace in
+Hong Kong, a Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority, a Steward of the
+Hong Kong Jockey Club, the Deputy Chairman of the Council of the Open University of Hong Kong, and an independent non-
+executive director of Industrial and Commercial Bank of China Limited which is publicly listed on the Stock Exchange and the
+Shanghai Stock Exchange. Mr Yang retired from PricewaterhouseCoopers ("PwC") on 30 June 2015. Before his retirement,
+he served as the Chairman and Senior Partner of PwC Hong Kong, the Executive Chairman and Senior Partner of PwC China
+and Hong Kong, one of the five members of the Global Network Leadership Team of PwC and the PwC Asia Pacific Chairman.
+Mr Yang also served as a Board Member and the Audit Committee Chairman of the Hang Seng Management College, up to
+30 September 2018, Mr Yang graduated from the London School of Economics and Political Science in 1978. Mr Yang is a
+Fellow Member of the Institute of Chartered Accountants in England and Wales, the Hong Kong Institute of Certified Public
+Accountants and the Chartered Institute of Management Accountants.
+Zhang Xiaolong, age 49, Senior Executive Vice President and President of Weixin Group, joined the Company in March 2005
+and served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail service
+provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has been
+appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail. He
+is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted to
+Senior Executive Vice President, in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received his Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+In accordance with Article 87 of the Articles of Association, Mr Jacobus Petrus (Koos) Bekker and Mr lan Charles Stone will
+retire at the 2019 AGM and, being eligible, will offer themselves for re-election.
+lan Charles Stone
+Yang Siu Shun
+Independent Non-Executive Directors
+The Company has received from each independent non-executive director an annual confirmation of his independence
+pursuant to Rule 3.13 of the Listing Rules and the Board considers them independent.
+Annual Report 2018
+53
+lan Charles Stone, age 68, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 29 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong, China, South East Asia and the Middle East. Mr Stone has more
+than 48 years of experience in the telecom and mobile industries. Mr Stone is a fellow member of The Hong Kong Institute of
+Directors. Mr Stone also serves as an independent non-executive director of a subsidiary of the Company.
+Directors' Report
+BIOGRAPHICAL DETAILS AND OTHER INFORMATION OF DIRECTORS
+Ma Huateng, age 47, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma is a deputy to the 13th National People's Congress. Mr Ma has
+a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen University and
+more than 25 years of experience in the telecommunications and Internet industries. He is a director of Advance Data Services
+Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the Company.
+Lau Chi Ping Martin, age 45, is an executive director and President of the Company. Mr Lau joined the Company in 2005 as
+the Chief Strategy and Investment Officer and was responsible for corporate strategies, investments, merger and acquisitions
+and investor relations. In 2006, Mr Lau was promoted to President of the Company to manage the day-to-day operation of
+the Company. In 2007, he was appointed as an executive director of the Company. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at McKinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. Mr Lau is currently a non-executive director of Kingsoft Corporation Limited, an Internet based
+software developer, distributor and software service provider, and Meituan Dianping, a China's leading eCommerce platform for
+services; both of these companies are publicly listed on the Stock Exchange. Mr Lau is also a director of Leju Holdings Limited,
+an online-to-offline real estate services provider in China, Vipshop Holdings Limited, an online discount retailer company, and
+TME, an online music entertainment platform in China; all of these companies are listed on the New York Stock Exchange. Mr
+Lau is also a director of JD.com, Inc., an online direct sales company in China, that is listed on NASDAQ. Mr Lau also serves
+as a director/corporate representative of certain subsidiaries of the Company.
+Jacobus Petrus (Koos) Bekker, age 66, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers. He
+serves on the boards of other companies within the group and associates, as well as other bodies. In April 2015, he became
+non-executive chair. Academic qualifications include BA Hons and honorary doctorate in commerce (Stellenbosch University),
+LLB (University of the Witwatersrand) and MBA (Columbia University, New York).
+54
+Tencent Holdings Limited
+Directors' Report
+Charles St Leger Searle, age 55, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, including Mail.ru Group Limited that is listed on the London Stock Exchange and MakeMyTrip Limited that is listed on
+NASDAQ. Prior to joining the Naspers Group, he held positions at Cable & Wireless plc and at Deloitte & Touche in London
+and Sydney. Mr Searle is a graduate of the University of Cape Town and a member of the Institute of Chartered Accountants
+in Australia and New Zealand. Mr Searle has more than 25 years of international experience in the telecommunications and
+Internet industries. Mr Searle also serves as a director of certain subsidiaries of the Company.
+Li Dong Sheng, age 61, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Corporation, which produces consumer electronic products and is listed on the Shenzhen Stock
+Exchange. Mr Li is a non-executive director of Fantasia Holdings Group Co., Limited, a leading property developer and
+property related service provider in China that is listed on the Stock Exchange. Mr Li graduated from South China University
+of Technology in 1982 with a Bachelor degree in radio technology and has more than 24 years of experience in the
+information technology field. Mr Li is the Chairman of TCL Communication Technology Holdings Limited, which was delisted
+for privatisation from the Stock Exchange on 30 September 2016. Mr Li was the Chairman and executive director of TCL
+Multimedia Technology Holdings Limited (now known as TCL Electronics Holdings Limited) that is listed on the Stock Exchange
+up to 22 September 2017, and was also an independent director of Legrand that is listed on the New York Stock Exchange
+Euronext up to 30 May 2018.
+lain Ferguson Bruce, age 78, has been an independent non-executive director since April 2004. Mr Bruce joined KPMG in
+Hong Kong in 1964 and was elected to its partnership in 1971. He was the Senior Partner of KPMG from 1991 until his
+retirement in 1996 and served as Chairman of KPMG Asia Pacific from 1993 to 1997. Since 1964, Mr Bruce has been a
+member of the Institute of Chartered Accountants of Scotland, and is a fellow of the Hong Kong Institute of Certified Public
+Accountants, with over 54 years of international experience in accounting and consulting. He is also a fellow of The Hong
+Kong Institute of Directors and the Hong Kong Securities and Investment Institute (formerly known as Hong Kong Securities
+Institute). Mr Bruce is currently an independent non-executive director of Goodbaby International Holdings Limited, a
+manufacturer of durable juvenile products, South Shore Holdings Limited (formerly known as The 13 Holdings Limited),
+a construction, engineering services and hotel development company, and Wing On Company International Limited, a
+department store operating and real property investment company; all of these companies are publicly listed on the Stock
+Exchange. Mr Bruce is also an independent non-executive director of Yingli Green Energy Holding Company Limited, a China-
+based vertically integrated photovoltaic product manufacturer that is listed on the New York Stock Exchange. Mr Bruce was
+a non-executive director of Noble Group Limited, a commodity trading company that is publicly listed on The Singapore
+Exchange Securities Trading Limited, up to 11 May 2017, and was also an independent non-executive director of Citibank
+(Hong Kong) Limited, up to 2 August 2017. Mr Bruce was also an independent non-executive director of MSIG Insurance (Hong
+Kong) Limited, up to 1 July 2018.
+Annual Report 2018 55
+Directors' Report
+lain Ferguson Bruce
+Li Dong Sheng
+(registered capital)
+RMB35,285,705
+Shiji Kaixuan
+Personal
+54.29%
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+Tencent Computer
+Ma Huateng
+Approximate %
+of shareholding
+RMB5,971,427
+Number of shares and
+class of shares held
+Personal
+(registered capital)
+64
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests or short
+positions in any shares, underlying shares or debentures of the Company and its associated corporations as at 31 December
+2018.
+Annual Report 2018
+63
+Directors' Report
+CONNECTED TRANSACTIONS
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+The reasons for using Structure Contracts
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services in
+China. As foreign-invested enterprises, the WFOEs do not have licences to provide Internet content or information services and
+other telecommunications value-added services. Accordingly, the value-added telecommunications business of the Group has
+been conducted through Tencent Computer, Shiji Kaixuan and the new operating companies (the “New OPCOS”) (collectively,
+the "OPCOS") by themselves or through their subsidiaries under the Structure Contracts (as defined in the section "Our History
+and Structure - Structure Contracts" of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group
+is able to recognise and receive the economic benefit of the business and operations of the OPCOS. The Structure Contracts
+are also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to
+acquire the equity interests in and/or assets of the OPCOS.
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed “Our History and Structure"
+and "Structure Contracts" in the IPO prospectus of the Company. During the year ended 31 December 2018, there was
+no material change in the Structure Contracts and/or the circumstances under which they were adopted, and none of the
+Structure Contracts has been unwound as none of the restrictions that led to the adoption of Structure Contracts has been
+removed.
+Tencent Holdings Limited
+Directors' Report
+Nature of interest
+54.29%
+Name of associated
+corporation
+0.0003%
+(B) Long position in the shares of associated corporations of the Company
+Family+
+240,000
+433,000
+(Note 5)
+Yang Siu Shun
+Personal
+31,474
+2018
+(Note 6)
+62
+Tencent Holdings Limited
+Directors' Report
+Note:
+1.
+2.
+3.
+4.
+5.
+6.
+Advance Data Services Limited, a British Virgin Islands company wholly-owned by Ma Huateng, holds 723,507,500 shares
+directly and 96,000,000 shares indirectly through its wholly-owned subsidiary, Ma Huateng Global Foundation.
+The interest comprises 31,968,000 shares and 17,215,800 underlying shares in respect of the share options granted pursuant
+to the Post-IPO Option Scheme II and the Post-IPO Option Scheme III. Details of the share options granted to this director are set
+out above under "Share Option Schemes".
+The interest comprises 25,050 shares and 27,750 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 322,000 shares and 52,500 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 377,500 shares and 55,500 underlying shares in respect of the awarded shares granted pursuant to the
+2007 Share Award Scheme and the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out
+above under "Share Award Schemes".
+The interest comprises 8,236 shares and 23,238 underlying shares in respect of the awarded shares granted pursuant to
+the 2013 Share Award Scheme. Details of the awarded shares granted to this director are set out above under "Share Award
+Schemes".
+Interests of beneficial owner
+Interests of spouse or child under 18 as beneficial owner
+Name of director
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進口
+GT)(the “Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009 provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via wholly-
+owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors from
+gaining control over or participating in domestic online game operators through indirect ways such as establishing other joint
+venture companies or entering into contractual or technical arrangements with the Chinese licence holders.
+Shiji Kaixuan
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the Company indirectly operates the value-added telecommunication service business,
+online and mobile games, online advertising and other Internet and wireless portals in the PRC through the OPCOS that hold
+the necessary licences for the existing lines of businesses.
+Review of the transactions carried out under the Structure Contracts during the financial year
+The Company's independent non-executive directors had reviewed the Structure Contracts (as defined in the section "Our
+History and Structure - Structure Contracts" of the IPO prospectus of the Company) and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure
+Contracts and, had been operated so as to transfer by the date of this annual report Tencent Computer's and Shiji Kaixuan's
+Surplus Cash (as defined in the section "Our History and Structure Structure Contracts" of the IPO prospectus of the
+Company) as at 31 December 2018 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology
+(Shenzhen) Company Limited in the IPO prospectus of the Company), Tencent Beijing, Shenzhen Tencent Information,
+Tencent Chengdu, Chongqing Tencent Information, Shanghai Tencent Information, Tencent Shanghai, Tencent Wuhan,
+Hainan Network, Guangzhou Tencent Technology, Shenzhen Tencent Network and Guian New Area Tencent Cyber. The
+Company's independent non-executive directors had also confirmed that no dividends or other distributions had been made
+by the OPCOS to the holders of their equity interests and the terms of any new Structure Contracts entered into, renewed and/
+or cloned during the relevant financial period are fair and reasonable so far as the Group was concerned and in the interests
+of the Company's shareholders as a whole. To this extent, similar Structure Contracts were entered into relating to the New
+OPCOS.
+The Auditor had carried out procedures on the transactions pursuant to the Structure Contracts and had provided a letter
+to the Board confirming that such transactions had been approved by the Board and had been entered into, in all material
+respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus Cash of the
+OPCOS as at 31 December 2018 to the WFOES and that no dividends or other distributions had been made by the OPCOS to
+the holders of their equity interests.
+Annual Report 2018
+67
+Directors' Report
+Transactions carried out during the year ended 31 December 2018, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+1.
+2.
+3.
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent
+Technology and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and to provide services
+to Tencent Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates
+as consideration. The parties also established the TCS Co-operation Committee according to this agreement. During
+the year, revenue sharing amounting to approximately RMB64,288 million, RMB2,932 million, RMB18,901 million,
+RMB15,638 million, RMB7,600 million, RMB2,197 million, RMB1,996 million, RMB186 million, RMB5,174 million,
+RMB1,351 million, RMB111 million, RMB108 million and RMB24 million were paid or payable by Tencent Computer to
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu, Tencent Shanghai, Tencent Wuhan, Chongqing
+Tencent Information, Shanghai Tencent Information, Shenzhen Tencent Information, Hainan Network, Guangzhou
+Tencent Technology, Shenzhen Tencent Network and Guian New Area Tencent Cyber respectively.
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and to provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established the
+SKT Co-operation Committee according to this agreement. During the year, no services was transacted under such
+arrangements, save as disclosed elsewhere in this section.
+Pursuant to the amended and restated intellectual property transfer agreement dated 28 February 2004 entered
+into between Tencent Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its
+principal present and future intellectual property rights, free from encumbrances (except for licences granted in the
+ordinary course of Tencent Computer's business) in consideration of Tencent Technology's undertaking to provide
+certain technology and information services to Tencent Computer. During the year, no intellectual property transfer was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+68
+Tencent Holdings Limited
+Directors' Report
+4.
+5.
+6.
+7.
+8.
+Pursuant to the intellectual property transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and
+Shiji Kaixuan, Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future intellectual property rights, free
+from encumbrance (except for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of
+Cyber Tianjin's undertaking to provide certain technology and information services to Shiji Kaixuan. During the year, no
+intellectual property transfer was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no domain name
+licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no domain name licence
+was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+Annual Report 2018 69
+Directors' Report
+However, Circular 13 does not provide any interpretation of the term "foreign investors" or make a distinction between foreign
+online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether the State
+General Administration of Press, Publication, Radio, Film and Television will deem the Group's structure and operations to be
+in violation of these provisions.
+66 Tencent Holdings Limited
+Provision of value-added services in the PRC
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+Annual Report 2018
+65
+Directors' Report
+Particulars of the OPCOS
+Set out below are the registered owners and business activities of the OPCOS which had entered into transactions with the
+Group during the year ended 31 December 2018:
+Registered owners
+Name of the operating companies
+as at 31 December 2018
+Business activities
+Tencent Computer
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+Provision of value-added services and Internet
+advertisement services in the PRC
+11.43% by Chen Yidan
+Shiji Kaixuan
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Provision of Internet advertisement services in the
+PRC
+Tencent Computer
+Shiji Kaixuan
+Wang Dian
+Beijing BIZCOM
+Beijing Starsinhand
+The above OPCOs are significant to the Group as they hold relevant licences to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB153 billion for the year ended 31 December 2018 and
+approximately RMB32 billion as at 31 December 2018 respectively.
+Provision of value-added services in the PRC
+Provision of value-added services in the PRC
+193,000
+0.005%
+lan Charles Stone
+DIRECTORS' INTERESTS IN SECURITIES
+Directors' Report
+Annual Report 2018 61
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+PERMITTED INDEMNITY PROVISION
+Save as disclosed in this annual report, no transaction, arrangement or contract of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS
+As at 31 December 2018, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+Mr Lau Chi Ping Martin has entered into a service contract with the Company for a term of three years ended 31 December
+2018. The term of the service contract has been extended for another 3 years by way of a supplemental agreement. Mr Lau is
+entitled to an annual bonus based on the performance of the Company in an amount to be determined by the Remuneration
+Committee. Mr Lau is entitled to participate in all employee benefit plans, programmes and arrangements of the Company.
+DIRECTORS' SERVICE CONTRACTS
+Directors' Report
+Tencent Holdings Limited
+60
+60
+Xi Dan, age 43, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 23 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director or officer of certain subsidiaries of the Company.
+Guo Kaitian, age 46, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of legal affairs, administration, infrastructure, procurement, public strategy, safety management
+and corporate social responsibility. Mr Guo received a Bachelor of Law degree from Zhongnan University of Economics and
+Law in 1996. Mr Guo currently serves as a director of a subsidiary of the Company.
+Directors' Report
+Personal
+Mr Ma Huateng has entered into a service contract with the Company for a term of three years from 1 January 2016 to 31
+December 2018. The term of the service contract has been extended for another 3 years by way of a supplemental agreement.
+The term of the service contract can be further extended by agreement between the Company and Mr Ma. The Company may
+terminate the service contract by three months' written notice at any time, subject to paying his salary for the shorter of six
+months and a portion of his annual bonus for the year in which termination occurred pro rata to the portion of the year before
+the termination becomes effective.
+(A) Long position in the shares and underlying shares of the Company
+Save as disclosed above, none of the directors who are proposed for re-election at the 2019 AGM has a service contract
+with the Company which is not determinable by the Company within one year without payment of compensation, other than
+statutory compensation.
+Nature of interest
+0.004%
+374,500
+Personal
+lain Ferguson Bruce
+(Note 3)
+Name of director
+52,800
+Personal
+Li Dong Sheng
+(Note 2)
+0.0006%
+0.52%
+Number of shares/
+underlying shares held
+Approximate %
+of shareholding
+Ma Huateng
+Corporate (Note 1)
+Lau Chi Ping Martin
+Personal *
+(Note 4)
+819,507,500
+49,183,800
+8.61%
+Hong Kong, 21 March 2019
+Chairman
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors with a
+thorough understanding of the Group's management and how such management oversees and manages different businesses
+of the Group. Our belief is that investors will realise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will lead to public trust and will ultimately create shareholder value
+for the Group.
+75
+On behalf of the Board
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2019 AGM.
+Corporate Governance Report
+The register of members of the Company will be closed from Tuesday, 21 May 2019 to Wednesday, 22 May 2019,
+both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the proposed
+final dividend, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with
+the Company's branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on
+Monday, 20 May 2019.
+AUDITOR
+Annual Report 2018
+Ma Huateng
+Tencent Holdings Limited
+The register of members of the Company will be closed from Thursday, 9 May 2019 to Wednesday, 15 May 2019, both
+days inclusive, during which period no transfer of shares will be registered. In order to be entitled to attend and vote at
+the 2019 AGM, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with
+the Company's branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on
+Wednesday, 8 May 2019.
+reviews the work done by the Company's management with respect to risk management and internal control systems;
+and
+Directors' Report
+CLOSURE OF REGISTER OF MEMBERS
+74
+As at the date of this annual report, based on information that is publicly available to the Company and within the knowledge
+of its directors, the directors confirm that the Company has maintained during the year the amount of public float as required
+under the Listing Rules.
+SUFFICIENCY OF PUBLIC FLOAT
+The total remuneration cost incurred by the Group for the year ended 31 December 2018 was RMB42,153 million (2017:
+RMB34,866 million).
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-
+house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according
+to the assessment of individual performance.
+As at 31 December 2018, the Group had 54,309 employees (2017: 44,796). The number of employees employed by the
+Group varies from time to time depending on needs and employees are remunerated based on industry practice.
+CORPORATE GOVERNANCE PRACTICES
+(B) Entitlement to the Proposed Final Dividend
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board
+believes that throughout the year ended 31 December 2018, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions A.2.1 regarding the segregation of the roles of the chairman
+and chief executive and A.4.2 regarding the retirement and re-election of directors.
+defines levels of delegation in respect of specific matters, with required authority to Board committees and management;
+monitors non-financial aspects pertaining to the businesses of the Group;
+BOARD OF DIRECTORS
+exercises oversight of the Company's financial reporting system;
+•
+reviews the Company's financial information;
+•
+handles the relationship with the Company's external auditor;
+Audit Committee
+The Company's governance structure of these committees can be summarised as follows:
+To better serve the long-term interests of our stakeholders, the Board delegates certain matters requiring particular time,
+attention and expertise to its committees. The Board has determined that these matters are better dealt with by the committees
+as they require independent oversight and specialist input. As such, the Board has established five committees to assist the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. Each of the committees has its terms of reference which clearly specify its powers and authorities. All committees
+report back to the Board and make recommendations to the Board if necessary.
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once every
+two weeks or as frequent as necessary to formulate policies and make recommendations to the Board. The senior management
+team administers, enforces, interprets and supervises compliance with the internal rules and operational procedures of the
+Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate amendments to
+such rules and procedures. The senior management team reports to the Board on a regular basis and communicates with the
+Board whenever required.
+regularly evaluates its own performance and effectiveness.
+considers and, if appropriate, declares the payment of dividends to shareholders; and
+EMPLOYEE AND REMUNERATION POLICIES
+establishes Board committees with clear terms of reference and responsibilities as appropriate;
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders;
+determines director selection, orientation and evaluation;
+Corporate Governance Report
+Tencent Holdings Limited
+76
+determines the Group's communication policy;
+approves the Company's financial statements and interim and annual reports;
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned;
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual business plan and budget;
+approves the annual business plan and budget proposed by management;
+•
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans;
+•
+The Board has defined the business and governance issues for which it needs to be responsible for, and these matters are
+reviewed periodically to ensure that the Company maintains effective and up-to-date corporate governance practices. In this
+regard, the Board:
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategy and monitors management's
+execution of such strategy.
+Responsibilities
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes
+when appropriate.
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of Cayman Islands, which would
+oblige the Company to offer new shares on a pro rata basis to existing shareholders.
+Advance Data Services Limited holds 723,507,500 shares directly and 96,000,000 shares indirectly through its wholly-owned
+subsidiary, Ma Huateng Global Foundation. As Advance Data Services Limited is wholly-owned by Ma Huateng, Mr Ma has an interest
+in these shares as disclosed under the section of "Directors' Interests in Securities".
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+shares/ underlying
+Nature of
+interest/capacity
+Long/ short position
+Name of shareholder
+Number of
+Long/ short position in the shares of the Company
+As at 31 December 2018, the following persons, other than the directors or chief executive of the Company, had interests or
+short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under
+section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the shares of the Company:
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+Directors' Report
+71
+Annual Report 2018
+Save as the related parties transaction disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest
+paid individuals), Note 14 (Benefits and interests of directors), Note 20 (Transactions with associates), Note 25 (Loans to
+investees and investees' shareholders) and Note 33 (Share-based payments) to the consolidated financial statements, no
+related party transaction disclosed in the consolidated financial statements constitutes a discloseable connected transaction
+as defined under the Listing Rules. The Company has complied with the disclosure requirements set out in Chapter 14A of the
+Listing Rules.
+Other connected transactions
+For details of the risks associated with the Structure Contracts, please refer to the section headed “Risk factors - Risks relating
+to our structure" in the IPO prospectus of the Company.
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in
+the PRC, a number of agreements have been entered into between members of the Group whereby the Company and the
+WFOEs derive substantially all their revenues from transactions with the OPCOs. The recognition of revenues outlined in these
+intragroup contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and
+adverse impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the
+tax treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimise the risks of adjustment
+in tax treatment.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WFOES and OPCOS, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WFOES and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as "High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOS, decide to implement enforceable remedy
+(including mandatorily requiring OPCOS to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Directors' Report
+Tencent Holdings Limited
+70
+10
+Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and one of the
+WFOES, the parties shall cooperate in the provision of communications services. For each agreement, the WFOEs shall
+allow the New OPCOS to use its and its affiliates' assets and provide services to the New OPCOS. The New OPCOS shall
+transfer all of its Surplus Cash to the WFOES and its affiliates as consideration. Co-operation committees have also been
+established according to these agreements. During the year, revenue sharing amounting to approximately RMB2 million,
+RMB3 million and RMB83 million was paid or payable by Wang Dian to Tencent Technology, Cyber Tianjin and Tencent
+Beijing respectively. Revenue sharing amounting to approximately RMB3 million, RMB22 million and RMBO.012 million
+was paid or payable by Beijing BIZCOM to Tencent Technology, Cyber Tianjin and Tencent Beijing respectively. Revenue
+sharing amounting to approximately RMB3 million and RMB1 million was paid or payable by Beijing Starsinhand to
+Cyber Tianjin and Tencent Beijing respectively.
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Co-operation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+11.
+10.
+9.
+Directors' Report
+Approximate %
+PRE-EMPTIVE RIGHTS
+shares held
+MIH TC
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+Directors' Report
+18
+Annual Report 2018 73
+The Group is committed to minimising the impact on the environment from our business activities and the details of such
+efforts are set out in the section headed "Environment" in the Environmental, Social and Governance Report in this annual
+report. As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+The Audit Committee, together with the Auditor, has reviewed the Group's audited consolidated financial statements for the
+year ended 31 December 2018. The Audit Committee has also reviewed the accounting principles and practices adopted by
+the Group and discussed auditing, risk management, internal control and financial reporting matters.
+AUDIT COMMITTEE
+None of the directors, their close associates or any shareholder (which to the knowledge of the directors owns more than 5% of
+the number of issued shares of the Company) had an interest in any of the major customers or suppliers noted above.
+For the year ended 31 December 2018, the five largest customers of the Group accounted for approximately 4.23% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 1.37% of the Group's
+total revenues. In addition, for the year ended 31 December 2018, the five largest suppliers of the Group accounted for
+approximately 18.63% of the Group's total purchases while the largest supplier of the Group accounted for approximately 5%
+of the Group's total purchases.
+MAJOR CUSTOMERS AND SUPPLIERS
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company were entered into or existed during the year.
+MANAGEMENT CONTRACTS
+(A) Entitlement to Attend and Vote at the 2019 AGM
+Directors' Report
+Tencent Holdings Limited
+72
+Save as disclosed above, the Company had not been notified of any other persons (other than the directors or chief executive
+of the Company) who, as at 31 December 2018, had interests or short positions in the shares and underlying shares of the
+Company as recorded in the register required to be kept under section 336 of the SFO.
+MIH TC is wholly-owned by Naspers Limited indirectly through its wholly-owned intermediary companies, MIH Holdings Proprietary
+Limited, MIH Ming He Holdings Limited and MIH Services FZ LLC. As such, Naspers Limited, MIH Holdings Proprietary Limited, MIH
+Ming He Holdings Limited and MIH Services FZ LLC are deemed to be interested in the same block of 2,961,223,600 shares under
+Part XV of the SFO.
+2.
+1.
+Note:
+8.61%
+819,507,500
+31.10%
+2,961,223,600
+Corporate (Note 1)
+Corporate (Note 2)
+Long position
+Long position
+Advance Data Services Limited
+of shareholding
+oversees the risks undertaken by the Company including determining the level of risk the Company expects to and is
+able to take.
+Charles St Leger Searle
+77
+Name of director
+Executive directors
+Ma Huateng
+Lau Chi Ping Martin
+Non-executive directors
+Jacobus Petrus (Koos) Bekker
+Annual Report 2018
+Independent non-executive directors
+Li Dong Sheng
+We believe education and training are important for maintaining an effective Board. New directors undergo an orientation
+programme designed to provide a thorough understanding of the Group's operations and businesses, and also receive a
+handbook outlining their responsibilities under the Listing Rules and applicable laws. Existing directors are provided with
+tailored training programmes covering topics such as best practices in corporate governance, legal and regulatory trends
+and, given the nature of our business, emerging technologies and products. Directors also regularly meet with the senior
+management team to understand the Group's businesses, governance policies and regulatory environment. During the year
+ended 31 December 2018, the Company arranged training on topics relating to corporate governance, legal and regulatory
+updates and product trends which are relevant to the Group's businesses. The chart below summarises the participation of
+each of the directors in continuous professional development during the year ended 31 December 2018:
+lain Ferguson Bruce
+Yang Siu Shun
+Participated in
+continuous professional
+development¹
+V
+V
+√
+V
+V
+1
+A high level of corporate governance and integrity cannot be maintained only with the Board's efforts. Each of the Group's
+employees plays a role in contributing to such cause. A code of conduct which emphasises integrity and respect is distributed
+by the Company to all employees and it forms part of the employment agreement with each of the employees.
+Annual Report 2018 79
+lan Charles Stone
+functions.
+Attended training/ seminar/ conference arranged by the Company or other external parties or read relevant materials.
+The major work of the committees during the year 2018 is set out on pages 84 to 87.
+All directors have full and timely access to all relevant information as well as the advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring that Board procedures and all applicable rules and regulations
+are followed. All directors may also obtain independent professional advice at the Company's expense for carrying out their
+Corporate Governance Report
+reviews the Company's corporate governance and makes recommendations to the Board;
+reviews and monitors the training and continuous professional development of the directors and senior management
+team;
+reviews and monitors the Company's policies and practices on its compliance with legal and regulatory requirements;
+develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors;
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders; and
+reviews the Company's compliance with the CG Code and disclosure in the Corporate Governance Report.
+Investment Committee
+• identifies, considers and makes recommendations on mergers, acquisitions and disposals; and
+ensures compliance with the Listing Rules and any other relevant laws and regulations on any mergers, acquisitions and
+disposals.
+Corporate Governance Committee
+reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy;
+identifies suitable and qualified individuals and makes recommendations to the Board as to new Board members,
+by taking into account the individual's experience, knowledge, skills and background, as well as the Listing Rules
+requirements;
+Nomination Committee
+78 Tencent Holdings Limited
+ensures that no director or any of his associates is involved in deciding his own remuneration.
+ensures that these remuneration proposals are aligned to corporate goals and objectives; and
+Corporate Governance Report
+Remuneration Committee
+reviews and monitors the implementation of the board diversity policy of the Company.
+assesses the independence of independent non-executive directors; and
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders;
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team;
+the plans (including those for 2018), resources and work of the Company's internal auditors;
+The Corporate Governance Committee met twice in 2018. Individual attendance of each Corporate Governance Committee
+member is set out on page 83.
+the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group.
+PricewaterhouseCoopers ("PwC") is the Company's external auditor. The Audit Committee annually reviews the relationship of
+the Company with PwC. Having also reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied with this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2019 AGM.
+In view of the new requirement for extending the cooling-off period to 2 years for former professional advisers to take up the
+position of an independent non-executive director of listed issuers under the revised CG Code which has become effective from
+1 January 2019, the terms of reference of the Audit Committee were revised and adopted in December 2018 to align with the
+revised CG Code.
+Corporate Governance Committee
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr lain Ferguson Bruce, Mr Ian Charles Stone and Mr Yang Siu Shun (all of them are independent
+non-executive directors). The Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+the adequacy of resources, qualifications and training of the Group's finance department; and
+reviewed the Company's compliance with the ESG Reporting Guide and disclosure in the Environmental, Social and
+Governance Report;
+•
+discussed on the arrangements made for directors and senior management team to attend training sessions for
+continuous professional development;
+reviewed the Company's compliance with the CG Code and disclosure in the Corporate Governance Report;
+reviewed the Company's policies and practices on corporate governance; and
+reviewed legal and regulatory compliance, including the insider dealing policy, the disclosure of inside information policy
+and the shareholders communication policy.
+Annual Report 2018 85
+Corporate Governance Report
+in relation to the external auditor, their plans, reports and management letter, fees, involvement in non-audit services,
+and their terms of engagement;
+Investment Committee
+The Corporate Governance Committee's major work during the year 2018 includes the following:
+•
+*
+Corporate Governance Report
+The Investment Committee comprises a majority of executive directors. Its members are Mr Lau Chi Ping Martin, Mr Ma
+Huateng and Mr Charles St Leger Searle. The Investment Committee is chaired by Mr Lau Chi Ping Martin.
+At the Board meetings, the Board discussed a wide range of matters, including the Group's overall strategies, financial and
+operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary,
+in consultation with the Chairman and the senior management team, prepares the agenda for each meeting and all directors
+are given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all
+applicable rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the
+Board meeting to each of the directors at least 14 days in advance of each regular Board meeting. The company secretary
+also sends the agenda, board papers and relevant information relating to the Group to each of the directors at least 3 days in
+advance of each regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial
+performance and latest developments. If any director raises any queries, steps will be taken to respond to such queries as
+promptly and fully as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director,
+such director will declare his interest and will abstain from voting on such matters. The directors may approach the Company's
+senior management team when necessary. The directors may also seek independent professional advice at the Company's
+expense in appropriate circumstances.
+Annual Report 2018
+83
+Corporate Governance Report
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final version of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+THE COMMITTEES
+As described above, the Board has established five committees, each of which has been delegated responsibilities and reports
+back to the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and
+Remuneration Committee. The roles and functions of these committees are set out in their respective terms of reference. The
+terms of reference of each of these committees will be revised from time to time to ensure that they continue to meet the needs
+of the Company and to ensure compliance with the CG Code. The terms of reference of the Audit Committee, the Nomination
+Committee and the Remuneration Committee are available on the Company Website and the Stock Exchange's website.
+Audit Committee
+The Audit Committee comprises only non-executive directors. Its members are Mr Yang Siu Shun*, Mr lain Ferguson Bruce*,
+Mr lan Charles Stone (all of them are independent non-executive directors) and Mr Charles St Leger Searle (non-executive
+director). Mr Yang Siu Shun, who chairs the Audit Committee, and Mr lain Ferguson Bruce and Mr Charles St Leger Searle
+have appropriate professional qualifications and experiences in financial matters.
+Mr Yang Siu Shun was appointed as the Chairman of the Audit Committee and Mr lain Ferguson Bruce ceased to be the Chairman of
+the Audit Committee with effect from the conclusion of the annual general meeting of the Company held on 16 May 2018.
+The Audit Committee meets not less than four times a year; the Audit Committee met eight times in 2018. Individual
+attendance of each Audit Committee member is set out on page 83. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Head of IA and the Head of IC, and the external auditor at the
+invitation of the Audit Committee.
+The Audit Committee's major work during the year 2018 includes reviewing:
+the 2017 annual report, including the Corporate Governance Report, the Environmental, Social and Governance Report,
+Directors' Report and the financial statements, as well as the related results announcement;
+the 2018 interim report and interim results announcement;
+the 2018 first and third quarters results announcements;
+the status of compliance with the CG Code, the Listing Rules and relevant laws by the Group;
+84
+Tencent Holdings Limited
+•
+In 2018, the Investment Committee had considered and passed various resolutions on its decisions on the Group's acquisitions
+and disposals.
+The Board acknowledges that it is the Board's responsibility to ensure that the Company has established and maintained
+adequate and effective risk management and internal control systems. The Board delegates its responsibility to the Audit
+Committee to review the practices of management with respect to risk management and internal control, including the design,
+implementation and supervision of the risk management and internal control systems. This review formally takes place on a
+quarterly basis. The Audit Committee also reviews the effectiveness of the risk management and internal control systems on an
+annual basis. The Board is responsible for overseeing the risk appetite of the Company including determining the risk level the
+Company expects and is able to take, and proactively considering, analysing and formulating strategies to manage the key risks
+that the Company is exposed to.
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr lain Ferguson Bruce, Mr Ian Charles Stone (all three are independent non-executive directors) and Mr
+Charles St Leger Searle (non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+The First Line of Defence is mainly formed by the business and functional departments of each business group of the
+Company who are responsible for the day-to-day operation and management. It is responsible for designing and implementing
+controls to address the risks.
+The Second Line of Defence -- Risk Management
+The Second Line of Defence is mainly the IC. This line of defence is responsible for formulating policies related to the risk
+management and internal control of the Company and for planning and implementing the establishment of integrated risk
+control systems. For ensuring effective implementation of such systems, this line of defence also assists and supervises the
+first line of defence in the establishment and improvement of risk management and internal control systems.
+88
+Tencent Holdings Limited
+Corporate Governance Report
+The Third Line of Defence -- Independent Assurance
+The Third Line of Defence mainly consists of the IA and the anti-fraud investigation department.
+The First Line of Defence -- Operation and Management
+The IA holds a high degree of independence and is responsible for providing an independent evaluation on the effectiveness
+of the Company's risk management and internal control systems, and monitoring management's continuous improvement over
+the risk management and internal control areas.
+The IA and the anti-fraud investigation department have direct reporting lines to the Audit Committee.
+These systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only
+provide reasonable but not absolute assurance against material misstatement or loss.
+The Board and management have always placed importance on the Company's risk management and internal control systems.
+In 2018, the Company has invested even more resources in the continuous improvement of the risk management and internal
+control systems, which have also increased the awareness of risk management among the employees. The internal control
+function has continuously worked closely with and provided proactive supports to the business groups in their business
+development and risk management. Furthermore, the IA has also continued to promote the deployment of continuous audits
+to provide more effective and timely independent evaluations. The anti-fraud investigation department further strengthened the
+values of integrity among the employees, followed up and investigated the alleged fraudulent activities timely. The connection
+and interaction among the three lines of defence have been further strengthened to have more positive supports to the
+Company.
+Risk Management
+The Company is committed to continuously improving the risk management system, including structure, process and culture,
+through the enhancement of risk management ability, to ensure long-term growth and sustainable development of the
+Company's business.
+The Company has established a risk management system (including the "Three Lines of Defence" internal monitoring model
+as detailed above) which sets out the roles and responsibilities of each relevant party as well as the relevant risk management
+policies and processes. Each business group of the Company, on a regular basis, identifies and assesses risk factors that may
+negatively impact the achievement of its objectives, and formulates appropriate response measures. The Company's staff also
+attends training in relation to risk management and internal control on a regular basis.
+Annual Report 2018
+89
+The anti-fraud investigation department is responsible for receiving whistleblower reports through various channels and for
+following up and investigating alleged fraudulent activities. It also assists management in promoting the "Tencent Sunshine
+Code of Conduct" (the "Sunshine Code") and the value of integrity to all employees of the Company.
+To ensure that the risk management and internal control systems are effective, the Company, under the supervision and
+guidance of the Board and factoring the actual needs of the Company, has adopted the "Three Lines of Defence" internal
+monitoring model as an official organisational structure for risk management and internal control.
+1/1
+Adequate and effective risk management and internal control systems are key to safeguarding the achievement of the
+Company's business strategies. The risk management and internal control systems shall also ensure the achievement of the
+Company's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with applicable
+laws, regulations and policies.
+The Nomination Committee met once in 2018. Individual attendance of each Nomination Committee member is set out on
+page 83.
+During 2018, the Nomination Committee reviewed board composition and director succession, and the board diversity policy,
+and also considered and made recommendations to the Board on the re-designation of the Chairman of the Audit Committee
+and the re-appointment of the retiring directors at the 2018 annual general meeting. The Nomination Committee has also
+assessed the independence of the independent non-executive directors and considers all of them to be independent, taking
+into account of the independence guidelines set out in Rule 3.13 of the Listing Rules in the context of the length of service of
+each independent non-executive director. The Company recognises the benefits of having a diverse Board, and views diversity
+at Board level as a business imperative that will help the Company achieve its strategic objectives and maintain a competitive
+advantage. As such, the Board has set measurable objectives for the implementation of the board diversity policy to ensure
+that the Board has the appropriate balance of skills, experience and diversity of perspectives that are required to support the
+execution of its business strategy and maintain the effectiveness of the Board. The Nomination Committee is satisfied that the
+board diversity policy is successfully implemented with reference to the measurable objectives. The Nomination Committee will
+continue to monitor the implementation of the board diversity policy and will review the board diversity policy periodically to
+ensure its continued effectiveness.
+Remuneration Committee
+The Remuneration Committee comprises only non-executive directors. Its members are Mr Ian Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). The
+Remuneration Committee is chaired by Mr lan Charles Stone.
+The Remuneration Committee met four times in 2018. Individual attendance of each Remuneration Committee member is set
+out on page 83.
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration packages of each director.
+86
+Tencent Holdings Limited
+Corporate Governance Report
+The Remuneration Committee's major work during the year 2018 includes the following:
+reviewing and recommending to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with a similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staff;
+reviewing and recommending to the Board on the remuneration packages for the directors;
+reviewing and approving compensation awards granted to senior management team, to recognise their contributions to
+the Company and to provide incentives for future performances.
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual or any of his associates was involved in determining his own remuneration. It also ensured that
+remuneration awards were determined by reference to the performance of the individual and the Company and were aligned
+with the market practice and conditions, the Company's goals and strategies. They are designed to attract, retain and motivate
+high performing individuals, and reflect the specifics of individual roles.
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+As part of the Board's responsibility, the Board ensures that a balanced and clear assessment of the Group's performance and
+prospects is presented. The directors acknowledge that it is their responsibility to prepare the accounts that give a true and
+fair view of the Group's financial position on a going-concern basis and other announcements and financial disclosures. To
+assist the Board in discharging its responsibilities, the senior management team provides updates to the Board from time to
+time, including the Group's business and financial position in sufficient detail, to give the directors a balanced, understandable
+and clear assessment of the performance, position and prospects of the Group. The senior management team also provides
+all necessary and relevant information to the Board, giving the directors sufficient explanation and information they need
+to discharge their responsibilities and make an informed assessment of financial and other information put before them for
+approval. The Company auditor's statement in respect of their reporting responsibilities is set out in the "Independent Auditor's
+Report".
+Annual Report 2018 87
+Corporate Governance Report
+Nomination Committee
+2/2
+assessing performance and, reviewing and approving adjustments to the remuneration packages for the members of the
+senior management team; and
+6/6
+Remuneration General
+Governance Nomination
+Audit
+Annual
+Corporate
+Attendance/ No. of Board, Committee Meetings and Annual General Meeting
+The Board met six times in 2018. The attendance of each director at Board, committee meetings and annual general meeting,
+whether in person or by means of electronic communication, is detailed in the table below:
+Board Activity
+Name of director
+Corporate Governance Report
+The Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by rotation
+nor taken into account in determining the number of directors to retire in each year. Therefore, there is a deviation from code
+provision A.4.2 of the CG Code. The Chairman is one of the founders of the Group and he plays a key role in the growth and
+development of the Group and his continuing presence in the Board is vital to the sustainable development of the Group. Given
+the importance of the Chairman's role in the development of the Group, the Board considers that the deviation from code
+provision A.4.2 of the CG Code has no material impact on the operation of the Group as a whole.
+Code provision A.4.2 of the CG Code provides that all directors appointed to fill a casual vacancy should be subject to election
+by shareholders at the first general meeting after appointment. Every director, including those appointed for a specific term,
+should be subject to retirement by rotation at least once every three years.
+The Board is the core of the Group's success, and with the appropriate composition of the Board, we can benefit from the right
+set of skills, experience and diversity of perspectives to take the Company forward. Therefore, it is essential for the Company to
+maintain a formal, considered and transparent procedure for the appointment of new directors to the Board. It is our corporate
+governance practice and in accordance with the Articles of Association that all directors (except for the Chairman) should be
+subject to re-election at regular intervals and the resignation and removal of any director should be explained with reasons. In
+the 2018 annual general meeting, Messrs Li Dong Sheng and lain Ferguson Bruce retired and were re-elected.
+Appointments, Re-election and Removal
+Corporate Governance Report
+18
+81
+Annual Report 2018
+82 Tencent Holdings Limited
+Board
+Committee
+Committee Committee
+8/8
+1/1
+2/2
+8/8
+Charles St Leger Searle
+1/1
+4/4
+6/6
+Jacobus Petrus (Koos) Bekker
+Non-executive directors
+1/1
+1/1
+1/1
+6/6
+6/6
+Lau Chi Ping Martin
+Ma Huateng
+Executive directors
+Committee Meeting
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Further, in compliance with Rule 3.10 of the Listing Rules, two of our independent non-executive directors have the
+appropriate professional qualifications of accounting or related financial management expertise, and provide valuable advice
+from time to time to the Board. The Company has also received from each independent non-executive director a confirmation
+annually of his independence and the Nomination Committee has conducted an annual review and considers that all
+independent non-executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13
+of the Listing Rules in the context of the length of service of each independent non-executive director.
+6/6
+In order to take advantage of the skills, experiences and diversity of perspectives of the directors and in order to ensure that the
+directors give sufficient time and attention to the Group's affairs, we request each of the directors to disclose to the Company,
+on a quarterly basis, the number and the nature of offices held in public companies or organisations and other significant
+commitments. The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that
+the number of independent non-executive directors must represent at least one-third of the Board. The Board believes that
+the balance between the executive directors and the non-executive directors is reasonable and adequate to provide sufficient
+checks and balances that safeguard the interests of the shareholders and the Group.
+lain Ferguson Bruce
+919
+4/6
+lan Charles Stone
+Yang Siu Shun
+1/1
+3/4
+0/1
+6/6
+8/8
+2/2
+1/1
+1/1
+6/6
+8/8
+1/1
+1/1
+4/4
+The Board values the importance of professional judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in professional, constructive and informed manner, and actively participate in Board and committee
+meetings and to bring professional judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also exercise their professional
+judgment and utilise their expertise to scrutinise the Company's performance in achieving agreed corporate goals, and monitor
+performance reporting.
+Li Dong Sheng
+Independent non-executive directors
+2/2
+Corporate Governance Report
+1/1
+As at the date of this annual report, the Board is comprised of eight directors, with two executive directors, two non-executive
+directors and four independent non-executive directors. During the year ended 31 December 2018 and up to the date of this
+annual report, there is no change to the composition of the Board.
+Corporate Governance Report
+Tencent Holdings Limited
+80
+18
+The Board is therefore of the view that there is an adequate balance of power and that appropriate safeguards are in place.
+Nevertheless, the Board will continue to regularly monitor and review the Company's current structure and to make necessary
+changes when appropriate.
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as well
+as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to time to
+make presentations and answer Board's enquiries. In addition, directors are encouraged to participate actively in all Board and
+committee meetings of which they are members, and the Chairman ensures that all issues raised are properly briefed at the
+Board meetings, and he works with the senior management team to provide adequate, accurate, clear, complete and reliable
+information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is available for
+discussion for all items at the Board meetings. During the year ended 31 December 2018, the Chairman held a meeting with
+the non-executive directors (including the independent non-executive directors) without the presence of the executive directors
+as required by the Listing Rules.
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be technically sophisticated and sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the roles of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+Composition
+Chairman and Chief Executive Officer
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and
+compliance with the CG Code.
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision
+A.2.1 of the CG Code, which provides that the roles of chairman and chief executive should be separate and should not be
+performed by the same individual. The division of responsibilities between the chairman and chief executive should be clearly
+established and set out in writing.
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+•
+A list of directors and their respective biographies are set out on pages 53 to 56 of this annual report.
+training has been and will continue to be provided to directors on a timely basis, including briefing the directors on any
+updates to the Listing Rules and relevant laws;
+the company secretary attends training in compliance with the Listing Rules requirements; and
+informal updates from time to time and structured monthly updates on the Company's performance, position and
+prospects are provided to the directors.
+review of the shareholders communication policy has been and will be conducted on a regular basis;
+2
+137 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+136 CONSOLIDATED INCOME STATEMENT
+127 INDEPENDENT AUDITOR'S REPORT
+ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
+97
+CORPORATE GOVERNANCE REPORT
+70
+28
+MANAGEMENT DISCUSSION AND ANALYSIS
+11
+CONTENTS
+4
+FINANCIAL SUMMARY
+3
+CORPORATE INFORMATION
+138 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+DIRECTORS' REPORT
+CHAIRMAN'S STATEMENT
+Executive Directors
+145
+15 August 2019)
+(appointed with effect from
+Ke Yang
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Independent Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Non-Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+DIRECTORS
+Corporate Information
+265 DEFINITION
+147 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+CONSOLIDATED STATEMENT OF CASH FLOWS
+CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+141
+智慧溝通 靈感無限
+Profit attributable to equity holders of the Company
+Annual Report
+78,719
+93,310
+Total comprehensive income for the year
+44,723
+48,617
+79,061
+67,760
+119,901
+Total comprehensive income attributable to
+equity holders of the Company
+44,416
+48,194
+78,218
+66,339
+116,670
+AUDIT COMMITTEE
+Non-IFRS profit attributable to
+71,510
+smart communication inspires
+41,095
+95,888
+2019
+(Stock Code 股份代號:700)
+於開曼群島註冊成立的有限公司
+騰訊控股有限公司
+Incorporated in the Cayman Islands with limited liability
+Tencent Holdings Limited
+Tencent 腾讯
+36,216
+51,640
+88,215
+94,466
+109,400
+Profit for the year
+29,108
+41,447
+72,471
+79,984
+28,806
+Yang Siu Shun (Chairman)
+P.O. Box 1586
+lan Charles Stone
+The PRC
+Shenzhen, 518054
+Nanshan District
+2
+No. 33 Haitian 2nd Road
+Tencent Binhai Towers
+TENCENT GROUP HEAD OFFICE
+700
+Cayman Islands
+STOCK CODE
+www.tencent.com
+COMPANY WEBSITE
+183 Queen's Road East
+Wan Chai, Hong Kong
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+Services Limited
+Computershare Hong Kong Investor
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+Tencent Holdings Limited
+Grand Cayman, KY1-1110
+Cayman Islands
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+Year ended 31 December
+equity holders of the Company
+84,499
+61,232
+Gross profit
+377,289
+312,694
+237,760
+151,938
+102,863
+Revenues
+2019
+RMB'Million
+RMB'Million
+2018
+2017
+RMB'Million
+2016
+RMB'Million
+RMB'Million
+2015
+Financial Summary
+lain Ferguson Bruce
+24 Shedden Road
+SMP Partners (Cayman) Limited
+lan Charles Stone
+Charles St Leger Searle
+Profit before income tax
+Li Dong Sheng
+lain Ferguson Bruce
+Ma Huateng (Chairman)
+NOMINATION COMMITTEE
+Charles St Leger Searle
+Lau Chi Ping Martin (Chairman)
+Ma Huateng
+INVESTMENT COMMITTEE
+15 August 2019)
+(appointed with effect from
+Ke Yang
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Charles St Leger Searle (Chairman)
+CORPORATE GOVERNANCE
+COMMITTEE
+Charles St Leger Searle
+REMUNERATION COMMITTEE
+Royal Bank House - 3rd Floor
+lan Charles Stone (Chairman)
+Jacobus Petrus (Koos) Bekker
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+Hong Kong
+No. 1 Queen's Road East
+Wanchai
+29/F., Three Pacific Place
+IN HONG KONG
+PRINCIPAL PLACE OF BUSINESS
+Grand Cayman KY1-1111
+Hutchins Drive, P.O. Box 2681
+Cricket Square
+REGISTERED OFFICE
+The Hongkong and Shanghai Banking
+Corporation Limited
+Bank of China Limited
+116,925
+PRINCIPAL BANKERS
+Certified Public Accountants
+PricewaterhouseCoopers
+AUDITOR
+Li Dong Sheng
+32,410
+160.3
+65,126
+653.4
+-1.0%
+Fee-based VAS registered subscriptions
+180.1
+12.4%
+170.6
+5.6%
+4
+Tencent Holdings Limited
+Chairman's Statement
+BUSINESS REVIEW AND OUTLOOK
+Strategic Progress and Outlook
+Our key strategic priorities include cultivating our leading position in the Consumer Internet, embracing opportunities brought
+by the Industrial Internet, and energizing our corporate culture. During 2019, we believe we made substantial progress on
+prominent aspects of our corporate strategy, and we see scope for further development, leading us to continue to evolve our
+plans as we try to tackle new challenges and seize new opportunities. Reviewing some of our important product areas and
+business lines:
+Communication and Social
+Our strategic focus in this business is strengthening connections between users via digital content, online services, and offline
+services, as well as enhancing connections with enterprises leveraging Mini Programs, Weixin Pay and WeChat Work.
+In 2019, we provided Weixin users with convenient access to public services and healthcare content. We enriched content in
+Mini Programs and news feeds services in video format and enabled users to share short videos via Weishi within Moments.
+Weixin and WeChat engagement metrics stayed high as their active user base and user time spent increased. Daily messages
+sent were up 15% year-on-year for the fourth quarter of 2019. We rejuvenated QQ with enhanced chat features and friend
+recommendation, and we expanded entertainment use cases via Mini Games, increasing QQ's popularity among younger
+generations. Since the coronavirus outbreak, QQ School-plus-Home groups have served more than 120 million users, with
+optimised features such as live broadcast, online tutoring programs and online administrative tools for school routines to
+facilitate online and offline education. To strengthen our connections with enterprises, we facilitated discovery of merchants'
+Mini Programs and sales conversion by enhancing Weixin in-app search and live broadcast functions. The number of daily
+transactions generated within Mini Programs more than doubled year-on-year, and their transaction value exceeded RMB800
+billion in 2019.
+Looking forward, we seek to make our users' everyday life more convenient through our communication products, to develop
+the full potential of Mini Programs, and to introduce new social experiences enabled by technology innovations.
+-7.5%
+Annual Report 2019
+699.8
+1.2%
+Year-on-
+As at
+Quarter-on-
+2019
+2018
+year
+change
+30 September
+quarter
+2019
+change
+(in millions, unless specified)
+Combined MAU of Weixin and WeChat
+1,164.8
+1,097.6
+Smart device MAU of QQ
+6.1%
+1,151.0
+647.0
+As at
+31 December
+5
+Online Games
+Cloud and Business Services
+In Cloud and Business Services, we focus on developing customized industry solutions, enabling our enterprise partners to
+better connect with our users, and assisting a range of industries in digital upgrades.
+Our cloud services revenues exceeded RMB17 billion in 2019, as we consistently outgrew the market. Our number of paying
+customers exceeded 1 million, benefitting from enhanced sales team and deeper partnerships with system integrators. Gross
+margins improved as we optimized supply chains and expanded business scale. We increased our market share and gained
+presence in verticals such as Internet services, tourism, municipal services and industrial sectors, leveraging our consumer
+reach to assist enterprises in their digital upgrades. The COVID-19 pandemic is delaying customers' implementation of
+cloud-related initiatives and will thus negatively impact our near-term cloud services revenues, but we believe enterprises will
+be increasingly keen to adopt cloud-based solutions over the longer term, in order to facilitate remote working and remote
+interactions with their customers.
+8
+Tencent Holdings Limited
+Chairman's Statement
+2020's COVID-19 pandemic highlights the utility of remote working and remote health care services, and we are seeking to
+play our part in helping people cope with the new challenge. Tencent Meeting exceeded 10 million DAUS within two months
+since its launch in late December 2019, by far the most-used dedicated video conferencing app in China. We deepened
+the integration between Weixin and WeChat Work to facilitate customer management and sales conversion, and millions of
+enterprises used WeChat Work to resume work in the wake of the coronavirus outbreak. Over 300 million Weixin users have
+utilized Tencent Health as an important access to real-time pandemic data, online consultation and Al-powered self-diagnosis
+services. We provided our medical Al imaging capabilities to assist diagnosis of coronavirus disease. We also offered reliable
+and professional medical information through Tencent Medipedia, and distributed pandemic-related content via multiple high-
+traffic platforms, such as Weixin and Tencent News, attracting over 600 million page views. Tencent Health Code becomes the
+most used ePass for verifying health and travel history during the outbreak. 900 million users across more than 300 cities and
+counties have used our Health Code since it was available in this February, with a total of 8 billion visits. Looking forward, we
+will seek to both meet the immediate needs for our products brought about by the pandemic, and develop our capabilities to
+anticipate and serve enterprises' long term demands as the economy digitizes.
+Environmental, Social and Governance (“ESG”) Initiatives
+We made notable progress on our ESG performance in 2019 in areas such as 1) technology education, 2) rural poverty
+alleviation, 3) environmental conservation, 4) cultural inheritance and 5) board diversity.
+We inaugurated an Xplorer Prize with an initial funding of RMB1 billion, which has recognized 50 outstanding scientists, in
+order to support fundamental science and cutting-edge technology research.
+WeCounty Platform, our initiative to facilitate digitalisation and thus poverty alleviation in China's rural areas, has connected
+15,000 villages in 29 provinces, serving over 2.5 million villagers as at the end of 2019.
+Energy consumption efficiency and the use of renewable energy in local power grids have become important components of
+our site selection criteria for data centers. In 2019, we piloted recycling of waste heat in our Tianjin Data Center, which will help
+reduce energy consumption by approximately 1,600 tons of coal each year. Our Guangming Data Center, located in Shenzhen,
+was rated as AAAAA (the highest level) in the evaluation of green data centers organized by the Open Data Center Committee
+and other authorities, showcasing our leadership in energy saving.
+On cultural preservation, we cooperated with renowned museums worldwide to promote cultural inheritance. In 2019, we
+deepened cooperation with the Palace Museum in Beijing to support the digitalization of 100,000 cultural relics in the next
+three years. We also established a partnership with National Museums Union of France (Réunion des Musées Nationaux) to
+build digital museums to bring Chinese national treasures around the world to our users.
+More details are set out in the "Environmental, Social and Governance Report" on pages 97 to 126 of this annual report.
+Annual Report 2019
+9
+167,533
+Looking forward, we will seek to extend our payment use cases, provide new FinTech products and services, and enhance the
+underlying capabilities and stability of our platform.
+Chairman's Statement
+During 2019, we strengthened our leadership in mobile payment services through deepening our penetration among offline
+merchants. In the fourth quarter of 2019, we exceeded 1 billion daily average transactions for our commercial payments,
+covered over 800 million monthly active users, and worked with over 50 million monthly active merchants. We launched
+Weixin Pay Scores which enhanced users' purchase propensity and loyalty to merchants through features such as waiving
+creditworthy users their deposits on some rental use cases. Our wealth management platform, LiCaiTong, increased its
+aggregate customer assets over 50% year-on-year, while its number of customers more than doubled year-on-year as we
+expanded into the mass market. Our affiliate WeBank rapidly grew the loan balances of its micro-loan product, WeiLiDai, within
+Weixin, while maintaining a healthy non-performing loan ratio.
+FinTech
+In our online games business, our strategic focus was on enhancing our internal R&D capability and external partnerships, and
+expanding our overseas business.
+During 2019, we extended our China leadership and made notable progress in our overseas business, largely due to the
+success of our games PUBG Mobile and Call of Duty Mobile, as well as the new mode Teamfight Tactics within LoL. Our
+international games revenues more than doubled year-on-year, constituting 23% of our online games revenue in the fourth
+quarter of 2019. As of the end of 2019, five out of the top ten most-popular smart phone games by DAU internationally were
+developed by us. In addition to establishing our original IP franchises, we developed external partnerships via a number of
+new investments in best-in-genre studios. Key studios such as Timi and Lightspeed & Quantum under Tencent, as well as Riot
+Games and Supercell, have enhanced their R&D capability, and each have several promising games in its pipeline. We believe
+our studios are industry leaders on PC and smart phone games, and in genres such as multi-player battle arena and tactical
+tournament, but still have room to enhance our capabilities in other genres such as role-playing games. Leveraging our flagship
+games franchises, we strengthened our eSports global leadership with LoL's World Championship and Honour of Kings' KPL,
+which were the most watched events for PC and smart phone games, respectively.
+Looking forward, we will seek to extend our domestic game industry leadership, reinforce our international efforts, and provide
+high quality new games globally.
+Digital Content
+In digital content, we focus on investing in digital content and growing our subscription business, and extending our franchise
+in long form video to short form video.
+In 2019, our fee-based VAS subscriptions increased 12% year-on-year to 180 million. We experienced slower subscriber
+and revenue growth for our video subscription service in 2019 than 2018, reflecting delays in broadcasting key content;
+however our Tencent Video subscriptions reached 106 million, and we remained the clear industry leader in terms of content,
+users, and financial metrics, reducing our 2019 operating loss to below RMB3 billion, substantially lower than the loss rates
+of industry peers. We are increasingly skilled at commissioning and creating in-house content, especially in areas such as
+drama series, anime series, and variety shows. We have extended our owned IP, such as Joy of Life (E), from online
+novels into successful TV drama series. We accelerated our music subscriber growth in the second half of 2019, benefitting
+from the pay-for-streaming model. Our literature subscriber growth was weak for much of 2019 due to competition from free
+reading services, but we are seeing signs of improvement, as our Weixin Reading app becomes more popular, and as readers
+differentiate the generally higher quality of paid content.
+6
+Tencent Holdings Limited
+Chairman's Statement
+During 2019, we have aggressively stepped up our investment in the short form video space, given users are spending
+substantial time watching such videos. As a result of our efforts, our short video app Weishi increased its DAU 80% and daily
+uploads 70% sequentially in the fourth quarter of 2019. We enhanced our video content recognition technology to enhance
+user content creation and make smarter content recommendations. We added innovative features such as video red packets
+to boost social video uploads and leveraged in-house IPs to support content creation by key opinion leaders (KOLs) and
+multi-channel networks (MCNs). We are in the early stages of what we expect to be a multi-year investment in short form
+video, but the fact that we overcame a late start in long form video to become the industry's leader, together with our ability to
+leverage our social network and media properties, and our substantial progress in recent months, gives us confidence in our
+long term prospects in short form video.
+Online Advertising
+In advertising, we seek to enhance our user targeting capability to increase ROIs (return on investments) for advertisers.
+During the first half of 2019, weak macro-economic conditions and competition for advertising spending negatively impacted
+our advertising business. However, the unification of our advertising technology and sales teams, enhanced user targeting, as
+well as simplified inventories and advertiser tools enabled us to re-establish business momentum from the second half of 2019
+in our core "social and others" advertising category, which accounted for the large majority of our total advertising revenue in
+the fourth quarter of 2019. Specifically, we extended the maximum number of ad impressions per user day in Weixin Moments
+from two to three in early 2019, and successfully tested a fourth impression in late 2019. Leveraging our data and technology,
+we believe we have taken substantial market share in ad networks, where we have experienced robust revenue growth and
+improved operating margin. Our media advertising business was hurt by delays in broadcasting certain drama series and less
+advertising activities around NBA basketball games.
+Looking forward, we believe our competitive position in advertising has notably improved, and despite industry challenges, we
+enter 2020 with the right team and technology to enhance advertiser ROIs and increase our advertising market share, while
+continuing to provide appealing consumer experiences.
+Annual Report 2019
+7
+Chairman's Statement
+In FinTech, we strive to drive payment innovation, add payment use cases, and expand our wealth management portfolio.
+31 December
+As at
+OPERATING INFORMATION
+155,378
+149,154
+178,446
+217,080
+253,968
+306,818
+395,899
+554,672
+723,521
+953,986
+Equity and liabilities
+Equity attributable to equity holders of the Company
+120,035
+174,624
+256,074
+323,510
+432,706
+700,018
+Non-controlling interests
+506,441
+246,745
+77,469
+94,351
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+As at 31 December
+2015
+RMB'Million
+2016
+2017
+2018
+RMB'Million
+RMB'Million
+RMB'Million
+2019
+RMB'Million
+Assets
+Non-current assets
+Current assets
+Total assets
+151,440
+376,226
+2,065
+11,623
+21,019
+209,652
+277,579
+367,314
+465,162
+Total equity and liabilities
+306,818
+395,899
+554,672
+723,521
+953,986
+Annual Report 2019
+3
+Chairman's Statement
+I am pleased to present our annual report for the year ended 31 December 2019 to the shareholders.
+RESULTS
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2019 was
+RMB93,310 million, an increase of 19% compared with the results for the previous year. Basic and diluted EPS for the year
+ended 31 December 2019 were RMB9.856 and RMB9.643, respectively.
+The Group's non-IFRS profit attributable to equity holders of the Company for the year ended 31 December 2019 was
+RMB94,351 million, an increase of 22% compared with the results for the previous year. Non-IFRS basic and diluted EPS for
+the year ended 31 December 2019 were RMB9.966 and RMB9.729, respectively.
+184,718
+Total liabilities
+240,156
+202,435
+32,697
+56,118
+Total equity
+122,100
+186,247
+277,093
+356,207
+488,824
+45,420
+Non-current liabilities
+108,455
+125,839
+164,879
+225,006
+Current liabilities
+124,406
+101,197
+151,740
+60,312
+142,120
+Corporate Governance Report
+Corporate Governance Report
+8.
+Fraud risk
+In recent years, fraudulent activities have occurred frequently in the Internet and technology industry and therefore
+integrity has been an important concern. As the Company continues developing its business, its business scale and
+complexity increased, and consequently the fraud risk inevitably increased to a certain extent. For example, fraudulent
+activities caused by collusion between suppliers/business partners and employees can have a negative impact on
+reputation and financial position of the Company.
+Annual Report 2019 91
+Corporate Governance Report
+The Company, with its belief in the value of integrity, has zero tolerance for fraud, and is determined to fight against any
+fraudulent activities. The Company has established effective internal control systems and is continuously improving it.
+These systems have been strengthened by systematic, transparent control measures and procedures. To enhance and
+promote integrity, the Company continuously conducts various training and propaganda for its employees, suppliers
+and business partners. For employees, the Company has established a Tencent Sunshine Code (the "Sunshine Code")
+that the employees shall strictly follow during their employment and in the course of business dealing with suppliers
+and business partners. For suppliers and business partners, the Company cooperates with them to create an ecosystem
+with integrity. The Company has signed an Anti-commercial Bribery Declaration with its suppliers and business partners
+to alert the counterparts the importance of ethical value and to build a healthy and transparent environment for
+business. Furthermore, the Company has set up an Anti-fraud Investigation Department for years to proactively collect
+whistleblowing cases from various channels, and to follow up and investigate alleged fraudulent cases on a timely basis.
+The Company will terminate the employment immediately with any employee who has been found to be involved in any
+fraudulent activities. The Company may also pass the relevant case for juridical process according to the relevant laws
+and regulations under more serious circumstances. Any supplier/business partner found to be involved in any fraudulent
+activities will be blacklisted and deprived of the opportunity to work with the Company permanently. The Company will
+announce to the public those criminal cases and serious abuse-of-power cases that were investigated and handled by
+the Company via the "Sunshine Tencent" WeChat official platform. This shows the Company's determination to fight
+corruption and fraud, as well as its commitment towards creating a virtuous and honest atmosphere within the Company
+and the industry.
+9.
+Acquisition and investment management risk
+The Company has a certain scale of investment activities in diverse fields. It is important for the Company to adopt
+robust procedures in the formulation of investment strategies and strong treasury management, both at the investment
+evaluation stage as well as the post-investment stage. Failure to promptly manage investment risks could hinder the
+realization of investment strategies and lead to probable financial loss of the Company.
+The Company takes the management of investment risks seriously, and has, amongst other things, established an
+Investment Committee under the Board, dedicated an investment team to identify investment opportunities, appointed
+finance, legal and other relevant professional teams to manage relevant risks and put in place the investment risk
+evaluation and approval process. There is also a designated professional team that regularly reviews the Company's
+treasury position and, continuously expands its financing channels and capabilities to meet the needs from the
+Company's business operations as well as acquisitions. The Company has also designated finance, legal and other
+relevant professional teams to support and monitor the performance of the investee companies. These teams periodically
+analyse and review relevant operating and financial information of the investee companies to ensure that they continue
+to satisfy the Company's investment strategies. In addition, the Company has invested resources in IA and IC to empower
+investee companies, and to continuously support the management of its controlling subsidiaries in establishing more
+sound risk management and internal control systems.
+92 Tencent Holdings Limited
+Corporate Governance Report
+Internal Control
+The Company has always valued the importance of the internal control systems and has implemented its internal control
+systems according to the COSO Framework.
+Management of the Company is responsible for the design, implementation and maintenance of the effectiveness of internal
+control systems. The Board and the Audit Committee are responsible for monitoring and overseeing the performance of
+management over the internal control systems to ensure its appropriateness and effectiveness.
+The Company's internal control systems clearly define the roles and responsibilities of each party as well as the authorisation
+and approvals required for the key actions of the Company. Policies and procedures are in place for the key business
+processes. This information is clearly conveyed to employees in practice and emphasized the importance of the internal control
+systems. All employees must strictly follow the policies which cover, amongst other things, financial, legal and operational
+issues that set the control standards for the management of each business process.
+In order to further strengthen the accountability of the management team in the internal control systems of the Company
+and to assist in determining the effectiveness of such internal control systems, the management team of each business
+group conducts self-assessment and confirms the internal control status of the business group for which it is responsible.
+The IC assists management in preparing a self-assessment questionnaire according to the COSO Framework and guides
+the management of each business group to carry out the self-assessment. The IC is also responsible for collecting
+and summarising the results of self-assessment. The Chief Executive Officer of the Company reviews this summarised
+self-assessment of each business group, assesses the general effectiveness of the internal control systems of the Company and
+submits the written confirmation thereof on behalf of management to the Audit Committee and the Board.
+In addition, the IC supervises the establishment of the risk management and internal control systems set up by management,
+ensures that management has implemented appropriate measures and reports the general situation of risk management and
+internal control of the Company to the Audit Committee on a quarterly basis. The IA, serving as the independent third line of
+defence, conducts objective evaluation on the effectiveness of the Company's risk management and internal control systems
+and reports the results to the Audit Committee.
+Effectiveness of Risk Management and Internal Control
+The Audit Committee, on behalf of the Board, continuously reviews the risk management and internal control systems.
+The review process comprises of, among other things, meetings with management of business groups, IA, IC, legal team, and
+the external auditor, reviewing the relevant work reports and information of key performance indicators, the management's
+self-assessment on internal control as detailed above and discussing the significant risks with senior management of the
+Company.
+In response to the COVID-19 epidemic in late 2019, the Company provided supports via technology and charity funding,
+and actively fought the epidemic together with the society through its products and platforms. The Company's ability to
+effectively access users allows the creation of a variety of digital tools in the battle against the epidemic. In addition, the
+Company immediately set up a RMB1.5 billion charity foundation to help the society fight the epidemic through providing
+medical protection supplies, supporting basic scientific research, caring for anti-epidemic personnel, and supporting
+public management of the epidemic.
+Annual Report 2019 93
+"Value for Users, Tech for Good" is the Company's new vision and mission launched on 11 November 2019. The "Tencent
+Game Guardian Platform" is established to lead the development of anti-indulgence system to prevent unhealthy gaming
+habits of juveniles. The Company provides more convenient solutions for public affairs and government services through
+the use of digital technology, such as the "Yue Sheng Shi" mini program. The Company promotes transformation of
+various industries, i.e. healthcare, education, travel, tourism, etc., and creates value for enterprises and consumers.
+The Company uses Internet technology and its technological capabilities to improve people's life and support social
+and commercial industrial development. The "Xplore Prize" is initiated by the Company to encourage the study of key
+technologies and basic science. The Company promotes "Neo-Culture Creativity" to actively promote and enrich Chinese
+traditional culture in China and overseas. As China's first Internet and technology enterprise with a charity foundation,
+the Company is committed to building trust through technology, to support the development of philanthropy.
+Operate in compliance with applicable laws and regulations
+Protect user privacy and data security, and provide users with a healthy environment
+Be honest to users and protect their interests
+Consistently listen to the voices of our users, respond to user inquiries and complaints, concurrently enhancing
+product and service quality
+•
+.
+Users
+2.
+Establish a diverse corporate culture
+Care for employees, provide them with a safe and comfortable work environment and training and development
+opportunities
+Operate with integrity and protect shareholders' interests
+•
+Corporate Governance Report
+The Company has been continuously investing in the network infrastructure for its products and platforms to enhance its
+business recovery and continued capabilities for providing stable support to the business operations and development.
+Various business departments are also engaged in business continuity management to ensure the smooth operation of
+the Company's business. In addition, the Company has established dedicated teams to develop business contingency
+plans and has performed periodic drills on the plans to ensure their effectiveness. The dedicated teams have also
+reviewed the plans as well as the result of the drills. In response to the COVID-19 outbreak in late 2019, the Company
+has activated the emergency response mechanism in the business contingency plans including providing mobile office
+and various functional support, to support the business group in responding to urgent needs through adjusting resource
+allocation and timely deployment of emergency measures to ensure continued operations of the Company's business.
+For example, the Company timely expanded the capacity of Tencent Meeting to meet the massive needs for mobile
+work during the epidemic. Tencent Education actively responded to "Suspending Classes Without Stopping Learning",
+to meet the sudden online education needs, and provide assurance for schools and students' educational management
+and online learning. The Company has great concerns on employee safety. On top of meeting the basic regulatory
+requirements, the Company has implemented additional measures and announced policies in a timely manner to further
+protect the safety of all employees.
+6.
+Crisis management, public relations and reputation risk
+As one of the China's largest technology companies with a diverse portfolio of businesses, products and investments,
+users and business partners, the Company always attracts very high attention from the public and media. The Company
+needs to consider possible crisis and actively respond to them, to avoid worsening of problems or escalation of crisis.
+The Company also needs to disclose comprehensive and proper information to the public; otherwise, it may damage the
+Company's reputation, brand and image, and adversely affect the business and prospects of the Company.
+In response to crisis, the Company has established the corresponding emergency response mechanism, to follow
+up on the progression of crisis, assess risks, make prompt decisions and adjust its businesses to reduce the impact.
+The Company has set up professional public relations department and teams for crisis management to continuously
+improve its crisis management and public relations capabilities, with established emergency response and public
+relations management mechanisms. The crisis management teams have maintained close interaction with management
+and business groups, to continuously gather public opinions, analyse relevant market information for management to
+enable management timely respond and disclose comprehensive and proper information to the public according to the
+Company's policies and procedures; and protect the Company's reputation.
+90
+Tencent Holdings Limited
+7.
+Social responsibility risk
+With the diverse products and platforms of the Company and its expanding user base, the products and platforms of
+the Company have gained considerable influence in wider society, and are subject to increased scrutiny from a social
+responsibility perspective.
+Corporate Governance Report
+The Board is of the view that throughout the year ended 31 December 2019, the risk management and internal control
+systems of the Company are effective and adequate.
+In addition, the Board believes that the Company's accounting and financial reporting functions have been performed by
+staff of the appropriate qualifications and experience and that such staff receives appropriate and sufficient training and
+development. Based on the report of the Audit Committee, the Board also believes that sufficient resources have been obtained
+for the Company's internal audit function and that its staff qualifications and experience, training programmes and budgets are
+sufficient.
+The Company has in place a framework for the handling and disclosure of inside information in compliance with the SFO. The
+framework sets out the procedures and internal controls for the handling and dissemination of inside information in a timely
+manner so as to allow all the shareholders and stakeholders to assess the latest position of the Group.
+Under the framework, if an employee is aware of any project, transaction, information or situation which he thinks could
+potentially be inside information, he should contact the Head of Compliance, the General Counsel and the Company Secretary
+as soon as possible. Legal analysis and consultations with the Company's directors and senior executives will be made so as to
+identify whether any such information constitutes inside information and is required to be disclosed to the public pursuant to
+the SFO. The framework and its effectiveness are subject to review on a regular basis according to established procedures.
+96 Tencent Holdings Limited
+Environmental, Social and Governance Report
+ABOUT US
+We employ technology and the Internet to enrich people's lives. Our communication and social network platforms (Weixin and
+QQ) connect people to each other, to information media, and to services we use in our daily lives within the convenience of
+a button click. Our broad reaching platforms help branded goods and merchants communicate with people in China in the
+hundreds of millions. Through financial technology and services, we help support our business partners' growth into the digital
+age. We invest in talented people and cultivate an environment to innovate technology. Our goal is to continue to create new
+and effective ways to use the Internet for businesses and for people.
+VISION & MISSION
+In 2019, we redesigned Tencent's vision to make an even more socially responsible company. Our mission statement is now
+"Value for Users, Tech for Good". Part of the mission is enhancing the user experience with a social benefit. We strive to
+incorporate social responsibility in all areas of the company including our products, our services, in technology innovation,
+cultural preservation and business digitisation. The goal is to build a sustainable cooperation with society.
+OUR CULTURE
+Our corporate culture values "Integrity, Being Proactive, Cooperation and Creativity". "Integrity" means to uphold principles,
+ethics, honesty and fairness; “Being Proactive" means taking initiative or becoming an early adopter to contribute to social
+welfare, taking responsibility or pushing for a higher standard; “Cooperation" means to be inclusive of our community and
+working together to make progress and evolve; and "Creativity" means to strive for innovation and explore all the possibilities
+for a better future.
+OVERVIEW
+This report provides information on the Group's annual performance for environmental, social and governance ("ESG") for the
+year of 2019. The report is to be read together with this annual report, in particular the "Corporate Governance Report" within
+this annual report, as well as the sections headed “Corporate Governance" and "Our Culture" on the Company Website.
+SCOPE OF THIS REPORT
+This report aims to provide a balanced representation of the Group's ESG performance in terms of environment, workplace,
+community, supply chain management and product responsibility. We will focus on each of these areas in turn in this report,
+in particular those economic, environmental and social issues that could have a material impact on the sustainability of our
+operations and that are of interest to stakeholders.
+Annual Report 2019
+46
+97
+Environmental, Social and Governance Report
+ESG STRATEGY, MANAGEMENT APPROACH, PRIORITIES AND OBJECTIVES
+We believe that it is important to formulate effective strategies to balance the economic, environmental and social benefits of
+our activities with our other business targets. We have fully integrated ESG and managerial considerations into our company
+management and operations as part of our corporate development strategy, with a particular focus on fostering closer
+connections with our stakeholders, listening to the voices of our users, working openly with partners to overcome challenges,
+caring for and growing with employees, and taking on more responsibilities within society. The goal of our ESG strategy is
+to be recognised as a conscientious and responsible Internet company. In pursuit of this vision, we embrace the principle
+of sustainability, uphold integrity and promote shared growth and development within the industry, and put environmental
+protection, staff development and community welfare at the forefront. We conduct and review our ESG strategy in five
+dimensions as detailed below.
+Five Dimensions of our ESG Strategy
+Framework for Disclosure of Inside Information
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set
+out in the "Independent Auditor's Report" on pages 127 to 135. During the year ended 31 December 2019, the remuneration
+paid/payable to the Company's external auditor, PwC, was disclosed in Note 8 to the consolidated financial statements. The
+audit and audit-related services conducted by the external auditor mainly comprise of statutory audits and reviews for the
+Group and its certain subsidiaries. The non-audit services conducted by the external auditor mainly include professional
+services on risk management and internal control review, M&A advisory service and tax advisory service.
+External Auditor and Auditor's Remuneration
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors
+and officers.
+SHAREHOLDERS
+The Company strives to provide ready, equal, regular and timely disclosure of information that is material to the investor
+community. Therefore, the Company works to maintain effective and on-going communication with shareholders so that
+they, along with prospective investors, can exercise their rights in an informed manner based on a good understanding of the
+Group's operations, businesses and financial information. The Company also encourages shareholders' active participation
+in annual general meetings and other general meetings or other proper means. As such, the Company sends notices to
+shareholders for annual general meetings at least 20 clear business days before the meeting and at least 10 clear business
+days for all other general meetings. In addition, the Company has developed and maintains the shareholders communication
+policy, which is available on the Company Website, and the dividend policy.
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board and the senior management team. The Chairman, other members of the Board and relevant members of the
+senior management team, under normal circumstances, attend to answer questions raised and discuss matters in relation
+to the Company in an open manner. Save as Messrs Li Dong Sheng and lain Ferguson Bruce, all directors attended the
+2019 annual general meeting and the extraordinary general meeting held on 15 May 2019, with a view to understanding the
+views of the Company's shareholders. The company secretary provided the minutes of the 2019 annual general meeting and
+the aforesaid extraordinary general meeting to all directors to have a thorough understanding of the views of the Company's
+shareholders. The Company's external auditor will also attend the annual general meeting to answer questions relating to
+the conduct of the audit, the auditor's report and auditor independence. The Company's shareholders may also propose
+candidates for election as a director of the Company according to the following procedures, details of which are also set out on
+the Company Website.
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and
+such meeting shall be held within two months after the deposit of such requisition.
+94
+Tencent Holdings Limited
+•
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure that the shareholders are familiar with the detailed procedures for conducting a
+poll, detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions
+from shareholders on the voting procedures will be answered before the poll voting starts. An external scrutineer will be
+appointed to monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock
+Exchange's website after each general meeting.
+Apart from participating in the Company's general meetings, shareholders can contact or send enquiries to us via the Company
+Website. Shareholders may also contact the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor
+Services Limited, if they have any enquiries about their shareholdings and entitlements to dividends.
+DIVIDEND POLICY
+Prioritise users' interests in business decision-making
+The Company endeavours to maintain sufficient working capital to develop and operate the business of the Group and to
+provide sustainable returns to the shareholders of the Company.
+DISCLOSURE OF OTHER INFORMATION
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. Set out below is the
+information which has not been covered above.
+Model Code for Securities Transactions by Directors of Listed Issuers
+The Company has adopted the Model Code. The Company has also adopted an insider dealing policy for employees for
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exacting than those of the Model Code. The Company has made specific enquiries with the directors and
+the directors have confirmed they have complied with the Model Code throughout 2019.
+Appointment Terms of Non-Executive Directors
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his/her appointment.
+Annual Report 2019
+95
+Corporate Governance Report
+Directors and Officers Liability Insurance
+Under the current dividend policy of the Company, dividends may be declared out of the distributable earnings or reserves of
+the Company. While the dividend payout ratio is not pre-determined, in proposing or declaring any dividend payout, the Board
+shall take into account the Group's earnings performance, general financial position, debt covenants, future working capital
+and investment requirements, and other factors that the Board considers relevant and appropriate.
+1.
+3. Business partners (including suppliers and investee companies)
+•
+•
+Annual Report 2019 99
+The Board oversees ESG issues with the support of the Corporate Governance Committee. Information on ESG issues
+are reported to the Corporate Governance Committee by an internal working group comprising of members from various
+departments and business groups tasked with executing our ESG strategy and making recommendations to the Corporate
+Governance Committee.
+Through this approach we are able to create a favourable environment that will enable us to provide quality services to Internet
+users and promote the positive development of the wider society.
+Remain committed to environmental sustainability
+.
+Adopt a sustainable investment strategy
+Make protection of the environment one of our priorities
+Environment
+5.
+Contribute to the industry and continue to provide an open platform
+Promote innovation and the establishment of a legal framework and comprehensive and efficient monitoring and
+maintenance system to protect IP rights
+Business operations
+Environmental, Social and Governance Report
+Ensure our partners receive fair treatment and benefit from their collaboration with us
+Establish a platform for charity donations
+Allow investee companies to maintain autonomy for their business development and meet them on a regular basis
+for exchange of industry knowledge and know-how
+Combat behaviours which are harmful to the interest of our partners by setting up an independent steering group
+on business ethics and anti-bribery practice
+Encourage our partners to reflect the ethics and values of our business practice
+Hold regular meetings with our partners to review their performance and explore possible collaboration
+opportunities
+98
+Tencent Holdings Limited
+4.
+Community
+•
+18
+2.
+4.
+Diesel is consumed by backup power generators.
+3.
+The Group's GHG inventory includes carbon dioxide, methane and nitrous oxide. GHG emissions data for the year ended
+31 December 2019 is presented in carbon dioxide equivalent and is calculated based on the "2017 Baseline Emission
+Factors for Regional Power Grids in China for CDM and CCER Projects” issued by the Ministry of Ecology and Environment
+of China, and the "2006 IPCC Guidelines for National Greenhouse Gas Inventories" issued by the Intergovernmental Panel
+on Climate Change (IPCC).
+Due to its business nature, the significant air emissions of the Group are GHG emissions, arising mainly from fuels and
+purchased electricity produced from fossil fuels.
+Annual Report 2019
+Note:
+Environmental, Social and Governance Report
+105
+5.
+1,350.76
+1,811.27
+1.
+Hazardous waste produced by the Group's office buildings mainly includes waste toner cartridge and waste ink cartridge
+from printing equipment. Waste toner cartridge and waste ink cartridge are centralised and disposed of by printing
+suppliers. Such data covers all office buildings of the Group in Mainland China.
+106 Tencent Holdings Limited
+6.
+Including: Purchased electricity (MWh)
+Indirect energy consumption (MWh)
+Natural gas (MWh)
+Diesel (MWh)
+Including: Gasoline (MWh)
+Direct energy consumption (MWh)
+Total energy consumption (MWh)
+Non-hazardous waste produced by the Group's office buildings mainly includes domestic waste and non-hazardous office
+waste. Domestic waste is disposed of by the property management companies and kitchen waste recycling vendors,
+and its data is not available, therefore estimation of domestic waste is made with reference to "Handbook on Domestic
+Discharge Coefficients for Towns in the First Nationwide Census on Contaminant Discharge" published by the State
+Council. Non-hazardous office waste is centralised for disposal by vendors; hence such data covers all office buildings of
+the Group in Mainland China.
+Environmental, Social and Governance Report
+2.1 Office Buildings
+Use of resources
+2.
+Non-hazardous waste (tonnes)
+Non-hazardous waste produced by the Group's data centres mainly includes waste servers and waste hard drives. Waste
+servers and destroyed waste hard drives are centralised and recycled by waste recycling vendors. Such data covers all the
+Group's data centres.
+Hazardous waste produced by the Group's data centres mainly includes waste lead-acid accumulators. Waste lead-acid
+accumulators are disposed of by qualified waste recycling vendors.
+7.
+Indicators
+8.00
+Indirect GHG emissions (Scope 2) (tonnes)
+612,484.40
+5,227.11
+0.00005
+0.00004
+2.51
+2.40
+0.09
+0.07
+2.01
+1.90
+100,277.43
+109,715.64
+100,277.43
+109,715.64
+Non-hazardous waste (tonnes)
+Hazardous waste per employee (tonnes per employee)
+0.09
+Hazardous waste (tonnes)
+4,566.52
+0.09
+1.2 Data Centres
+742,970.66
+Including: Purchased electricity (tonnes)
+612,484.40
+742,970.66
+36.76
+36.76
+316.35
+Including: Diesel (tonnes)
+316.35
+Direct GHG emissions (Scope 1) (tonnes)
+612,521.16
+Total GHG emissions (Scopes 1 and 2) (tonnes)
+2018
+2019
+For the year ended 31 December
+Indicators
+Non-hazardous waste per employee (tonnes per employee)
+743,287.01
+Stakeholders
+Hazardous waste (tonnes)
+Assessment on the materiality of the ESG topics
+In 2019, we had not only discussed the materiality of the ESG topics with our stakeholders through the abovementioned
+communication channels but also conducted an online survey to understand the topics that our stakeholders believe to be
+material to the Group's business. Based on the survey results and our communication with stakeholders, the materiality of the
+ESG topics is evaluated as follows:
+Materiality to stakeholders
+④Response to climate change
+Energy management
+Pollution reduction
+IP
+Waste management
+Water resources
+Diversity
+Talent attraction & retention
+Supply chain management
+Anti-corruption
+Product innovation
+Customer satisfaction
+Healthy environment for users
+Data security
+지
+User privacy
+Employee health & safety
+IP
+Intellectual property rights
+◉Employee benefits
+☑
+Charitable donations
+Employee training & development
+Environmental, Social and Governance Report
+Volunteering service
+100 Tencent Holdings Limited
+Product and service quality
+Privacy protection
+Government and regulatory bodies
+Employees
+Tencent Foundation, fundraising platform
+Key communication channels
+Charity
+Community and public
+Key topics
+Suppliers
+We understand the importance of the feedback from our stakeholders (including the community and public, employees,
+government and regulatory bodies, non-government organisations and media, shareholders and investors, suppliers and our
+users) on our ESG performance. Therefore, we have established effective communication channels with our stakeholders (in
+alphabetical order) as follows:
+Stakeholder analysis
+Environmental, Social and Governance Report
+Volunteering
+Environmental protection
+Employee benefits
+Career development
+Healthy work environment
+Compliance
+Corporate governance
+Product and service quality
+Environmental protection
+Compliance
+Charity
+Investment return
+Business strategy
+Information transparency
+Fair cooperation
+Integrity
+Employee satisfaction survey, employee training,
+annual employee rally, face-to-face discussion
+forum, featured magazines, social media platform
+Meetings, policy consultation, incident reporting,
+official visit, information disclosure
+Social media platform, industry events, press
+conference
+Corporate announcements, investor conference,
+official website, regular meetings
+Regular meetings, supplier assessment, site visit
+Users
+User experience research, customer service
+hotline, online customer service, Weixin/WeChat
+and face-to-face customer support
+Total energy consumption per employee (MWh per employee)
+Total energy consumption per floor area (MWh per square metre)
+Running water consumption (tonnes)
+Materiality to Tencent's ESG management
+Our ESG strategy requires the participation of all of our product lines and platforms, and participation from across the wider
+Internet industry. We will continue to place more emphasis on ESG issues, and encourage every individual, enterprise and
+organisation to take part in the implementation of our ESG strategy.
+Environmental, Social and Governance Report
+Environmental Performance Summary
+Below are some key environmental indicators, and are compiled based on the "ESG Reporting Guide" in Appendix 27 to the
+Listing Rules. Unless otherwise specified, the following data covers Tencent's major office buildings and the main data centres
+in Mainland China.
+1. Emissions
+1.1 Office Buildings
+Indicators
+For the year ended 31 December
+2019
+2018
+Total GHG emissions (Scopes 1 and 2) (tonnes)
+113,501.50
+102,831.74
+Direct GHG emissions (Scope 1) (tonnes)
+Including: Gasoline (tonnes)
+Diesel (tonnes)
+Natural gas (tonnes)
+3,785.86
+197.25
+2,554.31
+191.00
+10.87
+3,577.74
+11.07
+2,352.24
+Indirect GHG emissions (Scope 2) (tonnes)
+Including: Purchased electricity (tonnes)
+Total GHG emissions per employee (tonnes per employee)
+Total GHG emissions per floor area (tonnes per square metre)
+Tencent Holdings Limited
+Our ESG Direction
+104
+In 5G application scenarios, we use intelligent IDC products such as Mini-TB for which we possess independent intellectual
+property rights to meet the needs of edge computing endpoints, improve energy efficiency and promote the development of
+related industries.
+Our "Connection" strategy has significant implications for our ESG initiatives. Important changes can be achieved through
+connecting millions of Internet users as well as developing their modes of communication and living and creating more exciting
+opportunities for society. In addition, through the "smart living" system in QQ and Weixin/WeChat, people and public services
+can be digitally connected, which in effect facilitate developments in transport, healthcare, environmental protection, public
+safety and other social arenas. This is important for optimising the distribution of societal resources, driving innovation in public
+services, improving service quality, breaking down communication barriers and ultimately benefiting the wider community.
+We will leverage our core capability in the Internet, technology and communication spheres to develop innovative approaches
+to resolving social issues, promoting social development and protecting the interests of the public. We also aim to drive ESG
+awareness in society, through collaborating with our stakeholders and other industry players.
+Going forward, we will continue to enhance our corporate management system and integrate ESG considerations into our
+operations. We will closely cooperate with our stakeholders with the aim of creating a better future.
+Annual Report 2019 101
+Environmental, Social and Governance Report
+ENVIRONMENT
+Conservation and protection of the environment are at the highest policy level in China. The Law of the People's Republic of
+China on Energy Conservation requires any entity or individual to meet a mandatory obligation to conserve energy. According
+to Environmental Protection Law of the People's Republic of China, all entities and individuals have an obligation to protect
+the environment, more specifically enterprises shall minimise and reduce waste production and impact to the ecology.
+We recognise the importance of protecting the environment and the conservation of natural resources. For example, our
+Tencent office buildings in Shenzhen have installed a multitude of energy saving technologies and educated our employees
+on how to better save energy. The same is being adopted to offices in other locations worldwide. We also build data centres
+with considerations for the environment. Throughout 2019, Tencent has complied with applicable laws and regulations for
+conserving and protecting our environment.
+Energy Saving Measures taken in our Office Building
+We have taken environmental protection as one of our priorities when building the new headquarters, Tencent Binhai Tower,
+in Shenzhen. The construction has been certified as meeting the LEED-NC Gold Standard. In 2019, the building's operation
+was within the LEED-EB operational standard and has complied with LEED-EB standards since its grand opening. In March
+2019, the building officially obtained LEED-EBOM Gold Certification. The property management company of the Shenzhen
+headquarters has obtained ISO 14001 (environmental management) certification, ISO 9001 (quality management) certification
+and GB/T 23331 (energy management system) certification. We have implemented various measures to enhance efficiency of
+energy use and reduce water consumption and emissions.
+The air conditioning systems at Tencent Binhai Tower reduce energy consumption by alternating power from hydro-powered
+pumps and electric motors. In 2019, we invested to optimise air conditioning terminal control system and integrated building
+management system, and to improve the matching of system cooling supply and end cooling demand for the purpose of
+energy saving and operational efficiency optimisation. We have further optimised energy savings in the air conditioning and
+building management systems by installing automated energy monitoring devices. Energy consumption from air conditioning is
+further reduced by using natural ventilation during seasons of mild or comfortable weather. Smart lighting was adopted to allow
+remote and automatic control over lighting in all office working areas and transitioned from conventional to an LED lighting
+system for the public areas.
+The office building of Tencent Binhai Tower uses a water reclamation system to reclaim water condensation from the air
+conditioning system, and drain water from the water filtration system, employee shower area and server cooling towers. The
+collected water, after being filtrated and purified, is reused for toilet flush water, irrigating office plants and cleaning the
+basement carpark. In addition, we promote a filtrated drinking water system in place of plastic bottled water. This measure
+reduces the waste from plastic packaging materials and indirectly reduces CO2 emissions generated from the vehicles that
+deliver bottled water.
+102
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+We have adopted energy saving measures throughout our daily operations. For example, we have applied stricter on-site
+management of each building property by combining the normal procedures with an energy consumption inspection. When
+people leave the work space, air conditioning, lights and office equipment in the corresponding office areas are required to
+be turned off. We have also set automatic shutoff for unused drinking water dispensing units in work areas to reduce energy
+consumption and eliminate waste.
+We monitor the levels of air pollutants such as PM 25, PM 10, carbon dioxide, carbon monoxide, sulphur dioxide, nitro dioxide
+inside and outside Tencent Binhai Tower with an online monitoring system and display the data on a real-time basis. To
+monitor air quality in the building, we have installed a smart ventilation system (which regulates the ventilation automatically
+in response to carbon monoxide levels) in the underground parking garage and air ventilation system (which monitors the
+ventilation continuously for carbon dioxide levels) in the office area. We have upgraded the cooking ventilation units in the
+kitchens of our office cafeteria. The cooking ventilation is comprised of fire-resistant environmental exhaust hoods that remove
+oil droplets and filter the cooking ventilation with photolysis purification, activated carbon filtration and air ionisation to remove
+cooking odours. Our filtration of the cooking ventilation is in compliance with the PRC national standards GB18483-2001.
+Green Energy Saving Measures taken in our Data Centres
+We endeavour to fulfil our responsibility to protect the environment by applying innovative technology to our data centres and
+be the exemplar of green data centres within the PRC.
+In terms of site selection for Tencent's large-scale data centre campus, we sought out geography with low temperature climates
+to help with energy conservation. We also evaluated local availability of renewable and clean energy. Ultimately, we selected
+the following three areas: the Guian New Area, rich in hydropower energy, Zhangjiakou Huailai, abundant in wind power
+resources, and Chongqing Water and Soil Hi-tech Eco-City where clean energy is widely used for power.
+In terms of green data centres, we have organised environmental impact assessment documents for all self-build data centres,
+and have completed the relevant approvals or filings in accordance with the Environmental Impact Assessment Law of the
+People's Republic of China. Shanghai Qingpu Data Centre, self-built by Tencent, and Shenzhen Guangming Data Centre,
+custom-built by a contracted third-party, which started operations respectively in 2016 and 2019, have been certified as
+attaining 5A grade (highest environment rating) for the "Data Centre Green Rating" organised by domestic authorities such as
+the Open Data Center Committee (ODCC), indicating the data centres are domestic leaders in terms of energy conservation
+and environmental protection. In addition, in 2019, Tencent Tianjin Data Centre was a successful pilot programme for
+employing waste heat recovery by redirecting the heat to provide office work area heating in its office building during winter.
+This programme reduced standard coal consumption by approximately 1,600 tons each year.
+When it comes to technologies employed by data centres, Tencent's fourth-generation T-block data centre energy saving
+technologies (comprising (i) photovoltaic + High Voltage Direct Current ("HVDC") technology for electrical systems; (ii) indirect
+evaporative cooling units; (iii) Tnebula smart control system; and (iv) fully commercialised project delivery solution) have been
+widely used in Tencent's large data centre campuses in Qingyuan, Yizheng, Chongqing, Guian, etc.
+Annual Report 2019
+103
+Environmental, Social and Governance Report
+We have adopted the T-base large-scale data centre campus construction model in the construction of data centre campus
+in Qingyuan, Yizheng, Huailai, etc. which has placed us at the leading position in terms of the efficient use of space and the
+standardisation of the construction process. It not only shortens the construction time but also minimises the impact on the
+environment and increases the power usage efficiency ("PUE") of our data centres.
+The annual average PUE of our data centres which are located in low-temperature climate (including the one in Shenzhen)
+is below 1.25. The annual average PUE of data centres within the scope of "Environmental Performance Summary" is
+1.35, a decrease of 0.02 compared with the previous year. We expect that large-scale data centre campus will achieve an
+annual average PUE of 1.20 after the T-base campus is completed and T-block technology is promoted and applied. These
+centres will not only serve as energy efficient data centre for Tencent and our business partners, but will also help to facilitate
+standardised application of the T-block technology in the industry.
+We have shared our experience and technology in building green data centres and relevant products with other industry
+businesses so that HVDC, micro module and indirect evaporative cooling technologies have been widely adopted in the
+PRC data centre business. We have also helped establish industry standards for HVDC and micro module technologies in
+order to enhance energy saving efforts among other companies in the industry. In the future, we will further promote T-block
+technology, Mini-TB and smart IDC series products such as the Tnebula smart control system. We will strive to enhance the
+PUE while improving the efficiency of the data centre construction process.
+Running water consumption per employee (tonnes per employee)
+Recycled water consumption (tonnes)
+Recycled water consumption is the reclaimed domestic water treated by the wastewater treatment system equipped at
+Tencent Tower A and Tower B in Chengdu.
+Indicators
+Total energy consumption is calculated based on the data of purchased electricity and fuel with reference to the
+coefficients in the National Standards of the PRC “General Principles for Calculation of the Comprehensive Energy
+Consumption (GB/T 2589-2008)".
+4.
+3.
+2.
+The scope of use of resources data is appended to include 12 new office buildings which were put into operation in 2019.
+1.
+Note:
+Environmental, Social and Governance Report
+107
+Annual Report 2019
+933,813.00
+1,466,760.63
+Running water consumption (tonnes)
+1.27~1.47
+1.26~1.52
+Average PUE
+938,848.88
+The Group's water supply resources are from the municipal water supply.
+Non-government organisations
+and media
+5.
+6.
+2.2 Data Centres
+109
+Annual Report 2019
+We also intend to make available our training resources to business partners and other companies in the industry in order to
+improve employee training standards.
+As of 31 December 2019, Tencent Academy currently offers over 500 live courses that can be attended in person, 8,800
+online courses and employs over 1,500 in-house part-time instructors. In 2019, we hosted live courses nearly 10,000 times
+and gave over 400 courses over livestream. The average in-house training hours per employee was 33 hours and 98% of
+employees were trained.
+In 2007, we founded our own training university, Tencent Academy. It offers different training programmes for each stage of
+an employee's career, including an induction, on-the-job training and leadership training. It has also set up an online learning
+platform and a mobile learning system in order to allow employees to learn anytime and anywhere. In 2017, one of our training
+programmes won the Excellence in Practice Award by the Association for Talent Development.
+Employee talent is our most important asset. We make significant investments in employee development and training. We
+encourage employees to attend external and internal trainings. We have adopted relevant policies to ensure that employee
+trainings are available in a user-friendly system. For example, supervisors are required to assist in designing the professional
+development plans for the employees and evaluate the effectiveness of the trainings received by the employees. To ensure
+the quality of the trainings, we have developed policies which set out requirements for the qualifications and experience of the
+instructors and the objectives of the programmes and work with educational institutions to jointly develop training programmes.
+We have a well-established performance management system. A performance assessment for each employee is conducted
+by that employee's supervisor every six months and employees are required to report to their supervisors a performance target
+after each assessment. Supervisors are encouraged to provide constructive feedback from time to time to assist the personal
+growth of each employee.
+1,299,958.50
+Employee Development and Training
+Environmental, Social and Governance Report
+108 Tencent Holdings Limited
+Data of packaging materials is not applicable to the Group.
+8.
+Data of running water consumption reported above only covers those data centres wholly used by the Group where
+operators could provide such data.
+Average PUE (Power Usage Efficiency) is the annual average data of PUE of the Group's data centres. PUE, an indicator of
+the power efficiency of a data centre, is the ratio of total facility energy over IT equipment energy.
+Data of diesel consumption reported above only covers the data centres whose diesel fees are directly borne by the Group.
+7.
+WORKPLACE
+Including: Purchased electricity (MWh)
+Shareholders and investors
+1,299,958.50
+154,636.44
+185,948.09
+154,636.44
+185,948.09
+12,029.70
+18,297.07
+42.10
+41.33
+780.24
+12,852.04
+19,144.17
+167,488.48
+205,092.26
+2018
+2019
+For the year ended 31 December
+938,848.88
+3.44
+3.28
+805.77
+0.14
+Indirect energy consumption (MWh)
+0.12
+1,203.16
+Including: Diesel (MWh)
+139.82
+Direct energy consumption (MWh)
+938,988.70
+1,301,161.66
+1,203.16
+2018
+1,283,749.73
+973,413.06
+Total energy consumption (MWh)
+21.52
+19.07
+139.82
+5,461
+For the year ended 31 December
+2019
+4,076
+Community Investment
+Our contribution to social insurance in the PRC is in compliance with applicable laws and regulations and we offer various
+supplemental insurance benefits to employees and their families (including medical insurance, critical illness insurance,
+accident insurance and life insurance).
+Throughout 2019, we have complied with the relevant laws and regulations regarding occupational health and safety.
+Communication
+We have appointed a team to monitor the physical and mental health of employees. We arrange annual medical check-ups for
+employees and organise health seminars, fitness sessions, on-site medical consultations as well as face-to-face and telephone
+counselling from time to time.
+We strive to create a casual yet sophisticated communication system with customised content for our employees. There
+are annual rallies for employees and management, face-to-face discussion forums, featured magazines and social media
+platforms. The corporate strategy and culture are communicated and reinforced through these products and communication
+channels.
+112 Tencent Holdings Limited
+Environmental, Social and Governance Report
+COMMUNITY
+In the face of the recent outbreak of the novel coronavirus (COVID-19), we implemented measures to protect the health and
+safety of our employees, and provided employees with protective masks and issued guidelines on how to protect themselves
+against the novel coronavirus.
+Environmental, Social and Governance Report
+The Tencent Foundation believes that everyone can participate in charity work anytime and anywhere through technology.
+In June 2007, the Tencent Foundation leveraged on our Internet technical capabilities and online platforms to build the first
+online public fundraising platform. It is designed, developed and operated by the Tencent Foundation while we provide server,
+broadband and other technical support for free. The platform is open for eligible charitable organisations free of charge. It
+allows charitable works to be performed more conveniently, smoothly and transparently. As of 31 December 2019, there had
+been over 10,000 active charitable organisations and over 75,000 charity projects in different locations with different focuses.
+The Tencent Foundation has also applied technology to various charitable initiatives such as WeCounty for rural development
+and Tencent Three-dimensional Disaster Relief Programme in response to recent natural disasters in China via the online
+platform. In 2019, the total number of donations made by the Internet users was approximately 98.2 million and the total
+amount of the funds raised was about RMB2.787 billion.
+The highlight of the Tencent Foundation's charity efforts is the annual "99 Giving Day" campaign where it matches the
+donations made by the Internet users between 7 September and 9 September via its online platform. In 2019, the Tencent
+Foundation donated RMB400 million for the campaign, of which 34.6% was for education initiatives, 33.1% for medical care,
+29.1% for poverty relief, and the remaining 3.2% was for environmental protection initiatives and others.
+In addition to promoting philanthropy through the online charity platform, the Tencent Foundation makes direct donation in
+the following areas: (i) supporting technological development in impoverished areas; (ii) rural development; (iii) education; (iv)
+ecological conservation and cultural preservation; (v) community development; and (vi) poverty relief.
+After the outbreak of COVID-19, Tencent established a RMB1.5 billion emergency fund to offer resources, technology and
+relief support for combatting the disease. Our charity platform helped raise nearly RMB600 million in donations from over 10
+million concerned Internet users in an effort to support philanthropy institutions nationwide who are helping the fight against
+COVID-19. We gathered factual COVID-19 news information and posted to our high-traffic platforms, such as Weixin and
+Tencent News, to quickly guide people to official news about the virus which resulted in over 600 million page views. Guests
+that sign-in to any of the platforms can check the number of confirmed cases of the virus, locate the nearest clinics for testing
+or seek designated hospitals for urgent medical care.
+Annual Report 2019
+113
+In helping the battle against COVID-19, we help a concerned public stay up to date with the latest news information by working
+closely with the World Health Organization to distribute their official data across the Tencent social and news platforms. We
+also made efforts to dispel misleading COVID-19 rumours using our news fact-checking platform Jiaozhen (translated "to
+correct" in Chinese).
+We also launched free online consultation to allow access to over 10,000 doctors from our medical care partners, such as
+WeDoctor and DoctorWork. Tencent Medipedia provides verified medical information for over 10,000 diseases. Tencent Health,
+our one-stop portal for online medical services on the Weixin platform has delivered real-time COVID-19 data and information
+to over 300 million Weixin users, while also offering additional online consultation. During the outbreak, we launched Al-
+powered tools to enable users to self-diagnose their symptoms using an Al automated response system supplemented with
+medical Al imaging. These tools were also part of a smart solution package offered to assist 40 medical institutions with
+providing medical care to persons possibly exposed to COVID-19. We also designed the Tencent Health Code, which helps
+organise the collection of health information from population groups. Tracking population health information helps reduce
+infection spread and allow healthy persons to make necessary travel to buy necessities. Tencent Cloud provided development
+assistance to create healthcare Mini Programs such as Guangzhou's "Sui Kang" mini program. This mini program provides
+Guangzhou citizens with official information about COVID-19 and healthcare services that are available. The program also
+allowed Guangzhou residents to make reservations to purchase protective face masks. Tencent Cloud is also providing medical
+researchers with access to its supercomputer facility to help the world more quickly find a cure for COVID-19.
+We upgraded Tencent Meeting to allow employees and students to work and study more efficiently while staying at home.
+Tencent Meeting now handles up to 300 simultaneous participants in a video conference. This service is offered to the
+public free of charge to manage the challenges brought on by COVID-19. We also created education tools in cooperation with
+education partners to offer distance learning services. Distance learning enables students to continue studies while at home
+while minimising the spread of infection to an at-risk age group. The distance learning system includes live streaming virtual
+classrooms, online tutoring and a virtual classroom manager for teachers. This virtual classroom ecosystem is being offered
+from Tencent smart education solutions and currently hosted on the Tencent social platforms, Weixin and QQ.
+We strive to provide a safe and comfortable work environment for our employees. There are established security and fire safety
+systems as well as food safety monitoring systems.
+We set up the Tencent Charity Foundation (the "Tencent Foundation") on 26 June 2007. It is a non-public fundraising
+foundation incorporated in the PRC and a separate legal entity. We commit to donating certain portion of our profits to the
+Tencent Foundation every year for the purpose of supporting charitable works. As of 31 December 2019, our Group and our
+employees donated approximately RMB4.3 billion and RMB69 million in total to the Tencent Foundation respectively since
+its establishment. During the year 2019, our Group and our employees donated RMB850 million and RMB1.5 million to the
+Tencent Foundation respectively.
+In accordance with the Labour Law, we employ a labour safety and hygiene policy. The policy aims to prevent accidents in the
+workplace and reduce occupational hazards. In accordance with the Social Insurance Law of the People's Republic of China
+promulgated on 28 October 2010 and amended on 29 December 2018, we pay the full allowance for social insurance to its
+employees. The social insurance includes endowment insurance, medical insurance, work injury insurance, unemployment
+insurance and maternity leave insurance.
+Benefits
+Environmental, Social and Governance Report
+In accordance with the Labour Law of People's Republic of China (the "Labour Law") promulgated on 5 July 1994 and
+amended on 29 December 2018, and the Labour Contract Law of People's Republic of China (the "Labour Contract Law")
+promulgated on 29 June 2007 and amended on 28 December 2012, while hiring employees, we shall not discriminate
+against any applicants due to their nationality, race, gender and religion, we shall enter into written employment contracts with
+each employee. As at 31 December 2019, we had 62,885 employees. We have entered into employment contracts with all
+employees. Our employment practice complies with applicable laws and regulations (including those which prohibit underage
+and forced labour) and does not discriminate on the grounds of gender, ethnicity, race, disability, age, religious belief, sexual
+orientation or family status. Diversity is well supported in our corporate culture.
+In accordance with the Labour Law, other than employers engaged in industry of art, sport and special skill, no employer shall
+recruit juveniles under the age of 16; employers shall respect the willingness of an employee to enter into an employment
+contract and shall not force or threaten employees into work by means of violence, threat of violence or deprival of personal
+freedom. Our recruitment process strictly abides by the guidelines of the Tencent Human Resources Policy. Every job applicant
+is asked to provide his/her education background, qualification and job experience in a recruitment questionnaire, which is
+reviewed by the Human Resources Department and verified by a background check agency. This allows us to hire qualified
+employees in accordance with job requirements and comply with prohibitions against underage and forced labour.
+Compensation and Benefits
+In accordance with the Labour Law and the Labour Contract Law, the wage paid to employees shall not be lower than the
+local standards on minimum wage. Wages shall be paid to employees on a monthly basis with valid local currency. The wages
+payable to employees shall not be withheld or delayed without good reason. The Labour Law requirements on compensation
+have been complied with where employees receive competitive pay and employee benefits.
+Compensation
+Competitive pay and employee benefits are offered to attract and retain talent. The remuneration and bonus systems are
+performance-based and designed to reward employees for high performance and growth potential.
+Supporting technological development
+The basic benefits system was built and is maintained in accordance with relevant laws, regulations and market practice. In
+addition, certain special benefits are created to motivate employees and implement our strategy.
+We were awarded by zhaopin.com as the best employer in the PRC in 2019. We have also been voted as one of the best
+employers in the PRC for 14 consecutive years since 2006 in a survey jointly conducted by zhaopin.com and the Institute of
+Social Science Survey, Peking University.
+110
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+We care for the growth of our employees and provide benefits with a Tencent cultural theme. For example, special occasions
+for an employee (e.g. work anniversaries, wedding and holiday festivities) are celebrated with co-workers in the office. We strive
+to create work-life balance and an inviting work environment for employees. Employees have the flexibility to choose the most
+suitable insurance plans and benefits for themselves and their families.
+Promotion
+Employees may apply for promotion during their interim and year-end performance reviews, provided that they satisfy the
+requirements with regard to the length of service and performance. Depending on the practice area, the promotion will be
+reviewed and considered by the relevant internal committee. The promotion review process is impartial and open there is
+a formal channel for our employees to provide and receive feedback. The promotion review is conducted in compliance with
+applicable laws and regulations on the fair treatment of employees.
+Employee Departure
+-
+In accordance with the Labour Law and Labour Contract Law, the employment contracts we enter into with our employees
+include the term of employment and the conditions for termination of employment. We have strictly complied with the aforesaid
+requirements and have entered into employment contracts with all employees detailing duration of the employment and the
+grounds for termination of the employment.
+We value our relationship with our employees and handle employee departure (whether by resignation or dismissal) strictly
+in accordance with applicable laws and regulations. We arrange an exit interview with each of the departing employees to
+understand the reasons for his/her departure and welcome any suggestions for improvement.
+Work-Life Balance
+In accordance with the Labour Law and Labour Contract Law, the Group shall comply with the regulations on working hours,
+work breaks and vacation days and include such terms in the employment contract. We have implemented vacation day
+schedules and initiatives such as flexi-time arrangements and volunteer service days off to help employees strike a good
+work-life balance. The leave scheme allows employees to enjoy annual leave, fully-paid sick leave, half-paid leave of absence
+and fully-paid special Chinese New Year leave which are above the statutory standard. Also, female employees are entitled to
+take fully-paid maternity leave, while male employees are also entitled to take fully-paid paternity leave. Employees can also
+apply for one day of fully-paid volunteer service leave per year. These labour policies all comply with the requirements under
+the Labour Law and Labour Contract Law.
+We also organise a wide variety of recreational and leisure activities (e.g. running, photography, music, dance, language
+classes) for employees. We have provided various recreational and leisure facilities in our Shenzhen headquarters, such as a
+300-metre running track, indoor rock-climbing wall, table tennis tables, pool tables, a badminton court, a full-sized basketball
+court, etc.
+Annual Report 2019 111
+Occupational Health and Safety
+In order to encourage younger generations to apply themselves to scientific exploration, the Tencent Foundation initiated the
+Xplorer Prize. The prize targets basic science and cutting-edge technology areas. Eligible candidates for the prize are younger
+scientific and technological workers below the age of 45 who work full-time in Mainland China. In 2019, a total of RMB37.5
+million was granted to the first batch of 50 Chinese young scientific and technological talents. By setting this prize, our aim is
+to help the most gifted young scientific and technological talents to climb the scientific peak.
+The Tencent Volunteers' Association also established the China IT-Philanthropy Union which promotes the "Internet + Charity"
+model by holding summits and publishing white papers on the successful examples of how the information technology has
+changed the landscape of charity work.
+Tencent Holdings Limited
+All employees of the entire Group are required to follow and to strictly comply with the Tencent Sunshine Code of Conduct (the
+"Sunshine Code"). It expressly prohibits all kinds of fraudulent activities, bribery, embezzlement, misappropriation, extortion,
+falsification of information and any other activities which are not in compliance with applicable laws and regulations. The
+Sunshine Code shall be reviewed annually against the changing needs of the Group and revised when appropriate, in order to
+ensure that it caters for our business development, reflects the positions under applicable laws and regulations and captures
+all kinds of fraudulent activities. In 2019, we have revised the Sunshine Code to include more specific stipulations in relation
+to each category of fraudulent activities so that our employees can understand better our expectations under the Sunshine
+Code. The revised Sunshine Code strengthens the management of bidding behaviours and the tender process and information
+security. In terms of bidding behaviours, the Sunshine Code clarifies the definition and punishments of illegal behaviours
+including colluding bidding, circumventive bidding, defrauding bidding, etc., and further standardises the company's bidding
+and tendering projects in accordance with laws and regulations governing the bidding procedure. The goal is to protect the
+legitimate rights and interests of partners and suppliers who fairly participate in the Company's bidding and tendering projects.
+In 2019, we published for the first time on our WeChat official account “Sunshine Tencent" information regarding the
+Company's investigation and handling of illegal and criminal cases, including serious duty-related violations such as bribery
+and misappropriation occurring in the first three quarters of 2019. According to the report, all violations discovered have been
+effectively controlled and reported to the government authorities according to the law. These actions demonstrate clearly our
+determination to combat corruption and fraudulent acts. By increasing deterrence to committing white collar crimes, our
+method is not only beneficial to the long-term development of Tencent, but also conducive to building an upright and honest
+environment within the Company and the industry.
+Annual Report 2019
+117
+Environmental, Social and Governance Report
+Anti-fraud and Whistleblowing Policy
+We have published an anti-fraud and whistleblowing policy (the “Whistleblowing Policy"), which clearly conveys the message
+of zero tolerance in relation to fraudulent activity to all the employees and suppliers/business partners. All employees and
+suppliers/business partners are encouraged to report genuine concerns about any existing or potentially fraudulent activities
+and non-compliance. The Whistleblowing Policy expressly outlines the multiple whistleblowing channels, how the Group
+should deal with such concerns and the whistle-blower protection system, so that employees and suppliers/business partners
+can report their good faith concerns without fear of reprisal or potential retaliation. Since 2016, we have maintained an Official
+Account under the name of "Sunshine Tencent" on WeChat to promote our anti-fraud policy and whistleblowing channels with
+a function to allow our business partners to report directly to us.
+Fraud Detection and Corruption Prevention
+When a report of suspected fraudulent activities is received, the anti-fraud investigation department, which consists of
+professionals who used to be part of the anti-corruption function at a governmental authority or private enterprise and
+have profound knowledge in fraud risk management and solid fraud investigation experiences, is assigned to handle the
+investigation independently. After an investigation has been completed, the employee found and proven to have committed
+such fraud shall be subject to immediate dismissal. At the same time, the department in question must, with the assistance
+of the risk management and internal control departments, take corrective actions in response to the business risk or loophole
+identified during the investigation. If we find any supplier or business partner engaging in corruption or any other fraudulent
+activities, we will terminate the contracts with them immediately. In the event that any fraudulent activity violates any relevant
+laws or regulations, such cases shall be reported to government authorities in accordance with applicable laws and regulations.
+In order to convey a message regarding our determination to fight against fraud and to introduce our whistleblowing system
+externally, we send a letter to our suppliers and business partners and request them to complete a questionnaire annually. The
+questionnaire sets out our corporate values, the Whistleblowing Policy and the various reporting channels. We will understand
+from each of our suppliers and our business partners whether our employees have requested for any gift, cash or benefit
+during the course of business and whether it has been treated unfairly. Upon receipt of the feedback, we will ensure that
+the questions or concerns raised by our suppliers and our business partners will be addressed promptly. If necessary, the
+anti-fraud investigation department will commence an investigation formally.
+Our risk management and internal control departments have established a procurement management control unit to optimise
+the Group's supplier management system. A new supplier synergy system has been launched for the online management of
+the entire procurement life cycle, from sourcing, selection and onboarding of suppliers, performance assessment to retiring
+suppliers. The system serves as an open platform where the suppliers can provide its corporate information to us and we
+can manage the entire bidding process online. Through a centralised system, the bidding process can be standardised and
+become more transparent. The supplier management system also provides the suppliers with a communication channel
+so that we can collect their feedback or complaints. Complaints in relation to fraudulent activities will be passed to the anti-
+fraud investigation department directly for follow-up and those non-fraud related complaints (such as unfair treatment) will be
+handled by the procurement risk management unit. The goal is to ensure that the complaints and concerns of our suppliers
+can be addressed promptly, and the risk of fraud can be minimised.
+118 Tencent Holdings Limited
+Anti-Money Laundering and Sanctions
+The Group strictly abides by applicable laws and regulations in relation to cross-border and domestic money transmission,
+anti-money laundering ("AML"), counter-terrorist financing ("CTF"), as well as anti-tax evasion in the PRC and other countries
+where we provide payment processing services. Specifically, according to the Anti-Money Laundering Law of the People's
+Republic of China implemented on 1 January 2007 and the Administrative Measures for Non-financial Institutions Providing
+Payment Services implemented on 1 September 2010, we must formulate AML measures, fulfil AML obligations, and comply
+with relevant AML regulations if we intend to provide users with third-party payment services. The Group is compliant with not
+only its legal obligations but also the expected social responsibilities.
+As a result of the complexity of legal and regulatory compliance in multiple jurisdictions, we have established an independent
+AML and sanctions compliance department. The duty of the department is to coordinate the management of money laundering
+and sanctions risk at the Group level for all businesses, to fulfil AML and sanctions requirements under relevant laws and
+regulations, and to manage and promote the implementation of various AML and sanctions initiatives.
+In 2019, we have launched a Group-wide Anti-Money Laundering and Sanctions Programme (the "AML Programme") which
+focuses on putting in place the most effective standards to combat financial crime. The aim of the AML Programme is to
+significantly increase our compliance capabilities and to have in place a set of consistent high standards across our Group
+businesses.
+Key aspects of the AML Programme include but are not limited to the followings:
+Formulating specialised AML and Sanctions units at Group level;
+. Establishing a set of Group minimum standards in AML and Sanctions compliance;
+Conducting regular independent testing on our AML and Sanctions systems and operational effectiveness; and
+Developing new methodologies in assessing customer risks to help us better detect and deter financial crime risks.
+In addition, the Group continues to dedicate resources to the AML Programme in the following key areas: (i) carrying out
+on-the-job and professional training for our staff periodically; (ii) ongoing monitoring of and further enhancements to our
+system infrastructure to improve the effectiveness and efficiency of our KYC, transaction monitoring, and suspicious transaction
+reporting processes; (iii) regular review and further strengthening the implementation of our AML and Sanctions systems and
+policies; and (iv) active participation in international AML/CTF events to exchange industry best practices.
+Annual Report 2019
+119
+Tencent Sunshine Code of Conduct
+114
+In 2016, we updated the Risk Management and Internal Control Policy (the "Policy") with a system comprising three lines of
+defence. The first line is business and functional departments. The risk management and internal control departments serve
+as the second line while the internal audit department and anti-fraud investigation department act as the third line of defence.
+The Policy sets out the roles and responsibilities of different stakeholders in risk management and control (including those
+in relation to frauds). It is emphasised in the Policy that the management of each business group is primarily responsible
+for the risk management and internal controls of its department. If any fraudulent activity is detected, the management of
+the relevant department shall improve the control procedures promptly to prevent recurrence of similar incidents. The risk
+management and internal control departments have dedicated a team to each business group to provide internal control and
+risk management support. We also apply continuous auditing to key businesses in order to detect irregularities and identify
+risks in a timely and systematic manner and to improve the effectiveness of fraud risk management and control.
+Environmental, Social and Governance Report
+Environmental, Social and Governance Report
+Rural development
+In 2015, WeCounty, our open platform built on the "Internet + Village" model, was launched to offer villagers access to
+digital technology which would benefit their communities. As of 31 December 2019, 29 provincial administrative areas with
+approximately 15,000 villages (or communities) joined WeCounty platform. The number of verified villagers was over 2.5
+million as of 31 December 2019. In 2019, WeCounty provided free platform services to 116,000 revolutionary old districts and
+frontier ethnic regions, 124,000 filed poverty-stricken villages, and 16,455 administrative villages under the jurisdiction of 14
+cities in northeast and northwest of Guangdong.
+Education
+The Tencent Foundation has set up scholarships to promote education in the PRC and other countries throughout the years.
+There are also specific donations for different education initiatives. In 2019, the Tencent Foundation donated approximately
+RMB86.13 million in education-related projects. For example, it cooperated with the funds set up by universities (including
+Peking University, Zhongnan University of Economics and Law and Shenzhen University) on higher education and with Enshi
+Prefecture Charity Federation and other institutions on left-behind children's education. It also sponsored projects led by
+Beijing Hefeng Art Foundation in relation to online art education.
+Ecological conservation and cultural preservation
+The Tencent Foundation is keen on environmental protection and cultural preservation. In 2019, the Tencent Foundation
+donated approximately RMB6.05 million to the China Foundation for Cultural Heritage Conservation, the Paradise International
+Foundation and other ecological conservation organisations to continue to preserve and repair the Great Wall and for the
+ecological conservation project in the PRC.
+Community development
+In 2019, the Tencent Foundation donated RMB9.67 million for the development of social organisations to promote philanthropy
+and innovation in charity work, and donated RMB100 million through "99 Giving Day" to support the development of various
+public welfare institutions.
+Poverty relief
+In 2019, the Tencent Foundation donated approximately RMB116 million to support poverty relief initiatives through various
+charitable organisations, in addition to the matching donation made by the Tencent Foundation on the "99 Giving Day" for the
+same initiatives.
+Annual Report 2019
+115
+Environmental, Social and Governance Report
+Volunteering
+In 2006, some of our employees founded the Tencent Volunteers' Association at their own initiative. Since then, the Tencent
+Volunteers' Association has contributed more than 130,000 hours of voluntary services and the total number of participants
+is more than 63,000. There are more than 20 sub-divisions at the city level (such as Beijing, Shanghai, Chengdu, Shenzhen,
+Wuhan, Guangzhou and Hefei) and at the business group level (such as Cloud & Smart Industries Group, Technology
+Engineering Group and Interactive Entertainment Group).
+Over the last decade, the Tencent Volunteer's Association has been involved and contributed in the areas of online charity,
+promotion of unhindered Internet access, information technology popularisation, cybersecurity, emergency support, poverty
+relief, scholarship, environmental protection, care for elderly and children with special needs and animal protection. It
+has launched more than 200 volunteering activities. In 2016, it was awarded a spot in the list of Top 10 Best Volunteer
+Organisations in Guangdong Province.
+The Tencent Volunteers' Association combines its expertise in technology to help the community. For example, it has been
+broadcasting information on missing persons via Weixin/WeChat and QQ and with the latest facial recognition and blockchain
+technologies, the number of successful cases increased year by year.
+In order to encourage employees to participate in volunteer service, employees, since April 2012, have been granted one day
+of fully-paid volunteer service leave per year.
+Anti-Corruption
+According to the Law Against Unfair Competition in the People's Republic of China, business operators shall not use monies,
+assets or other means to bribe an entity or individuals to promote transaction opportunities or competitive advantage.
+According to the Criminal Law of the People's Republic of China, corruption and bribery may constitute a serious criminal
+offence. We strictly comply with applicable laws and regulations for anti-corruption and embrace the value of integrity, being
+proactive, cooperation and creativity. To promote integrity, we have developed robust systems and measures to detect and
+deter corruption, bribery or any other fraudulent activities. Internal audit is conducted with risk management and risk control to
+ensure the Group's compliance with ethical standards which we strive to uphold.
+116
+Tencent Holdings Limited
+Risk Management and Internal Control Policy
+Environmental, Social and Governance Report
+Environmental, Social and Governance Report
+Equal Opportunities and Diversity
+We found that the results of our procedures performed
+to be materially consistent with management's
+supporting documentation.
+In accordance with Law of the People's Republic of China on the Protection of Consumer Rights and Interests promulgated
+on 31 October 1993 and amended on 25 October 2013, when we provide our customers with goods or service, we adhere
+to social morality, operate business in good faith, and protect the legitimate rights and interests of consumers. We also seek
+consumers' opinions on commodities or services provided to them and accept consumers' supervision. In accordance with the
+E-commerce Law of the People's Republic of China, effective on 1 January 2019, we, as an e-commerce business operator,
+have established an accessible and effective mechanism for receiving complaints and abuse reports, publishing of information
+on complaints and abuse reporting methods, prompt handling and resolution for complaints and abuse reports. The Company
+puts great importance on customer service, thus it proactively complies with all relevant laws and regulations regarding
+customer service.
+122
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+The Tencent Customer Service Centre consists of more than 3,000 staff members and is responsible for handling complaints
+and responding to enquiries from customers for our businesses. We commit to providing solutions to our customers in a timely
+manner through different means including customer service hotline, online customer support, intelligent customer service,
+Weixin/WeChat and face-to-face meeting.
+We have established the following management system to handle complaints from our customers effectively:
+1.
+There is a designated team within the customer service department to handle complaints and deal with compensation
+requests. The team is responsible for conducting investigation based on the information provided by the complainant,
+explaining the relevant procedures to the complainant and notifying the complainant of the investigation results with the
+aim of providing him with a satisfactory solution.
+2.
+For better user experience, we have established a set of complaint handling procedures which set out clearly the
+responsibilities within the customer service department and the timeframe within which a complaint needs to be
+resolved.
+3.
+4.
+5.
+We have strengthened our system infrastructure which allows classification of complaints by urgency and risk level so
+that the customer service staff can better prioritise the cases and deal with the complaints in a timely manner.
+We have a designated team of staff who is responsible for handling complaints from customers who visit our offices and
+for better risk control, we have designed a set of protocols for different types of incidents.
+Tencent customer service also performs social responsibilities and promotes the aim of “Tech for Good" by establishing
+Tencent110 (110.qq.com), a platform for reporting illegal issues and accepting reports from Internet users and timely
+handle illegal accounts on Tencent Platform. It helps with the crackdown of illegal industry chain on the Internet and
+provides analyses of fraud prevention methods so as to protect more users from fraud.
+Annual Report 2019
+123
+Environmental, Social and Governance Report
+Healthy Environment for our Users
+One of our important businesses is our online gaming business. We need to comply with the relevant laws, regulations and
+policy requirements in relation to online gaming in the PRC, including the Telecommunication Regulation of the People's
+Republic of China, the Administrative Regulations on Publishing, the Administrative Measures on Internet Information Services
+and the Provisions on the Administration of Online Publishing Services. In accordance with such regulations, when we operate
+value-added telecommunications business, we are required to apply to administrative authorities of information industries to
+obtain a Value-Added Telecommunication Business Operation Permit. When we operate online publishing service for online
+gaming, we must comply by obtaining an Online Publishing Service License.
+We have been actively implementing various measures to ensure compliance with the relevant laws, regulations and policies.
+For instance, we have already obtained the relevant credentials for publishing and operating online games, such as the
+Value-Added Telecommunication Business Operation Permit and the Online Publishing Service License. Meanwhile, in our
+business operation, we are among the first beginners to actively explore into the field of juveniles' protection.
+To safeguard the physical and mental health of online game users and juveniles, we have implemented the real name system
+and anti-addiction system in accordance with the regulatory requirements of the PRC and strengthened the promotion of
+healthy gaming and anti-addiction through various channels. In February 2017, we launched a series of services on "Tencent
+Guardian Platform" which assist parents to monitor the gaming habits of their underage children. This is the technical platform
+aiming to provide assistance to guardian who wish to help their underage children to develop healthy gaming practice in
+the online game industry. In July 2017, we implemented the Healthy Gameplay System on Honour of Kings, which sends
+reminders to players or forces them to suspend the game if players spend too much time on the game in one day. In 2018,
+we upgraded the Healthy Gameplay System, tightened the requirements for identity verification and made the system available
+for more games. We also launched a customer service which sends reminders when a game player may have engaged
+in overspending and provides subsequent counselling. In 2019, the Healthy Gameplay System covered all mobile games
+operated by us in Mainland China.
+In addition, the General Administration of Press and Publication of the People's Republic of China has promulgated the
+Circular on Prevention of Underage Children's Addiction to Online Gaming on 25 October 2019 (the "Anti-Addiction Circular"),
+which has regulated underage children's use of online gaming in many aspects, such as game duration, playing period and
+paymanet service. It also requires that parents, schools and other society members to undertake the responsibility to protect
+underage children. We have been fully implementing the requirements in accordance with the Anti-Addiction Circular after we
+had conducted pilot work on four online games in January 2020.
+Customer Service
+In 2019, Weixin platforms produced a total of 17,881 articles to dispel hurtful rumours on the Internet. These articles were
+read over 114 million times. With the mission of “Value for Users, Tech for Good", the Tencent news fact-checking platform
+created a database for verifying and confirming facts to combat the spread of misinformation on the Internet. Information
+presently stored in the database cover knowledge in fields such as food safety, nutrition and medical care.
+In 2019, we protected millions of devices by monitoring nearly 100 billion lines of code daily and diverting away nearly 10
+billion malicious attack requests in a year. We put together a 400G anti-DDoS protection platform with a maximum protection
+peak of 1.23 Tbps, a top tier system ranking first in the industry. In addition, we add protection by employing thousands of
+top security experts all over the world, publishing threat intelligence, and continually looking for ways to improve its network
+security ecosystem. Tencent sets a new network security precedent with establishing its open source security emergency
+response centre, where open source security features are made available to the entire industry. Open source security features
+have current downloads in the thousands and counting.
+The privacy policies of our various applications have been considered top-ranked in the joint review by the Cyberspace
+Administration of China, the Ministry of Industry and Information Technology of the PRC, the Ministry of Public Security of
+the PRC and the Standardisation Administration of the PRC and in the review by China Consumers Association among 100
+selected applications. Furthermore, we actively participate in shaping the development of the industry framework on privacy
+protection. For example, our privacy experts are members of the International Association of Privacy Professionals. Many of our
+products have been accredited with privacy certifications from TrustArc. Our network and data security managements have
+been certified by the International Organization for Standardization (ISO).
+Environmental, Social and Governance Report
+SUPPLY CHAIN MANAGEMENT
+Our supply chain management programme attaches supreme importance to managing the ethics risk associated with the
+relationship between our procurement employees and our business partners. It also focuses on teaching those employees who
+are involved in procurement to recognise and mitigate the inherent risks.
+To enhance the social responsibility awareness of our employees, we have formulated a code of conduct which those
+employees engaging in procurement activities must adhere to. To minimise the ethics risks, such employees are also required
+to declare any relationship they may have with our suppliers in writing.
+In the course of supplier engagement, potential suppliers are required to conduct self-assessment on their commitment,
+amongst other things, to environmental protection, social responsibility, and health and safety at work (the "Self-Assessment”).
+Suppliers which are formally engaged by us are also required to agree to the terms of a declaration and undertaking in relation
+to anti-commercial bribery in doing business with our Group (the "Anti-commercial Bribery Declaration").
+During the year ended 31 December 2019, all suppliers which were formally engaged had completed the Self-Assessment and
+signed the Anti-commercial Bribery Declaration. We were not aware of any commercial bribery engaged by our suppliers.
+The procurement department looks for qualified suppliers in the market and conducts standard or simplified verification on the
+suppliers depending on the duration of the cooperation, the order volume and the nature of the request. We have maintained a
+database of qualified suppliers which are ready to take orders from us.
+We have an internal policy which sets out the procedures for supplier onboarding. Before engaging a supplier, we will
+conduct the background check (including site visit) on the supplier. Staff participating in the check include members from
+the procurement department, the requesting department, the technology department (if applicable) and the risk management
+department. The assessment results will be reported to the procurement department for a final determination.
+We normally ask for price quotations from at least three vendors. Other factors including delivery time and technical capabilities
+of the vendors will be taken into consideration when selecting vendors. If there is only one vendor available for selection as it
+dominates the relevant market or it is the only vendor with access to the required goods/services, the exclusive procurement
+arrangement with such vendor will require special approval with a satisfactory justification provided by the technology
+department or the requesting department.
+We evaluate the performance of our suppliers from time to time and take appropriate steps to address any issues with the
+quality of the suppliers as part of our supply chain management. For suppliers with unsatisfactory performance, subject to
+applicable contractual arrangements, we may (i) discuss with them on the remedial steps to be taken by them; (ii) suspend the
+cooperation; (iii) reduce the order volume; (iv) impose penalties; or (v) suspend payment. The procurement department may
+disqualify a supplier for the following events: (i) we suffer from material economic losses as a result of the delayed delivery,
+quality issue or breach of contract by the supplier; (ii) the supplier has received the lowest rating in the rating scale for two
+consecutive quarters; and (iii) the supplier is in serious breach of business ethics.
+120 Tencent Holdings Limited
+Environmental, Social and Governance Report
+PRODUCT RESPONSIBILITY
+We strive to provide the best user experience and pay high attention to the quality of our products and services. We conduct
+strict reviews of our product and service offerings and related sales, marketing and advertising strategies and materials to
+ensure their compliance with applicable laws and regulations. We also build in safeguards on advertising content, user privacy,
+product safety and IP rights as described below.
+Advertising Content
+According to the Advertising Law of the People's Republic of China (the "Advertising Law") and the Interim Measures for
+Administration of Internet Advertising, advertising operators and advertising publishers shall verify all relevant business
+documents pursuant to laws and administrative regulations, and verify the compliance of its advertising contents.
+Advertisement clients who publish on the Tencent advertisement platforms are required to certify the legality of the advertising
+content. We will verify the clients' advertisement content against guidance from relevant laws and regulations, such as the
+Advertising Law. Throughout the year of 2019, the Group has complied with the Advertising Law and relevant laws and
+regulations regarding advertisement.
+Data Safety and User Privacy
+In accordance with the Cybersecurity Law of the People's Republic of China promulgated on 1 June 2017 and Provisions on
+Protecting the Personal Information of Telecommunications and Internet Users promulgated on 16 July 2013 and implemented
+on 1 September 2013, as an Internet Information Service Provider, we obtain user's consent before collecting and using user's
+personal information. We stipulate rules on the collection and use of user's personal information and publicise the same in
+the places and websites where we operate or serve. We and our employees keep strictly confidential the personal information
+of users collected and used during the provision of service, and do not disclose, distort, damage, sell or provide the same to
+others in violation of the law. We keep strictly confidential the user information collected by us and establish and perfect the
+user information protection system to ensure that the personal information collected by us is safe and to prevent any disclosure,
+damage or loss of the information.
+To uphold our dedication to value creation for our users, amongst other user specific aims, one of our important missions is
+to protect the privacy of user data and other sensitive information. The Group complies with all applicable laws on privacy
+protection and incorporate applicable legal and regulatory requirements on privacy protection into our internal compliance
+policies taking into account the specific features of our products and services. We have also devised specific procedures to
+collect and process user data to ensure that our products and services are in compliance with applicable legal requirements.
+We have a dedicated privacy team within the Legal Department which is responsible for handling data protection matters. We
+evaluate specific products from the perspective of privacy protection on a regular basis and perform privacy risk assessments
+before the launch of new products to ensure that our products are not exposed to the risk of privacy infringement or leakage of
+user data.
+We provide training to our employees to enhance their privacy protection awareness and build up the cultural awareness of the
+importance of privacy protection.
+Annual Report 2019 121
+Environmental, Social and Governance Report
+To ensure that our users understand how we protect their personal information and enhance the transparency of how
+we collect and process the data, we promote the concept of "Technology is deployed for social good and data is put in
+manageable use". We have published the Tencent Privacy Protection Whitepaper and launched the Tencent Privacy Protection
+Platform (https://privacy.qq.com) to give our users a comprehensive understanding of the privacy protection measures taken
+by the Group. We also make our privacy protection policies available on our product websites and in-app products and provide
+communication channels for our users to file complaints and raise enquiries whenever they are in doubt.
+124
+Tencent Holdings Limited
+Annual Report 2019 129
+Monitoring of and Protection for Original User-generated Content
+127
+Independent Auditor's Report
+BASIS FOR OPINION
+We conducted our audit in accordance with International Standards on Auditing ("ISAS"). Our responsibilities under those
+standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
+of our report.
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
+Independence
+We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics
+for Professional Accountants ("IESBA Code"), and we have fulfilled our other ethical responsibilities in accordance with the
+IESBA Code.
+KEY AUDIT MATTERS
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
+consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
+these matters.
+Key audit matters identified in our audit are summarised as follows:
+Revenue recognition on provision of online games value-added services - estimates of the lifespans of virtual products/
+items
+Impairment assessments of goodwill, investments in associates and joint ventures
+Fair value measurement of financial instruments, including financial assets at fair value through profit or loss, financial
+assets at fair value through other comprehensive income and other financial liabilities
+128 Tencent Holdings Limited
+Independent Auditor's Report
+Key Audit Matter
+We assessed, on a sample basis, the expected users'
+relationship periods adopted by management by testing
+the data integrity of historical users' consumption
+patterns and calculation of the churn rates. We also
+evaluated the consideration made by management in
+determining the underlying assumptions for expected
+users' relationship periods with reference to historical
+operating and marketing data of the relevant games.
+We also assessed, on a sample basis, the historical
+accuracy of the management's estimation process by
+comparing the actual users' relationship periods for the
+year against the original estimation for selected virtual
+products/items.
+We discussed with management and evaluated their
+judgments on key assumptions in determining the
+estimated lifespans of the virtual products/items that
+were based on the expected users' relationship periods.
+We tested, on a sample basis, key controls in respect
+of the recognition of revenue from sales of virtual
+products/items, including management's review and
+approval of (i) determination of the estimated lifespans
+of new virtual products/items prior to their launches;
+and (ii) changes in the estimated lifespans of existing
+virtual products/items based on periodic reassessment
+on any indications triggering such changes. We
+also assessed the data generated from the Group's
+information system supporting the management's
+review, including tested the information system logic
+for generation of reports, and checked, on a sample
+basis, the monthly computation of revenue recognised
+on selected virtual products/items generated directly
+from the Group's information system.
+We focused on this area due to the fact that management
+applied significant judgments in determining the
+expected users' relationship periods for certain virtual
+products/items. These judgments included (i) the
+determination of key assumptions applied in the
+expected users' relationship periods, including but not
+limited to historical users' consumption patterns, churn
+rates and reactivity on marketing activities, games life-
+cycle, and the Group's marketing strategy; and (ii) the
+identification of events that may trigger changes in the
+expected users' relationship periods.
+During the year ended 31 December 2019, a majority
+of the Group's revenue from value-added services was
+contributed from online games and was predominately
+derived from the sales of virtual products/items.
+The Group has recognised revenue from sales of virtual
+products/items to the users in respect of value-added
+services rendered on the Group's online platforms. The
+relevant revenue is recognised over the lifespans of
+respective virtual products/items which was determined
+by the management, on an item by item basis, with
+reference to the expected users' relationship periods
+or the stipulated period of validity of the relevant virtual
+products/items, depending on the terms of the virtual
+products/items.
+Refer to Note 2.30(a), 4(a) and 5(b) to the consolidated
+financial statements
+Revenue recognition on provision of online games value-added
+services - estimates of the lifespans of virtual products/items
+Environmental, Social and Governance Report
+Annual Report 2019
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group
+as at 31 December 2019, and of its consolidated financial performance and its consolidated cash flows for the year then ended
+in accordance with International Financial Reporting Standards ("IFRSS") and have been properly prepared in compliance with
+the disclosure requirements of the Hong Kong Companies Ordinance.
+How our audit addressed the Key Audit Matter
+the notes to the consolidated financial statements, which include a summary of significant accounting policies.
+Each of Weixin/WeChat and QQ provides a mechanism for users to report any fake or inappropriate content circulated on its
+platform. To protect the original user-generated content, Weixin/WeChat has launched a new feature in December 2017 for the
+Weixin/WeChat official account holders to declare the originality of the content generated by them on Weixin/WeChat so as to
+help identify and deter copyright infringement more effectively.
+Our opinion
+Intellectual Property Rights
+China has launched a series of laws and regulations regarding protection of intellectual property ("IP") rights. The Trademark
+Law of the People's Republic of China last amended on 23 April 2019, the Patent Law of the People's Republic of China last
+amended on 27 December 2008, the Copyright Law of the People's Republic of China last amended on 26 February 2010 and
+the Implementation Rules for Domain Name Registration with China Internet Network Information Centre last amended on 29
+May 2012 specify rules on the ownership, protection period, registration method and legal responsibility of trademark, patent,
+copyright and domain names. We are a technology-oriented company and we stress the importance of the observation and
+protection of IP rights. We have established a dedicated IP team with approximately 80 employees as of 31 December 2019
+that is responsible for day-to-day management of legal matters involving trademark, patent, copyright, domain names and
+other IP rights.
+We began a comprehensive programme for the management of IP at an early stage. We have consistently applied for the
+registration of IP rights since the early stages of its establishment. With the successful development of our business, we have
+expanded our global IP portfolio to cover more than 100 countries and regions. As of 31 December 2019, we had obtained
+over 25,000 officially registered trademarks and over 12,000 issued patents. Coupled with our creation of a vast amount of
+copyrighted content, we have accumulated IP assets of considerable value. Our IP team has developed a comprehensive
+database for our patents, trademarks and copyrights and our strong data analytical skills enable us to manage and monitor
+our IP rights in a meticulous and efficient manner. To combat infringement of IP rights, our IP team has also established a
+comprehensive and efficient monitoring and maintenance system, and has devised various civil, criminal and administrative
+enforcement measures to protect our IP rights. Please see further details on the Company Website (https://www.tencent.com/
+legal/html/en-us/property.html).
+We actively participate in public affairs and strive to promote the awareness of IP protection in the Internet industry. As
+members of the China National Information Technology Standardisation Committee, the China Intellectual Property Society,
+the Patent Protection Association of China, the World Wide Web Consortium, the International Trademark Association and
+the China Trademark Association, we have participated in the consultations on legislative amendments to the PRC laws and
+regulations relating to patents, trademarks and anti-competition and have made recommendations in the development of
+industry standards.
+Annual Report 2019
+Environmental, Social and Governance Report
+Within the past decade, we had been awarded the "China Patent Gold Awards" by the State Intellectual Property Office of the
+PRC, the "China Trademark Gold Awards" jointly by World Intellectual Property Organisation and the State Administration for
+Market Regulation and the "China Copyright Gold Awards" by the National Copyright Administration of the PRC and the World
+Intellectual Property Organisation multiple times, signifying our contribution to the development of independent innovation
+of the PRC. We have also been recognised as a “National Copyright Demonstration Unit” several times, demonstrating
+our outstanding performance in management and protection of copyright. The Company has actively participated in the
+development of the standard patent issues in recent years. Particularly, we made certain contributions in the aspect of
+standardisation of blockchain electronic invoice.
+Looking forward, we will continue to devote great efforts and resources to observe and protect IP rights.
+126
+Tencent Holdings Limited
+Independent Auditor's Report
+125
+(incorporated in the Cayman Islands with limited liability)
+OPINION
+What we have audited
+The consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries (the "Group") set out
+on pages 136 to 264, which comprise:
+the consolidated statement of cash flows for the year then ended; and
+TO THE SHAREHOLDERS OF TENCENT HOLDINGS LIMITED
+the consolidated statement of changes in equity for the year then ended;
+•
+•
+the consolidated statement of financial position as at 31 December 2019;
+the consolidated statement of comprehensive income for the year then ended;
+the consolidated income statement for the year then ended;
+•
+2,180
+2,590
+31
+31
+132,991
+97,814
+253,968
+217,080
+Total assets
+953,986
+Cash and cash equivalents
+Restricted cash
+7,114
+46,911
+29
+6,175
+24
+339
+723,521
+375
+27
+18,493
+27,840
+26
+28,427
+324
+62,918
+138
+LIABILITIES
+Consolidated Statement of Financial Position
+How our audit addressed the Key Audit Matter
+We focused on this area due to the magnitude of the
+carrying amounts of these assets and the fact that
+significant judgments were required by management (i)
+to identify whether any impairment indicators existed
+for any of these assets during the year; (ii) to determine
+the appropriate impairment approaches, i.e. fair
+value less costs of disposal or value in use; and (iii) to
+select key assumptions to be adopted in the valuation
+models, including discounted cash flows and market
+approach, for the impairment assessments.
+As at 31 December 2019, the Group held significant
+amounts of goodwill, investments in associates and
+joint ventures amounting to RMB93,456 million,
+RMB213,614 million and RMB8, 280 million,
+respectively. Impairment of RMB20 million and
+RMB3,877 million had been provided for against
+the carrying amounts of goodwill and investments in
+associates, respectively, and a reversal of impairment
+of RMB54 million had been made against the carrying
+amounts of investments in joint ventures during the
+year ended 31 December 2019.
+Refer to Notes 2.13(a), 2.15, 4(b), 20, 21 and 22 to
+the consolidated financial statements
+Impairment assessments of goodwill, investments in
+associates and joint ventures
+Key Audit Matter
+Independent Auditor's Report
+718
+35,839
+32
+www w
+32
+RMB'Million
+2018
+RMB'Million
+Note
+2019
+As at 31 December
+Total equity
+Non-controlling interests
+Retained earnings
+Other reserves
+Shares held for share award schemes
+Share premium
+Share capital
+Equity attributable to equity holders of the Company
+EQUITY
+As at 31 December 2019
+Tencent Holdings Limited
+30
+91,702
+Term deposits
+Prepayments, deposits and other assets
+Financial assets at fair value through other comprehensive income
+Financial assets at fair value through profit or loss
+Investments in joint ventures
+Investments in associates
+Intangible assets
+725
+855
+Investment properties
+4,879
+3,935
+19
+Construction in progress
+10,847
+Other financial assets
+We tested management's assessment including
+periodic impairment indications evaluation as to
+whether indicators of impairment exist by corroborating
+with management and market information.
+7,106
+15,609
+17
+Land use rights
+35,091
+46,824
+16
+Property, plant and equipment
+Non-current assets
+RMB'Million
+RMB'Million
+Note
+2018
+2019
+Right-of-use assets
+Deferred income tax assets
+Term deposits
+222222222
+Financial assets at fair value through profit or loss
+Other financial assets
+Prepayments, deposits and other assets
+Accounts receivable
+Inventories
+Current assets
+506,441
+700,018
+19,000
+29
+15,755
+18,209
+28
+1,693
+27
+21,531
+23,442
+20
+128,860
+56,650
+21
+213,614
+219,215
+32222
+8,280
+24
+128,822
+25
+81,721
+43,519
+26
+8,575
+2.2,18
+35,271
+In respect of the impairment assessments of cash
+generating units that contain goodwill, investments
+in associates and investments in joint ventures
+using discounted cash flows, we assessed the key
+assumptions adopted including revenue growth rates,
+profit margins, discount rates and other assumptions
+by examining the approved financial/business
+forecast models, and comparing actual results for
+the year against the previous period's forecasts and
+the applicable industry/business data external to the
+Group. We assessed certain of these key assumptions
+with the involvement of our internal valuation experts.
+We considered that the key assumptions adopted
+by management are in line with our expectation and
+evidence obtained.
+Items that will not be subsequently reclassified to profit or loss
+Year ended 31 December
+2019
+RMB'Million
+2018
+RMB'Million
+95,888
+79,984
+125
+23
+(3)
+3,089
+(2,139)
+Other fair value (losses)/gains, net
+4,133
+Net gains/(losses) from changes in fair value of financial assets at fair
+value through other comprehensive income
+23,119
+(16,391)
+Other fair value losses
+(178)
+(170)
+24,013
+(12,224)
+119,901
+67,760
+Total comprehensive income for the year
+181
+Currency translation differences
+deemed disposal of associates
+Share of other comprehensive income of associates and joint ventures
+Transfer of share of other comprehensive income to profit or loss upon
+Equity holders of the Company
+Non-controlling interests
+93,310
+78,719
+2,578
+1,265
+95,888
+79,984
+Earnings per share for profit attributable to equity holders
+of the Company (in RMB per share)
+- basic
+12(a)
+9.856
+8.336
+- diluted
+12(b)
+9.643
+8.228
+*
+Due to the changes on segment presentation (Note 5), the comparative figures in the consolidated income statement have been
+restated to conform with the new presentation.
+The notes on pages 147 to 264 are an integral part of these consolidated financial statements.
+136 Tencent Holdings Limited
+Profit for the year
+Other comprehensive income, net of tax:
+Consolidated Statement of Comprehensive Income
+For the year ended 31 December 2019
+Items that may be subsequently reclassified to profit or loss
+Attributable to:
+Attributable to:
+Equity holders of the Company
+The notes on pages 147 to 264 are an integral part of these consolidated financial statements.
+37
+Long-term payables
+51,298
+83,327
+36
+Notes payable
+87,437
+104,257
+35
+Borrowings
+Non-current liabilities
+356,207
+3,577
+488,824
+56,118
+323,510
+432,706
+299,660
+384,651
+729
+16,786
+33
+(4,173)
+(4,002)
+32
+27,294
+32,697
+4,797
+Other financial liabilities
+38
+116,670
+66,339
+3,231
+1,421
+119,901
+67,760
+Annual Report 2019
+137
+Consolidated Statement of Financial Position
+As at 31 December 2019
+139
+Annual Report 2019
+164,879
+225,006
+7,077
+7,334
+5(c)(i)
+Deferred revenue
+8,428
+2.2,18
+Lease liabilities
+10,964
+12,841
+28
+Deferred income tax liabilities
+3,306
+5,242
+Non-controlling interests
+Management adopted different valuation models, on
+a case by case basis, in carrying out the impairment
+assessments, mainly including discounted cash flows
+and market approach. We assessed, on a sample
+basis, the basis management used to identify separate
+groups of cash generating units that contain goodwill,
+the impairment approaches and the valuation models
+used in management's impairment assessments,
+which we found them to be appropriate.
+Profit for the year
+95,888
+Annual Report 2019 133
+Independent Auditor's Report
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
+throughout the audit. We also:
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
+or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
+and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
+fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
+misrepresentations, or the override of internal control.
+Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal
+control.
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
+disclosures made by the directors.
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit
+evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
+on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
+to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
+disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
+date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going
+concern.
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
+disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
+manner that achieves fair presentation.
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
+within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
+supervision and performance of the group audit. We remain solely responsible for our audit opinion.
+We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
+audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
+We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
+regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
+bear on our independence, and where applicable, related safeguards.
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
+from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report
+our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to
+any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee
+that an audit conducted in accordance with ISAS will always detect a material misstatement when it exists. Misstatements can
+arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
+influence the economic decisions of users taken on the basis of these consolidated financial statements.
+134 Tencent Holdings Limited
+From the matters communicated with those charged with governance, we determine those matters that were of most
+significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
+matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the
+matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
+because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
+communication.
+The engagement partner on the audit resulting in this independent auditor's report is Tong Yu Keung.
+PricewaterhouseCoopers
+Certified Public Accountants
+Hong Kong, 18 March 2020
+Annual Report 2019
+135
+Consolidated Income Statement
+For the year ended 31 December 2019
+Year ended 31 December
+2019
+Note
+RMB'Million
+Independent Auditor's Report
+AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as
+a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
+unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
+130 Tencent Holdings Limited
+Independent Auditor's Report
+Key Audit Matter
+Impairment assessments of goodwill, investments in
+associates and joint ventures (continued)
+How our audit addressed the Key Audit Matter
+In respect of the impairment assessments of cash
+generating units that contain goodwill, investments
+in associates and investments in joint ventures
+using market approach, we assessed the valuation
+assumptions including the selection of comparable
+companies, recent market transactions, and liquidity
+discount for lack of marketability, etc. We assessed
+these key assumptions adopted by management
+with the involvement of our internal valuation experts
+based on our industry knowledge and independent
+research performed by us. We considered that the key
+assumptions adopted by management are in line with
+our expectation and evidence obtained.
+We independently tested, on a sample basis, the
+accuracy of mathematical calculation applied in the
+valuation models and the calculation of impairment
+charges. We did not identify any material exceptions
+from our testing.
+Annual Report 2019
+131
+Independent Auditor's Report
+Key Audit Matter
+Fair value measurement of financial instruments,
+including financial assets at fair value through profit
+or loss, financial assets at fair value through other
+comprehensive income and other financial liabilities
+Refer to Notes 3.3, 4(c), 24, 25, 38 to the consolidated
+financial statements
+As at 31 December 2019, the Group's financial assets
+and financial liabilities which were carried at fair value
+comprised financial assets at fair value through profit
+or loss, financial assets at fair value through other
+comprehensive income and other financial liabilities
+of approximately RMB135,936 million, RMB81,721
+million and RMB2,396 million, respectively, of which
+approximately RMB123,093 million of these financial
+assets and approximately RMB1,873 million of these
+financial liabilities were measured based on significant
+unobservable inputs and classified as “Level 3 financial
+instruments".
+We focused on this area due to the high degree of
+judgment required in determining the respective fair
+values of Level 3 financial instruments, which do not
+have direct open market quoted values, with respect
+to the adoption of applicable valuation methodology
+and the application of appropriate assumptions in the
+valuation.
+How our audit addressed the Key Audit Matter
+In respect of the fair value measurement of Level 3
+financial instruments, we tested the key controls, on
+a sample basis, in relation to the valuation process
+including the adoption of applicable valuation
+methodology and the application of appropriate
+assumptions in different circumstances, by inspection
+of the evidence of management's review, which we
+found no material exceptions.
+We involved our internal valuation experts to discuss
+with management and assess the appropriateness of
+valuation methodology and assumptions used. We
+tested, on a sample basis, valuation of Level 3 financial
+instruments as at 31 December 2019 by evaluating
+the underlying assumptions and inputs including risk-
+free rates, expected volatility, relevant underlying
+financial projections, and market information of recent
+transactions (such as recent fund raising transactions
+undertaken by the investees) as well as underlying
+supporting documentation. We also tested, on a
+sample basis, the arithmetical accuracy of the valuation
+computation. We found that the valuation methodology
+of Level 3 financial instruments is acceptable and the
+assumptions made by management are supported by
+available evidence.
+132 Tencent Holdings Limited
+Independent Auditor's Report
+OTHER INFORMATION
+The directors of the Company are responsible for the other information. The other information comprises all of the information
+included in the annual report other than the consolidated financial statements and our auditor's report thereon.
+Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
+assurance conclusion thereon.
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
+in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
+knowledge obtained in the audit or otherwise appears to be materially misstated.
+If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
+required to report that fact. We have nothing to report in this regard.
+RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
+FINANCIAL STATEMENTS
+The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and
+fair view in accordance with IFRSS and the disclosure requirements of the Hong Kong Companies Ordinance, and for such
+internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are
+free from material misstatement, whether due to fraud or error.
+2018
+79,984
+RMB'Million
+Value-added Services
+7
+19,689
+16,714
+(21,396)
+(24,233)
+8
+(53,446)
+(41,522)
+118,694
+97,648
+Finance costs, net
+9
+4,569
+Share of (loss)/profit of associates and joint ventures, net
+10
+(7,613)
+(4,669)
+(1,681)
+1,487
+Profit before income tax
+109,400
+94,466
+Income tax expense
+11
+(13,512)
+(14,482)
+10
+6,314
+61∞∞
+8
+FinTech and Business Services (*)
+Online Advertising
+Others (*)
+199,991
+176,646
+101,355
+73,138
+68,377
+58,079
+7,566
+4,831
+5
+377,289
+As at 31 December
+312,694
+Cost of revenues
+Gross profit
+Interest income
+8
+(209,756)
+(170,574)
+167,533
+142,120
+Other gains, net
+Selling and marketing expenses
+General and administrative expenses
+Operating profit
+Revenues
+We also tested, on a sample basis, key controls in
+respect of the impairment assessments, including the
+determination of appropriate impairment approaches,
+valuation models and assumptions and the calculation
+of impairment provisions, which we found no material
+exceptions.
+ASSETS
+525
+63
+2,046
+57
+10
+- proceeds from shares issued
+525
+525
+2,103
+525
+Employee share award schemes:
+-value of employee services
+5,022
+466
+5,488
+277
+5,765
+-shares withheld for share award schemes
+(2,187)
+(2,187)
+-vesting of awarded shares
+(1,984)
+1,984
+Repurchase and cancellation of shares
+(783)
+Tax benefit from share-based payments
+1,983
+- value of employee services
+4400
+140
+Employee share option schemes:
+Attributable to equity holders of the Company
+Shares held
+Non-
+Share
+Share
+for share
+Other
+Retained
+controlling
+capital
+premium award schemes
+Profit appropriations to statutory reserves
+reserves
+Total
+interests
+Total equity
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+140
+earnings
+Capital injection
+Dividends (Note 15)
+(783)
+1,664
+1,114
+(31)
+(31)
+2,836
+2,836
+5,879
+8,715
+(1,886)
+(1,886)
+1.886
+(406)
+(406)
+(406)
+5,090
+(203)
+861
+(7,512)
+(1,764)
+10,257
+8,493
+27,294
+(4,173)
+729
+299,660
+(550)
+(877)
+1,003
+1.003
+148
+148
+148
+517
+(517)
+(6,995)
+(6,995)
+(618)
+(7,613)
+Non-controlling interests arising from
+business combinations
+Acquisition of additional equity interests in
+(783)
+non-wholly owned subsidiaries
+Dilution of interests in subsidiaries
+Transfer of equity interests of subsidiaries to
+non-controlling interests
+Recognition of financial liabilities in respect of
+the put option from business combination
+Total transactions with equity holders at their
+capacity as equity holders for the year
+Balance at 31 December 2018
+I
+1
+27
+327
+Partial disposal of subsidiaries
+323,510
+Transactions with equity holders
+Consolidated Statement of Changes in Equity
+- net losses from changes in fair value of
+Consolidated Statement of Changes in Equity
+For the year ended 31 December 2019
+Attributable to equity holders of the Company
+Shares held
+Non-
+Share
+Share
+for share
+Other
+Retained
+controlling
+capital
+premium award schemes
+reserves
+earnings
+Total
+interests
+Total equity
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+associates and joint ventures
+- share of other comprehensive income of
+Other comprehensive income, net of tax:
+Profit for the year
+(4,722)
+(1,626)
+(6,348)
+Total transactions with equity holders at their
+capacity as equity holders for the year
+Balance at 31 December 2019
+142
+Tencent Holdings Limited
+7,977
+171
+(8,756)
+(9,039)
+(9,647)
+RMB'Million
+20,190
+35,271
+(4,002)
+16,786
+384,651
+432,706
+56,118
+488,824
+Balance at 31 December 2017,
+as previously reported
+Adjustment on adoption of IFRS 9
+Balance at 1 January 2018
+Comprehensive income
+10,543
+For the year ended 31 December 2019
+RMB'Million
+(3,970)
+452
+462
+4,133
+- other fair value gains, net
+11
+11
+11
+Total comprehensive income for the year
+(12,380)
+78,719
+66,339
+1,421
+67,760
+Transfer of gains on disposal of financial assets
+at fair value through other comprehensive
+income to retained earnings
+(9,561)
+9,561
+Share of other changes in net assets of
+associates
+2,861
+2,861
+2,861
+Annual Report 2019
+143
+3,681
+3,681
+-currency translation differences
+(16,391)
+35,158
+202,682
+256,074
+21,019
+277,093
+(16,210)
+16,210
+22,204
+(3,970)
+18,948
+218,892
+256,074
+22,204
+21,019
+78,719
+78,719
+1,265
+79,984
+23
+23
+23
+financial assets at fair value through
+other comprehensive income
+(16,095)
+(16,095)
+(296)
+277,093
+32,697
+356,207
+The notes on pages 147 to 264 are an integral part of these consolidated financial statements.
+(1,138)
+(620)
+1,672
+30,887
+34,092
+(10,090)
+97,814
+105,697
+1,085
+2,207
+132,991
+97,814
+The notes on pages 147 to 264 are an integral part of these consolidated financial statements.
+146
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+1
+GENERAL INFORMATION
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the Main Board of the Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of Value-added Services ("VAS"), FinTech and Business Services and Online
+Advertising services.
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable certain foreign companies to
+make investments into the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen)
+Company Limited ("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24
+February 2000. The foreign investors of the Company then subscribed to additional equity interests in the Company.
+Under a series of contractual arrangements (collectively, "Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+(6,776)
+(8,315)
+(236)
+(649)
+Interest paid
+(7,047)
+(4,493)
+Proceeds from issuance of ordinary shares as a result of exercise
+of share options
+Shares withheld for share award schemes
+Payments for repurchase of shares
+272
+(1,406)
+(1,967)
+(1,046)
+(783)
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer; and
+Proceeds from issuance of additional equity of non-wholly
+440
+7,238
+Proceeds from disposals of non-controlling interests in non-wholly
+owned subsidiaries
+157
+Payments for acquisition of non-controlling interests in non-wholly
+owned subsidiaries
+Dividends paid to the Company's shareholders
+Dividends paid to non-controlling interests
+Net cash flows generated from financing activities
+Net increase/(decrease) in cash and cash equivalents
+Cash and cash equivalents at beginning of the year
+Exchange gains on cash and cash equivalents
+Cash and cash equivalents at end of the year
+owned subsidiaries
+(2,400)
+•
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.3(a) and Note 47)
+and the formation of the Group in 2000 was accounted for as a business combination between entities under common
+control under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor
+carrying amounts. This approach was adopted because in management's belief it best reflected the substance of the
+formation.
+New standards and interpretations issued but not yet effective
+For the year ended 31 December 2019
+The following new standards and interpretations have not come into effect for the financial year beginning
+1 January 2019 and have not been early adopted by the Group in preparing the consolidated financial
+statements. None of these is expected to have a significant effect on the consolidated financial statements of
+the Group.
+Amendments to IAS 28 and
+IFRS 10
+Amendments to IAS 1 and IAS 8
+Amendments to IFRS 3
+Conceptual Framework
+IFRS 17
+Effective for annual
+periods beginning
+on or after
+Sale or contribution of assets between an
+investor and its associate or joint venture
+Definition of material
+To be determined
+1 January 2020
+Definition of a business
+1 January 2020
+Revised Conceptual Framework for Financial
+1 January 2020
+Reporting
+Insurance contracts
+1 January 2021
+2.2 Changes in accounting policies
+This note explains the impact of the adoption of IFRS 16 "Leases" on the Group's consolidated financial
+statements.
+As indicated in Note 2.1 above, the Group has adopted IFRS 16 Leases retrospectively from 1 January 2019. In
+accordance with the transitional provision under IFRS 16, the Group has applied the simplified transition approach,
+and all right-of-use assets were measured at the amount of the lease liabilities on adoption (adjusted for any
+prepaid or accrued lease expenses). Comparative figures for the 2018 financial year have not been restated. The
+new accounting policies are disclosed in Note 2.34.
+On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been
+classified as "operating leases" under the principles of IAS 17 Leases. These liabilities were measured at the
+present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of
+1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1
+January 2019 was 4.58%.
+Annual Report 2019 149
+(b)
+2.1 Basis of preparation (continued)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Annual Report 2019
+147
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+1 GENERAL INFORMATION (continued)
+2
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company. See details in Note 47.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
+The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+2.1 Basis of preparation
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards ("IFRSS"). The consolidated financial statements have been prepared
+under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or
+loss ("FVPL"), financial assets at fair value through other comprehensive income ("FVOCI"), certain other financial
+liabilities and derivative financial instruments, which are carried at fair value.
+The preparation of financial statements in conformity with IFRSS requires the use of certain critical accounting
+estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting
+policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
+are significant to the consolidated financial statements are disclosed in Note 4.
+the right to control the management, financial and operating policies of Tencent Computer.
+(a)
+The following standards and amendments have been adopted by the Group for the first time for the financial
+year beginning on 1 January 2019:
+IFRS 16
+IFRS 9 (amendment)
+IAS 28 (amendment)
+IAS 19 (amendment)
+IFRIC 23
+Leases
+Prepayment Features with Negative Compensation
+Long-term Interests in Associates and Joint Ventures
+Plan Amendment, Curtailment or Settlement
+Uncertainty over Income Tax Treatments
+The Group has changed its accounting policies following the adoption of IFRS 16 since 1 January 2019. In
+accordance with the transitional provision under IFRS 16, the Group has applied the simplified transition
+approach, and all right-of-use assets were measured at the amount of the lease liabilities on adoption (adjusted
+for any prepaid or accrued lease expenses). Comparative figures for the 2018 financial year have not been
+restated, details of which are disclosed in Note 2.2. Except IFRS 16, the adoption of these new and amended
+standards does not have significant impact on the consolidated financial statements of the Group.
+148
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+New and amended standards adopted by the Group
+Principal elements of lease payments
+(4,666)
+(13,465)
+Purchase of/prepayment for intangible assets
+Purchase of/prepayment for land use rights
+Payments for acquisition of investments in associates
+Proceeds from disposals of investments in associates
+Payments for acquisition of investments in joint ventures
+(22,766)
+(19,743)
+4
+33
+(29,866)
+(31,877)
+(4,356)
+(2,441)
+(14,904)
+(37,776)
+667
+429
+(720)
+(2,352)
+Payments for acquisition of financial assets at fair value through
+other comprehensive income
+(9,425)
+(17,669)
+Proceeds from disposals of financial assets at fair value through
+other comprehensive income
+Proceeds from disposals of property, plant and equipment
+progress and investment properties
+Purchase of property, plant and equipment, construction in
+(201)
+144
+Tencent Holdings Limited
+Cash flows from operating activities
+Cash generated from operations
+Income tax paid
+Net cash flows generated from operating activities
+Cash flows from investing activities
+Payments for business combinations, net of cash acquired
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2019
+Net outflow of cash in respect of disposals and deemed disposals
+of subsidiaries
+Year ended 31 December
+22,224
+Note
+2018
+RMB'Million
+(Note 2.2)
+42(a)
+165,818
+125,457
+(17,228)
+(14,521)
+148,590
+110,936
+(428)
+(3,206)
+2019
+RMB'Million
+Payments for acquisition of financial assets at fair value through
+profit or loss
+(39,827)
+(151,913)
+Annual Report 2019
+145
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2019
+Year ended 31 December
+2019
+RMB'Million
+2018
+RMB'Million
+(Note 2.2)
+Cash flows from financing activities
+Proceeds from short-term borrowings
+(116,170)
+18,375
+Repayments of short-term borrowings
+Proceeds from long-term borrowings
+(22,058)
+(23,545)
+55,075
+7,237
+Repayments of long-term borrowings
+(55,168)
+(194)
+Net proceeds from issuance of notes payable
+40,202
+32,547
+Repayments of notes payable
+26,463
+(4,722)
+Net cash flows used in investing activities
+1,670
+(54,141)
+Proceeds from disposals of financial assets at fair value through
+profit or loss
+15,744
+11,254
+Payments for loans to investees and others
+(5,648)
+(2,523)
+Loans repayments from investees and others
+618
+745
+Payments for settlement of other financial liabilities
+1,724
+(11,391)
+1,222
+Receipt from maturity of term deposits with initial terms of over
+three months
+82,607
+46,227
+Placement of term deposits with initial terms of over three months
+(85,601)
+(67,055)
+Interest received
+6,230
+4,435
+Dividends received
+Proceeds from settlement of other financial assets
+the put option from business combination
+(2,187)
+330
+323,510
+299,660
+729
+(4,173)
+27,294
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total equity
+interests
+Total
+earnings
+reserves
+premium award schemes
+capital
+RMB'Million
+controlling
+Retained
+Other
+for share
+Share
+Share
+Non-
+Shares held
+32,697
+356,207
+93,310
+93,310
+(2,317)
+(25)
+(2,292)
+(2,292)
+- other fair value losses, net
+3,089
+161
+2,928
+2,928
+23,119
+518
+22,601
+22,601
+Attributable to equity holders of the Company
+|(3) (3) (3)
+(1)
+25
+26
+126
+26
+126
+- net gains from changes in fair value of
+financial assets at fair value through
+other comprehensive income
+-currency translation differences
+income to profit or loss upon deemed
+disposal of associates
+-transfer of share of other comprehensive
+associates and joint ventures
+- share of other comprehensive income of
+95,888
+2,578
+125
+For the year ended 31 December 2019
+Consolidated Statement of Changes in Equity
+Other comprehensive income, net of tax:
+9,733
+Current income tax liabilities
+13,720
+10,534
+36
+Notes payable
+26,834
+22,695
+35
+Borrowings
+33,312
+45,174
+40
+10,210
+Other payables and accruals
+80,690
+39
+Accounts payable
+Current liabilities
+RMB'Million
+2018
+RMB'Million
+Note
+2019
+As at 31 December
+As at 31 December 2019
+Consolidated Statement of Financial Position
+Recognition of financial liabilities in respect of
+73,735
+Total comprehensive income for the year
+Other tax liabilities
+1,049
+Profit for the year
+Comprehensive income
+Balance at 1 January 2019
+140 Tencent Holdings Limited
+Director
+Director
+Lau Chi Ping Martin
+Ma Huateng
+The consolidated financial statements on pages 136 to 264 were approved by the Board of Directors on 18 March 2020 and
+were signed on its behalf:
+The notes on pages 147 to 264 are an integral part of these consolidated financial statements.
+723,521
+953,986
+367,314
+1,245
+465,162
+Total liabilities
+202,435
+240,156
+42,375
+60,949
+5(c)(i)
+Deferred revenue
+3,279
+2.2,18
+Lease liabilities
+1,200
+5,857
+38
+Total equity and liabilities
+23,360
+Other financial liabilities
+116,670
+(734)
+734
+529
+529
+(1,046)
+(1,046)
+Dividends (Note 15)
+29
+229
+Profit appropriations to statutory reserves
+529
+Tax benefit from share-based payments
+(1,046)
+(8,305)
+Repurchase and cancellation of shares
+(1,357)
+-vesting of awarded shares
+(1,186)
+7,961
+79
+(1,186)
+279
+7,682
+(1,186)
+-shares withheld for share award schemes
+19
+379
+7,303
+1,357
+-value of employee services
+(8,305)
+(8,670)
+(730)
+93,310
+3,631
+(4,361)
+(4,849)
+488
+non-controlling interests
+Transfer of equity interests of subsidiaries to
+39
+394
+(355)
+(355)
+Dilution of interests in subsidiaries
+(365)
+(1,102)
+(258)
+(534)
+276
+Acquisition of additional equity interests in
+(1)
+(1)
+18,386
+18,386
+Disposal of a subsidiary
+business combinations (Note 41)
+Non-controlling interests arising from
+1
+529
+(844)
+Employee share award schemes:
+non-wholly owned subsidiaries
+272
+Share
+Share
+Non-
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2019
+Consolidated Statement of Changes in Equity
+141
+Annual Report 2019
+(149)
+(149)
+(149)
+deemed disposal of associates
+for share
+assets of associates to profit or loss upon
+2,322
+2,322
+associates
+Share of other changes in net assets of
+720
+(720)
+retained earnings
+through other comprehensive income to
+disposal of financial assets at fair value
+Transfer of gains on disposal and deemed
+272
+119,901
+3,231
+Transfer of share of other changes in net
+Other
+2,322
+controlling
+2,166
+- proceeds from shares issued
+Retained
+272
+63
+2,103
+62
+2,041
+Employee share option schemes:
+273
+273
+Capital injection
+Transactions with equity holders
+RMB'Million
+RMB'Million
+- value of employee services
+Total equity
+reserves
+RMB'Million
+RMB'Million
+premium award schemes
+RMB'Million
+RMB'Million
+RMB'Million
+earnings
+RMB'Million
+Total
+interests
+capital
+For the year ended 31 December 2019
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Notes to the Consolidated Financial Statements
+2
+Tencent Holdings Limited
+2.3 Subsidiaries (continued)
+152
+When the Group ceases to have control, any retained interest in the entity is re-measured to its
+fair value at the date when control is lost, with the change in carrying amount recognised in the
+consolidated income statement. The fair value is the initial carrying amount for the purposes of
+subsequently accounting for the retained interest as an associate, a joint venture or financial asset. In
+addition, any amounts previously recognised in other comprehensive income in respect of that entity
+are accounted for as if the Group had directly disposed of the related assets or liabilities. It means that
+amounts previously recognised in other comprehensive income are reclassified to the consolidated
+income statement or transferred to another category of equity as specified/permitted by applicable
+IFRSS.
+For the year ended 31 December 2019
+(ii) Changes in ownership interests in subsidiaries without change of control
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions - that is, as transactions with the owners of the subsidiary in their capacity as
+owners. The difference between fair value of any consideration paid and the relevant share acquired of
+the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
+to non-controlling interests are also recorded in equity.
+The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
+and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value
+of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred,
+non-controlling interest recognised and previously held interest measured is less than the fair value
+of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
+recognised directly in the consolidated income statement.
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed
+to be an asset or liability is recognised in profit or loss. Contingent consideration that is classified as
+equity is not re-measured, and its subsequent settlement is accounted for within equity.
+(i) Business combinations (continued)
+(b) Separate financial statements
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+(a) Consolidation (continued)
+2.3 Subsidiaries (continued)
+(iii) Disposal of subsidiaries
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined in
+Note 47(e)), a controlled structured entity, is stated at cost in "Contribution to Share Scheme Trust”, and will
+be transferred to the "Shares held for share award schemes" under equity when the contribution is used for
+the acquisition of the Company's shares.
+Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's
+interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an
+impairment of the asset transferred. Accounting policies of associates have been changed where necessary to
+ensure consistency with the policies adopted by the Group.
+2.4 Associates
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+154
+Notes to the Consolidated Financial Statements
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint venture,
+is measured as the sum of the fair value of the interests previously held plus the fair value of any additional
+consideration transferred as of the date when it becomes associate/joint venture. A gain or loss on re-measurement
+of the previously held interests is taken to the consolidated income statement. Any other comprehensive income
+recognised in prior periods in relation to the previously held interests is also taken to the consolidated income
+statement. Any acquisition-related costs are expensed in the period in which the costs are incurred.
+2.6 Investments in associates/joint ventures achieved in stages
+Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
+Group's interests in the joint ventures. Unrealised losses are also eliminated unless the transaction provides
+evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed
+where necessary to ensure consistency with the policies adopted by the Group.
+Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted
+thereafter to recognise the Group's share of the post-acquisition profit or loss and movements in other
+comprehensive income. Where the Group's share of losses in a joint venture equals or exceeds its interests in
+the joint venture (which includes any other unsecured long-term receivables that, in substance, form part of the
+Group's net investment in the joint venture), the Group does not recognise further losses, unless it has incurred
+obligations or made payments on behalf of the joint venture.
+Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures
+depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint
+arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
+2.5 Joint arrangements
+Gains or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
+If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
+share of the amounts previously recognised in other comprehensive income is reclassified to consolidated income
+statement where appropriate.
+2.4 Associates (continued)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+153
+Annual Report 2019
+The Group determines at each reporting date whether there is any objective evidence that investments accounted
+for using the equity method, including investments in associates and joint arrangements (Note 2.5), are impaired.
+If this is the case, the Group calculates the amount of impairment as the difference between the recoverable
+amount of the investment and its carrying value and recognises the amount in "Other gains/(losses), net" in the
+consolidated income statement.
+The Group's share of its associates' post-acquisition profit or loss is recognised in the consolidated income
+statement, and its share of post-acquisition movements in other comprehensive income is recognised in other
+comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the
+carrying amount of the investment. Where the Group's share of losses in an associate equals or exceeds its
+interests in the associate, including any other unsecured long-term receivables, the Group does not recognise
+further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
+Associates are all entities over which the Group has significant influence but not control or joint control, generally
+but not necessarily accompanying a shareholding of between 20% and 50% of the voting rights. Investments
+in associates are accounted for using the equity method of accounting and are initially recognised at cost. The
+Group's investments in associates include underlying goodwill identified on acquisition, net of any accumulated
+impairment loss.
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+Annual Report 2019 151
+1 January 2019
+RMB'Million
+Acquisition-related costs are expensed as incurred.
+(9,955)
+9,688
+Other payables and accruals
+Prepayments, deposits and other assets
+Lease liabilities
+Right-of-use assets
+All right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any
+prepaid or accrued lease payments relating to the leases recognised in the consolidated statement of financial
+position as at 31 December 2018. The impact on transition is summarised as below:
+9,955
+Lease liabilities recognised as at 1 January 2019
+(23)
+(540)
+10,684
+Discounted using the Group's weighted average incremental borrowing rate of 4.58%
+Less: short-term leases recognised on a straight-line basis as expense
+Less: leases contracted at the end of 2018 with leasing period started from 2019
+12,294
+Operating lease commitments disclosed as at 31 December 2018
+RMB'Million
+2.2 Changes in accounting policies (continued)
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+(189)
+If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+290
+. the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets.
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred also includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement, which is recognised under "other financial assets" or "other financial
+liabilities" in the consolidated financial statements. Identifiable assets acquired and liabilities and
+contingent liabilities assumed in a business combination are measured initially at their fair values at the
+acquisition date.
+Business combinations
+(i)
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
+controls an entity where the Group is exposed to, or has rights to, variable returns from its involvement
+with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
+consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
+date that control ceases.
+(a) Consolidation
+For the year ended 31 December 2019
+2.3 Subsidiaries
+In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the
+standard:
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+150
+Since the first quarter of 2019, the Group has reclassified interest paid in cash flow presentation from operating
+activities to financing activities, which better reflects the nature of business. Comparative figures have been
+reclassified to conform with the current period presentation.
+Upon adoption of IFRS 16, principal elements of lease payments and related interest portion have been classified
+within financing activities.
+the exclusion of initial direct costs for the measurement of the right-of-use assets at the date of initial
+application.
+•
+the accounting for operating leases with a remaining lease term within 12 months as at 1 January 2019 as
+short-term leases; and
+•
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.10 Property, plant and equipment (continued)
+2.7 Disposal of associates
+All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated
+impairment charges. Historical costs include expenditures that are directly attributable to the acquisition of the
+items.
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the item will flow to the Group and the cost
+of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the reporting period in which they are
+incurred.
+156
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+2.10 Property, plant and equipment
+Depreciation is calculated using the straight-line method to allocate their cost net of their residual values over their
+estimated useful lives, as follows:
+Computer equipment
+Furniture and office equipment
+Motor vehicles
+Leasehold improvements
+20-50 years
+2-5 years
+2-5 years
+Shorter of their useful lives and the lease term
+5 years
+Buildings
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
+liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are
+recognised in other comprehensive income.
+(iii) All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+(a) Functional and presentation currency
+For the year ended 31 December 2019
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the "functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the PRC, the Group presents its consolidated financial statements
+in Renminbi ("RMB"), unless otherwise stated.
+(b)
+Transactions and balances
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised in the consolidated income statement.
+Non-monetary items that are measured at fair value in foreign currency are translated using the exchange
+rates at the date when the fair value was determined. Translation differences on assets and liabilities carried
+at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-
+monetary financial assets and liabilities such as equity instruments held at fair value through profit or loss
+are recognised in the consolidated income statement as part of the fair value gain or loss and translation
+differences on non-monetary financial assets, such as equity instruments classified as FVOCI, are included
+in other comprehensive income.
+Annual Report 2019
+155
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other financial instruments designated as hedges of such investments, are
+taken to other comprehensive income.
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.9 Foreign currency translation (continued)
+(c) Group companies
+The results and financial position of all the group entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+(i)
+(ii)
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+For the year ended 31 December 2019
+For the year ended 31 December 2019
+Construction in progress represents buildings under construction, which is stated at actual construction costs less
+any impairment loss. Construction in progress is transferred to property, plant and equipment when completed and
+ready for use.
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+2.14 Shares held for share award schemes
+The consideration paid by the Share Scheme Trust (see Note 47(e)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as “Shares held for share award
+schemes" and the amount is deducted from total equity.
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium”.
+2.15 Impairment of non-financial assets
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might
+be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's
+carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less
+costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for
+which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill
+that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
+158 Tencent Holdings Limited
+2.16 Investments and other financial assets
+The Group classifies its financial assets in the following measurement categories:
+those to be measured subsequently at fair value (either through other comprehensive income, or
+through profit or loss), and
+•
+those to be measured at amortised cost.
+The classification depends on the entity's business model for managing the financial assets and the
+contractual terms of the cash flows.
+At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial
+asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition
+of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are
+expensed in profit or loss.
+Annual Report 2019 159
+2.8 Segment reporting
+When the Group loses significant influence over an associate, it measures any retained investment at fair value. A
+gain or loss is recognised at any difference between the fair value of any retained interest plus any proceeds from
+disposing part of the interests in the associate and the carrying amount of the investment at the date the equity
+method of accounting was discontinued. The amounts previously recognised in other comprehensive income by an
+associate should be reclassified to the consolidated income statement or transferred to another category of equity
+as specified and permitted by applicable IFRSS when the Group loses significant influence over the associate.
+(a) Classification and measurement
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.15).
+Land with indefinite useful life is not subject to amortisation and impairment reviews are undertaken annually
+or more frequently if events or changes in circumstances indicate a potential impact. Other intangible assets
+are amortised over their estimated useful lives (generally one to ten years) using the straight-line method
+which reflects the pattern in which the intangible asset's future economic benefits are expected to be
+consumed.
+(c) Other intangible assets
+2.11 Investment properties
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+Depreciation is calculated on the straight-line method to allocate their costs net of their residual values over their
+estimated useful lives of 20-50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts.
+Annual Report 2019
+157
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+2
+Other intangible assets mainly include trademarks, other copyrights, computer software and technology, non-
+compete agreements and land with indefinite useful life. They are initially recognised and measured at cost
+or estimated fair value of intangible assets acquired through business combinations.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease.
+2.13 Intangible assets
+(a) Goodwill
+Goodwill arising on the acquisition of subsidiaries represents the excess of the consideration transferred
+plus acquisition-date fair value of the equity interests previously held by the Group and the non-controlling
+interests in the acquired entity over the fair value of the net identifiable assets of the acquiree.
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUS"), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within
+the entity at which the goodwill is monitored for internal management purposes.
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable
+amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised
+immediately under "Other gains/(losses), net" and is not subsequently reversed.
+(b)
+Media contents
+Media contents mainly include game licenses, video and music contents, and literature copyrights. They are
+initially recognised and measured at cost or estimated fair value as acquired through business combinations.
+Media contents are amortised using a straight-line method or an accelerated method which reflects the
+estimated consumption patterns.
+2.12 Land use rights
+Notes to the Consolidated Financial Statements
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+decision-makers, who are responsible for allocating resources and assessing performance of the operating
+segments and making strategic decisions. The chief operating decision-makers mainly include the executive
+directors.
+2.9 Foreign currency translation
+For the year ended 31 December 2019
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average
+method and are stated at the lower of cost and net realisable value.
+2.19 Inventories
+Financial assets and liabilities are offset, and the net amount is reported in the consolidated statement of financial
+position when there is a legally enforceable right to offset the recognised amounts and there is an intention to
+settle on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right
+must not be contingent on future events and must be enforceable in the normal course of business and in certain
+circumstances, such as default, insolvency, bankruptcy or the termination of a contract.
+2.18 Offsetting financial instruments
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+2
+162 Tencent Holdings Limited
+When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge
+accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remain in equity
+until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative
+gain or loss and deferred costs of hedging included in equity are immediately reclassified to profit or loss.
+For any other cash flow hedges, the gain or loss relating to the effective portion of the derivatives is
+reclassified to profit or loss at the same time when the hedged cash flows affects profit or loss.
+Where the hedged item subsequently results in the recognition of a non-financial asset, the amounts
+accumulated in equity are removed from other reserves and included within the initial cost of the asset.
+These deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss.
+•
+•
+Amounts accumulated in equity are accounted for, depending on the nature of the underlying hedged transaction,
+as follows:
+2.20 Accounts receivable
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. If collection of accounts receivable is expected in one year or less, they are classified
+as current assets. Otherwise, they are presented as non-current assets.
+Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method, less provision for impairment.
+2.21 Cash and cash equivalents and restricted cash
+2.25 Financial guarantee contracts
+The put option liabilities are current liabilities unless the put option first becomes exercisable 12 months after the
+end of the reporting period.
+Put options are financial instruments granted by the Group which permit the holders to put back to the Group
+their shares in certain subsidiaries for cash or other financial assets ("OFA") when certain conditions are met. If
+the Group does not have the unconditional right to avoid delivering cash or OFA under the put option, a financial
+liability is initially recognised under “other financial liabilities” in the consolidated financial statements at the
+present value of the estimated future cash outflows on exercise under the put option. Subsequently, if the Group
+revises its estimates of payments, the Group will adjust the carrying amount of the financial liability to reflect
+actual and revised estimated cash outflows. The Group will recalculate the carrying amount based on the present
+value of revised estimated future cash outflows at the financial instrument's original effective interest rate and the
+adjustment will be recognised as “Other gains/(losses), net" in the consolidated income statement. In the event
+that the put option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.
+2.24 Put option arrangements
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or
+less. If not, they are presented as non-current liabilities.
+2.23 Accounts payable
+Gains or losses relating to the effective portion of the change in intrinsic value of the options are recognised in the
+cash flow hedge reserve within equity. The changes in the time value of the options that relate to the hedged item
+('aligned time value') are recognised within other comprehensive income in the costs of hedging reserve within equity.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Where any Group company purchases the Company's equity instruments, the consideration paid, including
+any directly attributable incremental costs, is deducted from equity attributable to the Company's equity holders
+as treasury shares until the shares are cancelled or reissued. Where such shares are subsequently reissued,
+any consideration received (net of any directly attributable incremental transaction costs) is included in equity
+attributable to the Company's equity holders.
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
+options are shown in equity as a deduction from the proceeds.
+2.22 Share capital
+The Group does not recognise cash amounts deposited with banks (which are received under its payment
+business) under users' entrustment in the consolidated statement of financial position as the Group holds these
+cash amounts as a custodian according to the relevant users' agreements.
+Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly
+liquid investments with initial maturities of three months or less.
+2
+A hedging relationship qualifies for hedge accounting if it meets all of the hedge effectiveness requirements under
+IFRS 9. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
+flow hedges is recognised through other comprehensive income within equity, while any ineffective portion is
+recognised immediately in profit or loss, within “Other gains/(losses), net”.
+The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of a
+recognised asset or liability or a highly probable forecast transaction (cash flow hedges). The Group documents
+at the inception of the hedging relationship the economic relationship between hedging instruments and hedged
+items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The
+Group documents its risk management objective and strategy for undertaking various hedge transactions at the
+inception of each hedge relationship.
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive
+and as financial liabilities when the fair value is negative, which are recognised under "other financial assets"
+and "other financial liabilities” in the consolidated financial statements, respectively. The method of recognising
+the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the
+nature of the item being hedged.
+2
+Notes to the Consolidated Financial Statements
+160 Tencent Holdings Limited
+The Group reclassifies debt investments when and only when its business model for managing those assets
+changes.
+FVPL: Financial assets that do not meet the criteria for amortised cost or FVOCI are classified as and
+measured at fair value through profit or loss. A gain or loss on a debt investment measured at fair
+value through profit or loss which is not part of a hedging relationship is recognised in profit or loss and
+presented in "Other gains/(losses), net" for the period in which it arises.
+FVOCI: Financial assets that are held for collection of contractual cash flows and for selling the
+financial assets, where the assets' cash flows represent solely payments of principal and interest, are
+classified as and measured at FVOCI. Movements in the carrying amount of these financial assets
+are taken through other comprehensive income, except for the recognition of impairment losses or
+reversals, interest income and foreign exchange gains and losses which are recognised in profit or
+loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in
+other comprehensive income is reclassified from equity to profit or loss and recognised in "Other gains/
+(losses), net" in the consolidated income statement. Interest income from these financial assets is
+recognised using the effective interest rate method. Foreign exchange gains and losses are presented
+in "finance costs, net" and impairment losses or reversals are presented in "Other gains/(losses), net".
+Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash
+flows represent solely payments of principal and interest are classified as and measured at amortised
+cost. A gain or loss on a debt investment measured at amortised cost which is not part of a hedging
+relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income
+from these financial assets is recognised using the effective interest rate method.
+Initial recognition and subsequent measurement of debt instruments depend on the Group's business model
+for managing the asset and the contractual cash flow characteristics of the asset. There are three categories
+into which the Group classifies its debt instruments:
+Debt instruments
+Financial assets with embedded derivatives are considered in their entirety when determining whether their
+cash flows are solely payments of principal and interest.
+(a) Classification and measurement (continued)
+2.16 Investments and other financial assets (continued)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+2.16 Investments and other financial assets (continued)
+(a) Classification and measurement (continued)
+2.17 Derivative and hedging activities
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+161
+Annual Report 2019
+The financial guarantee contracts are initially recognised as a financial liability at fair value on the date the
+guarantee is given. The liability is subsequently measured at the higher of:
+Impairment on deposits and other receivables is measured as either 12-month expected credit losses or
+lifetime expected credit losses, depending on whether there has been a significant increase in credit risk
+since initial recognition. If a significant increase in credit risk of a deposit or receivable has occurred since
+initial recognition, the impairment is measured as lifetime expected credit losses.
+The Group assesses on a forward-looking basis the expected credit losses associated with its debt
+instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether
+there has been a significant increase in credit risk.
+Impairment
+(b)
+FVPL include financial assets designated upon initial recognition at fair value through profit or loss and
+financial assets that do not meet the criteria for amortised cost or FVOCI. Changes in the fair value of FVPL
+are recognised in "Other gains/(losses), net" in the consolidated income statement.
+Where the Group has made an irrevocable election to present fair value gains and losses on equity
+investments in other comprehensive income, there is no subsequent reclassification of fair value gains and
+losses to profit or loss following the derecognition of the investments. Dividends from such investments
+continue to be recognised in profit or loss as “Other gains/(losses), net" when the Group's right to receive
+payments is established. Equity instruments designated as FVOCI are not subject to impairment assessment.
+The Group initially recognises and subsequently measures all equity investments at fair value. Upon initial
+recognition, the Group's management can elect to classify irrevocably its equity investments as financial
+assets at FVOCI when they meet the definition of equity instrument under IAS 32 and are not held for trading.
+The classification is determined on an instrument-by-instrument basis.
+Equity instruments
+For accounts receivable and contract assets, the Group applies the simplified approach permitted by IFRS 9,
+which requires expected lifetime losses to be recognised since initial recognition.
+•
+Annual Report 2019 163
+the amount initially recognised less, where appropriate, the cumulative amount of income recognised in
+accordance with the principles of IFRS 15.
+At each reporting period end, the Group revises the estimates of the number of options and awarded shares
+that are expected to ultimately vest. It recognises the impact of the revision to original estimates, if any, in the
+consolidated income statement of the Group, with a corresponding adjustment to equity.
+(c) Share-based compensation benefits (continued)
+2.28 Employee benefits (continued)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+the amount determined in accordance with the expected credit loss model under IFRS 9; and
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+When the options are exercised, the proceeds received net of any directly attributable transaction costs are
+credited to share capital (nominal value) and share premium.
+167
+From the perspective of the Company, the grants of its equity instruments to employees of its subsidiaries are
+made in exchange for their services related to the subsidiaries. Accordingly, the share-based compensation
+expenses are treated as part of the “Investments in subsidiaries” in the Company's statement of financial
+position.
+Non-market performance and service conditions are included in assumptions about the number of options
+that are expected to become vested.
+For grant of share options, the total amount to be expensed is determined by reference to the fair value of
+the options granted by using option-pricing model, “Enhanced FAS 123" binomial model (the "Binomial
+Model"), which includes the impact of market performance conditions (such as the Company's share price)
+but excludes the impact of service condition and non-market performance conditions. For grant of award
+shares, the total amount to be expensed is determined by reference to the market price of the Company's
+shares at the grant date. The Group also adopts valuation techniques to assess the fair value of other equity
+instruments of the Group granted under the share-based compensation plans as appropriate.
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees and other qualifying
+participants as consideration for equity instruments (including share options and awarded shares) of
+the Group. The fair value of the employee services and other qualifying participants' services received in
+exchange for the grant of equity instruments of the Group is recognised as an expense over the vesting
+period, i.e. the period over which all of the specified vesting conditions are to be satisfied and credited to
+equity.
+Share-based compensation benefits
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund. The Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee services in the current and prior years. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the plans prior to vesting fully in the contributions.
+(c)
+Annual Report 2019
+(b) Pension obligations
+If the Group repurchases vested equity instruments, the payments made to the employees and other
+qualifying participants shall be accounted for as a deduction from equity, except to the extent that the
+payment exceeds the fair value of the equity instruments repurchased, measured at the repurchase date.
+Any such excess shall be recognised as an expense.
+Cash-settled share-based payment transactions are those arrangements which the terms provide the Group
+to settle the transaction in cash. Upon the vesting conditions, if any, are met, the Group shall account for
+that transaction as a cash-settled share-based payment transaction if, and to the extent that, the Group has
+incurred a liability to settle in cash.
+Annual Report 2019 169
+Revenue from VAS is recognised when the Group satisfies its performance obligations by rendering services.
+Giving there is an explicit or implicit obligation of the Group to maintain the virtual products/items operated
+on the Group's platforms and allow users to gain access to them, revenue is recognised over the estimated
+lifespans of the respective virtual products/items. The estimated lifespans of different virtual products/items
+are determined by the management based on either the expected user relationship periods or the stipulated
+period of validity of the relevant virtual products/items depending on the respective term of virtual products/
+items.
+Revenues from VAS primarily include revenues from the provision of online games and social networks
+services. Online games revenues are mainly derived from sales of in-game virtual items, and social networks
+revenues are mainly derived from sales of virtual products such as VAS subscriptions across various online
+platforms, and games revenues attributable to social networks business. The Group offers virtual products/
+items to users on the Group's online platforms. The VAS fees are paid directly by end users mainly via online
+payment channels.
+(a) VAS
+The Group generates revenues primarily from provision of VAS, FinTech and Business Services, online advertising
+services and other online related services in the PRC. Revenue is recognised when the control of the goods or
+services is transferred to a customer. Depending on the terms of the contract and the laws that apply to the
+contract, control of the goods and services may be transferred over time or at a point in time.
+2.30 Revenue recognition
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
+specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the terms
+had not been modified. An additional expense is recognised for any modification that increases the total
+fair value of the share-based payment arrangement, or is otherwise beneficial to the employees and other
+qualifying participants, as measured at the date of modification.
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+2.29 Provisions
+For the year ended 31 December 2019
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+168 Tencent Holdings Limited
+For cash-settled share-based payments, a liability equal to the portion of the services received is recognised
+at the current fair value determined at the end of the reporting period. The Group adopts valuation technique
+to assess the fair value of such equity instruments granted under the share-based compensation plans as
+appropriate.
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably
+estimated. Provisions are not recognised for future operating losses.
+2.28 Employee benefits (continued)
+2
+2
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
+amounts expected to be paid to the tax authorities.
+The income tax expense for the year comprises current and deferred tax, which is recognised in the consolidated
+income statement, except to the extent that it relates to items recognised in other comprehensive income or directly
+in equity. In this case, the income tax is also recognised in other comprehensive income or in equity, respectively.
+2.27 Current and deferred income tax
+General and specific finance costs directly attributable to the acquisition and construction of qualifying assets,
+which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
+added to the cost of those assets, until such time as the assets are substantially ready for their intended use or
+sale. During the year ended 31 December 2019, finance cost capitalised was insignificant to the Group.
+Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
+liability for at least 12 months after the end of the reporting period.
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan facilities to the
+extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the
+draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn
+down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility to
+which it relates.
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their terms using the
+effective interest method.
+2.26 Borrowings, notes payable and borrowing costs
+For the year ended 31 December 2019
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+164 Tencent Holdings Limited
+Where guarantees in relation to loans or other payables of the investees are provided for no compensation, the fair
+value is accounted for as contributions and recognised as part of the cost of the investment.
+The fair value of financial guarantees is determined based on the present value of the difference in cash flows
+between the contractual payments required under the debt instrument and the payments that would be required
+without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.
+Annual Report 2019
+165
+Notes payable are classified as non-current liabilities unless the Group has an unconditional obligation to settle the
+liability within 12 months after the end of the reporting period.
+For the year ended 31 December 2019
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+166
+Employee entitlements to annual leave are recognised when they are accrued to employees. A provision is
+made for the estimated liability for annual leave as a result of services rendered by employees up to the end
+of the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time
+of leave.
+(a) Employee leave entitlements
+2.28 Employee benefits
+Tencent Holdings Limited
+Deferred income tax assets are recognised on deductible temporary differences arising from investments in
+subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will
+reverse in the future and there is sufficient taxable profit available against which the temporary difference can be
+utilised.
+Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates,
+except for deferred tax liability where the timing of the reversal of the temporary differences is controlled by the
+Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the
+Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement
+in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future,
+deferred tax liability in relation to taxable temporary differences arising from the associate's undistributed profit is
+not recognised.
+Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available to
+utilise those temporary differences and tax losses.
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
+deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in
+a transaction other than a business combination that at the time of the transaction neither accounting nor taxable
+profit or loss is affected. Deferred income tax is determined using tax rates (and laws) that have been enacted or
+substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax
+asset is realised or the deferred tax liability is settled.
+2.27 Current and deferred income tax (continued)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Deferred income tax assets and liabilities are offset where there is a legally enforceable right to offset current tax
+assets against current tax liabilities and where the deferred tax assets and liabilities relate to income taxes levied
+by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to
+settle the balances on a net basis.
+As at 31 December 2019, management considers that any reasonable changes in foreign exchange
+rates of the above currencies against the two major functional currencies would not result in a
+significant change in the Group's results, as the net carrying amounts of financial assets and liabilities
+denominated in a currency other than the respective subsidiaries' functional currency are considered
+to be not significant, given the exchange rate peg between HKD and USD. Accordingly, no sensitivity
+analysis is presented for foreign exchange risk.
+Annual Report 2019 177
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+(ii)
+3.1 Financial risk factors (continued)
+(a) Market risk (continued)
+Price risk
+During the year ended 31 December 2019, the Group reported exchange gains of approximately
+RMB77 million (2018: RMB229 million) within "Finance costs, net" in the consolidated income
+statement.
+The Group is exposed to equity price risk mainly arising from investments held by the Group that
+are classified either as FVPL (Note 24) or FVOCI (Note 25). To manage its price risk arising from
+the investments, the Group diversifies its investment portfolio. The investments are made either for
+strategic purposes, or for the purpose of achieving investment yield and balancing the Group's liquidity
+level simultaneously. Each investment is managed by senior management on a case by case basis.
+FINANCIAL RISK MANAGEMENT (continued)
+(12,023)
+(17,572)
+(9,430)
+(3,733)
+(4,587)
+(3,434)
+2,642
+1,994
+18,041
+Monetary liabilities, non-current
+Monetary liabilities, current
+Monetary assets, non-current
+Monetary assets, current
+As at 31 December 2018
+Sensitivity analysis is performed by management to assess the exposure of the Group's financial results
+to equity price risk of FVPL and FVOCI at the end of each reporting period. If prices of the respective
+instruments held by the Group had been 5% (31 December 2018: 5%) higher/lower as at 31
+December 2019, profit for the year would have been approximately RMB6,611 million higher/lower as
+a result of gains/losses on financial instruments classified as at FVPL (2018: RMB4,794 million), other
+comprehensive income would have been approximately RMB4,018 million higher/lower as a result of
+gains/losses on financial instruments classified as at FVOCI (2018: RMB2,147 million).
+13,516
+3
+FINANCIAL RISK MANAGEMENT (continued)
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 35 and 36, representing a substantial portion
+of the Group's debts. Borrowings and notes payable carried at floating rates expose the Group to cash
+flow interest-rate risk whereas those carried at fixed rates expose the Group to fair value interest-rate
+risk.
+(i)
+Foreign exchange risk
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to Hong Kong Dollars ("HKD"), USD and Euro ("EUR").
+Foreign exchange risk arises when future commercial transactions or recognised assets and
+liabilities are denominated in a currency that is not the respective functional currency of the Group's
+subsidiaries. The functional currency of the Company and majority of its overseas subsidiaries is USD
+whereas the functional currency of the subsidiaries which operate in the PRC is RMB.
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures and tries to minimise these exposures by using foreign currency forwards.
+During the year ended 31 December 2019, the Group entered into foreign currency forward contracts
+in relation to projected purchases that qualify as "high probable" forecast transactions and hence
+satisfy the requirements for hedge accounting. Under the Group's policy the critical terms of the
+forwards must align with the hedged items.
+The Group only designates the spot component of foreign currency forwards in hedge relationships.
+The spot component is determined with reference to relevant spot market exchange rates. The
+differential between the contracted forward rate and the spot market exchange rate is defined as the
+forward points. It is discounted, where material.
+The changes in the forward element of the foreign currency forwards that relate to hedged items
+are deferred in the costs of hedging reserve. The effects of the foreign currency related hedging
+instruments are not material to the Group's consolidated financial statements.
+176 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.1 Financial risk factors (continued)
+(a) Market risk (continued)
+(i)
+Foreign exchange risk (continued)
+For the year ended 31 December 2019
+As at 31 December 2019, the Group's major monetary assets and liabilities exposed to foreign
+exchange risk are listed below:
+USD
+denominated
+(a) Market risk
+Non-USD
+denominated
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk
+and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to minimise
+the potential adverse effects on the financial performance of the Group. Risk management is carried out by the
+senior management of the Group.
+FINANCIAL RISK MANAGEMENT
+Right-of-use assets are measured at cost comprising the following:
+•
+the amount of the initial measurement of lease liability;
+For the year ended 31 December 2019
+any lease payments made at or before the commencement date less any lease incentives received;
+any initial direct costs; and
+restoration costs.
+A right-of-use asset is generally depreciated over the shorter of the asset's useful life and the lease term on a
+straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is
+depreciated over the underlying asset's useful life.
+Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss.
+Short-term leases are leases with a lease term of 12 months or less.
+The Group considers the lease as a single transaction in which the assets and liabilities are integrally linked. There
+is no net temporary difference at inception. Subsequently, the differences arisen on settlement of the liabilities
+and the amortisation of the right-of-use assets, there will be a net temporary difference on which deferred tax is
+recognised.
+2.35 Dividends distribution
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or board of
+directors where appropriate.
+2.36 Research and development expenses
+Research expenditure is recognised as an expense as incurred.
+Costs incurred on development projects (relating to the design and testing of new or improved products) are
+capitalised as intangible assets when recognition criteria are fulfilled and tests for impairment are performed
+annually. Other development expenditures that do not meet those criteria are recognised as expenses as incurred.
+Development costs previously recognised as expenses are not recognised as assets in subsequent periods.
+Annual Report 2019 175
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+3.1 Financial risk factors
+2.34 Leases (continued)
+RMB'Million
+As at 31 December 2019
+1:1
+Hedge ratio
+8/12/2023
+11/4/2024
+1,663
+77,630
+28/6/2019~
+(494)
+29,423
+30/7/2021~
+Maturity date
+Notional amount
+Carrying amount (non-current (liabilities)/assets)
+RMB'Million
+RMB'Million
+2018
+2019
+Interest rate swaps
+The effects of the interest rate swaps on the Group's financial position and performance are as follows:
+During the year ended 31 December 2019, the Group entered into certain interest rate swap contracts
+to hedge its exposure arising from borrowings carried at floating rates. Under these interest rate swap
+contracts, the Group agreed with the counterparties to exchange, at specified interval, the difference
+between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed
+notional amounts. These interest rate swap contracts had the economic effect of converting borrowings
+from floating rates to fixed rates and were qualified for hedge accounting. Details of the Group's
+outstanding interest rate swap contracts as at 31 December 2019 have been disclosed in Note 38.
+(iii) Interest rate risk (continued)
+(a) Market risk (continued)
+3.1 Financial risk factors (continued)
+1:1
+RMB'Million
+Change in fair value of outstanding hedging instruments
+since 1 January
+181
+Monetary assets, current
+27,728
+2,899
+Monetary assets, non-current
+373
+Monetary liabilities, current
+(4,273)
+(14,732)
+Monetary liabilities, non-current
+(91)
+(5,739)
+23,737
+1.60%
+2.10%
+Weighted average hedged rate for the year
+effectiveness
+181
+(2,139)
+Change in value of hedged item used to determine hedge
+(2,139)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+2.30 Revenue recognition (continued)
+(c)
+Online Advertising
+Online Advertising revenues mainly comprise revenues derived from media advertisements and from social
+and others advertisements, depending on the placement of advertising properties and inventories.
+Advertising contracts are signed to establish the prices and advertising services to be provided based on
+different arrangements, including display-based advertising that are display of ads for an agreed period of
+time, and performance-based advertising.
+Revenue from display-based advertising are recognised on number of display/impression basis or ratably
+over the respective contractual term with the advertisers or their advertising agencies depending on the
+contractual measures. Revenue from performance-based advertising are recognised when relevant specific
+performance measures are fulfilled. Where the contracts include multiple performance obligations, the Group
+allocates the transaction price to each performance obligation on a relative stand-alone selling price basis,
+which is determined based on the prices charged to or expected to recover from customers.
+(d)
+Other revenues
+The Group's other revenues are primarily derived from production of and distribution of, films and television
+programmes for third parties, copyrights licensing, merchandise sales and various other activities. The Group
+recognises other revenues when the respective services are rendered, or when the control of the products
+are transferred to customers.
+(e)
+Principal agent consideration
+The Group reports the revenue on a gross or net basis depending on whether the Group is acting as a
+principal or an agent in a transaction. The Group is a principal if it controls the specified product or service
+before that product or service is transferred to a customer or it has a right to direct others to provide the
+product or service to the customer on the Group's behalf. Indicators that the Group is a principal include but
+not limited to whether the Group (i) is the primary obligor in the arrangement; (ii) has latitude in establishing
+the selling price; (iii) has discretion in supplier selection; (iv) changes the product or performs part of the
+service, and (v) has involvement in the determination of product or service specifications.
+Annual Report 2019
+171
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.30 Revenue recognition (continued)
+(f)
+For the year ended 31 December 2019
+Contract liabilities and contract costs
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Notes to the Consolidated Financial Statements
+The Group regularly monitors its interest rate risk to identify if there are any undue exposures to
+significant interest rate movements and manages its cash flow interest rate risk by using interest rate
+swaps, whenever considered necessary.
+178 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.30 Revenue recognition (continued)
+(a) VAS (continued)
+Where the contracts include multiple performance obligations, the Group allocates the transaction price to
+each performance obligation on a relative stand-alone selling price basis, which is determined based on the
+prices charged to or expected to recover from customers.
+In respect of the Group's VAS services directly delivered to the Group's customers and paid through various
+third-party platforms, these third-party platforms collect the relevant service fees (the “Online Service Fees")
+on behalf of the Group and they are entitled to a pre-determined percentage of platform provider fees (as
+part of "Channel and distribution costs"). Such Channel and distribution costs are withheld and deducted
+from the gross Online Service Fees collected by these platforms from the users, with the net amounts
+remitted to the Group. The Group recognises the Online Service Fees as revenue on a gross basis, given it
+acts as the principal in these transactions based on the assessment according to the criteria stated in (e)
+below, and recognises such Channel and distribution costs as cost of revenues.
+The Group also opens its online platforms to third-party game/application developers under certain co-
+operation agreements, of which the Group pays to the third-party game/application developers a pre-
+determined percentage of the fees paid by and collected from the users of the Group's online platforms for
+the virtual products/items purchased. The Group recognises the related revenue on a gross or net basis
+depending on whether the Group is acting as a principal or an agent in the transaction. The Group adopts
+different revenue recognition methods based on its specific responsibilities/obligations in different VAS
+offerings.
+(b) FinTech and Business Services
+FinTech and Business Services revenues mainly comprise revenues derived from provision of FinTech and
+cloud services.
+FinTech service revenues mainly include commissions from payment, wealth management and other
+FinTech services, which is generally determined as a percentage based on the value of transaction amount
+or retention amount. Revenue related to such commissions is recognised upon a time when the Group
+satisfies its performance obligations by rendering services.
+Cloud services are mainly charged on either a subscription or consumption basis. For cloud service contracts
+billed based on a fixed amount for a specified service period, revenue is recognised over the subscribed
+period when the services are delivered to customers. For cloud service provided on a consumption basis,
+revenue is recognised based on the customer utilisation of the resources. When a cloud-based service
+includes multiple performance obligations, the Group allocates the transaction price to each performance
+obligation on a relative stand-alone selling price basis, which is determined based on the prices charged to
+or expected to recover from customers.
+170
+Tencent Holdings Limited
+2
+A contract liability is the Group's obligation to transfer goods or services to a customer for which the Group
+has received consideration (or an amount of consideration is due) from the customer. The Group's contract
+liabilities mainly comprise of unamortised pre-paid tokens or cards, virtual items, Internet traffic and other
+support to be offered to certain investee companies in the future periods measured at their fair value on the
+inception dates, and customer loyalty incentives offered to the customers (Note 5(c)).
+Contract costs include incremental costs of obtaining a contract and costs to fulfil a contract with the
+customers. The contract costs are amortised using a method which is consistent with the pattern of
+recognition of the respective revenues.
+(g)
+2.34 Leases (continued)
+Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include
+the net present value of the following lease payments:
+•
+.
+•
+•
+fixed payments (including in-substance fixed payments), less any lease incentives receivable;
+variable lease payments that are based on an index or a rate;
+amounts expected to be payable by the lessee under residual value guarantees;
+the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
+payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
+The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
+determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used,
+being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of
+similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
+To determine the incremental borrowing rate, the Group:
+•
+where possible, uses recent third-party financing received by the individual lessee as a starting point,
+adjusted to reflect changes in financing conditions since third-party financing was received;
+uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by
+the Group, which does not have recent third-party financing; and
+makes adjustments specific to the lease, e.g. term, country, currency and security.
+Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over
+the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for
+each period.
+174 Tencent Holdings Limited
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+173
+Practical expedients and exemptions
+The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied,
+has not been disclosed, as substantially all of the Group's contracts have a duration of one year or less.
+The unsatisfied performance obligation related to cooperation agreements with certain investees have been
+included in deferred revenue.
+2.31 Interest income
+Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial
+asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets
+the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss
+allowance). Interest income is presented as “Interest income" where it is mainly earned from financial assets that
+are held for cash management purposes.
+2.32 Dividend income
+Dividends are received from FVPL and FVOCI. Dividends are recognised in "Other gains/(losses), net" in the
+consolidated income statement when the right to receive payment is established. This applies even if they are paid
+out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of an investment.
+In this case, the dividend is recognised in other comprehensive income if it relates to an investment measured at
+FVOCI. However, the investment may need to be tested for impairment as a consequence.
+172 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+The Group's income and operating cash flows are substantially independent from changes in market
+interest rates and the Group has no significant interest-bearing assets except for loans to investees and
+investees' shareholders, term deposits with initial terms of over three months, restricted cash and cash
+and cash equivalents, details of which have been disclosed in Notes 26, 29 and 31.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.33 Government grants/subsidies
+Grants/Subsidies from government are recognised at their fair value where there is a reasonable assurance that the
+grants/subsidies will be received and the Group will comply with all attached conditions.
+Under these circumstances, the grants/subsidies are recognised as income or matched with the associated costs
+and expenses which the grants/subsidies are intended to compensate.
+2.34 Leases
+As explained in Note 2.2 above, the Group has changed its accounting policy for leases where the Group is the
+lessee. The new policy is described below and the impact of the change in Note 2.2.
+The Group leases land use rights (Note 2.12), various buildings, computer equipment and others. Rental contracts
+are typically made for fixed periods of no longer than 10 years. Lease terms are negotiated on an individual basis
+and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants,
+but leased assets may not be used as security for borrowing purposes.
+Prior to 1 January 2019, leases in which a significant portion of the risks and rewards of ownership are retained by
+lessors are classified as operating leases. Payments made under operating leases (net of any incentives received
+from the lessors) are charged to the consolidated income statement on a straight-line basis over the period of the
+lease.
+Upon initial adoption of IFRS 16 from 1 January 2019, a lease is recognised as a right-of-use asset and a
+corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment
+is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period
+so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The
+right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line
+basis. A right-of-use asset arising from land lease is presented as “land use rights".
+Annual Report 2019
+For the year ended 31 December 2019
+(iii) Interest rate risk
+179
+Annual Report 2019
+Annual Report 2019 185
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.1 Financial risk factors (continued)
+(c) Liquidity risk (continued)
+At 31 December 2019
+Less than
+Between 1
+1 year
+For the year ended 31 December 2019
+and 2 years
+Over 5 years
+Total
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Non-derivatives:
+Notes payable
+Between 2
+and 5 years
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+182
+Credit risk of accounts receivable
+The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS
+9, which permits the use of the lifetime expected loss provision for all accounts receivable. In view of
+the sound financial position and collection history of receivables due from these counterparties and
+insignificant risk of default, to measure the expected credit losses, accounts receivable have been
+grouped based on shared credit risk characteristics and the days past due.
+Annual Report 2019
+181
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.1 Financial risk factors (continued)
+(b) Credit risk (continued)
+(c)
+(ii)
+Credit risk of accounts receivable (continued)
+The expected loss rates are based on the payment profiles of revenue over 12 months before 31
+December 2019 and the corresponding historical credit losses experienced within this period. The
+historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic
+factors (such as the GDP of the countries in which it sells its goods and services) affecting the ability of
+the customers to settle the receivables.
+A default on accounts receivable is when the counterparty fails to make contractual payments within
+90 days of when they fall due. Accounts receivable are written off, in whole or in part, when it has
+exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of
+recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the
+failure of a debtor to engage in a repayment plan within the Group, and a failure to make contractual
+payments for a period of greater than 3 years past due.
+Impairment losses on accounts receivables are presented as net impairment losses within operating
+profit. Subsequent recoveries of amounts previously written off are credited against the same item.
+(iii) Credit risk of other receivables
+Management considers the credit risk of other receivables is insignificant when they have a low risk of
+default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near
+term, and the loss allowance recognised is therefore limited to 12 months expected losses. In view
+of insignificant risk of default and credit risk since initial recognition, management believes that the
+expected credit loss under the 12 months expected losses method is immaterial.
+Liquidity risk
+The Group aims to maintain sufficient cash and cash equivalents and readily marketable securities, which
+are classified as FVPL. Due to the dynamic nature of the underlying businesses, the Group maintains
+flexibility in funding by maintaining adequate balances of such.
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date (or the earliest date a
+financial liability may become payable in the absence of a fixed maturity date). The amounts disclosed in the
+table are the contractual undiscounted cash flows.
+13,727
+3,047
+32,866
+73,466
+prepayments received from
+customers and others, staff
+costs and welfare accruals)
+104,218
+-- - 104,218
+Derivatives:
+Other financial liabilities
+29
+494
+523
+153,409
+31,232
+133,115
+75,432
+393,188
+At 31 December 2018
+Non-derivatives:
+Notes payable
+15,780
+12,010
+14,629
+and accruals (excluding
+(ii)
+Accounts payable, other payables
+2,363
+123,106
+Long-term payables
+2,322
+1,079
+227
+3,628
+Borrowings
+26,164
+21,343
+91,447
+-
+138,954
+Lease liabilities
+3,526
+2,840
+4,866
+1,739
+12,971
+Other financial liabilities
+5,745
+1,680
+9,788
+To manage this risk, the Group only makes transactions with state-owned banks and financial
+institutions in the PRC and reputable international banks and financial institutions outside of the PRC.
+There has been no recent history of default in relation to these banks and financial institutions. The
+expected credit loss is close to zero.
+Credit risk of cash and deposits and short-term investments
+(i)
+3
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+187
+the lower the fair value
+The higher the expected volatility,
+Annual Report 2019
+15%
+25%
+FINANCIAL RISK MANAGEMENT (continued)
+Expected volatility
+business combination
+The higher the growth rate,
+50%
+35%
+Growth rate of net profit
+3,145
+1,873
+Contingent consideration related to
+the lower the fair value
+the higher the fair value
+4
+3.3 Fair value estimation (continued)
+Note: (continued)
+The fair value of share options granted to employees and other qualifying participants determined using the
+Binomial Model was approximately HKD3,250 million (equivalent to approximately RMB2,785 million) in 2019
+(2018: HKD3,533 million (equivalent to approximately RMB2,868 million)).
+As mentioned in Note 2.28(c), the Group has granted share options to its employees and other qualifying
+participants. The directors have adopted the Binomial Model to determine the total fair value of the options
+granted, which is to be expensed over the respective vesting periods. Significant judgment on parameters, such
+as risk free rate, dividend yield and expected volatility, is required to be made by the directors in applying the
+Binomial Model (Note 34).
+(d) Share-based compensation arrangements
+The fair value assessment of FVPL, FVOCI and other financial liabilities that are measured at level 3 fair value
+hierarchy requires significant estimates, which include risk-free rates, expected volatility, relevant underlying
+financial projections, market information of recent transactions (such as recent fund raising transactions
+undertaken by the investees) and other assumptions. Changes in these assumptions and estimates could
+materially affect the respective fair value of these investments.
+(c) Fair value measurement of FVPL, FVOCI and other financial liabilities
+Judgment is required to identify any impairment indicators existing for any of the Group's goodwill, other non-
+financial assets to determine appropriate impairment approaches, i.e., fair value less costs of disposal or value
+in use, for impairment review purposes, and to select key assumptions applied in the adopted valuation models,
+including discounted cash flows and market approach. Changing the assumptions selected by management
+in assessing impairment could materially affect the result of the impairment test and in turn affect the Group's
+financial condition and results of operations. If there is a significant adverse change in the key assumptions
+applied, it may be necessary to take additional impairment charge to the consolidated income statement.
+The Group tests annually whether goodwill has suffered any impairment. Goodwill and other non-financial assets,
+mainly including property, plant and equipment, construction in progress, other intangible assets, investment
+properties, land use rights, right-of-use assets, as well as investments in associates and joint ventures are reviewed
+for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
+recoverable. The recoverable amounts have been determined based on value-in-use calculations or fair value less
+costs to sell. These calculations require the use of judgments and estimates.
+(b) Recoverability of non-financial assets
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+188 Tencent Holdings Limited
+The Group will continue to monitor the average lifespans of the virtual products/items. The results may differ from
+the historical period, and any change in the estimates may result in the revenue being recognised on a different
+basis from that in prior periods.
+Significant judgments are required in determining the expected users' relationship periods, including but not
+limited to historical users' consumption patterns, churn out rate and reactivity on marketing activities, games life-
+cycle, and the Group's marketing strategy. The Group has adopted a policy of assessing the estimated lifespans
+of virtual products/items on a regular basis whenever there is any indication of change in the expected users'
+relationship periods.
+As mentioned in Note 2.30(a), the end users purchase certain virtual products/items provided on the Group's
+online platforms and the relevant revenue is recognised based on the estimated lifespans of the virtual products/
+items. The estimated lifespans of different virtual products/items are determined by the management based on
+either the expected users' relationship periods or the stipulated period of validity of the relevant virtual products/
+items depending on the respective terms of virtual products/items.
+(a) The estimates of the lifespans of virtual products/items provided on the Group's online platforms
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk
+of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
+addressed below:
+Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
+expectations of future events that are believed to be reasonable under the circumstances.
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
+For the fair value of contingent consideration related to business combination, if growth rate of net profit had been 5% higher
+or lower as at 31 December 2019, the fair value would have increased approximately RMB65 million (2018: RMB150 million)
+or decreased approximately RMB66 million (2018: RMB171 million). If the expected volatility had been 5% higher or lower as
+at 31 December 2019, the fair value would have decreased approximately RMB34 million (2018: RMB90 million) or increased
+approximately RMB25 million (2018: RMB92 million).
+For the fair value of the Group's investments in unlisted companies, the sensitivity analysis is performed by management, see
+Note 3.1(a)(ii) for details.
+in FVPL and FVOCI
+38,305
+The higher the expected volatility,
+36% 83%
+Swaps currently in place cover majority of the floating-rate borrowing and notes payable principal
+outstanding.
+As at 31 December 2019 and 2018, management considered that any reasonable changes in the
+interest rates would not result in a significant change in the Group's results as the Group's exposure to
+cash flow interest-rate risk arising from its borrowings and notes payable carried at floating rates after
+considering the effect of hedging is considered to be insignificant. Accordingly, no sensitivity analysis is
+presented for interest rate risk.
+(b)
+Credit risk
+The Group is exposed to credit risk in relation to its cash and deposits placed with banks and financial
+institutions, accounts receivable, other receivables, as well as short-term investments measured at amortised
+cost, at FVOCI and at FVPL. The carrying amount of each class of these financial assets represents the
+Group's maximum exposure to credit risk in relation to the corresponding class of financial assets.
+The majority of the balances of accounts receivable are due from advertising customers and agencies,
+content production related customers, FinTech and cloud customers and third party platform providers. To
+manage the risk arising from accounts receivable, the Group has policies in place to ensure that revenues
+of credit terms are made to counterparties with an appropriate credit history and the management performs
+ongoing credit evaluations of its counterparties. The credit periods granted to these customers are disclosed
+in Note 30 and the credit quality of these customers are assessed, which takes into account their financial
+position, past experience and other factors. The Group has a large number of customers and there is no
+concentration of credit risk.
+Other receivables are mainly comprised of loans to investees and investees' shareholders, rental deposits
+and other receivables. Management makes periodic collective assessments as well as individual assessment
+on the recoverability of other receivables based on historical settlement records and past experience.
+180 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+Interest rate risk (continued)
+3
+For the year ended 31 December 2019
+3.1 Financial risk factors (continued)
+(b) Credit risk (continued)
+The Group considers the probability of default upon initial recognition of asset and whether there has been
+a significant increase in credit risk on an ongoing basis throughout each of the years. To assess whether
+there is a significant increase in credit risk, the Group compares risk of a default occurring on the assets as
+at year end with the risk of default as at the date of initial recognition. Especially the following indicators are
+incorporated:
+• internal credit rating;
+external credit rating (as far as available);
+actual or expected significant adverse changes in business, financial economic conditions that are
+expected to cause a significant change to the counterparty's ability to meet its obligations;
+actual or expected significant changes in the operating results of the counterparty; and
+significant changes in the expected performance and behavior of the counterparty, including changes
+in the payment status of the counterparty.
+FINANCIAL RISK MANAGEMENT (continued)
+(iii)
+(a) Market risk (continued)
+3.1 Financial risk factors (continued)
+Expected volatility
+80,175
+118,775
+Investments in unlisted companies
+2018
+2019
+RMB'Million
+RMB'Million
+2018
+2019
+Relationship of unobservable
+inputs to fair value
+at 31 December
+Range of inputs
+Significant
+unobservable inputs
+Fair value as
+at 31 December
+Description
+The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
+measurements of investments in unlisted companies.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+FINANCIAL RISK MANAGEMENT (continued)
+28% 76%
+80,724
+Long-term payables
+3,113
+Note:
+As at 31 December
+2019
+RMB'Million
+RMB'Million
+126,952
+114,271
+93,861
+65,018
+Total debts/Adjusted EBITDA ratio
+220,813
+147,395
+118,273
+1.50
+1.52
+Adjusted EBITDA represents operating profit less interest income and other gains/(losses), net, and adding back depreciation of
+property, plant and equipment, investment properties as well as right-of-use assets, amortisation of intangible assets and equity-
+settled share-based compensation expenses.
+184
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+3
+179,289
+Adjusted EBITDA (Note)
+Total debts
+Notes payable (Note 36)
+Derivatives:
+Other financial liabilities
+9
+31
+40
+137,692
+37,374
+89,919
+38,648
+303,633
+Annual Report 2019
+183
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.2 Capital risk management
+The Group's objectives on managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+Capital refers to equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+The Group monitors capital by regularly reviewing debts to adjusted earnings before interest, tax, depreciation
+and amortisation ("EBITDA") (Note) ratio, being the measure of the Group's ability to pay off all debts that reflects
+financial health and liquidity position. The total debts/adjusted EBITDA ratio calculated by dividing the total debts
+by adjusted EBITDA is as follows:
+Borrowings (Note 35)
+FINANCIAL RISK MANAGEMENT (continued)
+For the year ended 31 December 2019
+3.3 Fair value estimation
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2019 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+375
+2,396
+As at 31 December 2018
+FVPL
+10,875
+5,009
+81,993
+97,877
+FVOCI
+41,578
+1,941
+43,519
+OFA
+2,032
+2,032
+Other financial liabilities
+40
+4,466
+4,506
+The fair value of financial instruments traded in active markets is determined with reference to quoted market
+prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly
+available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
+represent actual and regularly occurring market transactions on an arm's length basis. These instruments are
+included in level 1.
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in level 2.
+81,721
+90,310
+1,873
+-
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
+Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
+•
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
+As at 31 December 2019
+Level 1
+RMB'Million
+Level 2
+RMB'Million
+Level 3
+RMB'Million
+Total
+RMB'Million
+FVPL
+FVOCI
+OFA
+Other financial liabilities
+14,766
+5,091
+116,079
+135,936
+74,707
+7,014
+375
+523
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate") in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2019, the Expected Retention Rate of the Group and its wholly-owned subsidiaries was assessed to be
+95%-97% (31 December 2018: 88%-97%).
+90,310
+The Group has a team of personnel who performs valuation on these level 3 instruments for financial reporting purposes. The
+team performs valuation, or necessary updates, at least once every quarter, which coincides with the Group's quarterly reporting
+dates. On an annual basis, the team adopts various valuation techniques to determine the fair value of the Group's level 3
+instruments. External valuation experts may also be involved and consulted when it is necessary.
+Dealer quotes for similar instruments;
+.
+•
+The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows
+based on observable yield curves; and
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+instruments.
+During the year ended 31 December 2019, there was 1 transfer between level 1 and 2 for recurring fair value
+measurements. For transfers in and out of level 3 measurements see the following table, which presents the
+changes of financial instruments in level 3 for the years ended 31 December 2019 and 2018:
+Financial assets
+2019
+2018
+•
+Financial liabilities
+2019
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Opening balance - IAS 39
+77,131
+2,154
+Adjustment on adoption of IFRS 9
+22,976
+2018
+Specific valuation techniques used to value financial instruments mainly include:
+If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
+3.3 Fair value estimation (continued)
+1,018
+343
+Borrowings
+30,402
+21,309
+72,626
+4,474
+124,337
+Other financial liabilities
+1,191
+942
+1,615
+3,748
+Accounts payable, other payables
+and accruals (excluding
+prepayments received from
+customers and others, staff
+costs and welfare accruals)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+FINANCIAL RISK MANAGEMENT (continued)
+Opening balance - IFRS 9
+83,934
+100,107
+4,466
+4,946
+(35)
+74
+Closing balance
+123,093
+83,934
+1,873
+4,466
+* Includes unrealised gains or (losses)
+recognised in profit or loss attributable
+to balances held at the end of the
+reporting period
+186 Tencent Holdings Limited
+3,265
+6,861
+(463)
+(1,063)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.3 Fair value estimation (continued)
+Note:
+Valuation processes inputs and relationships to fair value (Level 3)
+1,740
+The components of the level 3 instruments mainly include investments in unlisted companies classified as FVPL or FVOCI,
+and other financial liabilities. Other financial liabilities mainly include contingent consideration payable related to business
+combination of the Group. As these investments and instruments are not traded in an active market, majority of their fair values
+have been determined using applicable valuation techniques including comparable transactions approach and other option
+pricing approach. These valuation approaches require significant judgment, assumptions and inputs, including risk-free rates,
+expected volatility, relevant underlying financial projections, and market information of recent transactions (such as recent fund
+raising transactions undertaken by the investees) and other exposure, etc.
+(1,063)
+30,485
+2,154
+Additions
+39,116
+51,185
+75
+3,301
+Business combination
+(977)
+Disposals/Settlements
+(6,714)
+(9,899)
+(1,193)
+Transfers
+(4,552)
+(93,151)
+Changes in fair value recognised in other
+comprehensive income
+328
+261
+Changes in fair value recognised in profit or loss*
+Currency translation differences
+9,241
+(463)
+2018
+Annual Report 2019 189
+31 December 2019
+Our signature charity event, the annual "99 Giving Day", engaged 48 million netizens and over 2,500 enterprises, and raised
+approximately RMB2.5 billion in 2019. Tencent Group donated RMB850 million to the Tencent Foundation in 2019, bringing
+our cumulative donations to RMB4.3 billion.
+Chairman's Statement
+% of
+segment
+Amount
+(Restated)
+revenues
+(Restated)
+Amount
+(RMB in millions, unless specified)
+VAS
+94,086
+47%
+73,961
+42%
+FinTech and Business Services
+73,831
+73%
+54,598
+75%
+Online Advertising
+Others
+We diversified our board with the inclusion of Professor Ke Yang, who broadens our board's perspectives and brings expertise
+in healthcare. She is the Director of Laboratory of Genetics of Peking University Cancer Hospital and an international member
+of the United States National Academy of Medicine.
+As we entered 2020, we faced the challenges of the coronavirus pandemic, which has profoundly impacted the global
+economy. We responded by establishing a RMB1.5 billion emergency fund to offer relief support and by leveraging our cloud
+resources and technology to support pandemic-related program development and medical research. Our teams have worked
+relentlessly to upgrade our capabilities and products to update the public with authoritative news and information related to the
+pandemic, and to provide access to healthcare services, businesses and educational establishments with remote workplace
+and collaborative tools. We also cooperated with Dr. Zhong Nanshan to fund his coronavirus research and provided our
+medical Al imaging capabilities to assist developing a quick test for COVID-19. We believe these efforts embody our mission,
+"Value for Users, Tech for Good".
+DIVIDEND
+The Board has recommended the payment of a final dividend of HKD1.20 per share (2018: HKD1.00 per share) for the year
+ended 31 December 2019, subject to the approval of the shareholders at the 2020 AGM. Such proposed dividend will be
+payable on 29 May 2020 to the shareholders whose names appear on the register of members of the Company on 20 May
+2020.
+(RMB in millions)
+2018
+Year ended 31 December
+2019
+Operating profit
+General and administrative expenses
+Selling and marketing expenses
+Other gains, net
+Interest income
+Gross profit
+34,860
+Cost of revenues
+The following table sets forth the comparative figures for the years ended 31 December 2019 and 2018:
+YEAR ENDED 31 DECEMBER 2019 COMPARED TO YEAR ENDED 31 DECEMBER 2018
+Management Discussion and Analysis
+Tencent Holdings Limited
+10
+Hong Kong, 18 March 2020
+Ma Huateng
+Chairman
+On behalf of the Board, I would like to express our heartfelt gratitude to our conscientious and professional staff and
+management team for their hard work during the past year. I would also like to extend our thanks and appreciation to our
+shareholders and stakeholders who continue to provide us with great support and confidence. We believe that our continued
+commitment to building an ecosystem in the Consumer Internet and Industrial Internet sectors that brings the needs of our
+users to the forefront will produce long-term value for our shareholders.
+APPRECIATION
+Revenues
+51%
+37,273
+64%
+Revenues
+Cost of revenues
+Gross profit
+Interest income
+Other gains/(losses), net
+Selling and marketing expenses
+General and administrative expenses
+Operating profit
+Unaudited
+The following table sets forth the comparative figures for the fourth quarter of 2019 and the fourth quarter of 2018:
+Three months ended
+31 December
+2019
+2018
+(RMB in millions)
+105,767
+84,896
+(59,659)
+(49,744)
+46,108
+35,152
+31 December
+377,289
+FOURTH QUARTER OF 2019 COMPARED TO FOURTH QUARTER OF 2018
+Tencent Holdings Limited
+6,979
+92%
+4,742
+98%
+Total cost of revenues
+209,756
+170,574
+Cost of revenues for VAS increased by 27% year-on-year to RMB94,086 million. The increase was mainly due to greater
+content costs for services and products such as live broadcast services, online games and video streaming subscriptions,
+as well as channel costs for smart phone games.
+Cost of revenues for FinTech and Business Services increased by 35% year-on-year to RMB73,831 million. The increase
+primarily reflected greater costs of payment-related and cloud services due to the enhanced scale of our payment and
+cloud activities.
+Management Discussion and Analysis
+Cost of revenues for Online Advertising decreased by 6% year-on-year to RMB34,860 million. The decrease was mainly
+driven by lower content costs for our advertising-funded long form video service resulting from fewer content releases
+and improved cost efficiency, partly offset by other cost items.
+13
+Other gains, net. We recorded net other gains totalling RMB19,689 million for the year ended 31 December 2019, which
+primarily comprised of non-IFRS adjustment items such as fair value gains arising from increased valuations for certain
+investee companies in verticals such as FinTech services, social media and education, as well as net deemed disposal gains
+arising from the capital activities of certain investee companies in verticals including transportation services and online games.
+Selling and marketing expenses. Selling and marketing expenses decreased by 12% to RMB21,396 million for the year ended
+31 December 2019 on a year-on-year basis. The decrease was mainly due to the reduction of advertising and promotion
+expenses as a result of improved operational efficiencies. As a percentage of revenues, selling and marketing expenses
+decreased to 6% for the year ended 31 December 2019 from 8% for the year ended 31 December 2018.
+General and administrative expenses. General and administrative expenses increased by 29% to RMB53,446 million for the
+year ended 31 December 2019 on a year-on-year basis. The increase was primarily driven by greater R&D expenses and staff
+costs. As a percentage of revenues, general and administrative expenses increased to 14% for the year ended 31 December
+2019 from 13% for the year ended 31 December 2018.
+Finance costs, net. Net finance costs increased by 63% to RMB7,613 million for the year ended 31 December 2019 on a
+year-on-year basis. The increase primarily reflected greater interest expenses resulting from higher amounts of indebtedness.
+Share of (loss)/profit of associates and joint ventures. We recorded share of losses of associates and joint ventures of
+RMB1,681 million for the year ended 31 December 2019, compared to share of profit of RMB1,487 million for the year ended
+31 December 2018. The change was mainly due to non-cash charges booked by certain associates.
+Income tax expense. Income tax expense decreased by 7% to RMB13,512 million for the year ended 31 December 2019 on a
+year-on-year basis. The decrease mainly reflected the entitlements of preferential tax treatments and benefits.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 19%
+to RMB93,310 million for the year ended 31 December 2019 on a year-on-year basis. Non-IFRS profit attributable to equity
+holders of the Company increased by 22% to RMB94,351 million for the year ended 31 December 2019.
+14
+Annual Report 2019
+1,580
+312,694
+(170,574)
+58,079
+18%
+68,377
+Online Advertising
+23%
+73,138
+27%
+101,355
+FinTech and Business Services
+56%
+176,646
+53%
+199,991
+VAS
+(RMB in millions, unless specified)
+Amount
+(Restated)
+revenues
+Amount
+(Restated)
+19%
+Others
+7,566
+2%
+Three months ended
+revenues
+% of
+segment
+2018
+2019
+Year ended 31 December
+Cost of revenues. Cost of revenues increased by 23% year-on-year to RMB209.8 billion. The increase primarily reflected
+greater content costs, costs of FinTech services and channel costs. As a percentage of revenues, cost of revenues increased
+to 56% for the year ended 31 December 2019 from 55% for the year ended 31 December 2018. The following table sets forth
+our cost of revenues by line of business for the years ended 31 December 2019 and 2018:
+Management Discussion and Analysis
+Tencent Holdings Limited
+revenues
+12
+Revenues from FinTech and Business Services increased by 39% year-on-year to RMB101.4 billion. The increase was
+primarily driven by greater revenues from commercial payment due to increased daily active consumers and number of
+transactions per user. Greater revenues from cloud services also contributed to the annual growth.
+Revenues from our VAS business increased by 13% year-on-year to RMB200 billion. Online games revenues grew by
+10% to RMB114.7 billion. The increase was primarily due to revenue contributions from domestic smart phone games
+including Honour of Kings and Peacekeeper Elite, as well as increased contributions from our overseas titles such
+as PUBG Mobile and Supercell titles, partly offset by the revenue decline from PC client games such as DnF. Social
+networks revenues increased by 17% to RMB85,281 million. The increase mainly reflected revenue growth from digital
+content services such as live broadcast services and video streaming subscriptions.
+100%
+312,694
+100%
+377,289
+Total revenues
+2%
+4,831
+Revenues from Online Advertising business increased by 18% year-on-year to RMB68,377 million. Social and
+others advertising revenues grew by 33% to RMB52,897 million. The increase mainly reflected higher advertising
+revenues derived from Weixin (primarily Weixin Moments and Mini Programs) as a result of its increased inventories
+and impressions, as well as contributions from our mobile advertising network due to increased traffic and video
+inventories. Media advertising revenues decreased by 15% to RMB15,480 million. The decrease was primarily due
+to lower advertising revenues from our media platforms including Tencent Video and Tencent News resulting from
+unpredictability in broadcast schedules and the challenging macro-environment, as well as the absence of the FIFA
+World Cup in year 2019.
+% of total
+% of total
+2018
+109,400
+Profit before income tax
+1,487
+(1,681)
+Share of (loss)/profit of associates and joint ventures
+(4,669)
+(7,613)
+Finance costs, net
+97,648
+94,466
+118,694
+(53,446)
+(24,233)
+(21,396)
+16,714
+19,689
+4,569
+6,314
+142,120
+167,533
+(41,522)
+(209,756)
+Income tax expense
+(14,482)
+2019
+Year ended 31 December
+Revenues. Revenues increased by 21% to RMB377.3 billion for the year ended 31 December 2019 on a year-on-year basis.
+The following table sets forth our revenues by line of business for the years ended 31 December 2019 and 2018:
+Management Discussion and Analysis
+11
+Annual Report 2019
+77,469
+94,351
+79,984
+(13,512)
+95,888
+2,578
+78,719
+93,310
+Non-IFRS profit attributable to equity holders of the Company
+Equity holders of the Company
+Non-controlling interests
+Attributable to:
+79,984
+95,888
+Profit for the year
+1,265
+1,350
+Management Discussion and Analysis
+(2,139)
+Total cost of revenues
+88%
+2,304
+84%
+2,778
+Others
+63%
+10,800
+46%
+9,241
+76%
+16,310
+72%
+21,520
+FinTech and Business Services
+Online Advertising
+47%
+20,330
+50%
+26,120
+VAS
+(RMB in millions, unless specified)
+3,630
+49,744
+Cost of revenues for VAS increased by 28% to RMB26, 120 million for the fourth quarter of 2019 on a year-on-year basis.
+The increase mainly reflected greater channel costs for smart phone games due to increased revenues, including the
+channel costs attributable to Supercell, as well as higher content costs for services and products such as live broadcast
+services, online games and music streaming.
+Cost of revenues for FinTech and Business Services increased by 32% to RMB21,520 million for the fourth quarter of
+2019 on a year-on-year basis. The increase was primarily driven by scale expansion of our payment-related services and
+cloud business.
+Selling and marketing expenses
+Other gains, net
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+The following table sets forth the comparative figures for the fourth quarter of 2019 and the third quarter of 2019:
+FOURTH QUARTER OF 2019 COMPARED TO THIRD QUARTER OF 2019
+Management Discussion and Analysis
+Tencent Holdings Limited
+revenues
+(Restated)
+18
+Income tax expense. Income tax expense increased by 12% to RMB2, 137 million for the fourth quarter of 2019 on a year-on-
+year basis.
+Share of (loss)/profit of associates and joint ventures. We recorded share of losses of associates and joint ventures of
+RMB1,328 million for the fourth quarter of 2019, compared to share of profit of RMB16 million for the fourth quarter of 2018.
+The change was mainly due to share of losses arising from non-cash fair value changes of investment portfolios booked by
+certain associates in the fourth quarter of 2019, compared to share of profit recorded in the same quarter last year.
+Finance costs, net. Net finance costs increased by 102% to RMB2,767 million for the fourth quarter of 2019 on a year-on-year
+basis. The increase was primarily driven by greater interest expenses as a result of higher amount of indebtedness.
+General and administrative expenses. General and administrative expenses increased by 41% to RMB16,002 million for
+the fourth quarter of 2019 on a year-on-year basis. The increase was mainly due to greater R&D expenses and staff costs,
+including expenses attributable to Supercell. As a percentage of revenues, general and administrative expenses increased to
+15% for the fourth quarter of 2019 from 13% for the fourth quarter of 2018.
+Selling and marketing expenses. Selling and marketing expenses increased by 17% to RMB6,712 million for the fourth quarter
+of 2019 on a year-on-year basis. The increase was mainly driven by greater marketing spending on services and products such
+as FinTech and cloud services, smart phone games and digital content services, including expenses attributable to Supercell.
+As a percentage of revenues, selling and marketing expenses decreased to 6% for the fourth quarter of 2019 from 7% for the
+fourth quarter of 2018.
+Other gains, net. We recorded net other gains of RMB3,630 million for the fourth quarter of 2019, which mainly comprised of
+non-IFRS adjustment items such as fair value gains due to increases in valuations of certain investee companies in verticals
+such as social media and FinTech services.
+Management Discussion and Analysis
+17
+Annual Report 2019
+Cost of revenues for Online Advertising decreased by 14% to RMB9,241 million for the fourth quarter of 2019 on a
+year-on-year basis. The decrease was mainly due to lower content costs for video advertising as a result of fewer major
+content releases, and to cost management.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 52% to
+RMB21,582 million for the fourth quarter of 2019 on a year-on-year basis. Non-IFRS profit attributable to equity holders of the
+Company increased by 29% to RMB25,484 million for the fourth quarter of 2019.
+General and administrative expenses
+Amount
+(Restated)
+Amount
+20,225
+Online Advertising
+26%
+21,597
+28%
+29,920
+FinTech and Business Services
+51%
+43,651
+50%
+52,308
+VAS
+(RMB in millions, unless specified)
+(Restated)
+revenues
+Amount
+(Restated)
+revenues
+Amount
+% of total
+% of total
+31 December 2018
+19%
+17,033
+20%
+Others
+% of
+segment
+% of
+segment
+31 December 2018
+31 December 2019
+Three months ended
+Unaudited
+Cost of revenues. Cost of revenues increased by 20% to RMB59,659 million for the fourth quarter of 2019 on a year-on-year
+basis. The increase was mainly due to greater costs of FinTech services, channel costs and content costs. As a percentage
+of revenues, cost of revenues decreased to 56% for the fourth quarter of 2019 from 59% for the fourth quarter of 2018. The
+following table sets forth our cost of revenues by line of business for the fourth quarter of 2019 and the fourth quarter of 2018:
+Management Discussion and Analysis
+Tencent Holdings Limited
+16
+revenues
+Revenues from Online Advertising increased by 19% to RMB20,225 million for the fourth quarter of 2019 on a year-on-
+year basis. Social and others advertising revenues increased by 37% to RMB16,274 million. The increase was mainly
+driven by advertising revenue growth from Weixin Moments and our mobile advertising network. Media advertising
+revenues decreased by 24% to RMB3,951 million. The decrease primarily reflected lower advertising revenues from
+our media platforms including Tencent Video and Tencent News due to uncertain broadcasting schedules and fewer
+telecasts of sports events.
+Revenues from VAS increased by 20% to RMB52,308 million for the fourth quarter of 2019 on a year-on-year basis.
+Online games revenues grew by 25% to RMB30,286 million. The increase was primarily driven by revenue growth
+from smart phone games in both domestic and overseas markets, including titles such as Peacekeeper Elite and PUBG
+Mobile, as well as revenue contributions from Supercell titles, partly offset by lower revenues from PC client games
+such as DnF. Social networks revenues increased by 13% to RMB22,022 million. The increase mainly reflected greater
+contributions from digital content services such as live broadcast and music streaming services. Total smart phone
+games revenues (including smart phone games revenues attributable to our social networks business) were RMB26,035
+million and PC client games revenues were RMB10,359 million for the fourth quarter of 2019.
+100%
+84,896
+100%
+105,767
+Total revenues
+3%
+2,615
+3%
+3,314
+Revenues from FinTech and Business Services increased by 39% to RMB29,920 million for the fourth quarter of 2019
+on a year-on-year basis. The increase was primarily due to greater revenue contributions from commercial payment, as
+well as revenue growth from cloud services as a result of deeper penetration in key verticals.
+Operating profit
+59,659
+Three months ended
+31 December
+790
+(203)
+22,372
+14,026
+25,484
+19,730
+Annual Report 2019
+15
+Management Discussion and Analysis
+Revenues. Revenues increased by 25% to RMB105.8 billion for the fourth quarter of 2019 on a year-on-year basis. The
+following table sets forth our revenues by line of business for the fourth quarter of 2019 and the fourth quarter of 2018:
+Unaudited
+19
+Annual Report 2019
+24,412
+25,484
+20,976
+22,372
+594
+790
+20,382
+21,582
+14,229
+21,582
+Non-IFRS profit attributable to equity holders of the Company
+Equity holders of the Company
+Non-controlling interests
+(6,712)
+(5,730)
+(16,002)
+(11,345)
+28,604
+17,288
+Finance costs, net
+(2,767)
+(1,372)
+Share of (loss)/profit of associates and joint ventures
+Non-IFRS profit attributable to equity holders of the Company
+(1,328)
+Profit before income tax
+24,509
+15,932
+Income tax expense
+(2,137)
+(1,906)
+Profit for the period
+22,372
+14,026
+Unaudited
+16
+Equity holders of the Company
+Non-controlling interests
+Attributable to:
+20,976
+(16,002)
+(5,722)
+932
+3,630
+1,674
+1,580
+42,479
+46,108
+(54,757)
+(59,659)
+97,236
+105,767
+(RMB in millions)
+2019
+2019
+30 September
+Attributable to:
+(13,536)
+28,604
+(6,712)
+Income tax expense
+22,372
+(3,338)
+(2,137)
+24,314
+24,509
+Profit before income tax
+234
+(1,328)
+Share of (loss)/profit of associates and joint ventures
+(1,747)
+25,827
+(2,767)
+Profit for the period
+Finance costs, net
+Employee benefits expenses (Note (b) and Note 13)
+69,976
+Transaction costs (Note (a))
+RMB'Million
+RMB'Million
+2018
+2019
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+EXPENSES BY NATURE
+8
+17,577
+4,006
+85,702
+53,123
+right-of-use assets (Note 16 and Note 18)
+Content costs (excluding amortisation of intangible assets)
+Depreciation of property, plant and equipment, investment properties and
+15,818
+16,284
+Bandwidth and server custody fees (excluding depreciation of right-of-use assets)
+25,616
+28,954
+Amortisation of intangible assets (Note (c) and Note 20)
+39,061
+Travelling and entertainment expenses
+Auditor's remuneration
+- Audit and audit-related services
+1,180
+- Non-audit services
+Promotion and advertising expenses
+48,321
+42,153
+183
+The disposal and deemed disposal gains of approximately RMB8,492 million recognised during the year ended 31 December
+2019 mainly comprised the following:
+(54)
+16,714
+19,689
+(1,810)
+(382)
+Others
+(730)
+Note:
+(850)
+686
+1,014
+Dividend income
+1,019
+1,647
+15,623
+Donations to Tencent Charity Funds
+(a)
+(b)
+(c)
+14,069
+3,877
+RMB'Million
+2018
+RMB'Million
+2019
+196 Tencent Holdings Limited
+Intangible assets arising from acquisitions
+Investments in associates (Note 21)
+Investments in joint ventures (Note 22)
+The impairment provision/(reversal) for investee companies and intangible assets arising from acquisitions mainly comprised the
+following:
+net gains of approximately RMB7,625 million (2018: RMB6,523 million) from fair value changes of FVPL.
+aggregate gains of approximately RMB1,886 million (2018: RMB22,215 million) arising from reclassification of several
+investments principally engaged in Internet-related business from FVPL to investments in associates due to the conversion
+of the Group's redeemable instruments or preferred shares of these investee companies into their ordinary shares and the
+Group has board representation upon their respective initial public offerings ("IPO"); and
+Net fair value gains on FVPL of approximately RMB9,511 million (Note 24) recognised during the year ended 31 December 2019
+mainly comprised the following:
+aggregate net gains of approximately RMB3,633 million (2018: RMB1,271 million) on disposals, partial disposals or
+deemed disposals of various investments of the Group.
+net gains of approximately RMB4,859 million (2018: RMB1,661 million) on dilution of the Group's equity interests in
+certain associates due to new equity interests being issued by these associates (Note 21). These investee companies are
+principally engaged in Internet-related business; and
+2,328
+8,423
+Withholding tax
+19,806
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2019 and 2018.
+Cayman Islands and British Virgin Islands corporate income tax
+(i)
+Income tax expense is recognised based on management's best knowledge of the income tax rates expected for
+the financial year.
+(a) Income tax expense
+11 TAXATION
+(ii) Hong Kong profit tax
+1,487
+1,301
+186
+(1,371)
+(310)
+RMB'Million
+RMB'Million
+2018
+2019
+(1,681)
+Hong Kong profit tax has been provided for at the rate of 16.5% on the estimated assessable profit for the
+years ended 31 December 2019 and 2018.
+198
+Tencent Holdings Limited
+Annual Report 2019 199
+Dividends distributed from certain jurisdictions that the Group's entities operate in are also subject to
+withholding tax at respective applicable tax rates.
+According to applicable tax regulations prevailing in the PRC, dividends distributed by a company established
+in Mainland China to a foreign investor with respect to profit derived after 1 January 2008 are generally
+subject to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong, under the double
+taxation arrangement between Mainland China and Hong Kong, the relevant withholding tax rate applicable
+to the Group will be reduced from 10% to 5% subject to the fulfilment of certain conditions.
+Net fair value gains on other financial instruments (Note 27 and Note 38)
+Income tax on profits arising from other jurisdictions, including the United States, Europe, East Asia and
+South America, has been calculated on the estimated assessable profit for the year at the respective rates
+prevailing in the relevant jurisdictions, ranging from 12.5% to 35%.
+(v)
+(iv) Corporate income tax in other jurisdictions
+In addition, according to relevant tax circulars issued by Mainland China tax authorities, certain subsidiaries
+of the Company are entitled to other tax concessions, mainly including the preferential policy of "2-year
+exemption and 3-year half rate concession" and the preferential tax rate of 15% applicable for some
+subsidiaries located in certain areas of Mainland China upon fulfillment of certain requirements of the
+respective local governments.
+Certain subsidiaries of the Group in Mainland China were approved as High and New Technology Enterprise,
+and accordingly, they were subject to a preferential corporate income tax rate of 15% for the years ended
+31 December 2019 and 2018. Moreover, according to the announcement and circular issued by relevant
+government authorities, certain subsidiaries that qualified as national key software enterprises were subject
+to a preferential corporate income tax rate of 10%.
+PRC CIT has been provided for at applicable tax rates under the relevant regulations of the PRC after
+considering the available preferential tax benefits from refunds and allowances, and on the estimated
+assessable profit of entities within the Group established in Mainland China for the years ended 31 December
+2019 and 2018. The general PRC CIT rate is 25% in 2019 and 2018.
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+(iii) PRC CIT
+(a) Income tax expense (continued)
+11 TAXATION (continued)
+Share of (loss)/profit of joint ventures (Note 22)
+16,405
+Share of (loss)/profit of associates (Note 21)
+Interest and related expenses mainly arose from the borrowings, notes payable and lease liabilities disclosed in Notes 35,
+36 and 18, respectively.
+Included the amortisation charges of intangible assets mainly in respect of media contents.
+(c)
+No significant development expenses had been capitalised for the years ended 31 December 2019 and 2018.
+During the year ended 31 December 2019, employee benefits expenses included the share-based compensation expenses of
+approximately RMB 10,500 million (2018: RMB7,900 million).
+During the year ended 31 December 2019, the Group incurred expenses for the purpose of research and development of
+approximately RMB30,387 million (2018: RMB22,936 million), which comprised employee benefits expenses of approximately
+RMB24,478 million (2018: RMB 19,088 million).
+(b)
+During the year ended 31 December 2019, amortisation of intangible assets included the amortisation of intangible assets
+resulting from business combinations of approximately RMB1,051 million (2018: RMB524 million).
+(a) Transaction costs primarily consist of bank handling fees, channel and distribution costs.
+26
+43
+110
+105
+1,450
+1,773
+Note:
+Annual Report 2019
+197
+Notes to the Consolidated Financial Statements
+4,669
+7,613
+(229)
+(77)
+4,898
+7,690
+RMB'Million
+RMB'Million
+2018
+2019
+Exchange gains
+Interest and related expenses
+FINANCE COSTS, NET
+9
+For the year ended 31 December 2019
+10 SHARE OF (LOSS)/PROFIT OF ASSOCIATES AND JOINT VENTURES, NET
+(17,577)
+89
+assets arising from acquisitions (Note (c))
+345,721
+270,373
+168,714
+83,962
+- Mainland China and Hong Kong
+289,491
+254,992
+North America
+76,488
+44,835
+- Europe
+29,707
+37,451
+- Asia excluding Mainland China and Hong Kong
+40,139
+30,148
+- Others
+3,726
+1,760
+953,986
+723,521
+As at 31 December 2019, the total non-current assets other than financial instruments and deferred tax assets
+located in Mainland China and other regions amounted to RMB311,386 million (31 December 2018: RMB282,774
+million) and RMB136,338 million (31 December 2018: RMB65,057 million), respectively.
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues
+during the years ended 31 December 2019 and 2018.
+Annual Report 2019 193
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+5 SEGMENT INFORMATION AND REVENUES (continued)
+(b) Disaggregation of revenue from contracts with customers
+In the following table, revenue of the Group from contracts with customers is disaggregated by revenue source.
+The table also includes a reconciliation to the segment information (Note 5(a)).
+RMB'Million
+RMB'Million
+2018
+2019
+12,462
+573
+24,698
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in Mainland
+China. During the years ended 31 December 2019 and 2018, breakdown of the total revenues by geographical
+location is as follows:
+Revenues
+Mainland China
+- Others
+192 Tencent Holdings Limited
+2019
+2018
+RMB'Million
+RMB'Million
+360,562
+2019
+303,657
+9,037
+377,289
+312,694
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+5
+SEGMENT INFORMATION AND REVENUES (continued)
+(a) Description of segments and principal activities (continued)
+The Group also conducts operations in the United States of America (“United States”), Europe and other regions,
+and holds investments (including investments in associates, investments in joint ventures, FVPL and FVOCI) in
+various territories. The geographical information on the total assets is as follows:
+Operating assets
+Mainland China
+- Others
+Investments
+As at 31 December
+16,727
+7,030
+2018
+RMB'Million
+Contract liabilities:
+VAS
+46,438
+31,787
+Fintech and Business Services
+Online advertising
+2,013
+7,939
+931
+9,145
+Others
+137
+174
+194 Tencent Holdings Limited
+56,527
+42,037
+Notes to the Consolidated Financial Statements
+5
+SEGMENT INFORMATION AND REVENUES (continued)
+(c) Assets and liabilities related to contracts with customers (continued)
+Note:
+60
+(i)
+Contract liabilities
+For the year ended 31 December 2019
+Contract liabilities mainly comprise of unamortised pre-paid tokens or cards, virtual items, Internet traffic and other support
+to be offered to certain investee companies in the future periods measured at their fair value on the relevant inception
+dates (Note 21), and customer loyalty incentives offered to the customers.
+(ii)
+Revenue recognised in relation to contract liabilities
+The following table shows how much of the revenue recognised in the current reporting period relates to carried-forward
+contract liabilities:
+Revenue recognised that was included in the contract liability balance
+at the beginning of the year:
+RMB'Million
+RMB'Million
+2018
+2019
+Revenue from contracts with customers
+- VAS
+199,991
+176,646
+Online games
+114,710
+103,992
+Social networks
+85,281
+72,654
+- FinTech and Business Services
+101,355
+73,138
+- Online Advertising
+RMB'Million
+68,377
+Media advertising
+15,480
+18,306
+Social and others advertising
+- Others
+52,897
+39,773
+7,566
+4,831
+377,289
+312,694
+(c) Assets and liabilities related to contracts with customers
+The Group has recognised the following liabilities related to contracts with customers under "Deferred revenue":
+As at 31 December
+58,079
+(4,006)
+144
+3,514
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+(e) Income taxes
+The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
+worldwide provision for income taxes. Where the final tax outcome of these matters is different from the amounts
+that were initially recorded, such differences will impact current income tax and deferred income tax in the period
+in which such determination is made.
+5
+SEGMENT INFORMATION AND REVENUES
+(a) Description of segments and principal activities
+The chief operating decision-makers mainly include executive directors of the Company. They review the Group's
+internal reporting in order to assess performance, allocate resources, and determine the operating segments based
+on these reports.
+In view of the increased scale and business importance of payments, financial and enterprise-facing activities,
+and to help investors better understand the Group's revenue structure and margin trends, a new segment named
+"FinTech and Business Services" has been separated from "Others" segment from the first quarter of 2019
+onwards, both in the internal reports to the chief operating decision makers and in the consolidated financial
+statements of the Group. The new "FinTech and Business Services” segment primarily consists of: (a) payment,
+wealth management and other FinTech services; and (b) cloud services and other enterprise-facing activities
+such as our Smart Retail initiative. The comparative figures in the consolidated income statement and the note
+have been restated to conform with the new presentation. The Board believes that the above changes in segment
+information better reflect current market trends, as well as resource allocation and future business development of
+the Group.
+The Group has the following reportable segments for the years ended 31 December 2019 and 2018:
+VAS;
+FinTech and Business Services;
+Online Advertising; and
+Others.
+Subsequent to the change, the “Others" business segment now consists of the financials of investment in,
+production of and distribution of, films and television programmes for third parties, copyrights licensing,
+merchandise sales and various other activities.
+190
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+5
+SEGMENT INFORMATION AND REVENUES (continued)
+(a) Description of segments and principal activities (continued)
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit of each operating segment. The selling and marketing expenses and general and
+administrative expenses are common costs incurred for these operating segments as a whole and therefore, they
+are not included in the measure of the segments' performance which is used by the chief operating decision-
+makers as a basis for the purpose of resource allocation and assessment of segment performance. Interest
+income, other gains/(losses), net, finance income/(costs), net, share of profit/(loss) of associates and joint ventures
+and income tax expense are also not allocated to individual operating segment.
+There were no material inter-segment sales during the years ended 31 December 2019 and 2018. The revenues
+from external customers reported to the chief operating decision-makers are measured in a manner consistent with
+that applied in the consolidated income statement.
+Other information, together with the segment information, provided to the chief operating decision-makers, is
+measured in a manner consistent with that applied in these consolidated financial statements. There were no
+segment assets and segment liabilities information provided to the chief operating decision-makers.
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2019 and 2018 is as follows:
+Online advertising
+Others
+2019
+2018
+Impairment provision/(reversal) for investee companies and intangible
+3,456
+4,263
+Subsidies and tax rebates
+28,738
+9,511
+2,932
+8,492
+Net gains on disposals and deemed disposals of investee companies (Note (a))
+Net fair value gains on FVPL (Note (b))
+RMB'Million
+RMB'Million
+2018
+2019
+OTHER GAINS, NET
+Year ended 31 December 2019
+7
+Notes to the Consolidated Financial Statements
+Annual Report 2019 195
+Interest income mainly represents interest income from bank deposits, including bank balance and term deposits.
+INTEREST INCOME
+As at 31 December 2019, total capitalised costs to obtain or fulfill a contract with customer were immaterial.
+37,273
+35,929
+2,681
+2
+3,045
+174
+230
+34,360
+31,787
+923
+RMB'Million
+RMB'Million
+For the year ended 31 December 2019
+1,376
+FinTech and
+Online
+5 SEGMENT INFORMATION AND REVENUES (continued)
+(a) Description of segments and principal activities (continued)
+Year ended 31 December 2018
+FinTech and
+Business
+Online
+VAS
+Services Advertising
+Others
+Total
+RMB'Million
+RMB'Million
+RMB'Million
+(Restated)
+RMB'Million
+(Restated)
+RMB'Million
+Segment revenues
+176,646
+73,138
+58,079
+4,831
+312,694
+Gross profit
+102,685
+18,540
+20,806
+142,120
+Depreciation
+Amortisation
+1,996
+11,663
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+191
+Annual Report 2019
+VAS
+RMB'Million
+Services Advertising
+RMB'Million
+Others
+Total
+RMB'Million RMB'Million
+RMB'Million
+Segment revenues
+199,991
+101,355
+68,377
+7,566
+377,289
+Gross profit
+Business
+105,905
+33,517
+587
+167,533
+Depreciation
+3,461
+6,669
+2,065
+108
+12,303
+Amortisation
+14,710
+9,977
+3,115
+27,802
+27,524
+VAS
+FinTech and Business Services
+13
+expenses
+plans
+RMB'000
+RMB'000
+RMB'000
+bonuses
+Fees
+Name of director
+and benefits
+to pension compensation
+Salaries and
+Allowances
+Share-based
+Contributions
+During the year ended 31 December 2019:
+The remuneration of every director and the CEO is set out below:
+(a) Directors' and the chief executive's emoluments
+14 BENEFITS AND INTERESTS OF DIRECTORS
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+205
+Annual Report 2019
+1
+1
+1
+2
+2 TI
+1
+RMB'000
+|2|--
+in kind
+RMB'000
+RMB'000
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+3,002
+2,285
+717
+Li Dong Sheng
+5,557
+4,572
+985
+lan Charles Stone
+4,746
+3,761
+985
+lain Ferguson Bruce
+354,761
+85
+319,216
+34,204
+1,256
+Lau Chi Ping Martin
+46,625
+22
+91
+45,256
+1,256
+Ma Huateng (CEO)
+(Note (i))
+Total
+2018
+2019
+Number of individuals
+Number of individuals
+204 Tencent Holdings Limited
+HKD350,000,001 ~ HKD700,000,000
+HKD700,000,001 ~ HKD1,050,000,000
+HKD50,000,001 ~ HKD200,000,000
+HKD200,000,001 ~ HKD350,000,000
+HKD8,000,000 ~ HKD50,000,000
+Emolument bands
+The emoluments of the senior management fell within the following bands:
+1,886,266
+2,599,964
+1,555,671
+2,219,669
+Share-based compensation expenses
+329,721
+874
+759
+Contributions to pension plans
+379,536
+Salaries, bonuses, allowances and benefits in kind
+2018
+RMB'000
+RMB'000
+2019
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services excluding the directors and the
+CEO, whose details have been reflected in Note 14(a), is as follows:
+(a) Senior management's emoluments
+13 EMPLOYEE BENEFITS EXPENSES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+10.0 12.0%
+0.32 -1.5%
+2019
+2018
+1
+9
+1,373,669
+HKD545,500,001 ~ HKD546,000,000
+HKD628,000,001 ~ HKD628,500,000
+HKD860,500,001 – HKD861,000,000
+HKD964,500,001 – HKD965,000,000
+HKD221,000,001 ~ HKD221,500,000
+HKD196,500,001 ~ HKD197,000,000
+Emolument bands
+The emoluments of the above four individuals (2018: four) fell within the following bands:
+2,031,657
+84
+90
+968,642
+11,872
+393,071
+514,296
+4,565
+1,512,706
+Yang Siu Shun
+2018
+Allowances and benefits in kind
+Share-based compensation expenses
+Contributions to pension plans
+Salaries and bonuses
+The five individuals whose emoluments were the highest in the Group include one director during the year 2019
+(2018: one). All of these individuals including that one director (Note 14(a)) have not received any emolument
+from the Group as an inducement to join the Group during the years ended 31 December 2019 and 2018. The
+emoluments paid/payable to the remaining four (2018: four) individuals during the year were as follows:
+(b) Five highest paid individuals
+13 EMPLOYEE BENEFITS EXPENSES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+9
+1
+HONI
+2
+2019
+RMB'000
+5.2-10.5%
+896
+716
+The dividends amounting to RMB8,305 million (final dividend for 2018: RMB6,776 million) were paid during the year
+ended 31 December 2019.
+15 DIVIDENDS
+No significant transactions, arrangements and contracts in relation to the Group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+(e) Directors' material interests in transactions, arrangements or contracts
+No loans, quasi-loans and other dealings in favour of directors, their controlled bodies corporate and connected
+entities subsisted at the end of the year or at any time during the year.
+(d) Information about loans, quasi-loans and other dealings in favour of directors, their controlled bodies and
+connected entities
+No consideration provided to or receivable by third parties for making available directors' services subsisted at the
+end of the year or at any time during the year.
+(c) Consideration provided to third parties for making available directors' services
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(b) Directors' termination benefits
+14 BENEFITS AND INTERESTS OF DIRECTORS (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 207
+No director received any emolument from the Group as an inducement to join or leave the Group or compensation for
+loss of office. No director waived or has agreed to waive any emoluments during the years ended 31 December 2019 and
+2018.
+(iv)
+Ke Yang has been appointed as an Independent Non-Executive Director and a member of the Corporate Governance
+Committee with effect from 15 August 2019.
+During the year ended 31 December 2019, 3,506,580 options were granted to one executive director of the Company
+(2018: 3,215,800 options were granted to one executive director of the Company), and 59,484 awarded shares were
+granted to five independent non-executive directors of the Company (2018: 39,500 awarded shares were granted to four
+independent non-executive directors of the Company).
+(iii)
+(ii)
+(i) Allowances and benefits in kind include leave pay, insurance premium and club membership.
+Note:
+368,430
+145
+296,509
+118
+65,683
+A special dividend of approximately HKD250 million (equivalent to approximately RMB219 million) was declared in
+December 2018 to the shareholders of the Company by way of a distribution in respect of the separate listing of Tencent
+Music Entertainment Group ("TME"), a non-wholly owned subsidiary of the Group on the New York Stock Exchange.
+Such dividend was settled by the Group with cash and shares of TME in February 2019.
+5,975
+A final dividend in respect of the year ended 31 December 2019 of HKD1.20 per share (2018: HKD1.00 per share)
+was proposed pursuant to a resolution passed by the Board on 18 March 2020 and subject to the approval of the
+shareholders at the 2020 annual general meeting of the Company to be held on 13 May 2020 or any adjournment
+thereof. This proposed dividend is not reflected as dividend payable in the consolidated financial statements.
+Tencent Holdings Limited
+43
+Currency translation differences
+(23,049)
+(1,241)
+(26)
+(808)
+(19,297)
+(1,677)
+Accumulated depreciation and impairment
+58,005
+2,443
+44
+1,370
+44,835
+9,313
+Cost
+At 1 January 2019
+RMB'Million
+Total
+Motor Leasehold
+vehicles improvements
+RMB'Million RMB'Million
+and office
+Computer
+equipment equipment
+RMB'Million RMB'Million
+Buildings
+RMB'Million
+Furniture
+16 PROPERTY, PLANT AND EQUIPMENT
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+208
+3,201
+2,325
+876
+RMB'000
+RMB'000
+Allowances
+and benefits
+to pension compensation
+expenses
+plans
+bonuses
+Fees
+Name of director
+Salaries and
+Contributions Share-based
+During the year ended 31 December 2018:
+(a) Directors' and the chief executive's emoluments (continued)
+14 BENEFITS AND INTERESTS OF DIRECTORS (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+206
+420,056
+107
+333,587
+91
+79,460
+6,811
+1,022
+4,343
+306
+3,447
+RMB'000
+RMB'000
+in kind
+RMB'000
+Total
+RMB'000
+Yang Siu Shun
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+2,832
+2,131
+701
+Li Dong Sheng
+5,226
+4,262
+964
+lan Charles Stone
+4,856
+3,892
+Ke Yang (Note (iii))
+964
+313,473
+125
+283,899
+28,214
+1,235
+Lau Chi Ping Martin
+38,842
+20
+118
+37,469
+1,235
+Ma Huateng (CEO)
+(Note (i))
+lain Ferguson Bruce
+12.0 - 20.0%
+RMB'000
+203
+Deferred income tax (Note 28)
+Current income tax
+The income tax expense of the Group is analysed as follows:
+(a) Income tax expense (continued)
+11 TAXATION (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 209
+46,824
+1,519
+24
+24
+829
+34,214
+Percentage
+Net book amount
+218
+97
+14
+108
+(1)
+Currency translation differences
+(33,067)
+(1,508)
+(32)
+(973)
+(27,988)
+2019
+2018
+RMB'Million
+RMB'Million
+(958)
+(3,584)
+subsidiaries incorporated in Mainland China
+(14,668)
+(17,236)
+Effects of different tax rates applicable to different subsidiaries of the Group
+Effects of tax holiday and preferential tax benefits on assessable profits of
+23,245
+27,770
+Tax calculated at a tax rate of 25%
+92,979
+111,081
+(1,487)
+1,681
+(2,566)
+Share of loss/(profit) of associates and joint ventures, net
+109,400
+Profit before income tax
+RMB'Million
+RMB'Million
+2018
+2019
+The taxation on the Group's profit before income tax differs from the theoretical amount that would arise using the
+tax rate of 25% for the year (2018: 25%), being the tax rate of the major subsidiaries of the Group before enjoying
+preferential tax treatments, as follows:
+14,482
+13,512
+(609)
+(1,218)
+15,091
+14,730
+94,466
+Income not subject to tax
+Accumulated depreciation and impairment
+2,930
+13
+463
+19,623
+3,509
+Additions
+114
+38
+2
+74
+Business combinations
+35,091
+1,282
+18
+575
+25,581
+7,635
+Opening net book amount
+Year ended 31 December 2019
+35,091
+1,282
+18
+575
+25,581
+7,635
+Net book amount
+135
+80
+509
+24,117
+Disposals
+(9)
+56
+1,788
+62,094
+12,805
+Cost
+At 31 December 2019
+46,824
+1,519
+24
+24
+829
+34,214
+10,238
+79,673
+Closing net book amount
+17
+(12,544)
+(322)
+E
+(205)
+(11,113)
+65
+Currency translation differences
+(897)
+Depreciation
+(37)
+(5)
+(7)
+(16)
+83
+(71)
+10,238
+Expenses not deductible for tax purposes
+9.643
+Tencent Holdings Limited
+202
+Diluted EPS (RMB per share)
+9,568
+9,603
+calculation of diluted EPS (million shares)
+Weighted average number of ordinary shares for the
+124
+135
+9,444
+9,468
+Weighted average number of ordinary shares in issue (million shares)
+Adjustments for share options and awarded shares (million shares)
+78,719
+92,602
+(708)
+78,719
+93,310
+2018
+2019
+Profit attributable to equity holders of the Company for the calculation of
+diluted EPS (RMB'Million)
+non-wholly owned subsidiaries and associates (RMB’Million)
+Dilution effect arising from share-based awards issued by
+Profit attributable to equity holders of the Company (RMB'Million)
+In addition, the profit attributable to equity holders (numerator) has been adjusted by the effect of the share
+options and restricted shares granted by the Company's non-wholly owned subsidiaries and associates, excluding
+those which have anti-dilutive effect to the Group's diluted EPS.
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption of
+the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted by
+the Company (collectively forming the denominator for computing the diluted EPS).
+(b) Diluted
+8.228
+12 EARNINGS PER SHARE (continued)
+13 EMPLOYEE BENEFITS EXPENSES
+For the year ended 31 December 2019
+Annual Report 2019
+Unemployment insurance
+Housing fund
+Medical insurance
+Pension insurance
+Majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred.
+The applicable percentages used to provide for these social security plans for the years ended 31 December 2019 and 2018 are listed
+below:
+42,153
+53,123
+Note:
+109
+115
+Training expenses
+3,355
+(43)
+Welfare, medical and other expenses (Note)
+7,900
+10,500
+Share-based compensation expenses
+2,553
+3,001
+Contributions to pension plans (Note)
+28,236
+35,782
+Wages, salaries and bonuses
+RMB'Million
+RMB'Million
+2018
+2019
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+3,725
+Annual Report 2019 201
+(Note i)
+6-17%
+Value-added tax ("VAT")
+Basis of levy
+Tax rate
+Category
+The operations of the Group are also mainly subject to the following taxes in the PRC:
+(b) Value-added tax and other taxes
+11 TAXATION (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+200
+Construction fee for cultural
+14,482
+Income tax expense
+(266)
+(221)
+Others
+2,378
+Unrecognised deferred income tax assets
+3,360
+2,650
+(Note 28)
+Withholding tax on earnings expected to be remitted by subsidiaries
+1,434
+Notes to the Consolidated Financial Statements
+1,177
+13,512
+3%
+3,027
+(1)
+9.856
+Sales value of goods sold and services fee income,
+offsetting by VAT on purchases
+Taxable advertising income
+8.336
+Basic EPS (RMB per share)
+9,444
+Weighted average number of ordinary shares in issue (million shares)
+78,719
+93,310
+Profit attributable to equity holders of the Company (RMB'Million)
+2018
+2019
+Basic earnings per share ("EPS") is calculated by dividing the profit attributable to equity holders of the Company
+by the weighted average number of ordinary shares in issue during the year.
+(a) Basic
+9,468
+Effective from 1 July 2019 to 31 December 2024, construction fee for cultural undertakings have been reduced by 50% in
+certain jurisdictions.
+12 EARNINGS PER SHARE
+City construction tax
+7%
+Educational surcharge
+5%
+Net VAT payable amount
+Net VAT payable amount
+Note:
+(i)
+Effective from 1 May 2018, the 17% and 11% VAT rates applicable to certain goods and services have been reduced
+to 16% and 10%, respectively, and such VAT rate have been further reduced to 13% and 9% since 1 April 2019,
+respectively.
+(ii)
+undertakings
+(Note ii)
+ल
+(1)
+(172)
+(7,322)
+(650)
+(249)
+Depreciation
+(30)
+(2)
+3
+(2)
+Disposals
+19,814
+383
+255
+18,716
+457
+(8,396)
+Additions
+9
+(25)
+Currency translation differences
+Cost
+(3)
+(808)
+3
+(19,297)
+(1,677)
+Accumulated depreciation and impairment
+58,005
+2,443
+44
+1,370
+44,835
+9,313
+At 31 December 2018
+35,091
+1,282
+18
+575
+25,581
+7,635
+Closing net book amount
+97
+32
+69
+1
+Accumulated depreciation and impairment
+2
+(1,021)
+40,623
+2,090
+41
+1,136
+28,504
+8,852
+Cost
+At 1 January 2018
+RMB'Million RMB'Million RMB'Million
+Total
+vehicles improvements
+Motor Leasehold
+and office
+Computer
+equipment equipment
+RMB'Million RMB'Million RMB'Million
+Buildings
+Furniture
+16 PROPERTY, PLANT AND EQUIPMENT (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+(26)
+(14,337)
+(659)
+(24)
+(1,023)
+Business combinations
+23,597
+1,115
+17
+493
+14,141
+7,831
+Opening net book amount
+Year ended 31 December 2018
+23,597
+3
+1,115
+493
+14,141
+7,831
+Net book amount
+38
+48
+16
+(26)
+Currency translation differences
+(17,064)
+17
+(1,241)
+Others
+Currency translation differences
+1,227
+19,330
+1,850
+32,605
+Net book amount
+302
+(6)
+78
+8
+223
+Currency translation differences
+(40,375)
+(1,445)
+1,638
+(482)
+(2,060)
+(1,348)
+Accumulated amortisation and impairment
+96,723
+3,089
+1,710
+54,292
+3,902
+33,730
+Cost
+At 31 December 2018
+56,650
+1,638
+(35,040)
+1,227
+56,650
+To better help investors understand the composition of the Group's intangible assets, trademarks are presented as a separate category instead of being
+grouped under "Others", while game licenses, video and music contents, copyrights and other online contents are brought together under the "Media
+contents" category. The comparative figures have been restated to conform with the new presentation.
+88,582
+72,264
+130,633
+141,350
+RMB'Million
+2018
+RMB'Million
+2019
+As at 31 December
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+- Unlisted entities
+- Listed entities
+Note:
+Investments in associates
+216 Tencent Holdings Limited
+As at 31 December 2019, management has not identified reasonably possible change in key assumptions that could
+cause carrying amounts of the CGU's (or groups of CGUS') to exceed the recoverable amount.
+For goodwill attributable to the Group's online game business within VAS segment, fair value less costs of disposal was
+determined based on ratios of EV (enterprise value) divided by EBITDA of several comparable public companies (range:
+10-25x) (2018: range: 11-21x) multiplied by the EBITDA of the related CGU (or group of CGUS) and discounted for lack
+of marketability at a range of 10% to 20% (2018: 10% to 20%). The comparable public companies were chosen based
+on factors such as industry similarity, company size, profitability and financial risks.
+For goodwill attributable to the Group's businesses in online music, online literature, television series and film production,
+value in use using discounted cash flows was calculated, in most cases, based on five-year period to ten-year period
+financial projections plus a terminal value related to cash flows beyond the projection period extrapolated at an estimated
+terminal growth rate of generally not more than 5% (2018: not more than 5%). Pre-tax discount rates ranging from 13%
+to 25% (2018: 15% to 25%) were adopted, which reflected assessment of time value and specific risks relating to the
+industries that the Group operates in. Management leveraged their experiences in the industries and provided forecast
+based on past performance and their anticipation of future business and market developments. Key parameters applied
+in the financial projections for impairment review purpose also included revenue growth rates, on a compound annual
+basis, of not more than 18% (2018: not more than 27%).
+The key assumptions used for the calculation of the recoverable amounts of the CGUS (or groups of CGUs) under
+impairment testing were as follows:
+Goodwill was allocated to VAS segment with RMB86,489 million (31 December 2018: RMB25,672 million), FinTech
+and Business Services segment with RMB34 million (31 December 2018: Nil) and Others segment with RMB6,933
+million (31 December 2018: RMB6,933 million). The Group carries out its impairment testing on goodwill by comparing
+the recoverable amounts of CGUS or groups of CGUs to their carrying amounts. For the purpose of goodwill impairment
+review, the recoverable amount of a CGU (or groups of CGUS) is the higher of its fair value less costs of disposal and its
+value in use.
+Impairment tests for goodwill
+During the year ended 31 December 2019, impairment losses of RMB183 million (2018: RMB1,181 million) on goodwill
+and other intangible assets were charged to the consolidated income statement under "Other gains/(losses), net", and
+RMB51 million (2018: Nil) were charged to "cost of revenues" resulting from revisions of financial/business outlook and
+changes in the market environment for the underlying business.
+20 INTANGIBLE ASSETS (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 215
+During the year ended 31 December 2019, amortisation of RMB27,802 million (2018: RMB24,698 million) and RMB1,152 million
+(2018: RMB918 million) were charged to cost of revenues and general and administrative expenses, respectively.
+21 INVESTMENTS IN ASSOCIATES
+213,614
+19,330
+32,605
+410
+1,030
+420
+454
+9,587
+Business combinations
+40,266
+1,750
+463
+12,941
+1,504
+23,608
+Opening net book amount
+11,901
+Year ended 31 December 2018
+1,750
+463
+12,941
+1,504
+23,608
+Net book amount
+4
+(12)
+(6)
+(1)
+(6)
+29
+Currency translation differences
+40,266
+1,850
+Additions
+31,725
+Closing net book amount
+298
+6
+5
+79
+14
+194
+Currency translation differences
+(1,181)
+(4)
+(206)
+(187)
+(784)
+522
+Impairment provision
+(461)
+(63)
+(24,635)
+(457)
+Amortisation
+(1,250)
+(25)
+(25)
+(1,200)
+Disposals
+32,232
+(38)
+23
+(25,616)
+(27,427)
+219,215
+2018
+3,091
+42,458
+122,254
+194,518
+Non-listed entities
+334,688
+(4,298)
+164
+(4,462)
+167,222
+102,590
+243,940
+Listed entities
+(34)
+2019
+December
+as at 31
+continuing comprehensive comprehensive
+operation income income/(loss)
+RMB'Million RMB'Million RMB'Million
+Revenues
+RMB'Million
+Liabilities
+RMB'Million
+Assets
+RMB'Million
+in listed
+associates
+Total
+Other
+Profit/
+(loss) from
+of stakes
+Fair value
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates,
+as well as the fair value of its stakes in the associates which are listed entities, are shown in aggregate as follows:
+RMB'Million
+21 INVESTMENTS IN ASSOCIATES (continued)
+3,057
+224,844
+Annual Report 2019 219
+Management has assessed the level of influence that the Group exercises on certain associates with the respective
+shareholding below 20% and an associate with shareholding over 50% (voting power is below 50%), with total carrying
+amounts of RMB145,971 million and RMB13,393 million as at 31 December 2019, respectively (31 December 2018:
+RMB149,175 million and RMB24,948 million, respectively). Management determined that it has significant influence
+thereon through the board representation or other arrangements made, and it has no control or joint control over such
+investees as the Group has no power to direct relevant activities due to other arrangements made. Consequently, these
+investments have been classified as associates.
+1,325
+24
+1,301
+173,108
+216,895
+436,110
+4,637
+(1)
+4,638
+47,081
+137,217
+438,458
+225,799
+187,339
+(3,312)
+25
+(3,337)
+126,027
+79,678
+210,311
+Listed entities
+2018
+(1,241)
+130
+(1,371)
+209,680
+Non-listed entities
+2019
+For the year ended 31 December 2019
+218 Tencent Holdings Limited
+(3,555)
+Disposals (Note (c))
+(908)
+(550)
+Dividends
+2,861
+2,322
+Share of other changes in net assets of associates
+24
+130
+Share of other comprehensive income of associates
+1,301
+(1,371)
+(725)
+Share of (loss)/profit of associates (Note 10)
+4,859
+Deemed disposal gains (Note 7(a))
+71,593
+(18,948)
+Transfers (Note (b))
+40,918
+14,077
+113,779
+219,215
+Additions (Note (a))
+At beginning of the year
+RMB'Million
+RMB'Million
+1,661
+Notes to the Consolidated Financial Statements
+Impairment provision, net (Note (d))
+(14,069)
+The associates of the Group have been accounted for by using equity method based on the financial information of the
+associates prepared under the accounting policies generally consistent with the Group.
+As a result, the Group made an aggregate impairment provision of RMB3,877 million (2018: RMB14,069 million) against the
+carrying amounts of certain investments in associates during the year ended 31 December 2019, which includes impairment loss
+of approximately RMB5,427 million recognised and approximately RMB1,550 million reversed. The impairment losses mainly
+resulted from revisions of financial/business outlook of the associates and changes in the market environment of the underlying
+business.
+In respect of the recoverable amount using value in use, the discounted cash flows calculations were based on cash flow
+projections estimated by management and the key assumptions adopted in these cash flow projections include revenue growth
+rate, profit margins and discount rate. The pre-tax discount rates adopted range from 15% to 20%. In respect of the recoverable
+amount based on fair value less costs of disposal, except for those listed associates using their respective market prices, the
+fair value less costs of disposal was calculated using certain key valuation assumptions including the selection of comparable
+companies, recent market transactions and liquidity discount for lack of marketability.
+Both external and internal sources of information of associates are considered in assessing whether there is any indication that
+the investment may be impaired, including but not limited to financial position, business performance and market capitalisation.
+The Group carries out impairment assessment on those investments with impairment indications, and the respective recoverable
+amounts of investments are determined with reference to the higher of fair value less costs of disposal and value in use.
+During the year ended 31 December 2019, a company listed in the PRC completed a substantial assets reorganisation pursuant
+to which it acquired the entire equity interest of an associate of the Group through a share swap. Upon completion of the
+aforesaid reorganisation, the Group's equity interest in that associate was exchanged for approximately 5% of the issued ordinary
+shares of the listed company valued at approximately RMB3,526 million. Since the Group has no board representative in the
+listed company and this investment is not held for trading, this investment was recognised as FVOCI.
+(d)
+(c)
+associates of an aggregate amount of approximately RMB6,029 million were transferred to FVPL and approximately
+RMB1,311 million were transferred to FVOCI as a result of changes in nature of these investments.
+(iii)
+associates achieved in stages of an aggregate amount of approximately RMB6, 127 million, which mainly included
+approximately RMB3,202 million transferred from FVPL due to the conversion of redeemable instruments or preferred
+shares into ordinary shares upon their IPOs, and approximately RMB2,874 million transferred from financial instruments
+due to acquiring board representatives or converting the convertible promissory note; and
+investment in an associate of approximately RMB17,735 million, which held majority interests in a mobile game developer,
+was transferred to investment in a subsidiary (Note 41(a));
+(i)
+During the year ended 31 December 2019, transfers mainly comprised the following:
+(3,877)
+(b)
+21 INVESTMENTS IN ASSOCIATES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 217
+During the year ended 31 December 2019, the Group acquired certain new associates and made additional investments in
+existing associates with an aggregate amount of approximately RMB14,077 million. These associates are principally engaged in
+transportation network, retail and other Internet-related business.
+(a)
+Note:
+219,215
+213,614
+At end of the year
+2,780
+1,312
+Currency translation differences
+Note: (continued)
+(1,651)
+(240)
+(23,535)
+RMB'Million
+2018
+2019
+For the year ended 31 December 2019
+Closing net book amount
+Currency translation differences
+Transfer to property, plant and equipment
+Additions
+Opening net book amount
+Notes to the Consolidated Financial Statements
+19 CONSTRUCTION IN PROGRESS
+212 Tencent Holdings Limited
+The total cash outflow in financing activities for leases during the year ended 31 December 2019 was RMB2,882
+million, including principal elements of lease payments of approximately RMB2,400 million and related interest
+paid of approximately RMB482 million, respectively.
+RMB'Million
+Some computer equipment contain variable lease payments. Variable payments are used for a variety of reasons,
+including managing cash outflows and minimising the fixed costs. Variable lease payments that depend on usage
+of bandwidth are recognised in profit or loss in the period in which the condition that triggers those payments
+occur. Variable lease payments relating to computer equipment leases during the year ended 31 December 2019
+were considered to be insignificant.
+1,344
+541
+3,049
+5
+1,501
+1,543
+RMB'Million
+2019
+(included in cost of revenues and expenses)
+Expense relating to variable lease payments not included in lease liabilities
+(included in cost of revenues and expenses)
+Expense relating to short-term leases not included in lease liabilities
+Interest expense (included in finance costs, net)
+2,783
+Others
+4,879
+3,168
+96,723
+3,089
+1,710
+54,292
+3,902
+33,730
+Cost
+At 1 January 2019
+RMB'Million
+Total
+Others
+Trademarks
+technology contents
+RMB'Million RMB'Million RMB'Million RMB'Million
+3,163
+Goodwill
+RMB'Million
+Computer
+software and
+20 INTANGIBLE ASSETS
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 213
+As at 31 December 2019, construction in progress mainly comprised office buildings and data centres under
+construction located in the PRC.
+4,879
+3,935
+1
+(1)
+(1,094)
+(4,111)
+2,809
+Media
+Accumulated amortisation and impairment
+Computer equipment
+Depreciation charge of right-of-use assets
+8,714
+5,111
+7,106
+RMB'Million
+RMB'Million
+2018
+2019
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Closing net book amount
+Amortisation
+Additions
+Opening net book amount
+2,348
+17 LAND USE RIGHTS
+210
+During the year ended 31 December 2019, depreciation of RMB10,828 million (2018: RMB7,030 million), RMB203
+million (2018: RMB153 million) and RMB1,513 million (2018: RMB1,213 million) were charged to cost of revenues,
+selling and marketing expenses and general and administrative expenses, respectively.
+35,091
+1,282
+18
+575
+25,581
+7,635
+Net book amount
+135
+80
+13
+43
+Tencent Holdings Limited
+Buildings
+(211)
+15,609
+The consolidated income statement shows the following amounts relating to leases (excluding the amortisation of
+land use rights, disclosed in Note 17):
+(b) Amounts recognised in consolidated income statement
+18 LEASES (EXCLUDING LAND USE RIGHTS) (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 211
+Additions to the right-of-use assets (excluding land use rights, disclosed in Note 17) during the year ended 31
+December 2019 were RMB4,241 million.
+10,847
+20
+5,253
+5,574
+Net book amount as at 31 December 2019
+9,688
+(353)
+6
+5,505
+(Note 2.2)
+RMB'Million
+RMB'Million RMB'Million
+Total
+Computer
+equipment
+Buildings
+RMB'Million
+Net book amount as at 1 January 2019
+Except recognition of lease liabilities, the carrying amounts of right-of-use assets (excluding land use rights,
+disclosed in Note 17), are as below:
+(a) Amounts recognised in the consolidated statement of financial position
+18 LEASES (EXCLUDING LAND USE RIGHTS)
+The land use rights represent prepaid operating lease payments in respect of land in the PRC with remaining lease
+period of 30 to 55 years.
+7,106
+4,177
+(1,348)
+(2,060)
+(35,040)
+93,456
+Net book amount
+934
+6
+9
+133
+18
+768
+Currency translation differences
+(62,178)
+(1,906)
+(785)
+(55,504)
+1,956
+(2,615)
+Accumulated amortisation and impairment
+190,104
+4,049
+8,535
+78,911
+4,553
+94,056
+Cost
+At 31 December 2019
+128,860
+2,149
+7,759
+23,540
+(1,368)
+1,956
+23,540
+2,149
+(1,437)
+(564)
+Accumulated amortisation and impairment
+67,689
+3,413
+709
+36,477
+2,947
+24,143
+Cost
+At 1 January 2018
+RMB'Million
+Total
+7,759
+Others
+RMB'Million
+(Note)
+(Note)
+RMB'Million
+Trademarks
+technology contents
+RMB'Million RMB'Million
+RMB'Million
+Goodwill
+Media
+software and
+Computer
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+214 Tencent Holdings Limited
+128,860
+(Note)
+93,456
+Closing net book amount
+632
+145
+60,326
+Business combinations (Note 41)
+56,650
+1,638
+1,227
+19,330
+1,850
+32,605
+Opening net book amount
+Year ended 31 December 2019
+56,650
+1,638
+7,143
+1,227
+1,850
+32,605
+Net book amount
+302
+(6)
+(1)
+78
+8
+223
+Currency translation differences
+(40,375)
+(1,445)
+(482)
+19,330
+6,793
+845
+75,252
+12
+10
+55
+10
+545
+Currency translation differences
+(234)
+(1)
+(81)
+(51)
+(81)
+(20)
+Impairment provision
+(28,954)
+(503)
+(223)
+(27,758)
+(470)
+Amortisation
+(1,060)
+(11)
+(1,049)
+Disposals
+26,574
+169
+33
+25,870
+502
+Additions
+(23,049)
+(ii)
+20 INTANGIBLE ASSETS (continued)
+amortisation
+– Hong Kong
+- United Kingdom
+As at 31 December
+2019
+Annual Report 2019 229
+The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be
+available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting
+periods. As at 31 December 2019, the Group did not recognise deferred income tax assets of RMB1,889 million (31 December 2018:
+RMB1,351 million) in respect of cumulative tax losses amounting to RMB8,569 million (31 December 2018: RMB6,277 million). These
+tax losses will expire from 2020 to 2024.
+Note:
+15,755
+3,182
+- France
+8,078
+4,404
+At 31 December 2018
+17
+17
+170
+170
+Currency translation differences
+of changes in equity
+Credited to consolidated statement
+91
+5,713
+- Mainland China
+Equity investments in listed entities
+2,516
+At end of the year
+81,721
+43,519
+Note:
+74,707
+249
+460
+3,093
+United States
+2,691
+11,858
+33,120
+59,449
+RMB'Million
+RMB'Million
+2018
+For the year ended 31 December 2019
+25 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
+FVOCI include the following:
+5,365
+1,576
+703
+(5)
+593
+1,651
+20
+20
+15,755
+3,182
+8,078
+91
+4,404
+588
+(Note)
+Total
+payments
+and others
+RMB'Million
+Accrued
+expenses
+RMB'Million
+RMB'Million
+RMB'Million
+Tax losses
+assets
+of intangible
+Share-based
+RMB'Million
+2,513
+1,623
+108
+2,502
+income statement
+Credited/(charged) to consolidated
+62
+62
+9,793
+2,230
+5,565
+96
+4,455
+1,902
+At 1 January 2018
+20,378
+4,973
+8,666
+684
+6,055
+40
+40
+108
+Business combinations
+Currency translation differences
+(22,200)
+(702)
+For the year ended 31 December 2019
+24 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
+Movement of FVPL is analysed as follows:
+2019
+2018
+RMB'Million
+RMB'Million
+At beginning of the year
+97,877
+Notes to the Consolidated Financial Statements
+Adjustment on adoption of IFRS 9
+Additions (Note (a))
+44,618
+60,807
+Transfers (Note (b))
+(1,421)
+(78,816)
+Changes in fair value (Note 7(b))
+9,511
+28,738
+95,497
+Disposals (Note (c))
+223
+97,877
+234
+10,408
+9,123
+Investments in unlisted entities
+111,761
+78,234
+Others
+6,653
+4,345
+Annual Report 2019
+128,822
+Included in current assets:
+Investment in a listed entity
+Treasury investments and others
+15
+7,099
+6,175
+7,114
+6,175
+135,936
+91,702
+(16,664)
+(14,805)
+Currency translation differences
+43,519
+Movement of FVOCI is analysed as follows:
+2019
+2018
+RMB'Million
+RMB'Million
+At beginning of the year
+43,519
+Adjustment on adoption of IFRS 9
+81,721
+58,515
+13,768
+17,689
+Transfers
+211
+3,577
+Changes in fair value
+23,349
+(16,578)
+Disposals
+Additions (Note (a) and Note 21(c))
+1,941
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+2,015
+Credited to consolidated income statement
+At end of the year
+135,936
+97,877
+Note:
+(a)
+(b)
+(c)
+(d)
+During the year ended 31 December 2019, the Group's additions to FVPL mainly comprised the following:
+(i)
+(ii)
+(iii)
+an investment in a retail company of approximately USD500 million (equivalent to approximately RMB3,550 million) to
+subscribe for approximately 21% of its equity interests in form of preferred shares, on an outstanding basis;
+an additional investment in a real estate 020 platform in the PRC of approximately USD320 million (equivalent to
+approximately RMB2,258 million). As at 31 December 2019, the Group's equity interests in this investee company are
+approximately 9% on an outstanding basis; and
+new investments and additional investments with an aggregate amount of approximately RMB38,810 million in listed
+and unlisted entities mainly operating in the United States, the PRC and other Asian countries. These companies are
+principally engaged in social networks, Internet platform, technology and other Internet-related business. None of the
+above investment was individually significant that triggers any disclosure requirements pursuant to Chapter 14 of the
+Listing Rules at the time of inception.
+During the year ended 31 December 2019, except as described in Note 21(b), transfers also mainly comprised an equity
+investment designated as FVOCI due to the conversion of the redeemable instruments into ordinary shares amounting to
+RMB1,395 million upon its IPO.
+During the year ended 31 December 2019, the Group disposed of certain investments with an aggregate amount of RMB16,664
+million, which are mainly engaged in the provision of Internet-related services.
+Management has assessed the level of influence that the Group exercises on certain FVPL with shareholding exceeding 20%.
+Since these investments are either held in form of redeemable instruments or interests in limited life partnership without
+significant influence, these investments have been classified as FVPL.
+224
+Accelerated
+Deferred income tax assets on temporary differences arising from
+For the year ended 31 December 2019
+At 31 December 2019
+15,755
+(10,964)
+4,791
+20
+(2,967)
+(2,947)
+4,455
+(3,237)
+1,218
+RMB'Million
+2,545
+108
+(338)
+(230)
+40
+(49)
+(9)
+(2,169)
+2,169
+18,209
+2,545
+(12,841)
+RMB'Million
+net
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+28 DEFERRED INCOME TAXES (continued)
+The movements of the deferred income tax assets/liabilities account were as follows:
+At 1 January 2019
+Business combinations
+Credited/(charged) to consolidated income statement (Note 11)
+Withholding taxes paid
+Credited/(charged) to consolidated statement of changes
+RMB'Million
+in equity
+Set-off of deferred tax assets/liabilities
+At 31 December 2019
+Deferred
+income tax
+Deferred
+income tax
+Deferred
+income tax,
+assets
+liabilities
+Currency translation differences
+5,368
+Deferred
+Deferred
+170
+17
+187
+Other additions
+(986)
+(986)
+Currency translation differences
+17
+(126)
+Credited to consolidated statement of changes in equity
+(109)
+15,755
+(10,964)
+4,791
+228 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+28 DEFERRED INCOME TAXES (continued)
+The movements of deferred income tax assets before offsetting were as follows:
+At 1 January 2019
+Business combinations
+At 31 December 2018
+1,773
+1,773
+Withholding taxes paid
+income tax
+income tax
+Deferred
+income tax,
+assets
+liabilities
+net
+RMB'Million
+RMB'Million
+RMB'Million
+At 1 January 2018
+9,793
+(5,975)
+3,818
+Business combinations
+62
+(563)
+(501)
+Credited/(charged) to consolidated income statement (Note 11)
+5,713
+(5,104)
+609
+227
+163
+Annual Report 2019
+(15,010)
+564
+99
+5,623
+3,297
+23,442
+21,531
+Included in current assets:
+Running royalty fees for online games (Note (b))
+10,888
+619
+5,230
+8,353
+7,532
+Interest receivables
+2,774
+1,697
+Lease deposits and other deposits
+1,107
+693
+Dividend and other investment-related receivables
+Prepayments and prepaid expenses
+1,034
+587
+937
+Currency translation differences
+changes in equity
+(a)
+During the year ended 31 December 2019, except as described in Note 21(c), the Group also made certain new investments
+and additional investments with an aggregate amount of approximately RMB 10,242 million in companies which are principally
+engaged in Internet-related business.
+Annual Report 2019 225
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+26 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+Included in non-current assets:
+3,864
+Prepayments for media contents
+Prepayments for capital investments in investees
+Running royalty fees for online games (Note (b))
+Others
+As at 31 December
+2019
+RMB'Million
+2018
+RMB'Million
+15,731
+13,652
+Loans to investees and investees' shareholders (Note (a))
+338
+Refundable value-added tax
+629
+2019
+2018
+RMB'Million
+RMB'Million
+Deferred income tax assets:
+- to be recovered after more than 12 months
+11,412
+7,216
+- to be recovered within 12 months
+As at 31 December
+8,966
+20,378
+15,755
+Deferred income tax liabilities:
+- to be recovered after more than 12 months
+(13,916)
+(9,834)
+― to be recovered within 12 months
+(1,094)
+(1,130)
+8,539
+The analysis of deferred income tax assets and liabilities before offsetting is as follows:
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+28 DEFERRED INCOME TAXES
+915
+Loans to investees and investees' shareholders (Note (a))
+Others
+447
+225
+2,608
+1,863
+27,840
+18,493
+51,282
+40,024
+Note:
+(a)
+As at 31 December 2019, the balances of loans to investees and investees' shareholders are mainly repayable within a period
+of one to five years (included in non-current assets), or within one year (included in current assets), and are interest-bearing at
+rates of not higher than 12.0% per annum (31 December 2018: not higher than 12.0% per annum).
+(b)
+Running royalty fees for online games comprised prepaid royalty fees, unamortised running royalty fees and deferred Online
+Service Fees.
+As at 31 December 2019, the carrying amounts of deposits and other assets (excludes prepayments and refundable
+value-added tax) approximated their fair values. Deposits and other assets were neither past due nor impaired.
+226 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+27 OTHER FINANCIAL ASSETS
+As at 31 December 2019, the Group's current other financial assets comprised a derivative contract and call options
+held by the Group to acquire additional equity interests in an investee company of the Group.
+(10,964)
+398
+6,456
+- South Korea
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+21 INVESTMENTS IN ASSOCIATES (continued)
+Particulars of a material associate of the Group, as determined by the directors, are set out below:
+Place of
+Name of entity
+incorporation
+Number of
+shares held
+Interest held
+indirectly Principal activities/place of operation
+Meituan Dianping
+PRC
+1,046,951,338
+18.02%
+eCommerce platform for services/the PRC
+Except Meituan Dianping, the directors of the Company considered that there is no other individual investment which
+was determined as a material associate.
+Set out below are the summarised financial information of Meituan Dianping extracted from its financial statements
+prepared under IFRS.
+As at 31 December
+2019
+570
+2018
+33,756
+49,671
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+221
+Annual Report 2019
+During the year ended 31 December 2019, the Group reversed an aggregate impairment of RMB54 million (2018:
+impairment provision of RMB2,328 million) against the carrying amounts of the investments in joint ventures, based on
+the respective assessed recoverable amounts.
+Share of loss amounting to RMB310 million was recognised during the year ended 31 December 2019 (2018: share of
+profit of RMB186 million) (Note 10).
+As at 31 December 2019, the Group's investments in joint ventures of RMB8,280 million (31 December 2018:
+RMB8,575 million) mainly comprised investee companies that are principally a special purpose vehicle of which we have
+a majority stake therein for the investment in one of the telecommunication carriers in the PRC and other joint venture
+initiatives in new retail and entertainment-related business.
+22 INVESTMENTS IN JOINT VENTURES
+During the year ended 31 December 2019, the Group had undertaken transactions relating to the provision of various
+services such as FinTech services, business services and online advertising to certain associates, which mainly engaged
+in various Internet businesses such as eCommerce, 020 platforms, FinTech services under, among others, certain
+business co-operation arrangements. The transactions with associates for the years ended 31 December 2019 and 2018
+were considered not significant compared to total revenue in the consolidated financial statements.
+Transactions with associates
+There were no material contingent liabilities relating to the Group's interests in the associates.
+There were no dividends or realised gain received from Meituan Dianping during the year ended 31 December 2019 and
+the unrealised gain mainly represents the Group's share of profit of Meituan Dianping.
+is 5.21%, and the fair value of this investment which is a listed entity was RMB95,566 million.
+As at 31 December 2019, the carrying amount of the investment in Meituan Dianping relative to the Group's total assets
+21 INVESTMENTS IN ASSOCIATES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+220 Tencent Holdings Limited
+50,245
+Carrying amount
+RMB'Million
+RMB'Million
+Summarised consolidated financial statements
+31,825
+Non-current liabilities
+3,366
+2,327
+Total equity
+92,054
+86,510
+Reconciliation to carrying amounts:
+Net assets
+92,054
+86,510
+Group's share in %
+18.02%
+19.06%
+Group's share in RMB
+16,588
+16,489
+Goodwill and others
+33,083
+36,593
+Current liabilities
+47,512
+49,878
+41,578
+Equity investments in unlisted entities
+7,014
+Revenues
+97,529
+65,227
+Profit/(loss) for the year
+2,236
+(115,493)
+23 FINANCIAL INSTRUMENTS BY CATEGORY
+Other comprehensive income/(loss)
+(7,803)
+Total comprehensive income/(loss) for the year
+2,919
+(123,296)
+Summarised consolidated balance sheet
+Current assets
+82,135
+73,150
+Non-current assets
+683
+As at 31 December 2019, the financial instruments of the Group are analysed as follows:
+Credited to consolidated statement of
+As at 31 December
+16,841
+23,528
+welfare accruals) (Note 40)
+received from customers and others, staff costs and
+Other payables and accruals (excluding prepayments
+11,707
+73,735
+80,690
+8,703
+4,797
+3,577
+65,018
+93,861
+114,271
+Financial liabilities at fair value:
+126,952
+Accounts payable (Note 39)
+Other financial liabilities (Note 38)
+Long-term payables (Note 37)
+Notes payable (Note 36)
+Borrowings (Note 35)
+Financial liabilities at amortised cost:
+345,934
+Financial assets
+2,032
+375
+43,519
+81,721
+97,877
+135,936
+Lease liabilities (Note 18)
+Other financial liabilities (Note 38)
+2,396
+4,506
+– Hong Kong
+539
+591
+537
+1,352
+1,442
+1,636
+2,613
+2,525
+3,360
+3,571
+- Sweden
+- Mainland China
+United States
+- United Kingdom
+- Japan
+Investments in listed entities
+351,414
+279,168
+The Group's exposure to various risks associated with the financial instruments is discussed in Note 3. The maximum
+exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
+mentioned above.
+222 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+Financial liabilities
+24 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
+Included in non-current assets:
+As at 31 December
+2019
+RMB'Million
+2018
+RMB'Million
+FVPL include the following:
+OFA (Note 27)
+467,465
+12,512
+2019
+RMB'Million
+2018
+RMB'Million
+Financial assets at amortised cost:
+Deposits and other receivables (Note 26)
+10,757
+Term deposits (Note 29)
+65,911
+Accounts receivable (Note 30)
+62,918
+28,427
+Cash and cash equivalents (Note 31(a))
+132,991
+97,814
+Restricted cash (Note 31(b))
+2,180
+2,590
+Financial assets at fair value:
+FVPL (Note 24)
+FVOCI (Note 25)
+35,839
+Investments
+33 OTHER RESERVES (continued)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+Available-for
+FVOCI
+in associates
+Currency
+PRC Share-based
+and joint
+Tencent Holdings Limited
+Capital sale financial
+236
+Other fair value losses, net
+(483)
+5,817
+3,524
+3,145
+7,408
+11,167
+(13,792)
+Balance at 31 December 2019
+(2,292)
+(2,292)
+translation
+2,928
+16,786
+statutory compensation
+RMB'Million
+assets
+2,273
+(3,464)
+2,228
+31,152
+(2,999)
+as previously reported
+Balance at 31 December 2017,
+(Note (c))
+(Note (b))
+(Note (a))
+RMB'Million
+RMB'Million
+reserves
+RMB'Million
+RMB'Million
+RMB'Million
+2,928
+RMB'Million
+RMB'Million
+Total
+Others
+reserves
+reserves
+differences
+ventures
+FVOCI
+RMB'Million
+9,552,615,286
+(3)
+126
+(3,332) (10,714)
+5,112
+217
+2,790
+4,847
+1,809
+729
+Balance at 1 January 2019
+Transfer of gains on disposal and deemed
+disposal of FVOCI to retained earnings
+(Note (d))
+Share of other changes in net assets of
+associates
+2,322
+(720)
+2,322
+Transfer of share of other changes in net
+assets of associates to profit or loss upon
+(720)
+(Note (c))
+(Note (b))
+(Note (a))
+and joint
+translation
+statutory compensation
+FVOCI
+ventures
+differences
+reserves
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+reserves
+RMB'Million
+Others
+Total
+RMB'Million
+RMB'Million
+deemed disposal of associates
+26
+(149)
+Value of employee services:
+Currency translation differences
+22,601
+26
+126
+62
+62
+379
+disposal of associates
+379
+(534)
+(4,849)
+(4,722)
+(355)
+734
+734
+22,601
+529
+income to profit or loss upon deemed
+Transfer of share of other comprehensive
+Share of other comprehensive income of
+associates and joint ventures
+- Employee share option schemes
+- Employee share award schemes
+Tax benefit from share-based payments
+Acquisition of additional equity interests in
+non-wholly owned subsidiaries
+(534)
+Transfer of equity interests of subsidiaries to
+non-controlling interests
+(4,849)
+Recognition of financial liabilities in
+respect of the put option from business
+combination
+(4,722)
+Dilution of interests in subsidiaries
+(355)
+Profit appropriations to statutory reserves
+Net gains from changes in fair value of
+FVOCI
+(149)
+Net losses from changes in fair value of
+35,271
+31,269
+The Pre-IPO Option Scheme, the Post-IPO Option Scheme I and the Post-IPO Option Scheme II and the Post-IPO
+Option Scheme III expired on 31 December 2011, 23 March 2014, 16 May 2017 and 13 May 2019, respectively.
+Upon the expiry of these schemes, no further options would be granted under these schemes, but the options
+granted prior to such expiry continued to be valid and exercisable in accordance with provisions of the schemes.
+As at 31 December 2019, there were no outstanding options exercisable of the Pre-IPO Option Scheme, the
+Post-IPO Option Scheme I and the Post-IPO Option Scheme III.
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV.
+(a) Share option schemes
+34 SHARE-BASED PAYMENTS
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+In respect of the Post-IPO Option Scheme IV which continues to be in force, the Board may, at its discretion, grant
+options to any qualifying participants to subscribe for shares in the Company, subject to the terms and conditions
+stipulated therein. The exercise price must be in compliance with the requirement under the Rules Governing
+the Listing of Securities on the Stock Exchange. In addition, the option vesting period is determined by the Board
+provided that it is not later than the last day of a 7-year period for the Post-IPO Option Scheme IV after the date of
+grant of option.
+238
+(d)
+Share-based compensation reserve arises from share option schemes and share award schemes adopted by the subsidiaries of
+the Group (Note 34(d)).
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly owned foreign subsidiaries in the PRC, appropriation from net profit (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, such transfer needs not be made.
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries
+with limited liabilities in the PRC, appropriation of net profit (after offsetting accumulated losses from prior years) should be
+made by these companies to their respective Statutory Surplus Reserve Funds and the Discretionary Reserve Funds before
+distributions are made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount
+to be transferred to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance
+of the Statutory Surplus Reserve Fund reaches 50% of the registered capital, such transfer needs not to be made. Both the
+Statutory Surplus Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the
+remaining Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+(c)
+(b)
+The Group has elected to recognise changes in the fair value of certain investments in equity instruments in other comprehensive
+income. These changes are accumulated with FVOCI reserve with equity. The Group transfers amounts from this reserve to
+retained earnings when the relevant equity instruments are derecognised.
+Annual Report 2019
+239
+At 1 January 2018
+(2,187)
+(2,187)
+5,022
+5,022
+525
+6,891,249
+1,983
+- shares withheld for share award schemes (Note (b))
+- value of employee services
+Employee share award schemes:
+- shares issued (Note (a))
+- value of employee services
+Employee share option schemes:
+18,234
+(3,970)
+22,204
+9,499,056,887
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+1,983
+(a)
+33 OTHER RESERVES (continued)
+11
+148
+148
+466
+466
+63
+63
+Balance at 31 December 2018
+517
+3,681
+23
+(16,095)
+Other fair value gains, net
+Currency translation differences
+associates and joint ventures
+Share of other comprehensive income of
+।
+(3,332)
+(10,714)
+5,112
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+༈ ཟ། །
+3,681
+23
+(16,095)
+517
+2,836
+(406)
+(1,886)
+(877)
+237
+Annual Report 2019
+1,809
+4,847
+2,790
+217
+Note:
+(4,002)
+525
+Profit appropriations to statutory reserves
+(9,561)
+2.861
+associates
+Value of employee services:
+-Employee share option schemes
+- Employee share award schemes
+Tax benefit from share-based payments
+Acquisition of additional equity interests
+2,861
+in non-wholly owned subsidiaries
+Capital
+reserves
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+(1,886)
+Recognition of financial liabilities
+in respect of the put option from
+business combination
+(877)
+(9,561)
+Share of other changes in net assets of
+retained earnings (Note (d))
+4,170
+1,798
+35,158
+Adjustment on adoption of IFRS 9
+(31,152)
+14,942
+(16,210)
+Balance at 1 January 2018
+(2,999)
+14,942
+2,228
+(3,464)
+2,273
+4,170
+1,798
+18,948
+Transfer of gains on disposal of FVOCI to
+(406)
+- shares allotted for share award schemes (Note (c))
+Dilution of interests in subsidiaries
+Currency
+234 Tencent Holdings Limited
+23,121
+(4,173)
+27,294
+9,520,307,091
+327
+327
+Notes to the Consolidated Financial Statements
+At 31 December 2018
+(783)
+(783)
+(2,848,000)
+Repurchase and cancellation of shares (Note (e))
+1,984
+(1,984)
+- shares vested from share award schemes and
+transferred to the grantees (Note (d))
+Acquisition of additional equity interests in non-wholly
+owned subsidiaries
+For the year ended 31 December 2019
+32 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (continued)
+As at 31 December 2019, the total number of issued ordinary shares of the Company included 77,967,786 shares (31 December
+2018: 63,275,620 shares) held under the Share Award Schemes.
+in associates
+Investments
+33 OTHER RESERVES
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 235
+During the year ended 31 December 2019, the Company repurchased 3,486,700 of its own shares from the market which were
+subsequently cancelled (2018: 2,848,000 shares). The shares were acquired at prices ranging from HKD312.40 to HKD351.00,
+with an average price of HKD332.90 per share (2018: ranging from HKD265.20 to HKD333.40, with an average price of
+HKD311.38 per share).
+(e)
+During the year ended 31 December 2019, the Share Scheme Trust transferred 23,537,445 ordinary shares of the Company
+(2018: 31,446,159 ordinary shares) to the share awardees upon vesting of the awarded shares (Note 34(b)).
+(d)
+During the year ended 31 December 2019, the Company allotted 34,182,154 ordinary shares (2018: 17,206,955 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the Share Award
+Schemes.
+During the year ended 31 December 2019, the Share Scheme Trust withheld 4,047,457 ordinary shares (2018: 6,839,643
+ordinary shares) of the Company for an amount of approximately HKD1,332 million (equivalent to approximately RMB1,186
+million) (2018: HKD2,550 million (equivalent to approximately RMB2, 187 million)), which had been deducted from the equity.
+(c)
+(b)
+During the year ended 31 December 2019, 1,612,741 Post-IPO options (2018: 6,891,249 Post-IPO options) with exercise prices
+ranging from HKD49.76 to HKD272.36 (2018: HKD31.70 to HKD272.36) were exercised.
+(a)
+Note:
+2,836
+17,206,955
+PRC Share-based
+1,357
+Over 90 days
+61 - 90 days
+31 - 60 days
+0-30 days
+Accounts receivable and their ageing analysis, based on recognition date, are as follows:
+30 ACCOUNTS RECEIVABLE (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Majority of the Group's accounts receivable were denominated in RMB.
+231
+28,427
+35,839
+(1,357)
+(1,429)
+29,784
+37,268
+RMB'Million
+RMB'Million
+Annual Report 2019
+As at 31 December
+2019
+2018
+2019
+As at 31 December
+Third party platform providers
+Others
+Content production related customers
+FinTech and cloud customers
+Online advertising customers and agencies
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+28,427
+35,839
+5,331
+5,000
+4,201
+5,035
+7,695
+10,222
+11,200
+15,582
+RMB'Million
+RMB'Million
+2018
+2019
+As at 31 December
+Loss allowance
+Included in current assets:
+RMB term deposits
+Included in non-current assets:
+An analysis of the Group's term deposits by currencies are as follows:
+For the year ended 31 December 2019
+29 TERM DEPOSITS
+Tencent Holdings Limited
+230
+As at 31 December 2019, the Group recognised the relevant deferred income tax liabilities of RMB5,781 million (31
+December 2018: RMB5,668 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable
+future. No withholding tax had been provided for the earnings of approximately RMB21,139 million (31 December 2018:
+RMB13,685 million) expected to be retained by the PRC subsidiaries and not to be remitted to a foreign investor in the
+foreseeable future based on several factors, including management's estimation of overseas funding requirements.
+(10,964)
+(552)
+(1,634)
+(919)
+(1,299)
+(5,668)
+(892)
+(126)
+(14)
+(104)
+RMB term deposits
+2018
+USD term deposits
+As at 31 December
+Accounts receivable from contracts with customers
+30 ACCOUNTS RECEIVABLE
+Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2019, the
+carrying amounts of the term deposits with initial terms of over three months approximated their fair values.
+The effective interest rate for the term deposits of the Group with initial terms of over three months to three years during
+the year ended 31 December 2019 was 3.57% (2018: 4.08%).
+62,918
+65,911
+62,918
+46,911
+1,389
+1,988
+6,349
+16,325
+55,180
+28,598
+19,000
+RMB'Million
+2018
+RMB'Million
+2019
+Other currencies
+(986)
+RMB'Million
+11,797
+1,612,741
+2,041
+- shares withheld for share award schemes (Note (b))
+- value of employee services
+Employee share award schemes:
+- shares issued (Note (a))
+- value of employee services
+23,121
+272
+(4,173)
+9,520,307,091
+Total
+RMB'Million
+Shares
+held for share
+award schemes
+RMB'Million
+Share
+premium
+RMB'Million
+RMB'Million
+capital
+Share
+paid ordinary
+shares*
+27,294
+7,303
+7,303
+(1,186)
+At 31 December 2019
+488
+488
+interests
+Transfer of equity interests of subsidiaries to non-controlling
+276
+276
+Acquisition of additional equity interests in non-wholly
+owned subsidiaries
+(1,046)
+(1,046)
+(3,486,700)
+Repurchase and cancellation of shares (Note (e))
+(1,357)
+- shares vested from share award schemes and
+transferred to the grantees (Note (d))
+34,182,154
+- shares allotted for share award schemes (Note (c))
+272
+2,041
+(1,186)
+Number of
+issued and fully
+Employee share option schemes:
+At 1 January 2019
+As at 31 December 2019 and 2018, the authorised share capital of the Company comprises 50,000,000,000 ordinary
+shares with par value of HKDO.00002 per share.
+As at 31 December 2019, the carrying amounts of accounts receivable approximated their fair values.
+Beginning from 1 January 2018, the Group applies the simplified approach permitted by IFRS 9, which requires
+expected lifetime losses to be recognised from initial recognition of the assets. The provision matrix is determined
+based on historical observed default rates over the expected life of the receivables with similar credit risk characteristics
+and is adjusted for forward-looking estimates. The historical observed default rates are updated and changes in the
+forward-looking estimates are analysed at year end. For the year ended 31 December 2019 and 2018, information about
+the impairment of accounts receivable and the Group's exposure to credit risk and foreign currency risk can be found in
+Note 3.1.
+30 ACCOUNTS RECEIVABLE (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+232
+Some online advertising customers and agencies are usually granted with a credit period within 90 days immediately
+following the month-end in which the relevant obligations under the relevant contracted advertising orders are delivered.
+Third party platform providers usually settle the amounts due by them within 60 days. Other customers, mainly including
+content production related customers and FinTech and cloud customers, are usually granted with a credit period within
+90 days.
+28,427
+35,839
+2,946
+3,315
+3,877
+5,259
+5,400
+5,260
+4,260
+10,208
+11,944
+31 BANK BALANCES AND CASH
+RMB'Million
+(a) Cash and cash equivalents
+2019
+32 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 233
+As at 31 December 2019, restricted deposits held at bank of RMB2, 180 million (31 December 2018: RMB2,590
+million) were mainly denominated in RMB.
+(b) Restricted cash
+Approximately RMB62,963 million (31 December 2018: RMB31,015 million) and RMB805 million (31 December
+2018: RMB3,349 million) of the total balance of the Group's cash and cash equivalents was denominated in RMB
+and placed with banks in Mainland China and Hong Kong, respectively.
+The effective interest rate of the term deposits of the Group with initial terms within three months during the year
+ended 31 December 2019 was 3.29% (2018: 3.59%).
+97,814
+132,991
+59,118
+72,084
+Term deposits and highly liquid investments with initial terms within
+three months
+38,696
+60,907
+Bank balances and cash
+RMB'Million
+RMB'Million
+2018
+As at 31 December
+(986)
+Notes to the Consolidated Financial Statements
+17
+RMB'Million
+At 1 January 2019
+(892)
+(5,668)
+(1,299)
+(919)
+(1,634)
+(552)
+(10,964)
+RMB'Million
+Business combinations
+(9)
+(2,967)
+Credited/(charged) to consolidated
+income statement
+223
+(2,650)
+(89)
+33
+33
+(2,958)
+RMB'Million
+RMB'Million
+Total
+17
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+28 DEFERRED INCOME TAXES (continued)
+The movements of deferred income tax liabilities before offsetting were as follows:
+Deferred income tax liabilities on temporary differences arising from
+Withholding
+Intangible
+tax on the
+assets
+acquired
+earnings
+anticipated Change in fair
+Deemed
+Accelerated
+in business to be remitted
+combinations by subsidiaries
+RMB'Million RMB'Million
+value of FVPL
+disposals of
+tax
+and FVOCI
+RMB'Million
+investees
+Others
+Withholding tax paid
+2,545
+depreciation
+358
+Business combinations
+(563)
+(563)
+Credited/(charged) to consolidated
+income statement
+178
+(3,360)
+(75)
+(139)
+(5,975)
+(74)
+Withholding tax paid
+1,773
+1,773
+Credited to consolidated statement of
+changes in equity
+Other additions
+Currency translation differences
+(1,112)
+At 31 December 2018
+(5,104)
+(464)
+(1,634)
+(151)
+(3,237)
+2,545
+(779)
+Charged to consolidated statement of
+changes in equity
+Currency translation differences
+(338)
+(338)
+(24)
+(49)
+At 31 December 2019
+(17)
+(5,781)
+(1,743)
+(4,075)
+(886)
+(2,746)
+(227)
+(15,010)
+At 1 January 2018
+(3,627)
+(506)
+5,191,480
+22,761,755
+23,504,535
+(Post-IPO Option Scheme II and
+Post-IPO Option Scheme IV)
+HKD225.44~HKD272.36
+22,576,120
+22,581,405
+902
+HKD403.16~HKD444.20
+HKD112.30 HKD174.86
+31,308,935
+35,450,183
+22,875
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2019 and 2018 are as follows:
+HKD49.76
+7 years commencing from the date
+of grant of options
+31 December
+2018
+31 December
+2019
+Range of exercise price
+Expiry Date
+Number of share options
+Outstanding share options
+(ii)
+628
+As a result of the options exercised during the year ended 31 December 2019, 1,612,741 ordinary shares
+(2018: 6,891,249 ordinary shares) were issued by the Company (Note 32). The weighted average price of
+the shares at the time these options were exercised was HKD339.07 per share (equivalent to approximately
+RMB301.04 per share) (2018: HKD399.37 per share (equivalent to approximately RMB325.67 per share)).
+During the year ended 31 December 2019, 3,506,580 options were granted to an executive director of the
+Company (2018: 3,215,800 options were granted to an executive director of the Company).
+Between 1 and 2 years
+RMB bank borrowings, secured (Note (b))
+(a)
+Current portion of long-term USD bank borrowings, unsecured (Note (a))
+Current portion of long-term RMB bank borrowings,
+(i) Movements in share options (continued)
+Interest rate
+(per annum)
+(Million)
+Amount
+31 December 2018
+31 December 2019
+The aggregate principal amounts of long-term bank borrowings and applicable interest rates are as follows:
+Note:
+35 BORROWINGS (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+245
+201
+Annual Report 2019
+126,952
+26,834
+22,695
+894
+Current portion of long-term HKD bank borrowings, unsecured (Note (a))
+475
+- secured (Note (a))
+332
+4,633
+- unsecured (Note (a))
+5,628
+140
+114,271
+For the year ended 31 December 2019
+No. of
+options
+34 SHARE-BASED PAYMENTS (continued)
+(314,900) (316,125)
+HKD320.56
+(1,225)
+36,277,234 87,776,244
+HKD374.52
+HKD374.01 26,249,615 26,249,615
+HKD272.36 (473,756) (1,612,741)
+(1,138,985)
+HKD158.51
+HKD148.90
+Lapsed/forfeited
+Exercised
+Granted
+51,499,010
+HKD185.25
+At 31 December 2019
+At 1 January 2019
+No. of
+Total
+Post-IPO Option Scheme III Post-IPO Option Scheme IV
+Average
+No. of Average
+options exercise price options exercise price
+exercise price
+Post-IPO Option Scheme II
+Average
+No. of
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+(i) Movements in share options
+(a) Share option schemes (continued)
+34 SHARE-BASED PAYMENTS (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Amount
+options
+(a) Share option schemes (continued)
+HKD185.86 50,358,800
+61,738,193 112,096,993
+Notes to the Consolidated Financial Statements
+240 Tencent Holdings Limited
+1,760,025 24,179,181
+HKD274.86
+HKD160.50 22,419,156
+31 December 2018
+Exercisable as at
+HKD374.52 36,277,234 87,776,244
+HKD185.25 51,499,010
+At 31 December 2018
+HKD298.36 (178,062) (222,465)
+(424,414) (6,891,249)
+HKD375.36
+27,723,850 27,723,850
+HKD110.85 (3,966,835) HKD31.70
+HKD136.67 (44,403)
+Exercised
+Lapsed/forfeited
+Granted
+2,500,000
+HKD31.70
+HKD179.90 55,510,248
+At 1 January 2018
+10,997,475 44,853,347
+HKD363.68
+HKD172.30 33,855,872
+31 December 2019
+Exercisable as at
+HKD273.80 9,155,860 67,166,108
+HKD405.73
+(2,500,000) HKD272.36
+(Million)
+Between 2 and 5 years
+USD bank borrowings
+30.00%
+Note:
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the
+average daily trading price volatility of the shares of the Company.
+242
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+34 SHARE-BASED PAYMENTS (continued)
+(b) Share award schemes
+The Company has adopted three share award schemes (the "Share Award Schemes") as of 31 December 2019,
+which are administered by an independent trustee appointed by the Group. The vesting period of the awarded
+shares is determined by the Board.
+Movements in the number of awarded shares for the years ended 31 December 2019 and 2018 are as follows:
+At beginning of the year
+Granted
+Lapsed/forfeited
+Vested and transferred
+0.23% 0.24% 0.25%
+30.00%
+At end of the year
+Expected volatility (Note)
+HKD405.00
+1.77%~2.27%
+The outstanding share options as of 31 December 2019 were divided into one to five tranches on an equal
+basis as at their grant dates. The first tranche can be exercised after a specified period ranging from ten
+months to five years from the grant date, and then the remaining tranches will become exercisable in each
+subsequent year.
+Annual Report 2019 241
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+34 SHARE-BASED PAYMENTS (continued)
+(a) Share option schemes (continued)
+(iii)
+Fair value of options
+The directors of the Company have used the Binomial Model to determine the fair value of the options as at
+the respective grant dates, which is to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2019 was HKD123.82 per share (equivalent
+to approximately RMB106.09 per share) (2018: HKD127.43 per share (equivalent to approximately
+RMB103.46 per share)).
+Other than the exercise price mentioned above, significant judgment on parameters, such as risk free rate,
+dividend yield and expected volatility, are required to be made by the directors in applying the Binomial
+Model, which are summarised as below.
+2019
+2018
+Weighted average share price at the grant date
+Risk free rate
+HKD373.33
+1.08%~2.07%
+Dividend yield
+87,776,244
+Vested but not transferred as at the end of the year
+2019
+36 NOTES PAYABLE (continued)
+All of these notes payable issued by the Group were unsecured.
+On 1 April 2019, the Company updated the Global Medium Term Note Programme (the "Programme") to include,
+among other things, the Company's recent corporate and financial information and increased the limit of aggregate
+principal amount of the notes under the Programme from USD10 billion to USD20 billion (or its equivalent in other
+currencies).
+On 11 April 2019, the Company issued five tranches of senior notes under the Programme with an aggregate principal
+amount of USD6 billion as set out below.
+2024 Notes
+2024 Floating Rate Notes
+2026 Notes
+2029 Notes
+2049 Notes
+Amount
+Interest Rate
+(USD'Million)
+(per annum)
+Due
+1,250
+For the year ended 31 December 2019
+Number of awarded shares
+Notes to the Consolidated Financial Statements
+Annual Report 2019
+2018
+50,247,895
+63,636,254
+53,096,782
+20,940,149
+(3,191,477)
+(2,882,349)
+(23,537,445) (31,446,159)
+76,615,755
+50,247,895
+46,313
+45,432
+During the year ended 31 December 2019, 59,484 awarded shares were granted to five independent
+non-executive directors of the Company (2018: 39,500 awarded shares were granted to four independent
+non-executive directors of the Company).
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date. The expected dividends during the vesting period have been taken into account when
+assessing the fair value of these awarded shares.
+The weighted average fair value of awarded shares granted during the year ended 31 December 2019 was
+HKD360.25 per share (equivalent to approximately RMB313.18 per share) (2018: HKD374.32 per share (equivalent
+to approximately RMB316.30 per share)).
+247
+112,096,993
+65,018
+93,861
+Interest rate
+(per annum)
+USD bank borrowings
+HKD bank borrowings
+RMB bank borrowings
+USD950
+HKD10,395
+RMB1,103
+LIBOR + 0.5%
+HIBOR + 0.45% ~ 0.50%
+3.60% 5.22%
+USD2,390 LIBOR + 0.50% ~ 0.55%
+HKD3,850 HIBOR + 0.50% ~ 0.55%
+RMB628
+5.22% 5.44%
+During the year ended 31 December 2019, the Group entered into certain interest rate swap contracts to hedge its
+exposure arising from its long-term bank borrowings carried at floating rates. The Group's outstanding interest rate swap
+contracts as at 31 December 2019 have been detailed in Note 38.
+As at 31 December 2019, the carrying amounts of borrowings approximated their fair values.
+246 Tencent Holdings Limited
+36 NOTES PAYABLE
+Included in non-current liabilities:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+As at 31 December
+Amount
+(Million)
+2019
+Interest rate
+(per annum)
+31 December 2019
+Amount
+(Million)
+As at 31 December
+2019
+RMB'Million
+2018
+RMB'Million
+5,667
+6,435
+18,449
+18,640
+85,808
+68,797
+109,924
+93,872
+(b)
+The aggregate principal amounts of short-term bank borrowings and applicable interest rates are as follows:
+31 December 2018
+RMB'Million
+2018
+RMB'Million
+2018
+RMB'Million
+RMB'Million
+10,534
+13,720
+Within 1 year
+10,335
+Between 1 and 2 years
+Between 2 and 5 years
+24,335
+10,258
+Interest rate
+(per annum)
+More than 5 years
+58,992
+30,705
+2019
+As at 31 December
+~
+The notes payable were repayable as follows:
+Non-current portion of long-term USD notes payable
+Non-current portion of long-term HKD notes payable
+83,327
+48,501
+2,797
+83,327
+51,298
+Included in current liabilities:
+3.280%
+Current portion of long-term USD notes payable
+Current portion of long-term HKD notes payable
+13,720
+2,862
+10,534
+13,720
+93,861
+65,018
+The aggregate principal amounts of USD notes payable and HKD notes payable were USD13,100 million (2018:
+USD9,100 million) and HKD3,200 million (2018: HKD3,200 million), respectively. Applicable interest rates are at 2.875%
+~ 4.70% and 3-month USD LIBOR + 0.605% 0.910% (2018: rates are at 2.875% ~ 4.70% and 3-month USD LIBOR
++ 0.605%) per annum.
+7,672
+2024
+36,475,949
+3-month USD LIBOR + 0.910%
+10,196
+11,189
+unsecured (Note (a))
+4,535
+5,310
+104,257
+87,437
+The outstanding awarded shares as of 31 December 2019 were divided into one to five tranches on an equal basis
+as at their grant dates. The first tranche can be exercised immediately or after a specified period ranging from four
+months to five years from the grant date, and the remaining tranches will become exercisable in each subsequent
+year.
+Included in current liabilities:
+USD bank borrowings, unsecured (Note (b))
+6,627
+16,403
+HKD bank borrowings, unsecured (Note (b))
+9,298
+3,368
+RMB bank borrowings, unsecured (Note (b))
+Within 1 year
+The long-term bank borrowings were repayable as follows:
+4.18% 9.00%
+HIBOR +0.70% ~ 0.85%
+HKD6,070
+RMB11,996
+HIBOR +0.70% ~ 0.80%
+4.18% 5.70%
+0.52%
+EUR150
+HKD6,070
+RMB14,829
+RMB bank borrowings
+HKD bank borrowings
+EUR bank borrowings
+LIBOR + 0.70% ~ 1.51%
+or a fixed interest rate of
+1.875%
+USD11,156
+unsecured (Note (a))
+LIBOR + 0.70% ~ 1.27%
+Non-current portion of long-term RMB bank borrowings,
+unsecured (Note (a))
+750
+Annual Report 2019 243
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+34 SHARE-BASED PAYMENTS (continued)
+(c) Employee investment schemes
+To align the interests of key employees with the Group, the Group established six employees' investment plans
+in the form of limited liability partnerships in 2011, 2014, 2015, 2016 and 2017 (the "EIS”) respectively. The
+EIS in 2011 was terminated in 2019. According to the term of the EISS, the Board may, at its absolute discretion,
+invite any qualifying participants of the Group, excluding any director of the Company, to participate in the EISS by
+subscribing for the partnership interest at cash consideration. The participating employees are entitled to all the
+economic benefits generated by the EISS, if any, after a specified vesting period under the respective EISs, ranging
+from four to seven years. Wholly-owned subsidiaries of the Company acting as general partner of these EISS
+administer and in essence, control the EISs. These EISs are therefore consolidated by the Company as structured
+entities.
+The related share-based compensation expenses incurred for the years ended 31 December 2019 and 2018 were
+insignificant to the Group.
+(d) Share options and share award schemes adopted by subsidiaries
+Certain subsidiaries of the Group operate their own share-based compensation plans (share option and/or share
+award schemes). Their exercise prices of the share options, as well as the vesting periods of the share options and
+awarded shares are determined by the respective board of directors of these subsidiaries at their sole discretion.
+The share options or restricted shares of the subsidiaries granted are normally vested by several tranches.
+Participants of some subsidiaries have the right to request the Group to repurchase their vested equity interests
+of the respective subsidiaries ("Repurchase Transaction"). The Group has discretion to settle the Repurchase
+Transaction by using either equity instruments of the Company or by cash. For the Repurchase Transaction which
+the Group has settlement options, the directors of the Company are currently of the view that some of them would
+be settled by equity instruments of the Company. As a result, they are accounted for using the equity-settled
+share-based payment method. In addition, Halti S.A. ("Halti”), the parent company of Supercell Oy ("Supercell”),
+provides a put arrangement to the participants of the share-based compensation plans operated by Supercell for
+cash, the share-based compensation plans of Supercell are accounted for as cash-settled share-based payment
+transactions in the consolidated financial statement.
+(e) Expected retention rate of grantees
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate") in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2019, the Expected Retention Rate of the Group's wholly-owned subsidiaries was assessed to be
+95%~97% (31 December 2018: 88%~97%).
+244
+Tencent Holdings Limited
+35 BORROWINGS
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+Included in non-current liabilities:
+Non-current portion of long-term USD bank borrowings,
+unsecured (Note (a))
+Non-current portion of long-term EUR bank borrowings,
+As at 31 December
+HKD334.20~HKD386.60
+2019
+RMB'Million
+2018
+RMB'Million
+88,354
+70,938
+1,172
+Annual Report 2019 249
+Non-current portion of long-term HKD bank borrowings,
+It mainly comprised the contingent consideration in relation to the acquisition of equity interests from shareholders of a previously
+associate of the Group.
+Cash-settled share-based compensation payables (Note 34(d))
+Purchase consideration payables for investee companies
+Others
+38 OTHER FINANCIAL LIABILITIES
+Measured at amortised cost:
+Redemption liability (Note (a))
+As at 31 December
+2019
+Payables relating to media contents and running royalty fee
+for online games
+RMB'Million
+RMB'Million
+1,281
+USD12,685
+1,415
+980
+298
+2018
+2,018
+For the year ended 31 December 2019
+37 LONG-TERM PAYABLES
+2024
+500
+The aggregate notional principal amounts of the Group's outstanding interest rate swap contracts were USD4,025 million and
+HKD1,500 million (equivalent to approximately RMB29,423 million) (31 December 2018: USD11,311 million (equivalent to
+approximately RMB77,630 million)).
+2026
+3,000
+3.975%
+Notes to the Consolidated Financial Statements
+2029
+4.525%
+2049
+6,000
+During the year ended 31 December 2019, the notes payable with an aggregate principal amount of USD2,000 million
+issued in April 2014 reached their maturity and were repaid in full by the Group.
+As at 31 December 2019, the fair value of the notes payable amounted to RMB98,668 million (31 December 2018:
+RMB62,820 million). The respective fair values are assessed based on the active market price of these notes on the
+reporting date or by making reference to similar instruments traded in the observable market.
+248 Tencent Holdings Limited
+500
+1,018
+3.575%
+(b)
+1,364
+(c)
+(a)
+4,506
+11,099
+Note:
+10
+29
+Others
+30
+494
+It mainly comprised redemption liability arising from put option arrangement with non-controlling shareholders of an acquired
+subsidiary of approximately RMB7,452 million (Note 41(a)).
+1,164
+Financial guarantee contracts (Note 41(a))
+Interest rate swap (Note (c))
+1,873
+3,577
+3,302
+As at 31 December
+2019
+RMB'Million
+8,703
+2018
+4,797
+Measured at fair value:
+Contingent consideration (Note (b))
+RMB'Million
+52
+Cash and cash equivalents
+6
+9
+7
+Prepayments, deposits and other receivables
+74,605
+95
+Amounts due from subsidiaries
+76,077
+60,907
+Current assets
+63
+52,078
+74,664
+LIABILITIES
+Total assets
+Total equity
+Retained earnings (b)
+Other reserves (b)
+Shares held for share award schemes
+Share premium
+Share capital
+20,110
+52,147
+Equity attributable to equity holders of the Company
+(a) Financial position of the Company (continued)
+46 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+258 Tencent Holdings Limited
+113,054
+150,741
+EQUITY
+Contribution to Share Scheme Trust
+(a) Financial position of the Company
+76,024
+In addition to the amounts disclosed above, on 31 December 2019, the Group has formed a consortium (the "Consortium")
+together with TME, a non-wholly owned subsidiary of the Company, and certain global financial investors to acquire 10% equity
+interests in Universal Music Group ("UMG") from its parent company, Vivendi S.A., at an enterprise value of EUR30 billion
+(the "Transaction"). The Consortium also has the option to purchase an additional 10% equity interests in UMG at the same
+enterprise value pursuant to the terms of the transaction documents. The Transaction is subject to regulatory approvals and other
+customary closing conditions.
+(b)
+Other commitments
+The future aggregate minimum payments under non-cancellable bandwidth, online game licensing and media
+contents agreements are as follows:
+Contracted:
+Not later than one year
+11,339
+Later than one year and not later than five years
+Except as disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest paid individuals),
+Note 14 (Benefits and interests of directors), Note 21 (Transactions with associates), Note 26 (Loans to investees and
+investees' shareholders) and Note 34 (Share-based payments) to the consolidated financial statements, the Group had
+no other material transactions with related parties during the years ended 31 December 2019 and 2018, and no other
+material balances with related parties as at 31 December 2019 and 2018.
+44 RELATED PARTY TRANSACTIONS
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+45 SUBSEQUENT EVENTS
+With respect to the outbreak of the coronavirus pandemic ("Pandemic"), the Group has assessed and preliminarily
+concluded that there was no significant impact on the financial position of the Group subsequent to the year ended
+31 December 2019 and up to the date of this report. The Group will keep continuous attention on the situation of the
+Pandemic and react actively to its impacts on the operation and financial position of the Group.
+Later than five years
+22,717
+8,763
+18,206
+Investments in subsidiaries
+42
+44
+Intangible assets
+Non-current assets
+RMB'Million
+2018
+RMB'Million
+2019
+As at 31 December
+ASSETS
+46 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+2,219
+331
+357
+60,770
+As at 31 December
+32,544
+2018
+(10,534)
+(83,327)
+(15,552)
+Net cash as at
+1 January 2018
+105,697
+42,540
+(15,696)
+(82,094)
+(4,752)
+(29,363)
+16,332
+Cash flows
+(10,090)
+(104,257)
+24,811
+(7,237)
+4,666
+(32,547)
+(23,121)
+Exchange impacts
+2,207
+1,954
+(1,559)
+(3,598)
+(957)
+(2,011)
+(3,964)
+Other non-cash movements
+(6,855)
+(2,724)
+5,492
+(22,695)
+132,991
+As at 31 December
+2019
+2018
+RMB'Million
+RMB'Million
+12,405
+7,260
+17,647
+8,332
+3,323
+2,279
+33,375
+17,871
+Annual Report 2019
+72,270
+257
+49
+(247)
+(918)
+(128)
+(1,923)
+(2,082)
+Other non-cash movements
+3,923
+(11,706)
+(3,586)
+(10,151)
+(11,424)
+Net debt as at
+31 December 2019
+1,085
+(12,677)
+12,623
+(1,417)
+13,720
+10,534
+Notes payable
+1,033
+3,237
+Other payables and accruals
+17,454
+18,773
+Amounts due to subsidiaries
+Current liabilities
+52,462
+84,028
+1,164
+701
+32,207
+Other financial liabilities
+83,327
+Notes payable
+Non-current liabilities
+28,385
+34,169
+5,443
+2,729
+(179)
+171
+(4,173)
+27,294
+35,271
+(4,002)
+RMB'Million
+RMB'Million
+51,298
+Total liabilities
+116,572
+84,669
+Net debt as at
+31 December 2018
+97,814
+69,305
+(26,834)
+(87,437)
+(13,720)
+(51,298)
+(12,170)
+256 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+43 COMMITMENTS
+(a) Capital commitments
+Capital commitments as at 31 December 2019 and 2018 are analysed as follows:
+Contracted:
+Construction/purchase of buildings and purchase of land use rights
+Total equity and liabilities
+150,741
+113,054
+Annual Report 2019
+259
+4,180
+2019
+RMB'Million
+2018
+2019
+As at 31 December
+Note:
+Capital investment in investees (Note)
+Purchase of other property, plant and equipment
+RMB'Million
+10,096
+15,929
+(3,953)
+31 - 60 days
+61 - 90 days
+Over 90 days
+Note:
+As at 31 December
+2019
+2018
+RMB'Million
+RMB'Million
+(Note)
+67,054
+63,615
+2,975
+1,832
+1,442
+0-30 days
+1,149
+Accounts payable and their ageing analysis, based on invoice date, are as follows:
+For the year ended 31 December 2019
+Other than the transaction with non-controlling interests described in Note 41(a), there were no material non-cash
+transactions during the year ended 31 December 2019.
+(b) Major non-cash transactions
+42 CONSOLIDATED CASH FLOW STATEMENT (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+254
+125,457
+165,818
+Cash generated from operating activities
+(505)
+12,054
+Deferred revenue
+(19)
+Notes to the Consolidated Financial Statements
+39 ACCOUNTS PAYABLE
+(c) Net cash/(debt) reconciliation
+9,219
+80,690
+(29)
+(394)
+Inventories
+(10,302)
+(6,037)
+Accounts receivable
+Changes in working capital:
+(228)
+Exchange gains
+1,181
+234
+Impairment of intangible assets
+(29,757)
+(11,158)
+Net fair value gains on FVPL and other financial instruments
+Prepayments, deposits and other receivables
+7,139
+(4,050)
+6,445
+73,735
+To help investors better understand the Group's financial position, ageing analysis of accounts payable has been changed from
+recognition date to invoice date and the amounts of accrual payables were categorised within 30 days. The comparative figures have
+been restated to conform with the new presentation.
+40 OTHER PAYABLES AND ACCRUALS
+As at 31 December
+2019
+2018
+RMB'Million
+RMB'Million
+Staff costs and welfare accruals
+193
+Other tax liabilities
+(3,559)
+7,022
+Other payables and accruals
+22,955
+Accounts payable
+16,397
+This section sets out an analysis of net cash/(debt) and the movements in net cash/(debt) for each of the years
+presented.
+As at 31 December
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+1 year
+1 year
+due after
+due within
+due after
+1 year
+due within
+1 year
+and others
+deposits
+cash
+RMB'Million
+Borrowings Notes payable Notes payable
+Net cash as at
+97,814
+Exchange impacts
+10,124
+(40,202)
+13,465
+(12,316)
+16,092
+(1,007)
+34,092
+Cash flows
+(12,170)
+(51,298)
+(13,720)
+(87,437)
+(26,834)
+69,305
+1 January 2019
+Net debt
+Borrowings
+Cash and
+Borrowings
+(26,834)
+(22,695)
+repayable within one year
+Borrowings
+69,305
+72,270
+Term deposits and others
+97,814
+132,991
+Cash and cash equivalents
+RMB'Million
+RMB'Million
+2018
+2019
+repayable after one year
+Term
+(104,257)
+Notes payable repayable within one year
+RMB'Million
+equivalents
+(c) Net cash/(debt) reconciliation (continued)
+42 CONSOLIDATED CASH FLOW STATEMENT (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 255
+(12,170)
+(15,552)
+Net debt
+(51,298)
+(83,327)
+Notes payable - repayable after one year
+(13,720)
+(10,534)
+(87,437)
+3,823
+(77)
+(1,487)
+421
+1,901
+Restricted cash
+Cash and cash equivalents
+19,087
+(977)
+312
+Term deposits
+2,017
+RMB'Million
+As at 21 October
+2019
+Recognised amounts of identifiable assets acquired and liabilities assumed:
+Financial guarantee contracts
+Convertible bonds
+-the Group's direct interests in Supercell
+- Equity interests in Halti
+17,735
+Fair value of the previously held interests
+2,652
+Accounts receivable
+(8,048)
+Long-term payables
+Impairment provision for investments in associates and joint ventures
+Other financial liabilities
+(17,934)
+(6,066)
+Borrowings
+Financial assets at fair value through profit or loss
+Deferred revenue
+Other assets
+14,644
+Intangible assets
+2,819
+1,370
+1,408
+Prepayments, deposits and other assets
+722
+Total consideration:
+The following table summarises the purchase consideration, fair value of assets acquired, liabilities assumed and
+the non-controlling interest recognised as at the Acquisition Date.
+(a) The acquisition of additional equity voting interest in an associate holding a majority interest in Supercell
+(continued)
+Prepayments received from customers and others
+951
+1,245
+Interests payable
+1,277
+1,979
+Purchase consideration payables for investee companies
+1,536
+1,650
+General and administrative expenses accruals
+3,038
+4,772
+Selling and marketing expense accruals
+1,065
+5,622
+Purchase of land use rights and construction related costs
+1,932
+542
+Others (Note)
+7,978
+41 BUSINESS COMBINATION (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+251
+Annual Report 2019
+Goodwill of approximately RMB59,406 million was recognised as a result of the Step-up Acquisition. It was
+mainly attributable to the operating synergies and economies of scale expected to be derived from combining the
+operations. None of the goodwill is expected to be deductible for income tax purpose. The Group chose to record
+the non-controlling equity interests in Halti at fair value on Acquisition Date.
+(a) The acquisition of additional equity voting interest in an associate holding a majority interest in Supercell
+On 21 October 2019 (the "Acquisition Date"), the Group acquired additional 44,000 ordinary voting shares in
+an associate, Halti, by converting the entire principal outstanding and relevant interest under the USD40 million
+convertible bond issued by Halti into ordinary voting shares ("Conversion") when it became exercisable. As at
+the Acquisition Date, Halti held a majority interest in and controlled a mobile game developer Supercell. After
+the Conversion, the Group increased its equity voting interest in Halti from 50% to 51.2%, and considered it
+has sufficient power to control Halti. As a result, Halti was accounted for as a subsidiary of the Group upon the
+Conversion ("Step-up Acquisition"). The equity interest held under investment in an associate was re-measured to
+fair value and a remeasurement gain of approximately RMB1,550 million was recognised in profit or loss.
+41 BUSINESS COMBINATION
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+250
+Others primary consist of deposits from third parties, reserve for platform services, sundry payables and other accruals.
+Note:
+33,312
+45,174
+8,860
+Other liabilities
+(564)
+(12,389)
+(2,898)
+14,482
+Net gains on disposals and deemed disposals of investee companies
+(8,492)
+(2,932)
+Dividend income
+(1,014)
+Deferred income tax liabilities
+Depreciation of property, plant and equipment, investment properties and
+right-of-use assets
+15,623
+8,423
+Amortisation of intangible assets and land use rights
+29,050
+25,825
+Net (gains)/losses on disposals of intangible assets and property, plant and
+equipment
+(85)
+1,681
+Share of loss/(profit) of associates and joint ventures
+1,519
+Other expenses in relation to equity transactions of an investee company
+7,869
+10,127
+13,512
+Equity-settled share-based compensation expenses
+7,690
+Interest expense
+(4,569)
+(6,314)
+Interest income
+47
+4,898
+79,984
+(686)
+(Note 2.2)
+During the year ended 31 December 2019, the Group also acquired certain insignificant subsidiaries. The
+aggregate considerations for these acquisitions was approximately RMB1,280 million, fair value of net assets
+acquired (including identifiable intangible assets), non-controlling interests and goodwill recognised were
+approximately RMB389 million, RMB29 million and RMB920 million, respectively.
+(b) Other business combinations
+95,888
+The Group's revenue for the year would be increased by not more than 5% and the results for the year would not be materially
+different should the Step-up Acquisition otherwise occur on 1 January 2019.
+Prior to the Step-up Acquisition, Halti has granted put option to non-controlling shareholders of Supercell, and the non-controlling
+shareholders shall have the right to request Halti to purchase their vested shares at a pre-determined schedule. The put price
+was determined based on the financial performance of Supercell and a pre-determined formula that was set out in the respective
+shareholders' agreements. Accordingly, the put liability of approximately RMB7,452 million (Note 38) which was measured at the
+present value of the estimated future cash outflows was recognised upon the completion of Step-up Acquisition. The put liability
+was subsequently measured at amortised cost.
+Note:
+(a) The acquisition of additional equity voting interest in an associate holding a majority interest in Supercell
+(continued)
+41 BUSINESS COMBINATION (continued)
+The revenue and the results contributed by these acquired subsidiaries for the period since respective acquisition
+date were insignificant to the Group. The Group's revenue and results for the year would not be materially different
+if these acquisitions had occurred on 1 January 2019.
+For the year ended 31 December 2019
+252 Tencent Holdings Limited
+19,087
+59,406
+Goodwill
+(18,357)
+Non-controlling interests
+(21,962)
+Total identifiable net assets
+Notes to the Consolidated Financial Statements
+The related transaction costs of these business combinations were not material to the Group's consolidated
+financial statements.
+The related transaction costs of the Step-up Acquisition are not material to the Group's consolidated financial statements.
+Notes to the Consolidated Financial Statements
+RMB'Million
+RMB'Million
+2018
+2019
+Income tax expense
+Annual Report 2019 253
+Profit for the year
+(a) Reconciliation of net profit to cash inflow from operating activities:
+42 CONSOLIDATED CASH FLOW STATEMENT
+Adjustments for:
+For the year ended 31 December 2019
+(531)
+Profit for the year
+4,067
+Dividends paid relating to 2017
+(6,995)
+Currency translation differences
+352
+At 31 December 2018
+(179)
+The following is a list of principal subsidiaries of the Company as at 31 December 2019:
+Name
+For the year ended 31 December 2019
+47 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+8,371
+260
+5,443
+At 1 January 2018
+in respect to a Selected Participant, the date of final approval by the Board of the
+total number of shares of the Company to be awarded to the relevant Selected
+Participant on a single occasion pursuant to the 2007 Share Award Scheme
+2,729
+Particulars of
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2019
+46 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)
+(b) Reserve movement of the Company
+At 1 January 2019
+Profit for the year
+Dividends paid relating to 2018
+Currency translation differences
+Other reserves
+RMB'Million
+RMB'Million
+(179)
+5,443
+5,591
+(8,305)
+350
+171
+Proportion of equity
+Place of establishment and
+issued/paid-in
+"EPS"
+any person(s) eligible to participate in the respective Share Award Schemes
+"Eligible Person(s)"
+earnings before interest, tax, depreciation and amortisation
+Dungeon and Fighter
+"EBITDA"
+"DnF"
+daily active user accounts
+Tencent Cyber (Tianjin) Company Limited
+"DAU"
+"Cyber Tianjin❞
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+"COSO Framework"
+the corporate governance committee of the Company
+the website of the Company at www.tencent.com
+"Corporate Governance Committee"
+"Company Website'
+earnings per share
+266 Tencent Holdings Limited
+Term
+Definition
+Guian New Area Tencent Cyber Company Limited
+Guangzhou Tencent Technology Company Limited
+the Company and its subsidiaries
+in relation to any Awarded Share, the date on which the Awarded Share is, was or
+is to be granted
+financial technology
+"Hainan Network"
+"Guian New Area Tencent Cyber"
+"Guangzhou Tencent Technology"
+Tencent Holdings Limited, a limited liability company organised and existing
+under the laws of the Cayman Islands and the shares of which are listed on the
+Stock Exchange
+"Group"
+"FinTech"
+International Federation of Association Football
+the lawful currency of the European Union
+"FIFA"
+"EUR"
+the environmental, social and governance reporting guide as set out in Appendix
+27 to the Listing Rules
+"ESG Reporting Guide"
+Definition
+"Grant Date"
+Hainan Tencent Network Information Technology Company Limited
+Chongqing Tencent Information Technology Company Limited
+the corporate governance code as set out in Appendix 14 to the Listing Rules
+"Articles of Association"
+"AI"
+25 November 2019, being the date on which the Company adopted the 2019
+Share Award Scheme
+"Adoption Date III"
+13 November 2013, being the date on which the Company adopted the 2013
+Share Award Scheme
+13 December 2007, being the date on which the Company adopted the 2007
+Share Award Scheme
+the annual general meeting of the Company to be held on 13 May 2020 or any
+adjournment thereof
+"Adoption Date II"
+"Adoption Date I"
+"2020 AGM"
+the share award scheme adopted by the Company on Adoption Date III, as
+amended
+"2019 Share Award Scheme"
+the share award scheme adopted by the Company on Adoption Date II, as
+amended
+the share award scheme adopted by the Company on Adoption Date I, as
+amended
+Definition
+"2013 Share Award Scheme"
+"2007 Share Award Scheme"
+"Audit Committee"
+"Auditor"
+artificial intelligence
+the amended and restated articles of association of the Company adopted by
+special resolution passed on 14 May 2014
+the board of directors of the Company
+"Company"
+"Chongqing Tencent Information"
+"China Literature"
+"CG Code"
+"Board"
+Definition
+Term
+China Literature Limited, a non-wholly owned subsidiary of the Company, which is
+incorporated in the Cayman Islands with limited liability and the shares of which
+are listed on the Stock Exchange
+Definition
+Beijing Starsinhand Technology Company Limited
+"Beijing Starsinhand"
+Beijing BIZCOM Technology Company Limited
+"Beijing BIZCOM"
+the share(s) of the Company awarded under the Share Award Schemes
+"Awarded Share(s)"
+PricewaterhouseCoopers, the auditor of the Company
+the audit committee of the Company
+Annual Report 2019 265
+Term
+"Halti"
+"HKD"
+"020"
+the nomination committee of the Company
+"Nomination Committee"
+National Basketball Association
+NASDAQ Global Select Market
+"NBA"
+"NASDAQ❞
+in Appendix 10 to the Listing Rules
+the Model Code for Securities Transactions by Directors of Listed Issuers set out
+"Model Code"
+Definition
+Definition
+Term
+268 Tencent Holdings Limited
+MIH TC Holdings Limited
+Meituan Dianping, a limited liability company incorporated in the Cayman Islands
+and the shares of which are listed on the Stock Exchange
+monthly active user accounts
+"PC"
+online-to-offline, or offline-to-online
+personal computer
+"Post-IPO Option Scheme I"
+research and development
+PlayerUnknown's Battlegrounds
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+PRC corporate income tax as defined in the "Corporate Income Tax Law of the
+People's Republic of China"
+"Reference Date"
+"R&D"
+"PUBG"
+"Pre-IPO Option Scheme"
+"MIH TC"
+"PRC CIT"
+the Post-IPO Share Option Scheme adopted by the Company on 17 May 2017
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+"PRC" or "China"
+"Post-IPO Option Scheme IV"
+"Post-IPO Option Scheme III"
+"Post-IPO Option Scheme II"
+the People's Republic of China
+"HIBOR'
+"Meituan Dianping"
+mergers and acquisitions
+"IFRIC"
+"IC"
+"IAS"
+Definition
+Term
+Definition
+267
+Annual Report 2019
+internal audit department of the Company
+the Hong Kong Special Administrative Region, the PRC
+the lawful currency of Hong Kong
+Hong Kong InterBank Offered Rate
+sole purpose of investment in Supercell
+Halti S.A., the consortium company formed under the laws of Luxembourg for the
+"IA"
+“Hong Kong”
+"
+International Accounting Standards
+internal control department of the Company
+International Financial Reporting Interpretations Committee
+"IFRS"
+League of Legends
+"M&A"
+"LOL"
+London InterBank Offered Rate
+the Rules Governing the Listing of Securities on the Stock Exchange
+King Pro League
+initial public offering
+intellectual property
+"MAU"
+"LIBOR"
+"KPL"
+"IPO"
+"IP"
+the investment committee of the Company
+"Investment Committee"
+Instant Messaging
+International Financial Reporting Standards
+"IM"
+"Listing Rules"
+Annual Report 2019 269
+In this annual report, unless the context otherwise requires, the following expressions shall have the following meanings:
+264 Tencent Holdings Limited
+Name
+Proportion of equity
+Particulars of
+47 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+For the year ended 31 December 2019
+261
+Annual Report 2019
+Provision of value-added services in the PRC
+100%
+(Note (a))
+RMB10,000,000
+Established in the PRC,
+limited liability company
+Beijing Starsinhand Technology
+Company Limited
+Provision of value-added services in the PRC
+100%
+(Note (a))
+Established in the PRC, RMB1,216,500,000
+limited liability company
+Beijing BIZCOM Technology
+Company Limited
+Provision of value-added services in the PRC
+Place of establishment and
+nature of legal entity
+issued/paid-in
+interest held by the
+capital
+information technology services in the PRC
+Development of softwares and provision of
+100%
+USD220,000,000
+Established in the PRC,
+wholly foreign owned
+enterprise
+Tencent Technology (Chengdu)
+Company Limited
+Development of softwares and provision of
+information technology services in the PRC
+100%
+100%
+(Note (a))
+USD5,000,000
+Tencent Technology (Shanghai)
+Company Limited
+wholly foreign owned
+enterprise
+Development of softwares in the PRC
+100%
+USD30,000,000
+Established in the PRC,
+Tencent Cyber (Shenzhen)
+Company Limited
+Group (%) Principal activities and place of operation
+Established in the PRC,
+wholly foreign owned
+enterprise
+Tencent Technology (Wuhan)
+Company Limited
+RMB10,290,000
+Nanjing Wang Dian Technology
+Company Limited
+Shenzhen Shiji Kaixuan Technology
+Company Limited
+Development of softwares and provision of
+information technology services in the PRC
+wholly foreign owned
+enterprise
+100%
+USD2,000,000
+Established in the PRC,
+Tencent Technology
+Provision of value-added services and Internet
+advertisement services in the PRC
+100%
+(Note (a))
+RMB65,000,000
+Established in the PRC,
+limited liability company
+Tencent Computer
+Principal activities and place of operation
+Group (%)
+capital
+nature of legal entity
+interest held by the
+Established in the PRC,
+limited liability company
+RMB11,000,000
+100%
+(Note (a))
+Provision of Internet advertisement services in
+Development and sale of softwares and
+provision of information technology services
+in the PRC
+100%
+USD1,000,000
+Established in the PRC,
+wholly foreign owned
+enterprise
+Tencent Technology (Beijing)
+Company Limited
+liability company
+Asset management in Hong Kong
+100%
+Established in the PRC,
+limited liability company
+USD100
+Tencent Asset Management Limited
+information technology services in the PRC
+Development of softwares and provision of
+100%
+USD90,000,000
+Established in the PRC,
+wholly foreign owned
+enterprise
+Tencent Cyber (Tianjin) Company Limited
+the PRC
+Established in the British
+Virgin Islands, limited
+Definition
+Established in the PRC,
+wholly foreign owned
+enterprise
+100%
+(a)
+Note:
+on an outstanding basis
+*
+Development and operation of mobile games
+in Finland
+66.24%
+EUR2,500
+Established in Finland,
+limited liability company
+Supercell
+company
+Provision of online music entertainment
+services in the PRC
+Islands, limited liability
+49.36%*
+USD275,872
+Established in the Cayman
+TME
+company
+(b)
+(c)
+As described in Note 1, the Company does not have legal ownership in equity of these structured entities or their subsidiaries.
+Nevertheless, under certain contractual agreements entered into with the registered owners of these structured entities, the
+Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing their
+financial and operating policies, appointing or removing the majority of the members of their controlling authorities, and casting
+the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards
+of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled
+structured entities of the Company.
+The directors of the Company considered that the non-wholly owned subsidiaries with non-controlling interests are not significant
+to the Group, therefore, no summarised financial information of these non-wholly owned subsidiaries is presented separately.
+During the year ended 31 December 2019, the Company contributed approximately RMB1,186 million (2018: RMB2, 187
+million) to the Share Scheme Trust for financing its acquisition of the Company's shares.
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+Administering and holding the Company's shares acquired for share award schemes which
+are set up for the benefits of eligible persons of the Schemes
+Principal activities
+Share Scheme Trust
+Structured entity
+As mentioned in Note (a) above and Note 34(c), the Company has consolidated the operating entities within the Group without
+any legal interests and the EISS out of which wholly-owned subsidiaries of the Company act as general partner. In addition,
+due to the implementation of the share award schemes of the Group mentioned in Note 34(b), the Company has also set up a
+structured entity ("Share Scheme Trust”), and its particulars are as follows:
+Consolidation of structured entities
+Provision of online literature services
+in the PRC
+(e)
+Significant restrictions
+(d)
+Note: (continued)
+47 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+Annual Report 2019 263
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary's undertakings
+held directly by the parent company does not differ from its proportion of ordinary shares held. The parent company further does
+not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+As at 31 December 2019, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to RMB121.98
+billion were held in Mainland China and they are subject to local exchange control and other financial and treasury regulations.
+The local exchange control, and other financial and treasury regulations provide for restrictions, on payment of dividends, share
+repurchase and offshore investments, other than through normal activities.
+USD30,000,000
+Islands, limited liability
+USD101,234
+Design and production of advertisement
+in the PRC
+100%
+RMB5,000,000
+Established in the PRC,
+limited liability company
+Beijing Tencent Culture Media
+Company Limited
+Investment holding and provision of online
+advertisement services in Hong Kong
+100%
+HKD1,000
+Established in Hong Kong,
+limited liability company
+Morespark Limited
+services in the PRC
+Provision of information system integration
+100%
+(Note (a))
+RMB142,500,000
+Established in the PRC,
+limited liability company
+Tencent Cloud Computing (Beijing)
+Company Limited
+Development of softwares and provision of
+information technology services in the PRC
+Riot Games, Inc.
+Established in the United
+States, limited liability
+USD1,306
+100%
+Established in the Cayman
+China Literature
+Group (%) Principal activities and place of operation
+capital
+nature of legal entity
+Name
+interest held by the
+issued/paid-in
+58%*
+Place of establishment and
+Particulars of
+47 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+For the year ended 31 December 2019
+Notes to the Consolidated Financial Statements
+262 Tencent Holdings Limited
+company
+the United States
+Development and operation of online games in
+Proportion of equity
+Notes to the Consolidated Financial Statements
+Retained earnings
+At 31 December 2019
+"TCS Co-operation Committee"
+"Shiji Kaixuan"
+"SKT CFC"
+Shenzhen Tencent Network Information Technology Company Limited
+Shenzhen Shiji Kaixuan Technology Company Limited
+the co-operation framework contract dated 28 February 2004 entered into
+between Cyber Tianjin and Shiji Kaixuan
+270 Tencent Holdings Limited
+Term
+Definition
+"SKT Co-operation Committee”
+"Stock Exchange"
+"Supercell"
+the co-operation committee established under the SKT CFC
+The Stock Exchange of Hong Kong Limited
+Supercell Oy, a private company incorporated in Finland
+Definition
+"Shenzhen Tencent Network"
+Shenzhen Tencent Information Technology Company Limited
+"Shenzhen Tencent Information"
+with effect from 15 May 2014, each existing issued and unissued share of
+HKD0.0001 each in the share capital of the Company was subdivided into five
+subdivided shares of HKD0.00002 each, after passing of an ordinary resolution at
+the annual general meeting of the Company held on 14 May 2014 and granting
+by the Stock Exchange of the listing of, and permission to deal in, the subdivided
+shares
+"Riot Games'
+"
+the remuneration committee of the Company
+Riot Games, Inc., a company established in the US
+"RMB"
+the lawful currency of the PRC
+"Selected Participant(s)"
+any Eligible Person(s) selected by the Board to participate in the Share Award
+Schemes
+"SFO"
+"Shanghai Tencent Information"
+"Share Award Schemes"
+the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as
+amended, supplemented or otherwise modified from time to time
+Shanghai Tencent Information Technology Company Limited
+the 2007 Share Award Scheme, the 2013 Share Award Scheme and the 2019
+Share Award Scheme
+"Share Subdivision"
+"TCS CFC"
+"Remuneration Committee"
+value-added services
+the co-operation committee established under the TCS CFC
+Definition
+Term
+Definition
+"Trust Deed II"
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2013 Share Award Scheme
+"Trust Deed III"
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2019 Share Award Scheme
+"Trustee"
+an independent trustee appointed by the Company for managing the Share Award
+Schemes
+"United States" or "US"
+the United States of America
+"USD"
+"VAS"
+"Wang Dian"
+Annual Report 2019 271
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2007 Share Award Scheme
+Tencent Music Entertainment Group, a limited liability company incorporated
+under the laws of the Cayman Islands and listed on the New York Stock Exchange
+Tencent Technology (Wuhan) Company Limited
+"Tencent Beijing"
+Tencent Technology (Beijing) Company Limited
+"Tencent Charity Funds"
+charity funds established by the Group
+"Tencent Chengdu"
+"Tencent Computer"
+"Tencent Shanghai"
+the co-operation framework contract dated 28 February 2004 entered into
+between Tencent Technology and Tencent Computer
+Tencent Technology (Chengdu) Company Limited
+Tencent Technology (Shanghai) Company Limited
+"Tencent Technology"
+!!!
+"Tencent Wuhan"
+"TME"
+"Trust Deed I"
+Tencent Technology (Shenzhen) Company Limited
+Shenzhen Tencent Computer Systems Company Limited
+Definition
+Term
+Definition
+"WFOES"
+Telephone: 852-21795122
+Facsimile : 852-25201148
+No.1 Queen's Road East
+Wanchai, Hong Kong
+29/F., Three Pacific Place
+Tencent Holdings Limited Hong Kong Office
+: 86-755-86013399
+Facsimile
+Telephone: 86-755-86013388
+the lawful currency of the United States
+Tencent Binhai Towers, No. 33 Haitian 2nd Road
+Nanshan District, Shenzhen, the PRC
+Tencent Group Head Office
+Website: www.tencent.com
+Tencent 腾讯
+272 Tencent Holdings Limited
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Shenzhen Tencent
+Information, Tencent Chengdu, Chongqing Tencent Information, Shanghai
+Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network,
+Guangzhou Tencent Technology, Shenzhen Tencent Network and Guian New
+Area Tencent Cyber
+Zipcode : 518054
+Nanjing Wang Dian Technology Company Limited
+5,781
+5,202
+(1,238)
+97,589
+Profit attributable to
+12,309
+93,310
+(20,818)
+(20,720)
+5,362
+equity holders
+12,774
+114,601
+Profit for the year
+5,185
+4,006
+1,051
+(19,650)
+10,500
+118,694
+Operating profit
+(RMB in millions, unless specified)
+(e)
+(d)
+(c)
+Non-IFRS
+95,888
+(1,095)
+9.856
+EPS (RMB per share)
+97,648
+Operating profit
+(RMB in millions, unless specified)
+(a)
+companies
+As Share-based from investee of intangible
+reported compensation
+assets
+(c)
+(e)
+Non-IFRS
+effects
+Income tax
+Impairment
+provisions
+(d)
+Amortisation
+94,351
+(gains)/losses
+Adjustments
+Year ended 31 December 2018
+26%
+30%
+9.729
+9.966
+25%
+31%
+Operating margin
+9.643
+- diluted
+– basic
+Net
+Net margin
+3,756
+7,900
+EPS (RMB per share)
+- basic
+2.278
+- diluted
+2.248
+Operating margin
+27%
+(e)
+Impairment provisions for associates, joint ventures and intangible assets arising from acquisitions.
+(d)
+Amortisation of intangible assets resulting from acquisitions.
+(c)
+Including net (gains)/losses on deemed disposals/disposals of investee companies, fair value changes arising from investee companies,
+and other expenses in relation to equity transactions of investee companies.
+(b)
+(a) Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives.
+25,484
+Note:
+10
+133
+72
+30,306
+Profit for the period
+22,372
+3,965
+(1,412)
+1,667
+140
+(93)
+26,639
+Profit attributable to
+equity holders
+21,582
+(1,403)
+1,406
+33
+effects
+Management Discussion and Analysis
+Annual Report 2019
+78,719
+equity holders
+Profit attributable to
+80,292
+(525)
+17,741
+4,251
+(32,513)
+11,354
+79,984
+Profit for the year
+92,481
+17,577
+524
+(31,168)
+11,025
+25
+(33,073)
+17,238
+26%
+30%
+8.097
+8.203
+26%
+Net margin
+31%
+Operating margin
+8.228
+- diluted
+8.336
+- basic
+EPS (RMB per share)
+77,469
+(467)
+4,027
+provisions
+864
+Income tax
+28,544
+Profit for the period
+20,976
+3,568
+(2,509)
+1,544
+1,981
+(474)
+25,086
+Profit attributable to
+equity holders
+20,382
+3,475
+(2,444)
+1,668
+1,491
+(463)
+24,412
+EPS (RMB per share)
+- basic
+2.151
+- diluted
+2.127
+Operating margin
+Net margin
+27%
+22%
+2.577
+2.548
+29%
+26%
+1,971
+Unaudited three months ended 31 December 2018
+118
+2,745
+Net margin
+21%
+2.690
+2.643
+29%
+25%
+Annual Report 2019
+23
+Management Discussion and Analysis
+Unaudited three months ended 30 September 2019
+Adjustments
+Net
+(gains)/losses
+Amortisation
+(1,814)
+As Share-based from investee of intangible
+(a)
+companies
+(b)
+Impairment
+Income tax
+assets
+provisions
+effects
+Non-IFRS
+(c)
+(d)
+(e)
+(RMB in millions, unless specified)
+Operating profit
+25,827
+reported compensation
+assets
+Adjustments
+(gains)/losses
+(795)
+19,730
+EPS (RMB per share)
+- basic
+1.505
+- diluted
+1.489
+Operating margin
+20%
+Net margin
+17%
+2.087
+2.065
+26%
+1,013
+24%
+Tencent Holdings Limited
+Management Discussion and Analysis
+Year ended 31 December 2019
+Adjustments
+Net
+(gains)/ losses
+Amortisation
+As Share-based
+from investee of intangible
+reported compensation
+companies
+(a)
+(b)
+Impairment
+24
+Net
+1,839
+3,504
+Amortisation
+As Share-based from investee
+reported compensation
+companies
+(a)
+(b)
+of intangible
+assets
+(c)
+Impairment
+provisions
+(d)
+Income tax
+effects
+Non-IFRS
+(e)
+(RMB in millions, unless specified)
+Operating profit
+17,288
+(60)
+2,459
+198
+701
+22,388
+Profit for the period
+14,026
+3,579
+583
+1,927
+938
+(813)
+20,240
+Profit attributable to
+equity holders
+14,229
+1,579
+(2,340)
+Net
+28,604
+investments in associates and joint ventures which are accounted for by using equity method;
+financial assets at fair value through profit or loss and through other comprehensive income.
+Changes in respective items in the consolidated statement of financial position have been disclosed in the notes to the
+consolidated financial information in this annual report.
+We manage our investment portfolio with a primary objective to strengthen our leading position in core businesses and
+complement our “Connection" strategy in various industries, particularly in social and digital content, 020 and smart retail
+sectors. We also invest in transportation, FinTech, cloud and other sectors.
+The fair value of our stakes in listed investee companies (excluding subsidiaries) amounted to RMB419,818 million as at 31
+December 2019 (31 December 2018: RMB238,040 million). Other than Meituan Dianping as disclosed in Note 21 to the
+consolidated financial statements, none of the carrying amount of any of our investments (including listed investee companies)
+constitutes 5% or more of our total assets as at 31 December 2019.
+Save as disclosed herein, there are no material changes in our investment portfolio affecting the Company's performance that
+need to be disclosed under paragraph 32 of Appendix 16 to the Listing Rules.
+26
+Tencent Holdings Limited
+Management Discussion and Analysis
+Return from our investment portfolio amounted to RMB13,926 million for the year ended 31 December 2019, with a decrease
+of 17% compared to last year. Details of return from our investment portfolio are as follows:
+Income of Principal Investment
+(Classified by nature of income)
+2019
+2018
+As at 31 December 2019, our investment portfolio amounted to approximately RMB439,551 million (31 December 2018:
+RMB369,186 million) as recorded in the consolidated statement of financial position under various categories including:
+RMB'Million
+Dividend income
+1,014
+686
+Net gains on disposals and deemed disposals of investee companies
+8,492
+2,932
+Net fair value gains
+11,158
+29,757
+Impairment provision for investee companies and
+intangible assets from acquisitions
+(4,006)
+(17,577)
+Share of (loss)/profit of associates and joint ventures
+RMB'Million
+(1,681)
+INVESTMENTS HELD
+Management Discussion and Analysis
+35,378
+35,675
+EBITDA (a)
+(RMB in millions, unless specified)
+2018
+31 December
+2019
+2018
+2019
+2019
+31 December
+30 September
+31 December
+Year ended
+Unaudited
+Three months ended
+Income tax effects of non-IFRS adjustments.
+OTHER FINANCIAL INFORMATION
+Share of (loss)/profit of associates and joint ventures. We recorded share of losses of associates and joint ventures of
+RMB1,328 million for the fourth quarter of 2019, compared to share of profit of RMB234 million for the third quarter of 2019.
+The movement mainly reflected certain associates booking non-cash fair value changes to their investment portfolios.
+General and administrative expenses. General and administrative expenses increased by 18% to RMB16,002 million for the
+fourth quarter of 2019 on a quarter-on-quarter basis. The increase was mainly due to greater R&D expenses and staff costs,
+including expenses attributable to Supercell.
+Management Discussion and Analysis
+Tencent Holdings Limited
+20
+Selling and marketing expenses. Selling and marketing expenses increased by 17% to RMB6,712 million for the fourth quarter
+of 2019 on a quarter-on-quarter basis. The increase mainly reflected seasonally greater marketing spending on smart phone
+games and digital content services, as well as expenses attributable to Supercell.
+Cost of revenues for Online Advertising decreased by 2% to RMB9, 241 million for the fourth quarter of 2019. The
+decrease was primarily driven by lower content costs for our advertising-funded long form video service, partly offset by
+traffic acquisition costs due to revenue growth from our advertising network.
+Cost of revenues for FinTech and Business Services increased by 11% to RMB21,520 million for the fourth quarter of
+2019. The increase mainly reflected greater costs from increased volume of payment activities and greater scale of cloud
+services.
+Cost of revenues for VAS increased by 7% to RMB26, 120 million for the fourth quarter of 2019. The increase was
+primarily due to greater content costs for live broadcast services and major eSport events, as well as higher channel and
+content costs for smart phone games, including the channel costs attributable to Supercell.
+Cost of revenues. Cost of revenues increased by 9% to RMB59,659 million for the fourth quarter of 2019 on a quarter-on-
+quarter basis. The increase was primarily driven by greater channel costs, costs of FinTech services and content costs. As a
+percentage of revenues, cost of revenues was 56% for the fourth quarter of 2019, broadly stable compared to the third quarter
+of 2019.
+Revenues from Online Advertising increased by 10% to RMB20,225 million for the fourth quarter of 2019. Social and
+others advertising revenues grew by 11% to RMB16,274 million. The increase was primarily driven by greater revenues
+from our mobile advertising network and Weixin Moments, benefitting from the positive seasonality of eCommerce
+promotional activities in the fourth quarter. Media advertising revenues increased by 8% to RMB3,951 million. The
+increase mainly reflected greater advertising revenues from our media platforms including Tencent Video, Tencent News
+and TME.
+Revenues from FinTech and Business Services increased by 12% to RMB29,920 million for the fourth quarter of 2019.
+The increase mainly reflected the growth of commercial payment, social payment and cloud services.
+3,269
+Revenues. Revenues increased by 9% to RMB105.8 billion for the fourth quarter of 2019 on a quarter-on-quarter basis.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 6% to
+RMB21,582 million for the fourth quarter of 2019 on a quarter-on-quarter basis. Non-IFRS profit attributable to equity holders
+of the Company increased by 4% to RMB25,484 million.
+27,180
+1,487
+(1,051)
+PRINCIPAL ACTIVITIES
+The principal activity of the Company is investment holding. The activities of the principal subsidiaries are set out in Note 47 to
+the consolidated financial statements.
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations are set out in Note 5 to the consolidated financial statements.
+RESULTS AND APPROPRIATIONS
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 137 of this
+annual report.
+The directors have recommended the payment of a final dividend of HKD1.20 per share for the year ended 31 December
+2019. The dividend is expected to be payable on 29 May 2020 to the shareholders whose names appear on the register of
+members of the Company on 20 May 2020. The total dividend for the year under review is HKD1.20 per share.
+RESERVES
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends, the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+As at 31 December 2019, the Company had distributable reserves amounting to RMB34,169 million (2018: RMB28,385
+million).
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 141 to 144, Note 32, Note 33 and Note 46 to the consolidated financial statements
+respectively.
+PROPERTY, PLANT AND EQUIPMENT
+Details of the movements in property, plant and equipment of the Group during the year are set out in Note 16 to the
+consolidated financial statements.
+28
+Tencent Holdings Limited
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31
+December 2019.
+Directors' Report
+A fair review of the business of the Group, comprising a discussion and analysis of the Group's performance during the
+year, particulars of important events affecting the Group that have occurred since the end of the financial year 2019 and an
+indication of likely future development in the business of the Group as well as the proposed dividend for the year ended 31
+December 2019 are set out in the “Chairman's Statement” on pages 4 to 10 of this annual report. An analysis using financial
+key performance indicators is set out in the "Management Discussion and Analysis" on pages 11 to 27 of this annual report.
+Discussions on the Group's environmental policies and performance, and an account of the Group's key relationships with
+its stakeholders are set out in the "Environmental, Social and Governance Report" on pages 97 to 126 of this annual report.
+Details regarding the Group's compliance with the relevant laws and regulations which have a significant impact on the Group
+are also set out in the "Environmental, Social and Governance Report" on pages 97 to 126 and the "Corporate Governance
+Report" on pages 70 to 96 as well as on page 67 of this annual report. A description of the principal risks and uncertainties
+facing the Group is set out in the "Corporate Governance Report" on pages 70 to 96 of this annual report. All such discussions
+form part of this report.
+SHARE CAPITAL
+Details of the movements in the share capital of the Company during the year are set out in Note 32 to the consolidated
+financial statements.
+SUBSIDIARIES
+Particulars of the Company's principal subsidiaries as at 31 December 2019 are set out in Note 47 to the consolidated financial
+statements.
+BORROWINGS
+Particulars of the Group's borrowings and notes payable are set out in Note 35 and Note 36 to the consolidated financial
+statements respectively.
+DONATION
+The donation made by the Group to Tencent Charity Funds in the year was RMB850 million.
+FINANCIAL SUMMARY
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+Annual Report 2019
+29
+29
+BUSINESS REVIEW AND DIVIDEND
+Amortisation of intangible assets resulting from acquisitions
+Directors' Report
+Annual Report 2019
+(524)
+We continue to closely monitor the performance of our investment portfolio and strategically make investments, M&A, and
+explore opportunities in monetising some of the existing investments if appropriate opportunities in the market arise.
+LIQUIDITY AND FINANCIAL RESOURCES
+Our cash positions as at 31 December 2019 and 30 September 2019 are as follows:
+Cash and cash equivalents
+Term deposits and others
+Borrowings
+Notes payable
+Net debt
+Fair value of our stakes in listed investee companies (excluding subsidiaries)
+Audited
+31 December
+Unaudited
+30 September
+2019
+2019
+(RMB in millions)
+27
+132,991
+72,270
+54,499
+205,261
+200,106
+(126,952)
+(112,148)
+(93,861)
+(95,131)
+(15,552)
+(7,173)
+419,818
+352,656
+As at 31 December 2019, the Group had net debt of RMB15,552 million, compared to net debt of RMB7, 173 million as at 30
+September 2019. The sequential increase in indebtedness mainly reflected payments for M&A initiatives and media contents,
+as well as the consolidation of indebtedness at Halti, partly offset by strong free cash flow generation.
+For the fourth quarter of 2019, the Group had free cash flow of RMB37,896 million. This was a result of net cash flow
+generated from operating activities of RMB50,604 million, offset by payments for capital expenditure of RMB12,708 million.
+145,607
+137,268
+Revenues from VAS increased by 3% to RMB52,308 million for the fourth quarter of 2019. Online games revenues grew
+by 6% to RMB30,286 million. The increase was primarily due to revenue contributions from domestic smart phone titles
+such as Peacekeeper Elite, as well as revenues contributed from Supercell commencing in the fourth quarter of 2019,
+partly offset by the decrease in revenues from PC client games. Social networks revenues were RMB22,022 million,
+broadly stable compared to the third quarter of 2019.
+Adjusted EBITDA (a)
+Adjusted EBITDA
+compensation
+Equity-settled share-based
+110,404
+137,268
+27,180
+35,378
+35,675
+EBITDA
+25,616
+28,954
+6,583
+8,119
+7,839
+Amortisation of intangible assets
+3,049
+806
+893
+Depreciation of right-of-use assets
+8,423
+12,574
+2,520
+3,232
+3,549
+investment properties
+plant and equipment and
+Depreciation of property,
+(16,714)
+(19,689)
+110,404
+2,745
+2,521
+10,127
+Operating profit
+(RMB in millions, unless specified)
+(e)
+Non-IFRS
+effects
+provisions
+(d)
+assets
+(c)
+companies
+(b)
+(a)
+reported compensation
+Income tax
+Impairment
+Amortisation
+of intangible
+As Share-based from investee
+2,139
+(gains)/ losses
+Unaudited three months ended 31 December 2019
+The following tables set forth the reconciliations of the Group's non-IFRS financial measures for the fourth quarter of 2019
+and 2018, the third quarter of 2019, and the years ended 31 December 2019 and 2018 to the nearest measures prepared in
+accordance with IFRS:
+The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain
+impact of M&A transactions. In addition, non-IFRS adjustments include relevant non-IFRS adjustments for the Group's major
+associates based on available published financials of the relevant major associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+Management Discussion and Analysis
+Tencent Holdings Limited
+22
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS financial
+measures (in terms of operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders
+of the Company, basic EPS and diluted EPS) have been presented in this annual report. These unaudited non-IFRS financial
+measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared
+in accordance with IFRS. In addition, these non-IFRS financial measures may be defined differently from similar terms used by
+other companies.
+NON-IFRS FINANCIAL MEASURES
+118,273
+147,395
+29,701
+38,123
+38,572
+7,869
+Adjustments
+(932)
+2,897
+Other (gains)/losses, net
+Note:
+23,941
+32,369
+4,564
+6,632
+16,869
+Capital expenditures (d)
+(12,170)
+(15,552)
+(12,170)
+(7,173)
+(15,552)
+4,898
+7,690
+1,345
+2,086
+2,348
+Interest and related expenses
+Net debt (c)
+38%
+39%
+35%
+39%
+36%
+Adjusted EBITDA margin (b)
+118,273
+147,395
+(3,630)
+38,123
+38,572
+(a)
+EBITDA is calculated as operating profit less interest income and other gains/losses, net and adding back depreciation of property,
+plant and equipment, investment properties as well as right-of-use assets, and amortisation of intangible assets. Adjusted EBITDA is
+calculated as EBITDA plus equity-settled share-based compensation expenses.
+29,701
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+(b)
+(4,569)
+(6,314)
+(1,674)
+(1,580)
+Interest income
+97,648
+118,694
+17,288
+25,827
+28,604
+(RMB in millions, unless specified)
+2018
+Year ended
+31 December
+2019
+2018
+(1,350)
+2019
+Net debt represents period end balance and is calculated as cash and cash equivalents, plus term deposits and others, minus
+borrowings and notes payable.
+(d)
+(c)
+Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress,
+investment properties, land use rights and intangible assets (excluding video and music contents, game licences and other contents).
+Annual Report 2019
+21
+The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
+Management Discussion and Analysis
+Unaudited
+Three months ended
+31 December
+30 September
+31 December
+2019
+Operating profit
+Adjustments:
+Granted
+As at
+forfeited
+Exercised
+completion of
+37
+As the date of
+Number of share options
+Details of movements of share options granted to employees under the share option schemes adopted by Supercell, a
+subsidiary of the Group, during the year ended 31 December 2019 are as follows:
+Directors' Report
+Annual Report 2019
+Lapsed/
+the business
+the year
+during
+during 31 December
+Exercise
+Date of grant
+combination
+10,505
+the year
+the year
+2019
+price Exercise period
+EUR
+(Note 1)
+Employees
+The expected volatility was estimated based on the historical volatility of the share prices of similar United States and Hong Kong public companies
+for a period equal to the expected life preceding the grant date.
+31 May 2012
+during
+*
+40,537,812
+7.
+10,505
+339,001
+0.000076
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+1 Mar 2015
+2,714,940
+2,320,470
+394,470
+0.27
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+Sub-total:
+5,063,039
+4,329,568
+733,471
+Total:
+92,822,512 1,993,780 51,787,896 2,490,584
+Note:
+1.
+2.
+The first 25% of the total options can be exercised 1 year after the commencement dates as specified in the relevant grant letters, and
+each 12.5% of the total options will become exercisable in each subsequent six months.
+All the options can be exercised 1 year after the commencement date as specified in the relevant grant letter if a certain condition is
+satisfied.
+3.
+4.
+Subject to the satisfaction of certain conditions, the first 25% of the total options can be exercised on the dates as specified in the
+relevant grant letters, and each 25% of the total options will become exercisable in each subsequent year.
+The first 25% of the total options can be exercised 2 years after the commencement dates as specified in the relevant grant letters, and
+each 25% of the total options will become exercisable in each subsequent year.
+5.
+The closing price immediately before the date on which the options were granted on 14 June 2019 was USD7.13.
+6.
+The weighted average closing price immediately before the date on which the options were exercised was USD7.29.
+The fair value of the options as at the respective grant date was determined using the "Enhanced FAS 123" binomial model which is to
+be expensed over the relevant vesting period. The weighted average fair value of options granted during the year ended 31 December
+2019 was USD6.00 per share. Other than the exercise price mentioned above, significant assumptions (which are subject to subjectivity
+and uncertainty) used to estimate the fair value of the options include risk free rate (2.08%), dividend yield (nil) and expected volatility*
+(40%).
+0.14 Till 31 Mar 2021 (Note 2)
+84,060
+4,998
+Post-IPO
+Post-IPO
+Post-IPO
+Option Scheme II
+Option Scheme III
+Option Scheme IV
+1.
+Purposes
+To recognise the contribution that certain individuals have made to the Group, to attract the best available personnel
+and to promote the success of the Group's business
+2.
+Qualifying
+participants
+Any eligible
+employee, including
+Post-IPO
+Option Scheme I
+Any employee,
+consultant or
+Any senior executive Any employee
+or senior officer,
+(whether full time or
+executive directors
+of the Company
+director of any
+company within
+the Group
+part time), executive
+part time), executive director (including
+or officer, director
+(including executive,
+non-executive and
+independent non-
+executive directors)
+of any member of
+the Group or any
+invested entity, which
+is any entity in which
+the Group holds
+an equity interest,
+and any consultant,
+adviser or agent
+of any member of
+the Board, who
+have contributed
+or will contribute
+to the growth and
+development of
+the Group or any
+invested entity
+executive, non-
+executive and
+independent non-
+executive directors)
+of any member of the
+Group or any invested
+entity and any
+consultant, adviser or
+agent of any member
+of the Board, who
+have contributed
+or will contribute
+to the growth and
+development of
+the Group or any
+invested entity
+or officer, director
+(including executive,
+non-executive and
+independent non-
+executive directors)
+of any member of the
+Group or any
+invested entity, and
+any consultant,
+adviser or agent
+of any member of
+the Board, who
+have contributed
+or will contribute
+to the growth and
+development of
+the Group or any
+invested entity
+Annual Report 2019
+39
+1,032,757
+2,009,098
+Any employee
+(whether full time or
+Pre-IPO
+Option Scheme
+Details
+Directors' Report
+4,998
+3.59
+Till 31 Mar 2021 (Note 2)
+31 May 2012
+393
+393
+29.39
+Till 31 Mar 2021 (Note 2)
+11 Apr 2013
+3
+3
+1.64
+Till 31 Mar 2021 (Note 2)
+7 Oct 2013
+2,644
+2,644
+3.59
+Till 31 Mar 2021 (Note 2)
+Total:
+18,543
+18,543
+Note:
+1.
+Supercell became our subsidiary in October 2019.
+2.
+All outstanding options were granted, vested and exercisable before Supercell became our subsidiary.
+38
+Tencent Holdings Limited
+SUMMARY OF THE SHARE OPTION SCHEMES
+31 May 2012
+2,348,099
+3,506,580
+(Note 3)
+consultants
+6 Jul 2018
+22 Jun 2019 to 21 Jun 2025 (Note 2)
+403.16
+70,525
+70,525
+22 Jun 2018
+22 Jun 2019 to 21 Jun 2025 (Note 1)
+403.16
+13,055
+13,055
+22 Jun 2018
+24 May 2019 to 23 May 2025 (Note 2)
+407.00
+26,390
+26,390
+24 May 2018
+9 Apr 2019 to 8 Apr 2025 (Note 4)
+410.00
+16,692,585
+16,692,585
+9 Apr 2018
+9 Apr 2019 to 8 Apr 2025 (Note 2)
+410.00
+5,128,760
+235,515
+108,710
+386.60
+406,875
+4 Apr 2019
+6 Jul 2019 to 5 Jul 2025 (Note 8)
+354.00
+2,660
+2,660
+24 Aug 2018
+24 Aug 2019 to 23 Aug 2025 (Note 2)
+354.00
+17,780
+17,780
+24 Aug 2018
+6 Jul 2021 to 5 Jul 2025 (Note 6)
+386.60
+34,230
+34,230
+6 Jul 2018
+6 Jul 2020 to 5 Jul 2025 (Note 5)
+386.60
+8,050
+8,050
+6 Jul 2018
+6 Jul 2019 to 5 Jul 2025 (Note 4)
+5,020,050
+406,875
+235,515
+9 Apr 2019 to 8 Apr 2025 (Note 1)
+Granted
+As at
+Lapsed/
+Number of share options
+Date of grant
+Directors' Report
+33
+Annual Report 2019
+23 Nov 2018 to 22 Nov 2024 (Note 2)
+419.60
+89,565
+89,565
+23 Nov 2017
+10 Jul 2020 to 9 Jul 2024 (Note 6)
+272.36
+7,455
+7,455
+10 Jul 2017
+10 Jul 2019 to 9 Jul 2024 (Note 5)
+272.36
+25,140
+200
+25,340
+Exercised
+9 Apr 2018
+forfeited
+1 January
+410.00
+2,077,635
+5,285
+2,082,920
+9 Apr 2018
+16 Jan 2019 to 15 Jan 2025 (Note 2)
+444.20
+155,050
+155,050
+16 Jan 2018
+HKD
+(Note 14)
+Exercise period
+price
+2019
+the year
+the year
+the year
+2019
+Exercise
+during 31 December
+during
+during
+As at
+376.00
+4 Apr 2019
+2,283,120
+Details of movements of share options granted to employees and certain external consultants under the share option schemes
+adopted by TME, a subsidiary of the Group, during the year ended 31 December 2019 are as follows:
+Directors' Report
+Annual Report 2019 35
+The weighted average closing price immediately before the date on which the options were exercised was HKD338.99.
+14.
+The closing price immediately before the date on which the options were granted on 2 December 2019 was HKD331.8.
+13.
+The closing price immediately before the date on which the options were granted on 23 August 2019 was HKD331.
+12.
+The closing price immediately before the date on which the options were granted on 8 July 2019 was HKD359.8.
+11.
+The closing price immediately before the date on which the options were granted on 4 April 2019 was HKD378.
+10.
+Subject to the satisfaction of certain conditions, for options granted with exercisable date determined based on the grant date of options,
+the first 25% of the total options can be exercised 1 year after the grant date, and each 25% of the total options will become exercisable
+in each subsequent year.
+9.
+Subject to the satisfaction of certain conditions, the first 25% of the total options can be exercised on the dates as specified in the
+relevant grant letters, and each 25% of the total options will become exercisable in each subsequent year.
+8.
+For options granted with exercisable date determined based on the grant date of options, 100% of the total options can be exercised 5
+years after the grant date.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 3 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 2 years after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+can be exercised 1 year after the grant date, and each 33.33% of the total options will become exercisable in each subsequent year.
+Number of share options
+For options granted with exercisable date determined based on the grant date of options, the first 50% of the total options can be
+exercised 1 year after the grant date, and the remaining 50% of the total options will become exercisable in the subsequent year.
+Lapsed/
+Granted
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+0.000076
+213,609 1,407,820
+11,323,916
+12,945,345
+1 Mar 2015
+Employees
+(Note 6)
+(Note 7)
+price Exercise period
+USD
+Exercise
+during 31 December
+2019
+the year
+the year
+the year
+2019
+Date of grant
+during
+during
+1 January
+As at
+forfeited
+Exercised
+As at
+7.
+6.
+5.
+29,610
+23 Aug 2019
+8 Jul 2020 to 7 Jul 2026 (Note 4 and Note 11)
+8 Jul 2021 to 7 Jul 2026 (Note 5 and Note 11)
+359.04
+12,005
+12,005
+8 Jul 2019
+359.04
+2,152,780
+23,450
+2,176,230
+8 Jul 2019
+4 Apr 2020 to 3 Apr 2026 (Note 1 and Note 10)
+4 Apr 2020 to 3 Apr 2026 (Note 4 and Note 10)
+4 Apr 2024 to 3 Apr 2026 (Note 7 and Note 10)
+8 Jul 2020 to 7 Jul 2026 (Note 1 and Note 11)
+359.04
+665
+665
+8 Jul 2019
+376.00
+17,500,000
+17,500,000
+4 Apr 2019
+376.00
+2,283,120
+29,610
+334.20
+23 Aug 2019
+67,795
+4.
+3.
+2.
+1.
+Directors' Report
+Note:
+Tencent Holdings Limited
+34
+18
+70,560,444 22,743,035 1,612,741 316,125 91,374,613
+Total:
+10 Jul 2017
+15 Nov 2020 to 1 Dec 2026 (Note 2 and Note 13)
+52,745
+52,745
+2 Dec 2019
+15 Aug 2020 to 22 Aug 2026 (Note 9 and Note 12)
+334.20
+213,990
+213,990
+23 Aug 2019
+15 Aug 2020 to 22 Aug 2026 (Note 2 and Note 12)
+15 Aug 2020 to 22 Aug 2026 (Note 4 and Note 12)
+334.20
+67,795
+335.84
+10 Jul 2018 to 9 Jul 2024 (Note 4)
+272.36
+7,814,593
+Tencent Holdings Limited
+Directors' Report
+Details of movements of share options granted to employees of the Group (apart from director(s) of the Company) during the
+year ended 31 December 2019 are as follows:
+Number of share options
+Lapsed/
+As at
+Granted
+Exercised
+forfeited
+As at
+1 January
+during
+during
+during 31 December
+Exercise
+Date of grant
+2019
+the year
+the year
+the year
+2019
+price
+Exercise period
+32
+(Note 14)
+No options were cancelled or lapsed during the year.
+The closing price immediately before the date on which the options were granted on 4 April 2019 was HKD378.
+5,250,000
+5,250,000
+225.44
+24 March 2018 to
+23 March 2024 (Note 2)
+9 April 2018
+3,215,800
+3,215,800
+410.00
+9 April 2019 to
+8 April 2025 (Note 2)
+4 April 2019
+3,506,580
+376.00
+4 April 2020 to
+3 April 2026 (Note 2)
+Total:
+17,215,800
+3,506,580
+20,722,380
+For options granted with exercisable date determined based on the grant date of options, the first 20% of the total options can be
+exercised 1 year after the grant date, and each 20% of the total options will become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options can be
+exercised 1 year after the grant date, and each 25% of the total options will become exercisable in each subsequent year.
+3.
+4.
+HKD
+13 Sep 2012
+22,875
+40,350
+40,350
+116.40
+12 Dec 2016 to 11 Dec 2021 (Note 5)
+2 Apr 2015
+525,000
+525,000
+149.80
+2 Apr 2016 to 1 Apr 2022 (Note 4)
+10 Jul 2015
+555,029
+111,370
+1,225
+442,434
+148.90
+10 Jul 2016 to 9 Jul 2022 (Note 4)
+21 Mar 2016
+6,125,000
+6,125,000
+158.10
+21 Mar 2017 to 20 Mar 2023 (Note 4)
+6 Jul 2016
+1,116,817
+12 Dec 2014
+10 Jul 2015 to 9 Jul 2021 (Note 4)
+124.30
+518,714
+22,875
+49.76
+13 Sep 2013 to 12 Sep 2019 (Note 3)
+25 Mar 2014
+2,542,500
+42,500
+2,500,000
+114.52
+25 Mar 2015 to 24 Mar 2021 (Note 2)
+25 Mar 2014
+3,145,000
+24 March 2017
+350,000
+114.52
+25 Mar 2015 to 24 Mar 2021 (Note 3)
+22 May 2014
+62,500
+30,000
+32,500
+112.30
+22 May 2015 to 21 May 2021 (Note 2)
+10 Jul 2014
+642,339
+123,625
+2,795,000
+1 Mar 2015
+20 March 2023 (Note 2)
+1.
+No. of shares
+Month of purchase in 2019
+purchased
+Highest
+price paid
+Lowest
+price paid
+consideration
+paid
+HKD
+HKD
+HKD
+August
+September
+October
+Total:
+362,200
+327.00
+312.40
+2,294,500
+351.00
+323.60
+116,330,916
+776,104,729
+830,000
+327.80
+Aggregate
+317.40
+Purchase consideration per share
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+170,000
+473,556
+8,458,149
+10 Jul 2017
+10 Jul 2018 to 9 Jul 2024 (Note 2)
+272.36
+13,405
+13,405
+10 Jul 2017
+24 Mar 2018 to 23 Mar 2024 (Note 1)
+24 Mar 2018 to 23 Mar 2024 (Note 4)
+225.44
+21,253,750
+175,000
+21,428,750
+24 Mar 2017
+225.44
+1,093,295
+199,555
+1,292,850
+24 Mar 2017
+6 Jul 2017 to 5 Jul 2023 (Note 4)
+174.86
+1 Mar 2015
+During the year ended 31 December 2019, the Company repurchased 3,486,700 shares on the Stock Exchange for an
+aggregate consideration of approximately HKD1.16 billion before expenses. The repurchased shares were subsequently
+cancelled. The repurchase was effected by the Board for the enhancement of shareholder value in the long term. Details of the
+shares repurchased are as follows:
+268,272,462
+3,486,700
+1,160,708,107
+As at
+during 31 December
+Exercise
+Name of director
+Date of grant
+2019
+the year
+the
+year
+2019
+price Exercise period
+HKD
+Lau Chi Ping Martin
+25 March 2014
+5,000,000
+5,000,000
+114.52
+25 March 2015 to
+24 March 2021 (Note 1)
+21 March 2016
+3,750,000
+3,750,000
+158.10
+21 March 2017 to
+Note:
+Number of share options
+Exercised
+Granted
+during
+1 January
+As at
+Save as disclosed above and in Note 32 to the consolidated financial statements, neither the Company nor any of its
+subsidiaries has purchased, sold or redeemed any of the Company's shares during the year ended 31 December 2019.
+ISSUANCE OF DEBT SECURITIES
+On 11 April 2019, the Company issued five tranches of senior notes under the Global Medium Term Note Programme for the
+Company's general corporate purposes. Details of the issuance of debt securities are set out in Note 36 to the consolidated
+financial statements.
+30
+Tencent Holdings Limited
+Directors' Report
+USE OF PROCEEDS FROM IPO OF NON-WHOLLY OWNED SUBSIDIARY
+The use of proceeds from the IPO of TME and China Literature, our non-wholly owned subsidiaries, are set out below:
+TME
+The American depository shares of TME were listed on the New York Stock Exchange on 12 December 2018 and the net
+proceeds raised by TME during its IPO were approximately USD509 million (equivalent to approximately RMB3,500 million).
+As at 31 December 2019, TME has not yet used any of the proceeds received from the IPO. TME will apply the net proceeds
+in the manner as set out in its IPO prospectus.
+2.
+China Literature
+As at 31 December 2019, China Literature had used:
+approximately RMB1,015 million for expanding its online reading business and sales and marketing activities;
+approximately RMB1,352 million for expanding its involvement in the development of derivative entertainment products
+adapted from its online literary titles;
+approximately RMB1,843 million for funding its potential investments, acquisitions and strategic alliances; and
+approximately RMB615 million for working capital and general corporate purposes.
+The remaining balance of the net proceeds was placed with banks. China Literature will apply the remaining net proceeds in
+the manner as set out in its IPO prospectus.
+Annual Report 2019 31
+Directors' Report
+SHARE OPTION SCHEMES
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the
+Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV. The Pre-IPO Option Scheme,
+the Post-IPO Option Scheme I, the Post-IPO Option Scheme II and the Post-IPO Option Scheme III expired on 31 December
+2011, 23 March 2014, 16 May 2017 and 13 May 2019 respectively.
+As at 31 December 2019, there were a total of 20,722,380 outstanding share options granted to a director of the Company,
+details of which are as follows:
+The shares of China Literature were listed on the Stock Exchange on 8 November 2017 and the net proceeds raised by China
+Literature during its IPO were approximately HKD7,235 million (equivalent to approximately RMB6, 145 million).
+10,776,631
+Directors' Report
+17 Oct 2018
+12 Jul 2020 to 16 Oct 2028 (Note 4)
+7.14
+3,397,500
+300,000
+3,697,500
+17 Oct 2018
+12 Jul 2019 to 16 Oct 2028 (Note 3)
+7.14
+2,319,000
+2,319,000
+3,748,650
+16 Apr 2019 to 15 Apr 2028 (Note 3)
+4.04
+975,000
+325,000
+1,300,000
+16 Apr 2018
+20 Dec 2018 to 19 Dec 2027 (Note 3)
+2.32
+5,551,752
+468,578
+1,881,950
+7,902,280
+20 Dec 2017
+31 Mar 2018 to 15 Jun 2027 (Note 3)
+31 Aug 2018 to 30 Aug 2027 (Note 1)
+0.27
+4,513,508
+14 Jun 2019
+410,007
+1,993,780
+7.05
+Directors' Report
+External
+(Note 6)
+(Note 7)
+2019
+the year
+the year
+the year
+2019
+Date of grant
+Exercise
+during 31 December
+during
+during
+1 January
+As at
+forfeited
+Exercised
+Granted
+As at
+Lapsed/
+Number of share options
+Tencent Holdings Limited
+36
+87,759,473 1,993,780 47,458,328 2,490,584 39,804,341
+Sub-total:
+14 Jun 2020 to 13 Jun 2029 (Note 3 and Note 5)
+1,993,780
+2,845,078
+7,768,593
+31 Aug 2017
+156,498
+213,542
+370,040
+31 Mar 2016
+0.000076
+245,826
+1,529,224
+90,302
+255,377
+491,266
+746,643
+1 Mar 2016
+140,448
+230,750
+31 Dec 2015
+101,302
+1,406,160
+3,036,686
+31 Dec 2015
+7,440
+538,614
+791,880
+1 Oct 2015
+75,100
+75,100
+1 Jul 2015
+0.27
+0.27
+34,023 1,409,162
+7,962 1,953,472
+1,787,216
+0.27
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+30 Mar 2016 to 29 Mar 2025 (Note 1)
+0.27 1 Jul 2016 to 30 Jun 2025 (Note 1)
+0.27 1 Oct 2016 to 30 Sep 2025 (Note 1)
+0.27 31 Dec 2016 to 30 Dec 2025 (Note 1)
+31 Dec 2016 to 30 Dec 2025 (Note 1)
+0.27 1 Mar 2017 to 28 Feb 2026 (Note 1)
+31 Mar 2017 to 30 Mar 2026 (Note 1)
+1 Jun 2016
+7,098,340
+2.32
+6,543,470
+503,720
+3,364,614
+10,411,804
+16 Jun 2017
+30 Jun 2017 to 29 Jun 2026 (Note 1)
+5 Jul 2017 to 15 Jun 2027 (Note 3)
+2.32
+1,346,498
+61,068
+1,279,560
+2,687,126
+16 Jun 2017
+price Exercise period
+USD
+0.27
+382,875
+4,864,280
+11,200,035
+30 Jun 2016
+30 Jun 2017 to 29 Jun 2026 (Note 1)
+0.000076
+163,272
+489,798
+653,070
+30 Jun 2016
+1 Jun 2017 to 31 May 2026 (Note 2)
+0.27
+7,098,340
+5,952,880
+9,333,446
+30 Mar 2015
+The Company adopted the following three Share Award Schemes with major terms and details set out below:
+24 March 2018 to
+24 March 2021
+9 April 2018
+6,500
+1,625
+4,875
+9 April 2019 to
+9 April 2022
+4 April 2019
+8,500
+8,500
+4 April 2020 to
+4 April 2023
+Total:
+27,750
+8,500
+15,375
+20,875
+Yang Siu Shun
+6 July 2016
+5,738
+5,000
+2,500
+7,500
+24 March 2017
+2019
+the year
+the year
+2019
+Li Dong Sheng
+24 March 2014
+5,000
+5,000
+Vesting period
+24 March 2015 to
+2,869
+24 March 2019
+3,750
+3,750
+2 April 2016 to
+2 April 2019
+21 March 2016
+5,000
+2,500
+2,500
+21 March 2017 to
+21 March 2020
+2 April 2015
+Date of grant
+2,869 6 July 2017 to
+6 July 2020
+7,500
+5,984
+Grand Total:
+158,988
+59,484
+83,994
+134,478
+48
+Tencent Holdings Limited
+Directors' Report
+DIRECTORS AND SENIOR MANAGEMENT
+The directors and senior management of the Company during the year and up to the date of this annual report were:
+Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Independent Non-Executive Directors
+Li Dong Sheng
+lain Ferguson Bruce
+lan Charles Stone
+5,984
+Total:
+23 August 2023
+23 August 2020 to
+2,500
+5,000
+24 March 2018 to
+24 March 2021
+9 April 2018
+10,000
+2,500
+7,500 9 April 2019 to
+9 April 2022
+4 April 2019
+15,000
+24 March 2017
+15,000
+4 April 2023
+Total:
+23,238
+15,000
+7,869
+30,369
+Ke Yang
+23 August 2019
+5,984
+5,984
+4 April 2020 to
+Yang Siu Shun
+Name of director
+during
+Option Scheme I
+Option Scheme II
+Directors' Report
+Post-IPO
+Option Scheme III
+Post-IPO
+Option Scheme IV
+4.
+Maximum
+The number of
+entitlement of
+ordinary shares in
+each participant respect of which
+options may be
+granted shall not
+exceed 10% of the
+number of ordinary
+shares issued and
+issuable under the
+to the date of the
+latest grant
+to the date of the
+latest grant
+1% of the issued
+shares of the
+Company from time
+to time within any
+1% of the issued
+shares of the
+Company from time
+to time within any
+1% of the issued
+shares of the
+Company from time
+to time within any
+12-month period up 12-month period up 12-month period up
+to the date of the
+latest grant
+1% of the issued
+shares of the
+Company from time
+Option Scheme
+Details
+Post-IPO
+Post-IPO
+Directors' Report
+Details
+Pre-IPO
+Option Scheme
+Post-IPO
+Option Scheme I
+Post-IPO
+Option Scheme II
+Post-IPO
+Option Scheme III
+Post-IPO
+to time within any
+12-month period up
+Option Scheme IV
+As at 7 June 2004,
+options to subscribe
+for an aggregate of
+72,386,370 shares
+were outstanding.
+No further option
+could be granted
+under the Pre-IPO
+Option Scheme.
+As at 16 May 2007,
+options to subscribe
+for an aggregate of
+60,413,683 shares
+were outstanding.
+No further option
+could be granted
+under the Post-IPO
+Option Scheme I.
+The maximum
+number of shares
+in respect of which
+options may be
+granted under the
+Post-IPO Option
+Scheme II shall be
+444,518,270 shares
+(after the effect of the
+Share Subdivision),
+5% of the relevant
+class of securities
+of the Company in
+issue as at 16 May
+2007. The maximum
+number of shares
+which may be issued
+upon exercise of all
+outstanding options
+granted and yet to
+be exercised under
+the Post-IPO Option
+Scheme II and any
+other share option
+schemes, including
+the Pre-IPO Option
+Scheme, the Post-
+IPO Option Scheme I,
+the Post-IPO Option
+Scheme III and the
+Post-IPO Option
+Scheme IV, must
+not in aggregate
+exceed 30% of the
+issued shares of the
+Company from time
+to time (Note).
+The maximum
+number of shares
+in respect of which
+options may be
+granted under the
+Post-IPO Option
+Scheme III shall be
+180,093,330 shares
+(after the effect of the
+Share Subdivision),
+2% of the relevant
+class of securities
+of the Company in
+issue as at 13 May
+2009. The maximum
+number of shares
+which may be issued
+upon exercise of all
+outstanding options
+granted and yet to
+be exercised under
+the Post-IPO Option
+Scheme III and any
+other share option
+schemes, including
+the Pre-IPO Option
+Scheme, the Post-
+IPO Option Scheme I,
+the Post-IPO Option
+Scheme II and the
+Post-IPO Option
+Scheme IV, must
+not in aggregate
+exceed 30% of the
+issued shares of the
+Company from time
+to time (Note).
+The maximum
+number of shares
+in respect of which
+options may be
+granted under the
+Post-IPO Option
+Scheme IV shall be
+379,099,339 shares,
+4% of the relevant
+class of securities
+of the Company in
+issue as at 17 May
+2017. The maximum
+number of shares
+which may be issued
+upon exercise of all
+outstanding options
+granted and yet to
+be exercised under
+the Post-IPO Option
+Scheme IV and any
+other share option
+schemes, including
+the Pre-IPO Option
+Scheme, the Post-
+IPO Option Scheme I,
+the Post-IPO Option
+Scheme II and the
+Post-IPO Option
+Scheme III, must
+not in aggregate
+exceed 30% of the
+issued shares of the
+Company from time
+to time (Note).
+40
+Tencent Holdings Limited
+Pre-IPO
+3. Maximum
+number of
+shares
+31 December
+30,000
+lan Charles Stone
+9 April 2019 to
+9 April 2022
+4 April 2019
+17,000
+17,000
+4 April 2020 to
+4 April 2023
+Total:
+55,500
+17,000
+30,750
+41,750
+Annual Report 2019
+47
+Directors' Report
+Number of Awarded Shares
+As at
+1 January
+Granted
+during
+Vested
+As at
+9,750
+3,250
+13,000
+9 April 2018
+24 March 2014
+10,000
+10,000
+24 March 2015 to
+24 March 2019
+2 April 2016 to
+2 April 2015
+7,500
+7,500
+2 April 2019
+35,500
+21 March 2016
+5,000
+5,000
+21 March 2017 to
+21 March 2020
+24 March 2017
+15,000
+5,000
+10,000
+24 March 2018 to
+24 March 2021
+10,000
+SHARE AWARD SCHEMES
+13,000
+Total:
+The Company shall comply with the relevant Listing Rules when granting the Awarded Shares. If awards are made to the
+directors or substantial shareholders of the Group, such awards shall constitute connected transaction under Chapter 14A of
+the Listing Rules and the Company shall comply with the relevant requirements under the Listing Rules.
+The Trustee shall not exercise
+any voting rights in respect of
+any shares held pursuant to
+the Trust Deed III or as
+nominee.
+The Trustee shall not exercise
+any voting rights in respect of
+any shares held pursuant to
+the Trust Deed II or as
+nominee.
+The Trustee shall not exercise
+any voting rights in respect of
+any shares held pursuant to
+the Trust Deed I (including
+but not limited to the Awarded
+Shares and any bonus shares
+and scrip shares derived
+therefrom).
+Voting Rights
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2019 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2013 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+Awarded Shares and the related The vesting of the Awarded
+income derived therefrom are Shares is subject to the
+subject to a vesting scale to be Selected Participant remaining
+determined by the Board at at all times after the Grant Date
+the date of grant of the award. and on the date of vesting, an
+Vesting of the shares will be
+Eligible Person, subject to the
+conditional on the Selected rules of the 2013 Share Award rules of the 2019 Share Award
+Participant satisfying all vesting Scheme.
+Scheme.
+conditions specified by the
+Board at the time of making
+the award until and on each
+of the relevant vesting dates
+and his/her execution of the
+relevant documents to effect
+the transfer from the Trustee.
+The vesting of the Awarded
+Shares is subject to the
+Selected Participant remaining
+at all times after the Grant Date
+and on the date of vesting, an
+Eligible Person, subject to the
+2019 Share Award Scheme
+2013 Share Award Scheme
+2007 Share Award Scheme
+8.
+Vesting and Lapse
+7.
+Directors' Report
+45
+Annual Report 2019
+Company has occurred or
+has become the subject
+of a decision, until such
+inside information has been
+published; (iii) within the
+period commencing 60 days (in
+the case of yearly results), or
+30 days (in the case of results
+for half-year, quarterly or other
+interim period) immediately
+preceding the earlier of (1) the
+date of a meeting of the Board
+(as such date is first notified
+to the Stock Exchange) for the
+approval of the Company's
+results for any year, half-
+year, quarterly or other
+interim period (whether or
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish its
+quarterly, interim or annual
+results announcement for any
+such period, and ending on the
+date of such announcement; or
+(iv) in any other circumstances
+where dealings by Selected
+Participant (including directors)
+are prohibited under the Listing
+Rules, the SFO or any other
+applicable law or regulation or
+where the requisite approval
+from any applicable regulatory
+authorities has not been
+granted.
+Company has occurred or
+has become the subject
+of a decision, until such
+inside information has been
+published; (iii) within the
+period commencing 60 days (in
+the case of yearly results), or
+30 days (in the case of results
+for half-year, quarterly or other
+interim period) immediately
+preceding the earlier of (1) the
+date of a meeting of the Board
+(as such date is first notified
+to the Stock Exchange) for the
+approval of the Company's
+results for any year, half-
+year, quarterly or other
+interim period (whether or
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish its
+quarterly, interim or annual
+results announcement for any
+such period, and ending on the
+date of such announcement; or
+(iv) in any other circumstances
+where dealings by Selected
+Participant (including directors)
+are prohibited under the Listing
+Rules, the SFO or any other
+applicable law or regulation or
+where the requisite approval
+from any applicable regulatory
+authorities has not been
+granted.
+2019 Share Award Scheme
+During the year, a total of 51,200,222 and 1,896,560 Awarded Shares were granted under the 2013 Share Award Scheme
+and the 2019 Share Award Scheme respectively and out of which, 59,484 Awarded Shares were granted to the independent
+non-executive directors of the Company under the 2013 Share Award Scheme. Details of the movements in the Share Award
+Schemes during the year are set out in Note 34 to the consolidated financial statements.
+During the year, a total of 35,794,895 shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II and the Post-IPO Option Scheme IV, and pursuant to the Share Award Schemes.
+46
+Tencent Holdings Limited
+Tencent Holdings Limited
+2019 Vesting period
+7,500
+7,500
+2 April 2015
+10,000
+10,000
+24 March 2014
+lain Ferguson Bruce
+31 December
+2013 Share Award Scheme
+during
+the year
+Vested
+Granted
+during
+the year
+2019
+Date of grant
+Name of director
+1 January
+As at
+Number of Awarded Shares
+As at 31 December 2019, there were a total of 134,478 outstanding Awarded Shares granted to the directors of the Company,
+details of which are as follows:
+Directors' Report
+As at
+42
+Directors' Report
+Restrictions (continued)
+Company as at the Adoption
+Date II (i.e. 278,937,260
+shares (after the effect of the
+Share Subdivision))
+Company as at the Adoption
+Date I (i.e. 178,776,160
+shares (after the effect of the
+Share Subdivision))
+2% of the issued shares of the 3% of the issued shares of the 2% of the issued shares of the
+It shall be valid and effective
+unless and until being
+terminated on the earlier of: (i)
+the 15th anniversary date of
+the Adoption Date III; and (ii)
+such date of early termination
+as determined by the Board
+provided that such termination
+does not affect any subsisting
+rights of any Selected
+Participant.
+Participant.
+It shall be valid and effective
+unless and until being
+terminated on the earlier of: (i)
+the 15th anniversary date of
+the Adoption Date II; and (ii)
+such date of early termination
+as determined by the Board
+provided that such termination
+does not affect any subsisting
+rights of any Selected
+It shall be valid and effective
+for a period of 15 years from
+the Adoption Date I.
+To recognise the contributions and to attract, motivate and retain eligible participants (including
+any director) of the Group
+2019 Share Award Scheme
+2013 Share Award Scheme
+2007 Share Award Scheme
+Maximum entitlement of each
+participant
+Directors' Report
+4.
+that can be awarded
+Maximum number of shares
+3.
+Duration and Termination
+2.
+Purpose
+1.
+Company as at the Adoption
+Date II (i.e. 191,047,317
+shares)
+1% of the issued shares of the 1% of the issued shares of the
+Company as at the Adoption
+Date (i.e. 89,388,080
+shares (after the effect of the
+Share Subdivision))
+Company as at the Adoption
+Date II (i.e. 92,979,085
+shares (after the effect of the
+Share Subdivision))
+6.
+Tencent Holdings Limited
+44
+No award may be made by
+the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there is
+inside information which must
+be disclosed under Part XIVA
+of the SFO, until such inside
+information has been published
+on the websites of the Stock
+Exchange and the Company; (ii)
+after any inside information in
+relation to the securities of the
+No award may be made by
+the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there is
+inside information which must
+be disclosed under Part XIVA
+of the SFO, until such inside
+information has been published
+on the websites of the Stock
+Exchange and the Company; (ii)
+after any inside information in
+relation to the securities of the
+No award shall be made by
+the Board and no instructions
+to acquire shares and allot
+new shares shall be given
+by the Board or the Trustee
+under the 2007 Share Award
+Scheme where any director is
+in possession of unpublished
+price-sensitive information
+in relation to the Group or
+where dealings by directors
+are prohibited under any code
+or requirement of the Listing
+Rules and all applicable laws
+from time to time.
+Restrictions
+6.
+The Board may at any time at
+its discretion, in respect of each
+Selected Participant, cause to
+be paid the relevant amount
+from the Company's resources
+or any subsidiary's resources
+into an account for the
+purchase and/or subscription
+of the Awarded Shares as soon
+as practicable after the Grant
+Date.
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+2007 Share Award Scheme
+The Board may at any time at
+its discretion, in respect of each
+Selected Participant, cause to
+be paid the relevant amount
+from the Company's resources
+or any subsidiary's resources
+into an account for the
+purchase and/or subscription
+of the Awarded Shares as soon
+as practicable after the Grant
+Date.
+The Board shall, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources into an account or
+to the Trustee to be held on
+trust for the relevant Selected
+Participant for the purchase
+and/or subscription of the
+Awarded Shares as soon as
+practicable after the Reference
+Date.
+The Board shall select
+the Eligible Person(s) and
+determine the number of
+shares to be awarded.
+5. Operation
+2019 Share Award Scheme
+2013 Share Award Scheme
+2007 Share Award Scheme
+Directors' Report
+43
+Annual Report 2019
+1% of the issued shares of the
+Company as at the Adoption
+Date III (i.e. 95,523,658
+shares)
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+52,500
+Details of the valuation of share options during the year are set out in Note 34 to the consolidated financial statements.
+Details of the movements in the share options during the year are set out in Note 34 to the consolidated financial statements.
+2 April 2019
+2 April 2016 to
+24 March 2019
+24 March 2015 to
+scheme.
+5.
+Option period
+All the options
+are exercisable in
+The option period is
+determined by the
+installments from the Board provided that
+commencement of
+the period during
+which the options
+may be exercised
+shall not be less than
+one year from the
+date of grant of the
+options.
+The option period is
+determined by the
+Board provided that
+it is not later than
+the last day of the
+7-year period after
+the date of grant of
+the options. There is
+no minimum period
+for which an option
+must be held before
+it can be exercised.
+The option period is
+determined by the
+Board provided that
+it is not later than
+the last day of the
+10-year period after
+the date of grant of
+the options. There is
+no minimum period
+for which an option
+must be held before
+it can be exercised.
+The option period is
+determined by the
+Board provided that
+it is not later than
+the last day of the
+7-year period after
+the date of grant of
+the options. There is
+no minimum period
+for which an option
+must be held before
+it can be exercised.
+6.
+21 March 2016
+Ke Yang (appointed with effect from 15 August 2019)
+In accordance with Article 87 of the Articles of Association, Mr Lau Chi Ping Martin and Mr Charles St Leger Searle will retire
+at the 2020 AGM and, being eligible, will offer themselves for re-election. In addition, in accordance with Article 86(3) of the
+Articles of Association, Professor Ke Yang, who was appointed as director with effect from 15 August 2019, will hold office until
+the 2020 AGM and, being eligible, will offer herself for re-election.
+The Company has received from each independent non-executive director an annual confirmation of his/her independence
+pursuant to Rule 3.13 of the Listing Rules and the Board considers them independent.
+4 April 2023
+4 April 2020 to
+13,000
+13,000
+4 April 2019
+7,500 9 April 2019 to
+9 April 2022
+to the date of the
+latest grant
+2,500
+10,000
+9 April 2018
+the relevant vesting
+period until 31
+December 2011,
+but on the condition
+that the Company
+has been listed in a
+sizeable securities
+market. The Board
+24 March 2018 to
+24 March 2021
+5,000
+15,000
+24 March 2017
+21 March 2020
+21 March 2017 to
+5,000
+5,000
+10,000
+49
+Annual Report 2019
+10,000
+VALUATION OF SHARE OPTIONS
+may at its discretion
+exercise periods.
+Option Scheme III
+The exercise price
+must be at least the
+higher of: (i) the
+closing price of the
+securities as stated in
+the Stock Exchange's
+daily quotations
+sheet on the date of
+grant, which must be
+a business day; (ii)
+the average closing
+price of the securities
+as stated in the Stock
+Exchange's daily
+quotations sheets
+for the five business
+days immediately
+preceding the date
+of grant; and (iii) the
+nominal value of the
+share.
+Post-IPO
+Option Scheme IV
+The exercise price
+must be at least the
+higher of: (i) the
+closing price of the
+securities as stated in
+the Stock Exchange's
+daily quotations
+sheet on the date of
+grant, which must be
+a business day; (ii)
+the average closing
+price of the securities
+as stated in the Stock
+Exchange's daily
+quotations sheets
+for the five business
+days immediately
+preceding the date
+of grant; and (iii) the
+nominal value of the
+share.
+8.
+Remaining life
+of the scheme
+It expired on 31
+December 2011.
+It expired on 23
+March 2014.
+It expired on 16
+May 2017.
+It expired on 13
+May 2019.
+It shall be valid
+and effective for a
+period of ten years
+commencing on 17
+May 2017.
+Note:
+The total number of shares available for issue under the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO
+Option Scheme IV are 200,551,970, 175,093,330 and 315,906,839 respectively, which represent approximately 2.10%, 1.83% and 3.31%
+respectively of the issued shares of the Company as at the date of this annual report.
+MOVEMENTS IN THE SHARE OPTIONS
+Post-IPO
+of grant; and (iii) the
+nominal value of the
+share.
+Exchange's daily
+quotations sheets
+for the five business
+days immediately
+preceding the date
+price of the securities
+as stated in the Stock
+Acceptance of
+offer
+Options granted
+must be accepted
+within 15 days of
+the date of grant,
+upon payment of
+RMB1 per grant.
+Options granted
+must be accepted
+within 28 days of
+the date of grant,
+upon payment of
+HKD1 per grant.
+Options granted
+must be accepted
+within 28 days of
+the date of grant,
+upon payment of
+HKD1 per grant.
+Options granted
+must be accepted
+within 28 days of
+the date of grant,
+upon payment of
+HKD1 per grant.
+Options granted
+must be accepted
+within 28 days of
+the date of grant,
+upon payment of
+HKD1 per grant.
+Annual Report 2019
+41
+determine the
+specific vesting and
+Directors' Report
+Pre-IPO
+Option Scheme
+Post-IPO
+Post-IPO
+Option Scheme I
+Option Scheme II
+7.
+Exercise price
+Price shall be
+determined by the
+Board.
+The exercise price
+must be at least the
+higher of: (i) the
+closing price of the
+securities as stated in
+the Stock Exchange's
+daily quotations
+sheet on the date of
+grant, which must be
+a business day; (ii)
+the average closing
+price of the securities
+as stated in the Stock
+Exchange's daily
+quotations sheets
+for the five business
+days immediately
+preceding the date
+of grant; and (iii) the
+nominal value of the
+share.
+The exercise price
+must be at least the
+higher of: (i) the
+closing price of the
+securities as stated in
+the Stock Exchange's
+daily quotations
+sheet on the date of
+grant, which must be
+a business day; (ii)
+the average closing
+Details
+0.004%
+lan Charles Stone, age 69, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 30 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong (China), Mainland China, South East Asia and the Middle East. Mr
+Stone has more than 49 years of experience in the telecom and mobile industries. Mr Stone is a fellow member of The Hong
+Kong Institute of Directors. Mr Stone also serves as an independent non-executive director of a subsidiary of the Company.
+Personal
+56
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+PERMITTED INDEMNITY PROVISION
+Save as disclosed in this annual report, no transaction, arrangement or contract of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+Tencent Holdings Limited
+DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS
+Mr Lau Chi Ping Martin has entered into a service contract with the Company for a term of three years ending 31 December
+2021. Mr Lau is entitled to an annual bonus based on the performance of the Company in an amount to be determined by the
+Remuneration Committee. Mr Lau is entitled to participate in all employee benefit plans, programmes and arrangements of the
+Company.
+Mr Ma Huateng has entered into a service contract with the Company for a term of three years from 1 January 2019 to 31
+December 2021. The term of the service contract can be further extended by agreement between the Company and Mr Ma.
+The Company may terminate the service contract by three months' written notice at any time, subject to paying his salary for
+the shorter of six months and a portion of his annual bonus for the year in which termination occurred pro rata to the portion of
+the year before the termination becomes effective.
+DIRECTORS' SERVICE CONTRACTS
+Directors' Report
+Annual Report 2019 55
+Xi Dan, age 44, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 24 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director or officer of certain subsidiaries of the Company.
+Save as disclosed above, none of the directors who are proposed for re-election at the 2020 AGM has a service contract
+with the Company which is not determinable by the Company within one year without payment of compensation, other than
+statutory compensation.
+Directors' Report
+DIRECTORS' INTERESTS IN SECURITIES
+As at 31 December 2019, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+Personal
+Li Dong Sheng
+0.55%
+8.58%
+52,690,380
+819,507,500
+*
+Lau Chi Ping Martin
+Corporate (Note 1)
+Ma Huateng
+Approximate %
+of shareholding
+Number of shares/
+underlying shares held
+Nature of interest
+Name of director
+(A) Long position in the shares and underlying shares of the Company
+Guo Kaitian, age 47, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of legal affairs, administration, infrastructure, procurement, public strategy, safety management
+and corporate social responsibility. Mr Guo received a Bachelor of Law degree from Zhongnan University of Economics and
+Law in 1996. Mr Guo currently serves as a director of a subsidiary of the Company.
+*
+John Shek Hon Lo, age 51, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and had served
+as the Company's Financial Controller from 2004 to 2008. Mr Lo was promoted to the Company's Deputy Chief Financial
+Officer in 2008 and was appointed as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo worked
+at PricewaterhouseCoopers. He is a Fellow of the CPA Australia, a Fellow of the Hong Kong Institute of Certified Public
+Accountants, a Fellow of the Chartered Institute of Management Accountants and a Member of the Association of Chartered
+Certified Accountants. Mr Lo received a Bachelor of Business degree in Accounting from Curtin University and an EMBA
+degree from Kellogg Graduate School of Management, Northwestern University and The Hong Kong University of Science and
+Technology. Mr Lo currently serves as a director of a subsidiary of the Company.
+Directors' Report
+Directors' Report
+Annual Report 2019 51
+lain Ferguson Bruce, age 79, has been an independent non-executive director since April 2004. Mr Bruce joined KPMG in
+Hong Kong in 1964 and was elected to its partnership in 1971. He was the Senior Partner of KPMG from 1991 until his
+retirement in 1996 and served as Chairman of KPMG Asia Pacific from 1993 to 1997. Since 1964, Mr Bruce has been a
+member of the Institute of Chartered Accountants of Scotland, and is a fellow of the Hong Kong Institute of Certified Public
+Accountants, with over 55 years of international experience in accounting and consulting. He is also a fellow of The Hong
+Kong Institute of Directors and the Hong Kong Securities and Investment Institute (formerly known as Hong Kong Securities
+Institute). Mr Bruce is currently an independent non-executive director of Goodbaby International Holdings Limited, a
+manufacturer of durable juvenile products, South Shore Holdings Limited (formerly known as The 13 Holdings Limited),
+a construction, engineering services and hotel development company, and Wing On Company International Limited, a
+department store operating and real property investment company; all of these companies are publicly listed on the Stock
+Exchange. Mr Bruce is also an independent non-executive director of Yingli Green Energy Holding Company Limited, a
+China-based vertically integrated photovoltaic product manufacturer that is listed on the New York Stock Exchange. Mr Bruce
+was a non-executive director of Noble Group Limited, a commodity trading company that is publicly listed on The Singapore
+Exchange Securities Trading Limited, up to 11 May 2017, and was also an independent non-executive director of Citibank
+(Hong Kong) Limited, up to 2 August 2017. Mr Bruce was also an independent non-executive director of MSIG Insurance (Hong
+Kong) Limited, up to 1 July 2018.
+Li Dong Sheng, age 62, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Technology Group Corporation (formerly known as TCL Corporation) that is listed on the Shenzhen
+Stock Exchange, and the Chairman and an executive director of TCL Electronics Holdings Limited that is listed on the Stock
+Exchange, both of which produce consumer electronic products. Mr Li is a non-executive director of Fantasia Holdings Group
+Co., Limited, a leading property developer and property related service provider in China that is listed on the Stock Exchange.
+Mr Li graduated from South China University of Technology in 1982 with a Bachelor degree in radio technology and has more
+than 25 years of experience in the information technology field. Mr Li was an independent director of Legrand that is listed on
+the New York Stock Exchange Euronext up to 30 May 2018.
+Charles St Leger Searle, age 56, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, including Mail.ru Group Limited that is listed on the London Stock Exchange and MakeMyTrip Limited that is listed on
+NASDAQ. Prior to joining the Naspers Group, he held positions at Cable & Wireless plc and at Deloitte & Touche in London
+and Sydney. Mr Searle is a graduate of the University of Cape Town and a member of the Institute of Chartered Accountants
+in Australia and New Zealand. Mr Searle has more than 26 years of international experience in the telecommunications and
+Internet industries. Mr Searle also serves as a director of certain subsidiaries of the Company.
+Directors' Report
+Yang Siu Shun, age 64, has been an independent non-executive director since July 2016. Mr Yang is currently serving as a
+Member of the 13th National Committee of the Chinese People's Political Consultative Conference, a Justice of the Peace in
+Hong Kong, a Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority, a Steward of the Hong
+Kong Jockey Club, and an independent non-executive director of Industrial and Commercial Bank of China Limited which is
+publicly listed on the Stock Exchange and the Shanghai Stock Exchange. Mr Yang retired from PricewaterhouseCoopers ("PwC”)
+on 30 June 2015. Before his retirement, he served as the Chairman and Senior Partner of PwC Hong Kong, the Executive
+Chairman and Senior Partner of PwC China and Hong Kong, one of the five members of the Global Network Leadership Team
+of PwC and the PwC Asia Pacific Chairman. Mr Yang also served as a Board Member and the Audit Committee Chairman
+of the Hang Seng Management College, up to 30 September 2018 and the Deputy Chairman of the Council of The Open
+University of Hong Kong ("OUHK"), up to 19 June 2019. Mr Yang graduated from the London School of Economics and
+Political Science in 1978. Mr Yang was awarded the degree of Honorary Doctor of Social Sciences by OUHK. Mr Yang is a
+Fellow Member of the Institute of Chartered Accountants in England and Wales, the Hong Kong Institute of Certified Public
+Accountants and the Chartered Institute of Management Accountants.
+Tencent Holdings Limited
+Jacobus Petrus (Koos) Bekker, age 67, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers. He
+serves on the boards of other companies within the group and associates, as well as other bodies. In April 2015, he became
+non-executive chair. Academic qualifications include BA Hons and honorary doctorate in commerce (Stellenbosch University),
+LLB (University of the Witwatersrand) and MBA (Columbia University, New York).
+Lau Chi Ping Martin, age 46, is an executive director and President of the Company. Mr Lau joined the Company in 2005 as
+the Chief Strategy and Investment Officer and was responsible for corporate strategies, investments, mergers and acquisitions
+and investor relations. In 2006, Mr Lau was promoted to President of the Company to manage the day-to-day operation of
+the Company. In 2007, he was appointed as an executive director of the Company. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at McKinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. Mr Lau is currently a non-executive director of Kingsoft Corporation Limited, an Internet based
+software developer, distributor and software service provider, and Meituan Dianping, a leading eCommerce platform for
+services in China; both of these companies are publicly listed on the Stock Exchange. Mr Lau is also a director of Leju Holdings
+Limited, an online-to-offline real estate services provider in China, Vipshop Holdings Limited, an online discount retailer
+company, and TME, an online music entertainment platform in China; all of these companies are listed on the New York Stock
+Exchange. Mr Lau is also a director of JD.com, Inc., an online direct sales company in China, that is listed on NASDAQ. Mr Lau
+also serves as a director/corporate representative of certain subsidiaries of the Company.
+Ma Huateng, age 48, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma is a deputy to the 13th National People's Congress. Mr Ma has
+a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen University and
+more than 26 years of experience in the telecommunications and Internet industries. He is a director of Advance Data Services
+Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the Company.
+BIOGRAPHICAL DETAILS AND OTHER INFORMATION OF DIRECTORS
+Directors' Report
+0.0006%
+50
+Ke Yang, age 64, has been an independent non-executive director since August 2019. Professor Ke is currently the Director
+of Laboratory of Genetics of Peking University Cancer Hospital and an international member of the United States National
+Academy of Medicine. Professor Ke is also Vice-president of the Peking University Alumni Association, President of the Peking
+University Health Science Center Alumni Association, Vice-president of the Chinese Medical Association, President of the
+Health Professional Education Committee of the Chinese Association of Higher Education, and Vice-chairperson of the Steering
+Committee of Clinical Medicine of the Committee of Academic Degrees of the State Council. Professor Ke's research focus is
+on the upper gastrointestinal tumors, including the cloning of gastric cancer related genes and the functional study of such
+genes. Together with her team, she has also established the population cohort in esophageal cancer high incidence regions
+in China, studied the etiology of esophageal cancer, and evaluated the effects and economic efficacy of early screening of
+the disease. She has published more than 100 papers and had registered patents and been granted awards at national and
+provincial levels for technological and educational achievements. Professor Ke was a member of the 11th and 12th National
+Committee of the Chinese People's Political Consultative Conference, an executive Vice-president of Peking University and
+of the Peking University Health Science Center (formerly known as Beijing Medical College), a member of the Committee of
+Academic Degrees of the State Council, a member of the Healthcare Reform Advisory Committee of the State Council and the
+Chairperson of the Working Committee for Graduate Medical and Pharmaceutical Education of the Office of Academic Degrees of the
+State Council. Professor Ke graduated from the Peking University Health Science Center in 1982. From 1985 to 1988, Professor Ke
+worked at the National Cancer Institute of the National Institutes of Health of the United States as a postdoctoral fellow.
+52
+Tencent Holdings Limited
+Tencent Holdings Limited
+54
+David A M Wallerstein, age 45, Chief exploration Officer and Senior Executive Vice President, joined the Company in 2001. He
+drives the Company's active participation in emerging technologies, business areas, and ideas, with a passion for contributing
+to a more resilient planet. Prior to joining the Company, Mr Wallerstein worked for Naspers in China. Mr Wallerstein received a
+bachelor's degree from University of Washington and a Master's degree from UC Berkeley. Mr Wallerstein currently serves as a
+director of a subsidiary of the Company.
+Lu Shan, age 45, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company in
+2000 and had served as the General Manager for IM Product Division, Vice President for Platform Research and Development
+System and Senior Vice President for Operations Platform System. Since March 2008, Mr Lu has been in charge of
+management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge of management
+of the Technology and Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming Network Systems
+Limited. Mr Lu received a Bachelor of Science degree in Computer Science and Technology from University of Science and
+Technology of China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of the Company.
+Zhang Xiaolong, age 50, Senior Executive Vice President and President of Weixin Group, joined the Company in March
+2005 and had served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail
+service provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has
+been appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail. He
+is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted to
+Senior Executive Vice President, in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received his Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+Tong Tao Sang, age 46, Senior Executive Vice President, President of Cloud and Smart Industries Group and Chairman of
+TME, is leading the Industrial Internet strategy and the enterprise businesses for Tencent. Mr Tong manages the security labs,
+the multi-media lab, and Youtu Al lab, and he is one of the co-chairs of Tencent's technology council. Mr Tong joined the
+Company as a technical architect in 2005, and had previously led QQ, Qzone, QQshow, and their advertising and value-added
+services. Prior to joining the Company, Mr Tong worked for Sendmail, Inc. on managing the product development of operator-
+scale messaging systems. Mr Tong also worked for Oracle on the development and testing of Oracle Server and Oracle
+Applications. Mr Tong received a Bachelor of Science degree in Computer Engineering from University of Michigan, Ann Arbor
+and a Master of Science degree in Electrical Engineering from Stanford University. Mr Tong currently serves as a director of
+certain subsidiaries of the Company.
+Directors' Report
+53
+Annual Report 2019
+Lau Seng Yee, age 53, Senior Executive Vice President and Chairman of Tencent Advertising and of Group Marketing and
+Global Branding and has been affiliated with Tencent Group as a member of their top management steering committee
+since 2006. He served for 11 years as the President of Online Media Group before assuming his current dual chairmanship
+corporate roles in 2017. As Chairman of Advertising and of Group Marketing and Global Branding, he plays a key leadership
+role in enhancing synergies of Tencent's advertising properties across different business groups and in managing Tencent's
+international strategic partnerships on behalf of Tencent's leadership team. Mr Lau represents the Company as a champion
+for the cause of using technology for universal good, particularly for how technology could be better utilised for a sustainable
+development of human society. Professionally, Mr Lau was recognised as the "Global Media Person of the Year" by the Cannes
+Lions in 2015. In 2018, he became one of the founding members of the Global CMO Growth Council, a board featuring 25 top
+marketing leaders who share the vision and passion to transform the professional practices of marketing. Mr Lau is a graduate
+of University of Kebangsaan in Malaysia and received an EMBA degree from Rutgers University in New Jersey, which in 2017
+named him as a Distinguished Alumnus. He completed the Advanced Management Program at the Harvard Business School
+and serves as a board member of that school's Asia-Pacific Advisory Board.
+James Gordon Mitchell, age 46, Chief Strategy Officer and Senior Executive Vice President, joined the Company in 2011. He is
+responsible for various functions, including the Company's strategic planning and implementation, investor relations, mergers
+and acquisitions and investment activities. Prior to joining the Company, Mr Mitchell had worked in investment banking for 16
+years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading the bank's Communications,
+Media and Entertainment research team, which analysed Internet, entertainment and media companies globally. Mr Mitchell
+received a degree from Oxford University and holds a Chartered Financial Analyst Certification. Mr Mitchell currently serves as
+a director of certain subsidiaries of the Company.
+Ren Yuxin, age 44, Chief Operating Officer and President of Platform & Content Group and Interactive Entertainment Group,
+joined the Company in 2000 and had served as the General Manager for the Value-Added Services Development Division and
+General Manager for the Interactive Entertainment Business Division. Since September 2005, Mr Ren has been responsible for
+the research and development, operations, marketing and sales of gaming products for the Interactive Entertainment Business.
+Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of the overall operation of the
+Platform & Content Group and the Interactive Entertainment Group. Prior to joining the Company, Mr Ren worked at Huawei
+Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from University of
+Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International Business School
+(CEIBS) in 2008. Mr Ren currently serves as a director of a subsidiary of the Company.
+Xu Chenye, age 48, Chief Information Officer, oversees the strategic planning and development for the website properties and
+communities, and customer relations of the Company. Mr Xu is one of the core founders and has been employed by the Group
+since 1999. Prior to that, Mr Xu had experiences in software system design, network administration as well as marketing and
+sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu received a Bachelor of
+Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree in Computer Science
+from Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of the Company.
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Directors' Report
+Ma Xiaoyi, age 46, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company
+since November 2008. Prior to joining the Company, Mr Ma served as the General Manager of games division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as the General Manager in Shanghai EasyService Technology
+Development Ltd. Mr Ma graduated from Shanghai Jiaotong University in 1997, and received an EMBA degree from Fudan
+University in 2008. Mr Ma currently serves as a director of certain subsidiaries of the Company.
+lain Ferguson Bruce
+(Note 2)
+*
+The interest comprises 40,425 shares and 20,875 underlying shares in respect of the Awarded Shares granted pursuant to
+the 2013 Share Award Scheme. Details of the Awarded Shares granted to this director are set out above under "Share Award
+Schemes".
+4.
+The interest comprises 317,000 shares and 35,500 underlying shares in respect of the Awarded Shares granted pursuant to
+the 2013 Share Award Scheme. Details of the Awarded Shares granted to this director are set out above under "Share Award
+Schemes".
+5.
+6.
+7.
+The interest comprises 333,250 shares and 41,750 underlying shares in respect of the Awarded Shares granted pursuant to
+the 2013 Share Award Scheme. Details of the Awarded Shares granted to this director are set out above under "Share Award
+Schemes".
+The interest comprises 16,105 shares and 30,369 underlying shares in respect of the Awarded Shares granted pursuant to
+the 2013 Share Award Scheme. Details of the Awarded Shares granted to this director are set out above under "Share Award
+Schemes".
+The interest comprises 5,984 underlying shares in respect of the Awarded Shares granted pursuant to the 2013 Share Award
+Scheme. Details of the Awarded Shares granted to this director are set out above under "Share Award Schemes".
+*
+Interests of beneficial owner
+Interests of spouse or child under 18 as beneficial owner
+(B) Long position in the shares of associated corporations of the Company
+Personal
+Name of associated
+corporation
+The interest comprises 31,968,000 shares and 20,722,380 underlying shares in respect of the share options granted pursuant
+to the Post-IPO Option Scheme II and the Post-IPO Option Scheme IV. Details of the share options granted to this director are set
+out above under "Share Option Schemes".
+Nature of interest
+3.
+Advance Data Services Limited, a British Virgin Islands company wholly-owned by Ma Huateng, holds 723,507,500 shares
+directly and 96,000,000 shares indirectly through its wholly-owned subsidiary, Ma Huateng Global Foundation.
+135,000
+0.004%
+240,000
+375,000
+(Note 5)
+46,474
+(Note 6)
+0.0005%
+5,984
+(Note 7)
+0.00006%
+Annual Report 2019
+57
+52
+Directors' Report
+Note:
+1.
+2.
+Number of shares and
+class of shares held
+Name of director
+Ma Huateng
+Annual Report 2019
+59
+Approximate %
+of shareholding
+(Note 3)
+61,300
+*
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed “Our History and Structure"
+and "Structure Contracts" in the IPO prospectus. During the year ended 31 December 2019, there was no material change
+in the Structure Contracts and/or the circumstances under which they were adopted, and none of the Structure Contracts has
+been unwound as none of the restrictions that led to the adoption of Structure Contracts has been removed.
+Personal
+*
+Personal
+Yang Siu Shun
+*
+Personal
+Family +
+lan Charles Stone
+Ke Yang
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services in
+China. As foreign-invested enterprises, the WFOEs do not have licences to provide Internet content or information services and
+other telecommunications value-added services. Accordingly, the value-added telecommunications business of the Group has
+been conducted through Tencent Computer, Shiji Kaixuan and the new operating companies (the "New OPCOS") (collectively,
+the "OPCOS") by themselves or through their subsidiaries under the Structure Contracts (as defined in the section "Our History
+and Structure - Structure Contracts" of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group
+is able to recognise and receive the economic benefit of the business and operations of the OPCOS. The Structure Contracts
+are also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to
+acquire the equity interests in and/or assets of the OPCOS.
+352,500
+(Note 4)
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+Tencent Computer
+Personal
+RMB35,285,705
+The reasons for using Structure Contracts
+54.29%
+Shiji Kaixuan
+Personal
+RMB5,971,427
+(registered capital)
+(registered capital)
+54.29%
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests or short
+positions in any shares, underlying shares or debentures of the Company and its associated corporations as at 31 December
+2019.
+58
+Tencent Holdings Limited
+Directors' Report
+CONNECTED TRANSACTIONS
+(A) Entitlement to Attend and Vote at the 2020 AGM
+Directors' Report
+CLOSURE OF REGISTER OF MEMBERS
+Tencent Holdings Limited
+As at the date of this annual report, based on information that is publicly available to the Company and within the knowledge
+of its directors, the directors confirm that the Company has maintained during the year the amount of public float as required
+under the Listing Rules.
+The total remuneration cost incurred by the Group for the year ended 31 December 2019 was RMB53,123 million (2018:
+RMB42,153 million).
+SUFFICIENCY OF PUBLIC FLOAT
+The register of members of the Company will be closed from Friday, 8 May 2020 to Wednesday, 13 May 2020, both
+days inclusive, during which period no transfer of shares will be registered. In order to be entitled to attend and vote at
+the 2020 AGM, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with
+the Company's branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on
+Thursday, 7 May 2020.
+68
+(B) Entitlement to the Proposed Final Dividend
+Advance Data Services
+Limited
+AUDITOR
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2020 AGM.
+On behalf of the Board
+Ma Huateng
+Chairman
+Hong Kong, 18 March 2020
+Annual Report 2019
+69
+Long position
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and
+in-house training programmes, discretionary bonuses, share awards and share options may be awarded to employees
+according to the assessment of individual performance.
+The register of members of the Company will be closed from Tuesday, 19 May 2020 to Wednesday, 20 May 2020,
+both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the proposed
+final dividend, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with
+the Company's branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on
+Monday, 18 May 2020.
+As at 31 December 2019, the Group had 62,885 employees (2018: 54,309). The number of employees employed by the
+Group varies from time to time depending on needs and employees are remunerated based on industry practice.
+Save as disclosed above, the Company had not been notified of any other persons (other than the directors or chief executive
+of the Company) who, as at 31 December 2019, had interests or short positions in the shares and underlying shares of the
+Company as recorded in the register required to be kept under section 336 of the SFO.
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of the Cayman Islands, which would
+oblige the Company to offer new shares on a pro rata basis to existing shareholders of the Company.
+Wang Dian
+Provision of value-added services in the PRC
+Beijing BIZCOM
+Tencent Computer
+2.
+Provision of value-added services in the PRC
+Shiji Kaixuan
+Provision of value-added services in the PRC
+Beijing Starsinhand
+The above OPCOS are significant to the Group as they hold relevant licences to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB220 billion for the year ended 31 December 2019 and
+approximately RMB39 billion as at 31 December 2019 respectively.
+Review of the transactions carried out under the Structure Contracts during the financial year
+-
+The Company's independent non-executive directors had reviewed the Structure Contracts and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure
+Contracts and, had been operated so as to transfer by the date of this annual report Tencent Computer's and Shiji Kaixuan's
+Surplus Cash (as defined in the section "Our History and Structure Structure Contracts" of the IPO prospectus of the
+Company) as at 31 December 2019 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology
+(Shenzhen) Company Limited in the IPO prospectus of the Company), Tencent Beijing, Shenzhen Tencent Information,
+Tencent Chengdu, Chongqing Tencent Information, Shanghai Tencent Information, Tencent Shanghai, Tencent Wuhan,
+Hainan Network, Guangzhou Tencent Technology, Shenzhen Tencent Network and Guian New Area Tencent Cyber. The
+Annual Report 2019
+61
+Directors' Report
+Company's independent non-executive directors had also confirmed that no dividends or other distributions had been made
+by the OPCOS to the holders of their equity interests and the terms of any new Structure Contracts entered into, renewed and/
+or cloned during the relevant financial period are fair and reasonable so far as the Group was concerned and in the interests
+of the Company's shareholders as a whole. To this extent, similar Structure Contracts were entered into relating to the New
+OPCOS.
+The Auditor had carried out procedures on the transactions pursuant to the Structure Contracts and had provided a letter
+to the Board confirming that such transactions had been approved by the Board and had been entered into, in all material
+respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus Cash of the
+OPCOS as at 31 December 2019 to the WFOES and that no dividends or other distributions had been made by the OPCOS to
+the holders of their equity interests.
+Transactions carried out during the year ended 31 December 2019, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+1.
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent
+Technology and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and to provide services
+to Tencent Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates
+as consideration. The parties also established the TCS Co-operation Committee according to this agreement. During
+the year, revenue sharing amounting to approximately RMB77,849 million, RMB3,031 million, RMB17,586 million,
+RMB18,063 million, RMB8,751 million, RMB2,379 million, RMB2,979 million, RMB379 million, RMB5,410 million,
+RMB1,352 million, RMB186 million, RMB4 million and RMB189 million were paid or payable by Tencent Computer to
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu, Tencent Shanghai, Tencent Wuhan, Chongqing
+Tencent Information, Shanghai Tencent Information, Shenzhen Tencent Information, Hainan Network, Guangzhou
+Tencent Technology, Shenzhen Tencent Network and Guian New Area Tencent Cyber respectively.
+2.
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and to provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established the
+SKT Co-operation Committee according to this agreement. During the year, no services were transacted under such
+arrangements, save as disclosed elsewhere in this section.
+3.
+Pursuant to the amended and restated intellectual property transfer agreement dated 28 February 2004 entered
+into between Tencent Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its
+principal present and future intellectual property rights, free from encumbrances (except for licences granted in the
+ordinary course of Tencent Computer's business) in consideration of Tencent Technology's undertaking to provide
+certain technology and information services to Tencent Computer. During the year, no intellectual property transfer was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+62
+Tencent Holdings Limited
+in the PRC
+Directors' Report
+Provision of Internet advertisement services
+Provision of value-added services and
+Internet advertisement services in the PRC
+EMPLOYEE AND REMUNERATION POLICIES
+MIH TC is controlled by Naspers Limited indirectly through its non wholly-owned intermediary companies, Prosus N.V. (formerly known
+as Myriad International Holdings N.V.) and MIH Services FZ LLC. As such, Naspers Limited, Prosus N.V. and MIH Services FZ LLC are
+deemed to be interested in the same block of 2,961,223,600 shares under Part XV of the SFO.
+1.
+Note:
+8.58%
+819,507,500
+Corporate (Note 2)
+Directors' Report
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+2019
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進口
+(the “Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009 provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via wholly
+owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors from
+gaining control over or participating in domestic online game operators through indirect ways such as establishing other joint
+venture companies or entering into contractual or technical arrangements with the Chinese licence holders.
+However, the Circular 13 does not provide any interpretation of the term "foreign investors" or make a distinction between
+foreign online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether
+the State General Administration of Press, Publication, Radio, Film and Television will deem the Group's structure and
+operations to be in violation of these provisions.
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the Company indirectly operates the value-added telecommunication service business,
+online and mobile games, online advertising and other Internet and wireless portals in the PRC through OPCOS that hold the
+necessary licences for the existing lines of businesses.
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+It is uncertain whether any new PRC laws, rules or regulations relating to Structure Contracts will be adopted or if adopted,
+what they would provide. On 15 March 2019, the Standing Committee of National People's Congress promulgated Law of
+Foreign Investment which became effective on 1 January 2020 (the "2019 Law of Foreign Investment"). While the 2019 Law of
+Foreign Investment does not define Structure Contracts as a form of foreign investment explicitly, the Company cannot assure
+that future laws and regulations will not provide for Structure Contracts as a form of foreign investment. Therefore, there can be
+no assurance that the Company's control over OPCOs through Structure Contracts will not be deemed as foreign investment in
+the future. If the Structure Contracts were to be deemed as a method of foreign investment under any future laws, regulations
+and rules, and if any of the Company's business operations were to fall under the "negative list" for foreign investment, the
+Company would need to take further actions in order to comply with these laws, regulations and rules, which may materially
+and adversely affect its current corporate structure, business, financial condition and results of operations.
+60
+Tencent Holdings Limited
+Directors' Report
+Particulars of the OPCOS
+Set out below is the registered owners and business activities of the OPCOS which had entered into transactions with the Group
+during the year ended 31 December 2019:
+Registered owners
+Name of the operating companies
+as at 31 December 2019
+Business activities
+Tencent Computer
+Shiji Kaixuan
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+4.
+Shiji Kaixuan
+5.
+Long/ short position
+Nature of
+interest/ capacity
+Number of
+shares/ underlying
+shares held
+Approximate %
+of shareholding
+MIH TC
+Long position
+Corporate (Note 1)
+2,961,223,600
+31.00%
+66
+Tencent Holdings Limited
+Directors' Report
+MANAGEMENT CONTRACTS
+Name of shareholder
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company were entered into or existed during the year.
+For the year ended 31 December 2019, the five largest customers of the Group accounted for approximately 7.78% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 2.85% of the Group's
+total revenues. In addition, for the year ended 31 December 2019, the five largest suppliers of the Group accounted for
+approximately 19.58% of the Group's total purchases while the largest supplier of the Group accounted for approximately 5.16%
+of the Group's total purchases.
+None of the directors, their close associates or any shareholder (which to the knowledge of the directors owns more than 5% of
+the number of issued shares of the Company) had an interest in any of the major customers or suppliers noted above.
+AUDIT COMMITTEE
+The Audit Committee, together with the Auditor, has reviewed the Group's audited consolidated financial statements for the
+year ended 31 December 2019. The Audit Committee has also reviewed the accounting principles and practices adopted by
+the Group and discussed auditing, risk management, internal control and financial reporting matters.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+Pursuant to the intellectual property transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and
+Shiji Kaixuan, Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future intellectual property rights, free
+from encumbrance (except for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of
+Cyber Tianjin's undertaking to provide certain technology and information services to Shiji Kaixuan. During the year, no
+intellectual property transfer was transacted under such arrangements, save as disclosed elsewhere in this section.
+PRE-EMPTIVE RIGHTS
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+Directors' Report
+67
+Annual Report 2019
+The Group is committed to minimising the impact on the environment from our business activities and the details of such
+efforts are set out in the section headed "Environment" in the "Environmental, Social and Governance Report" in this annual
+report. As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+MAJOR CUSTOMERS AND SUPPLIERS
+Long/short position in the shares of the Company
+Advance Data Services Limited holds 723,507,500 shares directly and 96,000,000 shares indirectly through its wholly-owned
+subsidiary, Ma Huateng Global Foundation. As Advance Data Services Limited is wholly-owned by Ma Huateng, Mr Ma has an interest
+in these shares as disclosed under the section of "Directors' Interests in Securities".
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+7.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+8.
+6.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+Annual Report 2019 63
+As at 31 December 2019, the following persons, other than the directors or chief executive of the Company, had interests or
+short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under
+section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the shares of the Company:
+Directors' Report
+9.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no domain name licence
+was transacted under such arrangements, save as disclosed elsewhere in this section.
+10.
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Co-operation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+11.
+Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and one of the
+WFOES, the parties shall cooperate in the provision of communications services. For each agreement, the WFOES shall
+allow the New OPCOs to use its and its affiliates' assets and provide services to the New OPCOs. The New OPCOS shall
+transfer all of its Surplus Cash to the WFOES and its affiliates as consideration. Co-operation committees have also been
+established according to these agreements. During the year, revenue sharing amounting to approximately RMB1 million,
+RMB2 million and RMB54 million was paid or payable by Wang Dian to Tencent Technology, Cyber Tianjin and Tencent
+Beijing respectively. Revenue sharing amounting to approximately RMB2 million, RMB13 million and RMBO.009 million
+was paid or payable by Beijing BIZCOM to Tencent Technology, Cyber Tianjin and Tencent Beijing respectively. Revenue
+sharing amounting to approximately RMB1 million and RMBO.466 million was paid or payable by Beijing Starsinhand to
+Cyber Tianjin and Tencent Beijing respectively.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+Directors' Report
+Directors' Report
+65
+Annual Report 2019
+Save as the related parties transaction disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest
+paid individuals), Note 14 (Benefits and interests of directors), Note 21 (Transactions with associates), Note 26 (Loan to
+investees and investees' shareholders) and Note 34 (Share-based payments) to the consolidated financial statements, no
+related parties transactions disclosed in the consolidated financial statements constitutes a discloseable connected transaction
+as defined under the Listing Rules. The Company has complied with the disclosure requirements set out in Chapter 14A of the
+Listing Rules.
+64 Tencent Holdings Limited
+For details of the risks associated with the Structure Contracts, please refer to the section headed “Risk factors - Risks relating
+to our structure" in the IPO prospectus.
+Other connected transactions
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in
+the PRC, a number of agreements have been entered into between members of the Group whereby the Company and the
+WFOES derive substantially all their revenues from transactions with the OPCOs. The recognition of revenues outlined in these
+intra-group contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and
+adverse impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the
+tax treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimise the risks of adjustment
+in tax treatment.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WFOES and OPCOs, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WFOES and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as "High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOS, decide to implement enforceable remedy
+(including mandatorily requiring OPCOS to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no domain name
+licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Responsibilities
+BOARD OF DIRECTORS
+The Board has defined the business and governance issues for which it needs to be responsible for, and these matters are
+reviewed periodically to ensure that the Company maintains effective and up-to-date corporate governance practices. In this
+regard, the Board:
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes
+when appropriate.
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board
+believes that throughout the year ended 31 December 2019, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions A.2.1 regarding the segregation of the roles of the chairman
+and chief executive and A.4.2 regarding the retirement and re-election of directors.
+CORPORATE GOVERNANCE PRACTICES
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors with a
+thorough understanding of the Group's management and how such management oversees and manages different businesses
+of the Group. Our belief is that investors will realise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will lead to public trust and will ultimately create shareholder value
+for the Group.
+Corporate Governance Report
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans;
+approves the annual business plan and budget proposed by management;
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategy and monitors management's
+execution of such strategy.
+reviewing the 2018 annual report, including the Corporate Governance Report, the Environmental, Social and
+Governance Report, Directors' Report and the financial statements, as well as the related results announcement;
+Annual Report 2019
+proposing the dividend policy of the Company for the consideration and adoption by the Board;
+reviewing the status of compliance with the CG Code, the Listing Rules and relevant laws by the Group;
+reviewing the 2019 first and third quarters results announcements;
+reviewing the 2019 interim report and interim results announcement;
+The Audit Committee's major work during the year 2019 includes the following:
+The Audit Committee meets not less than four times a year; the Audit Committee met eight times in 2019. Individual
+attendance of each Audit Committee member is set out on page 78. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Head of IA and the Head of IC, and the external auditor at the
+invitation of the Audit Committee.
+The Audit Committee comprises only non-executive directors. Its members are Mr Yang Siu Shun, Mr lain Ferguson Bruce,
+Mr lan Charles Stone (all of them are independent non-executive directors) and Mr Charles St Leger Searle (non-executive
+director). Mr Yang Siu Shun, who chairs the Audit Committee, and Mr lain Ferguson Bruce and Mr Charles St Leger Searle
+have appropriate professional qualifications and experiences in financial matters.
+Audit Committee
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual business plan and budget;
+As described above, the Board has established five committees, each of which has been delegated responsibilities and reports
+back to the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and
+Remuneration Committee. The roles and functions of these committees are set out in their respective terms of reference. The
+terms of reference of each of these committees will be revised from time to time to ensure that they continue to meet the needs
+of the Company and to ensure compliance with the CG Code. The terms of reference of the Audit Committee, the Nomination
+Committee and the Remuneration Committee are available on the Company Website and the Stock Exchange's website.
+79
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned;
+reviews the Company's corporate governance and makes recommendations to the Board;
+Corporate Governance Report
+THE COMMITTEES
+reviews the Company's compliance with the CG Code and disclosure in the Corporate Governance Report; and
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders;
+develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors;
+reviews and monitors the Company's policies and practices on its compliance with legal and regulatory requirements;
+reviews and monitors the training and continuous professional development of the directors and senior management
+team;
+•
+Corporate Governance Committee
+oversees the Group's anti-money laundering and sanctions compliance system.
+oversees the risks undertaken by the Company including determining the level of risk the Company expects to and is
+able to take; and
+reviews the work done by the Company's management with respect to risk management and internal control systems;
+exercises oversight of the Company's financial reporting system;
+reviews the Company's financial information;
+•
+70 Tencent Holdings Limited
+handles the relationship with the Company's external auditor;
+The Company's governance structure of these committees can be summarised as follows:
+Corporate Governance Report
+Annual Report 2019 71
+To better serve the long-term interests of our stakeholders, the Board delegates certain matters requiring particular time,
+attention and expertise to its committees. The Board has determined that these matters are better dealt with by the committees
+as they require independent oversight and specialist input. As such, the Board has established five committees to assist the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. Each of the committees has its terms of reference which clearly specify its powers and authorities. All committees
+report back to the Board and make recommendations to the Board if necessary.
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once every
+two weeks or as frequent as necessary to formulate policies and make recommendations to the Board. The senior management
+team administers, enforces, interprets and supervises compliance with the internal rules and operational procedures of the
+Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate amendments to
+such rules and procedures. The senior management team reports to the Board on a regular basis and communicates with the
+Board whenever required.
+regularly evaluates its own performance and effectiveness.
+considers and, if appropriate, declares the payment of dividends to shareholders; and
+monitors non-financial aspects pertaining to the businesses of the Group;
+defines levels of delegation in respect of specific matters, with required authority to Board committees and management;
+establishes Board committees with clear terms of reference and responsibilities as appropriate;
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders;
+determines director selection, orientation and evaluation;
+determines the Group's communication policy;
+approves the Company's financial statements and interim and annual reports;
+Audit Committee
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final version of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+8/8
+78 Tencent Holdings Limited
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and
+compliance with the CG Code.
+Corporate Governance Report
+Tencent Holdings Limited
+74
+A high level of corporate governance and integrity cannot be maintained only with the Board's efforts. Each of the Group's
+employees plays a role in contributing to such cause. A code of conduct which emphasises integrity and respect is distributed
+by the Company to all employees and it forms part of the employment agreement with each of the employees.
+Professor Ke Yang was appointed as an independent non-executive director of the Company with effect from 15 August 2019.
+review of the shareholders communication policy has been and will be conducted on a regular basis;
+Attended training/seminar/ conference arranged by the Company or other external parties or read relevant materials.
+1
+V
+V
+√
+√
+V
+V
+V
+2
+V
+training has been and will continue to be provided to directors on a timely basis, including briefing the directors on any
+updates to the Listing Rules and relevant laws;
+informal updates from time to time and structured monthly updates on the Company's performance, position and
+prospects are provided to the directors.
+Corporate Governance Report
+76 Tencent Holdings Limited
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Further, in compliance with Rule 3.10 of the Listing Rules, two of our independent non-executive directors have the
+appropriate professional qualifications of accounting or related financial management expertise, and provide valuable advice
+from time to time to the Board. The Company has also received from each independent non-executive director a confirmation
+annually of their independence and the Nomination Committee has conducted an annual review and considers that all
+independent non-executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13
+of the Listing Rules in the context of the length of service of each independent non-executive director.
+The Board values the importance of professional judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in a professional, constructive and informed manner, and actively participate in Board and committee
+meetings and bring professional judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also take the lead where potential
+conflicts of interests arise and exercise their professional judgment and utilise their expertise to scrutinise the Company's
+performance in achieving agreed corporate goals, and monitor performance reporting.
+In order to take advantage of the skills, experiences and diversity of perspectives of the directors and in order to ensure that the
+directors give sufficient time and attention to the Group's affairs, we request each of the directors to disclose to the Company,
+on a quarterly basis, the number and the nature of offices held in public companies or organisations and other significant
+commitments. The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that
+the number of independent non-executive directors must represent at least one-third of the Board. The Board believes that
+the balance between the executive directors and the non-executive directors is reasonable and adequate to provide sufficient
+checks and balances that safeguard the interests of the shareholders and the Group.
+A list of directors and their respective biographies are set out on pages 49 to 52 of this annual report.
+the company secretary attends training in compliance with the Listing Rules requirements; and
+As at the date of this annual report, the Board is comprised of nine directors, with two executive directors, two non-executive
+directors and five independent non-executive directors. During the year ended 31 December 2019 and up to the date of this
+annual report, there is no change to the composition of the Board except that Professor Ke Yang has been appointed as an
+independent non-executive director with effect from 15 August 2019.
+Corporate Governance Report
+75
+The Board is therefore of the view that there is an adequate balance of power and that appropriate safeguards are in place.
+Nevertheless, the Board will continue to regularly monitor and review the Company's current structure and make necessary
+changes when appropriate.
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as
+well as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to
+time to make presentations and answer the Board's enquiries. In addition, directors are encouraged to participate actively in
+all Board and committee meetings of which they are members, and the Chairman ensures that all issues raised are properly
+briefed at the Board meetings, and he works with the senior management team to provide adequate, accurate, clear, complete
+and reliable information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is
+available for discussion for all items at the Board meetings. During the year ended 31 December 2019, the Chairman held a
+meeting with the independent non-executive directors without the presence of other directors as required by the Listing Rules.
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be technically sophisticated and sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the roles of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision
+A.2.1 of the CG Code, which provides that the roles of chairman and chief executive should be separate and should not be
+performed by the same individual. The division of responsibilities between the chairman and chief executive should be clearly
+established and set out in writing.
+Chairman and Chief Executive Officer
+Composition
+development¹
+professional
+continuous
+ensures that these remuneration proposals are aligned to corporate goals and objectives; and
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team;
+Remuneration Committee
+reviews and monitors the implementation of the board diversity policy and the board nomination policy of the Company.
+assesses the independence of independent non-executive directors and the perspectives, skills and experience that such
+director can bring to the Board; and
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders;
+identifies suitable and qualified individuals and makes recommendations to the Board as to new Board members, by
+taking into account the individual's experience, knowledge, skills, gender and background, as well as the Listing Rules
+requirements;
+ensures that no director or any of his associates is involved in deciding his own remuneration.
+reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy;
+ensures compliance with the Listing Rules and any other relevant laws and regulations on any mergers, acquisitions and
+disposals.
+identifies, considers and makes recommendations on mergers, acquisitions and disposals; and
+Investment Committee
+Corporate Governance Report
+Tencent Holdings Limited
+72
+reviews the Company's Environmental, Social and Governance strategy and makes recommendations to the Board.
+Nomination Committee
+The major work of the committees during the year 2019 is set out on pages 79 to 84.
+All directors have full and timely access to all relevant information as well as the advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring that Board procedures and all applicable rules and regulations
+are followed. All directors may also obtain independent professional advice at the Company's expense for carrying out their
+functions.
+Annual Report 2019
+Participated in
+Ke Yang²
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce
+Li Dong Sheng
+Independent non-executive directors
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+Non-executive directors
+Lau Chi Ping Martin
+Ma Huateng
+Executive directors
+Name of director
+We believe education and training are important for maintaining an effective Board. New directors undergo an orientation
+programme designed to provide a thorough understanding of the Group's operations and businesses, and also receive a
+handbook outlining their responsibilities under the Listing Rules and applicable laws. Existing directors are provided with
+tailored training programmes covering topics such as best practices in corporate governance, legal and regulatory trends
+and, given the nature of our business, emerging technologies and products. Directors also regularly meet with the senior
+management team to understand the Group's businesses, governance policies and regulatory environment. During the year
+ended 31 December 2019, the Company arranged training on topics relating to corporate governance, legal and regulatory
+updates and product trends which are relevant to the Group's businesses. The table below summarises the participation of
+each of the directors in continuous professional development during the year ended 31 December 2019:
+Corporate Governance Report
+73
+Appointments, Re-election and Removal
+Corporate Governance Report
+The Board is the core of the Group's success, and with the appropriate composition of the Board, we can benefit from the right
+set of skills, experience and diversity of perspectives to take the Company forward. Therefore, it is essential for the Company to
+maintain a formal, considered and transparent procedure for the appointment of new directors to the Board. It is our corporate
+governance practice and in accordance with the Articles of Association that all directors (except for the Chairman) should be
+subject to re-election at regular intervals and the resignation and removal of any director should be explained with reasons. In
+the 2019 annual general meeting, Messrs Jacobus Petrus (Koos) Bekker and lan Charles Stone retired and were re-elected.
+The Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by rotation
+nor taken into account in determining the number of directors to retire in each year. Therefore, there is a deviation from code
+provision A.4.2 of the CG Code. The Chairman is one of the founders of the Group and he plays a key role in the growth and
+development of the Group and his continuing presence in the Board is vital to the sustainable development of the Group. Given
+the importance of the Chairman's role in the development of the Group, the Board considers that the deviation from code
+provision A.4.2 of the CG Code has no material impact on the operation of the Group as a whole.
+0/1
+===
+2/2
+8/8
+5/5
+lan Charles Stone
+2/2
+3/3
+8/8
+lain Ferguson Bruce
+3/5
+Li Dong Sheng
+Independent non-executive directors
+1/1
+1/1
+==
+3/5
+==
+0/1
+1/1
+At the Board meetings, the Board discussed a wide range of matters, including the Group's overall strategies, financial and
+operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary,
+in consultation with the Chairman and the senior management team, prepares the agenda for each meeting and all directors
+are given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all
+applicable rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the
+Board meeting to each of the directors at least 14 days in advance of each regular Board meeting. The company secretary
+also sends the agenda, board papers and relevant information relating to the Group to each of the directors at least 3 days in
+advance of each regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial
+performance and latest developments. If any director raises any queries, steps will be taken to respond to such queries as
+promptly and fully as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director,
+such director will declare his interest and will abstain from voting on such matters. The directors may approach the Company's
+senior management team when necessary. The directors may also seek independent professional advice at the Company's
+expense in appropriate circumstances.
+Professor Ke Yang was appointed as an independent non-executive director of the Company with effect from 15 August 2019.
+1/1
+2/2
+Ke Yang*
+1/1
+1/1
+0/1
+2/2
+Yang Siu Shun
+1/1
+1/1
+3/3
+1/1
+0/1
+0/1
+5/5
+1/1
+1/1
+1/1
+Executive directors
+Meeting
+General
+Nomination Remuneration General
+Committee Committee Meeting
+Governance
+Committee
+Committee
+Board
+Ma Huateng
+Name of director
+Annual Extraordinary
+Corporate
+The Board met five times in 2019. The attendance of each director at Board meetings, committee meetings, annual general
+meeting and extraordinary general meeting, whether in person or by means of electronic communication, is detailed in the
+table below:
+Board Activity
+Corporate Governance Report
+77
+Annual Report 2019
+Audit
+5/5
+Lau Chi Ping Martin
+5/5
+2/2
+22
+33
+3/3
+1/1
+==
+1/1
+1/1
+ΣΕ
+1/1
+1/1
+8/8
+5/5
+Charles St Leger Searle
+5/5
+Jacobus Petrus (Koos) Bekker
+Non-executive directors
+Code provision A.4.2 of the CG Code provides that all directors appointed to fill a casual vacancy should be subject to election
+by shareholders at the first general meeting after appointment. Every director, including those appointed for a specific term,
+should be subject to retirement by rotation at least once every three years.
+Annual Report 2019
+Board appointments will be made on the basis of merit and fairness, with due regard to the
+benefits of diversity on the Board. The Nomination Committee will continue to have primary
+responsibility for identifying suitably qualified candidates to become members of the Board and,
+in carrying out this responsibility, will give adequate consideration to the board diversity policy. In
+forming its perspective on diversity, the Nomination Committee will also take into account factors
+based on the Company's business model and specific needs from time to time, including without
+limitation, skills, knowledge, experience, gender and background.
+The Audit Committee, on behalf of the Board, assesses and determines the nature and level of the risks that the
+Company is willing to take in order to achieve its business objectives and formulates appropriate response strategies
+which include designating responsible departments for handling each significant risk. The Audit Committee provides
+guidance to the Company's management to implement effective risk management system with support from the IC.
+Annual Report 2019
+85
+Corporate Governance Report
+Third Line of Defence - Independent Assurance
+Our Third Line of Defence is comprised of the IA and the Anti-fraud Investigation Department.
+The IA holds a high degree of independence and is responsible for providing an independent evaluation on the effectiveness
+of the Company's risk management and internal control systems, and monitoring management's continuous improvement over
+the risk management and internal controls.
+Monitoring, Reporting
+and Review
+The Anti-fraud Investigation Department is responsible for receiving whistleblower reports through various channels and
+following up and investigating alleged fraudulent activities. It also assists management in promoting the "Tencent Sunshine
+Code of Conduct" (the "Sunshine Code”) and the value of integrity to all employees of the Company.
+The Three Lines of Defence model of the risk management and internal control systems are designed to manage rather than
+eliminate the risk of failure to achieve business objectives, and can only provide reasonable but not absolute assurance against
+material misstatement or loss.
+The Board and management have always placed importance on the Company's risk management and internal control systems.
+In 2019, the Company has invested more resources in the continuous improvement of the risk management and internal
+control systems, which have also continuously increased the awareness of risk management among the employees. The
+internal control function has continuously worked closely with and provided proactive support to the business groups in their
+business development and risk management. Furthermore, the IA has also continued to promote the deployment of various
+internal audit projects and continuous audits to provide more effective and timelier independent evaluations. The Anti-fraud
+Investigation Department further strengthened the values of integrity among the employees, followed up and investigated the
+alleged fraudulent activities. The connection and interaction among the three lines of defence have been further enhanced to
+provide more effective support to the Company's development.
+Risk Management
+The Company is committed to continuously improving its risk management system, including structure, process and culture,
+and its risk management ability, to ensure long-term growth and sustainable development of the Company's business.
+The Company has established a risk management system (including the "Three Lines of Defence" internal monitoring model
+as detailed above) which sets out the roles and responsibilities of each relevant party in the system as well as the relevant
+risk management policies and processes. Each business group of the Company, on a regular basis, identifies and assesses
+any risks that may negatively impact the achievement of its objectives, and formulates appropriate response measures. The
+Company also provides risk management and internal control training for staff on a regular basis.
+86
+The IA and the Anti-fraud Investigation Department have direct reporting lines to the Audit Committee.
+Second Line of Defence - Risk Management
+Our First Line of Defence is mainly comprised of business and functional departments of each business group of the Company
+who are responsible for the day-to-day operation and management. They are responsible for designing and implementing
+controls to address the risks.
+First Line of Defence - Operation and Management
+The Remuneration Committee's major work during the year 2019 includes the following:
+reviewing and recommending to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with a similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staff;
+reviewing and recommending to the Board on the remuneration packages for the directors, including the remuneration
+package of the new independent non-executive director in August 2019;
+assessing performance and, reviewing and approving adjustments to the remuneration packages for the members of the
+senior management team; and
+reviewing and approving compensation awards granted to senior management team, recognising their contributions to
+the Company and providing incentives for future performances.
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual or any of his associates was involved in determining his own remuneration. It also ensured that
+remuneration awards were determined by reference to the performance of the individual and the Company and were aligned
+with the market practice and conditions, the Company's goals and strategies. They are designed to attract, retain and motivate
+high performing individuals, and reflect the specifics of individual roles. For further details of emoluments of the senior
+management by band, please refer to Note 13 to the consolidated financial statements.
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+84
+Tencent Holdings Limited
+Corporate Governance Report
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+As part of the Board's responsibilities, the Board ensures that the assessment over the Group's performance and prospects
+are clearly and comprehensively presented. The directors acknowledge that it is their ultimate responsibility to prepare
+the accounts which give a true and fair view of the financial position of the Group on a going-concern basis and other
+announcements and financial disclosures. To assist the Board in discharging their responsibilities, management provides
+updates to the Board from time to time, including the Group's detailed business and financial position, in order to give
+the directors a balanced, understandable and clear assessment of the performance, position and prospects of the Group.
+Management also provides all necessary and relevant information to the Board, giving the directors sufficient explanation and
+information they need to discharge their responsibilities and make an informed assessment of financial and other information
+put before them for approval. The Company auditor's statement in respect of their reporting responsibilities is set out in the
+"Independent Auditor's Report" of this annual report.
+Adequate and effective risk management and internal control systems are key to safeguarding the achievement of the
+Company's strategic objectives. Risk management and internal control systems shall ensure the effective business operation,
+accuracy and reliability of the financial reporting, as well as the compliance with applicable laws, regulations and policies.
+The Board acknowledges that it is their responsibility to ensure that the Company has established and maintained adequate
+and effective risk management and internal control systems. The Board delegates their responsibility to the Audit Committee
+to review the practices of management with respect to risk management and internal control, including the design,
+implementation and supervision of the risk management and internal control systems, on a quarterly basis. The Audit
+Committee also reviews the effectiveness of the risk management and internal control systems on an annual basis. The Board
+is responsible for overseeing the risk appetite of the Company including determining the Company's acceptable level of risk,
+and proactively considering, analysing and formulating strategies to manage the Company's significant risks.
+Under the supervision and guidance of the Board, the Company has adopted a risk management and internal control
+structure, referred to as the "Three Lines of Defence" model, to ensure the effectiveness of its risk management and internal
+control systems.
+Tencent Holdings Limited
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration package of each director.
+Corporate Governance Report
+Being an Internet and technology company with a wide variety of rapidly-changing businesses, the Company has adopted the
+following dynamic risk management process in response to the ever-changing risk landscape:
+Tencent Holdings Limited
+Corporate Governance Report
+3. Information security risk
+Protecting user and customer data is the top priority of the Company, and the Company is fully aware that any loss
+or leakage of such information could have a significant negative impact on the affected users and customers and the
+Company's reputation. This could in turn lead to potential legal actions against the Company.
+The Company is obliged to protect user and customer data, and as such, the Company strives to provide the highest
+level of protection on such information and data. In this regard, the Company has formulated and kept optimising control
+measures to protect such information and data. Information security is ensured through effective management systems,
+encryption, access restrictions and controls, and continuously improving the business continuity and disaster recovery
+management. In addition, the Company arranges regular reviews by independent specialists over the Company's data
+protection practices; and provides training for staff to enhance their awareness of information security.
+4.
+88
+5.
+The Company has actively developed various ToB businesses related to Industrial Internet. With the rapid development
+of the ToB business, if the Company fails to adjust its business strategy to timely respond to changes in industry trends
+and market needs, to keep optimising its organisational structure with support from professional talents, to improve
+its internal management system and processes for ToB business; and to improve its cooperation mechanisms with
+various business partners, it may affect the development of its ToB business and affect the achievement of its strategic
+objectives.
+The Company is accumulating and solidifying its experience in the ToB business, it does so by analyzing trends in
+different industries and changes in user needs. The Company has started to increase its foot prints in ToB business and
+is providing supports to the companies in their digitalisation initiatives via Cloud and Al solutions. This has been applied
+across many industries including finance, education, etc. The Company is continuously developing its ToB business,
+and keeps optimising its management over business structure, human resources, management policies and business
+processes to ensure the effective operation of the ToB business for rapid and sustained development.
+Business continuity risk
+The stability of servers and network infrastructure for products and platforms of the Company is of vital importance for
+the successful operation of the Company's business as well as the provision of high-quality user experience. Any material
+functional defect, interruption, breakdown or other issue in connection is likely to adversely impact the Company's
+businesses. In addition, the Company's operations may be negatively affected or disrupted by the natural disasters, social
+security events, or epidemic diseases. Relevant incidents may damage workplaces and equipment that are vital to the
+Company and its business partners, and threaten the health of their employees.
+Annual Report 2019
+89
+ToB business risk
+The Company stays on top of trends in market and industry development, as well as user needs, and keeps up with
+the technological development through innovation. Internally, the Company stays focused on expectation changes in
+user experience, stays active in promoting the incubation of new business, keeps exploring new forms of business,
+and recruits talent, optimises its organisational structure, and enhances the innovation capabilities by improving talent
+quality with cultivating young talent. The Company also continuously enhances its technical capabilities and innovation
+environment to develop products that meet the expectations of the market. Externally, the Company co-creates
+ecosystems through strategic investments and acquisitions, as well as collaboration with business partners. As always,
+the Company leverages the strength of the new ecosystems to seek new business partners to explore new business
+opportunities and better approach to responding to the market needs and expectations. With the aim to promote "mutual
+benefit and win-win” concept, the Company has established a number of open platforms to incubate potential startup
+companies, and enhance its collaboration with business partners and its competitiveness in the market.
+The Internet and technology industry is highly competitive, innovative and ever-changing at all times. The development of
+technologies brings evolutional changes to the existing business models; and the cross-sectoral expansion of non-Internet
+and technology companies bring in more new players into the market. Users' expectations for innovative products and
+services are also increasing. Therefore, how to attract new users and stay competitive are still the key challenges of the
+Company. Any lagging in innovation and development of technology and product would impair the core competitiveness
+of the Company.
+Market competition and innovation risk
+Business and functional departments of each business group identify, assess and respond to risks in the course of
+operation in a systematic manner, escalating concerns and communicating results to the IC;
+The IC collects, analyses and consolidates a list of significant risks at the business level, and provides input on risk
+response strategies and control measures for such risks. These significant risks as well as the corresponding risk
+responses and control measures will be reviewed by management and subsequently by the Audit Committee before
+reporting to the Board;
+The IC analyses and evaluates the responses to significant risks from time to time, and reports to the Audit Committee at
+least once a year; and
+Significant Risks of the Company
+In 2019, management has identified and determined nine significant risks of the Company through the risk management
+process detailed above. As the Company's business scale, scope and complexity have evolved, so as its external environment,
+management considers that the Company is still facing the nine significant risks disclosed in 2018. "Regulatory and
+Compliance Risk", "Market Competition and Innovation Risk" and "Information Security Risk" have been increased while
+"Acquisition & Investment Management Risk" has been reduced to a lower level. The other risks remain at the similar level as
+last year.
+On behalf of the Board, the Audit Committee supervises the overall risk status of the Company and assesses the change in
+the nature and severity of the Company's major risks. The Audit Committee considers that management has taken appropriate
+measures to address and manage the significant risks that they are responsible for at a level acceptable to the Board.
+Annual Report 2019
+87
+Corporate Governance Report
+Below is a summary of the significant risks of the Company along with the applicable response strategies. The Company's risk
+profile may change and the list below is not intended to be exhaustive.
+1.
+Regulatory and compliance risk
+The Internet and technology industry is still evolving yet getting more mature. Regulatory authorities in different
+jurisdictions have been, in an attempt to keep up with such evolution, heightening respective regulatory requirements.
+As the Company continuously expands its businesses in the PRC and overseas to more countries and jurisdictions, it is
+required to keep up and comply with the relevant applicable laws and regulations in different countries and jurisdictions,
+including but not limited to laws relating to data protection, Internet information and cyber security, IP, gaming,
+Internet finance, etc. In addition, development of various industries around the world may be impacted by regulatory
+uncertainties.
+The Company has invested enormous compliance resources and efforts to ensure compliance with applicable laws and
+regulatory requirements. This includes setting up special departments and specialist teams, as well as engaging external
+professional consultants to work closely with management to track on changes in relevant laws and regulations; and
+take appropriate responding actions or measures to ensure the Company is in compliance with such applicable laws
+and regulations in PRC and overseas. In addition, the Company also engages in active dialogue with relevant regulatory
+authorities, and exchanges view and information with relevant regulatory authorities on the market trends and the
+development of Internet and technology industry.
+2.
+Risk Management Process
+The Remuneration Committee met three times in 2019. Individual attendance of each Remuneration Committee member is
+set out on page 78.
+Our Second Line of Defence is mainly the IC. They are responsible for formulating policies related to the risk management
+and internal control of the Company and for planning and implementing the establishment of integrated risk control systems.
+To ensure the effective implementation of such systems, they also assist and supervise the first line of defence in the
+establishment and improvement of risk management and internal control systems.
+Remuneration Committee
+the expected contribution that the candidate would add to the Board and to ensure the
+Board has a balance of skills, experience and diversity of perspectives appropriate to the
+requirements of the Company's business;
+(f)
+(e)
+(d)
+by Nomination Committee
+Nomination Procedure
+the candidate or the re-elected director's reputation for integrity, accomplishment and
+experience in the relevant sectors;
+potential or actual conflicts of interest of the candidate or the re-elected director;
+the independence of the independent non-executive directors and the independence
+criteria set out in Rule 3.13 of the Listing Rules;
+(b)
+(a) the Company's prevailing board diversity policy and the requirements under the Listing
+Rules;
+In the determination of the suitability of a candidate, the Nomination Committee will consider
+a range of factors, including but not limited to the following selection criteria, before making
+recommendations to the Board:
+The board nomination policy aims to set out the approach to enable the Nomination Committee
+to nominate a director to the Board.
+Director Selection Criteria
+(c)
+the candidate or the re-elected director's ability to commit and devote sufficient time and
+attention to the Company's affairs; and
+(g) other relevant factors which will be considered by Nomination Committee on a
+case-by-case basis.
+The Remuneration Committee comprises only non-executive directors. Its members are Mr lan Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). The
+Remuneration Committee is chaired by Mr lan Charles Stone.
+Measurable Objectives
+The Company recognises the benefits of having a diverse Board, and views diversity at Board
+level as a business imperative that will help the Company achieve its strategic objectives and
+maintain a competitive advantage. A truly diverse Board will be achieved through a number of
+factors, including but not limited to differences in skills, knowledge, experience and background.
+Policy Statement
+The board diversity policy aims to set out the approach to enable the Nomination Committee to
+achieve diversity on the Board.
+Purpose and Objectives
+A summary of the board diversity policy is set out as follows:
+The Nomination Committee will report annually on the Board composition and make appropriate
+disclosures regarding the board diversity policy in the Corporate Governance Report of the
+Company's annual reports.
+The Board will consider and approve the appointment, if appropriate, based upon the
+recommendation of the Nomination Committee.
+The Nomination Committee will assess the eligibility of a candidate to become a director of the
+Company taking into account factors, including without limitation, his/ her reputation, character,
+knowledge and experience, and make recommendations for the Board's consideration and
+approval.
+Monitoring, Reporting
+and Review
+Corporate Governance Report
+Tencent Holdings Limited
+82
+Where a retiring director, being eligible, offers himself/herself for re-election, the Nomination
+Committee will review the overall contribution to the Company of the retiring director and will
+also determine whether the retiring director continues to meet the selection criteria set out in the
+board nomination policy.
+The Nomination Committee will have a meeting at least once a year, and candidates, if any, will
+be identified for consideration. Nomination from the human resources department, external
+agencies, Board referrals, or shareholders, if appropriate, will be considered.
+Purpose and Objectives
+A summary of the board nomination policy and related nomination procedures is set out as follows:
+The Nomination Committee has the discretion to nominate any person as it considers
+appropriate.
+81
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr lain Ferguson Bruce, Mr Ian Charles Stone, Mr Yang Siu Shun and Professor Ke Yang (appointed
+as a member of the Corporate Governance Committee with effect from 15 August 2019) (all of them are independent
+non-executive directors). The Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+Corporate Governance Committee
+PricewaterhouseCoopers ("PwC") is the Company's external auditor. The Audit Committee annually reviews the relationship of
+the Company with PwC. Having also reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied with this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2020 AGM.
+updating the terms of reference to reflect the additional role of the Audit Committee to monitor the adequacy and
+effectiveness of the Group's compliance systems and controls on anti-money laundering and sanctions in relation to the
+management of financial crime risks.
+reviewing the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group; and
+reviewing the adequacy of resources, qualifications and training of the Group's finance department;
+in relation to the external auditor, reviewing their plans, reports and management letter, fees, involvement in non-audit
+services, and their terms of engagement;
+•
+Corporate Governance Report
+The Nomination Committee will ensure that the Board has the appropriate balance of skills,
+experience and diversity of perspectives that are required to support the execution of its business
+strategy and in order for the Board to be effective.
+The Nomination Committee will report annually on the Board's composition and make
+appropriate disclosures regarding the board diversity policy in the Corporate Governance Report
+of the Company's annual reports. It will also monitor the implementation of the board diversity
+policy.
+Annual Report 2019 83
+Corporate Governance Report
+In accordance with the board diversity policy and the board nomination policy of the Company, the Nomination Committee
+considered the gender, age, cultural and educational background, and professional experience and industry expertise of
+potential candidates regarding the appointment of an independent non-executive director in 2019. It nominated Professor
+Ke Yang to the Board due to her expertise in the medical profession and her reputation of integrity, and it being satisfied that
+Professor Ke would provide independent and objective judgement and advice to the Board to safeguard the interests of the
+Company and the Shareholders as a whole.
+Corporate Governance Report
+The Corporate Governance Committee met twice in 2019. Individual attendance of each Corporate Governance Committee
+member is set out on page 78.
+The Corporate Governance Committee's major work during the year 2019 includes the following:
+reviewing the plans (including those for 2019), resources and work of the Company's internal auditors;
+reviewing legal and regulatory compliance, including the insider dealing policy, the disclosure of inside information policy
+and the shareholders communication policy;
+Annual Report 2019
+reviewing the Company's policies and practices on corporate governance;
+In view of the new requirements in respect of the disclosure of nomination policy adopted during the year under the revised
+CG Code, the terms of reference of the Nomination Committee were revised in March 2019 to include duties of the Nomination
+Committee regarding the board nomination policy.
+During 2019, the Nomination Committee considered and endorsed the new board nomination policy for the Board's approval
+and updated its terms of reference to include its duties regarding the board nomination policy. Nomination Committee
+reviewed board composition and director succession, the board diversity policy and the board nomination policy, and also
+considered and made recommendations to the Board on the proposed appointment of Professor Ke Yang as an independent
+non-executive director and the re-appointment of the retiring directors at the 2019 annual general meeting. The Nomination
+Committee has also assessed the independence of the independent non-executive directors and considers all of them to be
+independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing Rules in the context of the
+length of service of each independent non-executive director, and the perspectives, skills and experience that such director
+can bring to the Board. The Company recognises the benefits of having a diverse Board, and views diversity at Board level as a
+business imperative that will help the Company achieve its strategic objectives and maintain a competitive advantage. As such,
+the Board has set measurable objectives for the implementation of the board diversity policy to ensure that the Board has the
+appropriate balance of skills, experience and diversity of perspectives that are required to support the execution of its business
+strategy and maintain the effectiveness of the Board. The Nomination Committee is satisfied that the board diversity policy
+and the board nomination policy are successfully implemented with reference to the measurable objectives. The Nomination
+Committee will continue to monitor the implementation of the board diversity policy and the board nomination policy and will
+review the board diversity policy and the board nomination policy periodically to ensure their continued effectiveness.
+The Nomination Committee met once in 2019. Individual attendance of each Nomination Committee member is set out on
+page 78.
+Nomination Committee
+In 2019, the Investment Committee had considered and passed various resolutions on its decisions on the Group's acquisitions
+and disposals.
+The Investment Committee comprises a majority of executive directors. Its members are Mr Lau Chi Ping Martin, Mr Ma
+Huateng and Mr Charles St Leger Searle. The Investment Committee is chaired by Mr Lau Chi Ping Martin.
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr lain Ferguson Bruce, Mr lan Charles Stone (all three are independent non-executive directors) and Mr
+Charles St Leger Searle (non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+Investment Committee
+discussing the arrangements made for directors and senior management team to attend training sessions for continuous
+professional development.
+Corporate Governance Report
+Tencent Holdings Limited
+80
+reviewing the Company's compliance with the ESG Reporting Guide and disclosure in the Environmental, Social and
+Governance Report; and
+reviewing the Company's compliance with the CG Code and disclosure in the Corporate Governance Report;
+311 DEFINITION
+169 CONSOLIDATED INCOME STATEMENT
+170 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+171 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+174 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+178 CONSOLIDATED STATEMENT OF CASH FLOWS
+180 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+160 INDEPENDENT AUDITOR'S REPORT
+Corporate Information
+Independent Non-Executive Directors
+Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin
+Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Li Dong Sheng
+lan Charles Stone
+110 ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
+DIRECTORS
+CORPORATE GOVERNANCE REPORT
+Incorporated in the Cayman Islands with limited liability
+30 DIRECTORS' REPORT
+2020
+Tencent 腾讯
+Tencent Holdings Limited
+騰訊控股有限公司
+於開曼群島註冊成立的有限公司
+(Stock Code 股份代號:700)
+smart communication inspires
+2021
+77
+智慧溝通 靈感無限
+CONTENTS
+2
+CORPORATE INFORMATION
+3
+FINANCIAL SUMMARY
+4
+CHAIRMAN'S STATEMENT
+9 MANAGEMENT DISCUSSION AND ANALYSIS
+Annual Report
+Yang Siu Shun
+92,481
+lain Ferguson Bruce
+20 May 2021)
+Charles St Leger Searle
+lain Ferguson Bruce
+(retired with effect from
+20 May 2021)
+REMUNERATION COMMITTEE
+lan Charles Stone (Chairman)
+Li Dong Sheng
+Jacobus Petrus (Koos) Bekker
+AUDITOR
+PricewaterhouseCoopers
+Certified Public Accountants
+PRINCIPAL BANKERS
+(appointed with effect from
+Bank of China Limited
+REGISTERED OFFICE
+Cricket Square
+Hutchins Drive, P.O. Box 2681
+Grand Cayman KY1-1111
+Cayman Islands
+TENCENT GROUP HEAD OFFICE
+Tencent Binhai Towers
+No. 33 Haitian 2nd Road
+year 30 September
+change
+The Hongkong and Shanghai Banking
+Corporation Limited
+lan Charles Stone
+Yang Siu Shun
+Ma Huateng (Chairman)
+Li Dong Sheng
+NOMINATION COMMITTEE
+(retired with effect from
+20 May 2021)
+AUDIT COMMITTEE
+Yang Siu Shun (Chairman)
+lan Charles Stone
+Charles St Leger Searle
+lain Ferguson Bruce
+(retired with effect from
+20 May 2021)
+CORPORATE GOVERNANCE
+COMMITTEE
+Charles St Leger Searle (Chairman)
+lan Charles Stone
+Yang Siu Shun
+Ke Yang
+lain Ferguson Bruce
+(retired with effect from
+20 May 2021)
+INVESTMENT COMMITTEE
+Lau Chi Ping Martin (Chairman)
+Ma Huateng
+Charles St Leger Searle
+Ke Yang
+quarter
+8
+change
+DIVIDENDS
+Chairman's Statement
+7
+Annual Report 2021
+Supplementing risk management and internal control policies we already have in place, we enhanced our internal anti-
+trust compliance system in 2021, including establishing a dedicated compliance department, updating guidelines for all our
+businesses, and strengthening staff training. We also updated our policies on anti-money laundering and sanctions compliance
+to closely follow domestic and global regulatory requirements and trends. Our corporate culture supports diversity and
+inclusion. We collaborated with the United Nation Development Programme (UNDP) to produce videos and articles promoting
+women leadership in the technology industry.
+Governance
+In 2021, we established the Sustainable Social Value (SSV) Organisation and announced our commitment to common
+prosperity initiatives. We upgraded our charitable fundraising platform, extending the reach of our annual "99 Giving Day" to
+engage 69 million donations and 12,000 enterprises. Leveraging Internet of Things solutions and Weixin Mini Programs, we
+built a public emergency response platform which connects emergency control centres with volunteers and locates nearby
+Automated External Defibrillator equipment for offering first aid. We adapted many of our apps to provide elderly-oriented
+and barrier-free services for senior citizens. We set up dedicated funds to support basic scientific research, as well as critical
+healthcare and environmental technologies.
+Social
+The Board has recommended the payment of a final dividend of HKD1.60 per share (2020: HKD1.60 per share) for the year
+ended 31 December 2021, subject to the approval of the shareholders at the 2022 AGM. Such proposed dividend will be
+payable on 6 June 2022 to the shareholders whose names appear on the register of members of the Company on 25 May
+2022.
+We announced our commitment to achieve carbon neutrality in our own operations and supply chain, and to use green power
+for 100% of all electricity consumed by 2030. In our inaugural Tencent Carbon Neutrality Target and Roadmap Report, we
+outlined key approaches in reaching the net zero goal for scopes 1, 2 and 3. We will improve our power efficiency through
+technology innovations, increase our usage of renewable energy, actively participate in green power trading, and explore
+investments in renewable energy projects. We joined the Science-Based Carbon Targets initiative (SBTi) to facilitate the
+transition to a zero-carbon operation.
+We are committed to harnessing technology to build a sustainable future for our consumers, enterprises, and society at large.
+Environmental, Social and Governance ("ESG") Initiatives
+Chairman's Statement
+Tencent Holdings Limited
+6
+00
+In view of the changes in market environment, we are repositioning our focus for laaS and PaaS from revenue growth at all
+costs to customer value creation and quality of growth. We believe that the change in focus will benefit our customers, as well
+as our margins, over the longer term.
+For communication and collaboration SaaS, we upgraded the integration among WeCom, Tencent Meeting and Tencent
+Docs to provide enhanced solutions for enterprises. We also enabled differentiated CRM functions in WeCom via deepened
+connection with Weixin. While we are currently prioritising scale expansion before significant revenue generation, the
+monetisation success of critical enterprise SaaS such as CRM software in international markets, as well as the significant size
+and fast growth of domestic PaaS spending, validate the monetisation potential of critical enterprise SaaS in China.
+Environment
+On 23 December 2021, the Board resolved to declare a special interim dividend in the form of a distribution in specie of
+approximately 457 million Class A ordinary shares of JD.com indirectly held by the Company to the shareholders whose names
+appeared on the register of members of the Company on 25 January 2022 in proportion to their then respective shareholdings
+in the Company on the basis of 1 Class A ordinary share of JD.com for every 21 Shares held by the shareholders, being
+rounded down to the nearest whole number of Class A ordinary shares of JD.com.
+APPRECIATION
+On behalf of the Board, I would like to thank wholeheartedly our staff and management team for their dedication and
+professionalism, which have been the cornerstone of the Group's sustainable development. Further, I would like to extend our
+gratitude to all our shareholders and stakeholders for their continuous support and trust. We will continue to adhere to our
+strategy of promoting sustainable innovations for social value, alongside nurturing the consumer Internet and embracing the
+industrial Internet, and contribute more to the common good and value of our society.
+2020
+Year ended 31 December
+2021
+Operating profit
+General and administrative expenses
+Selling and marketing expenses
+Other gains, net
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+The following table sets forth the comparative figures for the years ended 31 December 2021 and 2020:
+YEAR ENDED 31 DECEMBER 2021 COMPARED TO YEAR ENDED 31 DECEMBER 2020
+Management Discussion and Analysis
+Tencent Holdings Limited
+Nanshan District
+00
+00
+Hong Kong, 23 March 2022
+Ma Huateng
+Chairman
+Cloud and Other Business Services
+2021
+We strengthened our payment ecosystem by enhancing user security, upgrading transaction and customer management
+functions for SMEs, as well as reducing merchants' transaction friction via tools such as Weixin Pay Score. We now support
+e-CNY as an additional funding option within Weixin Pay, as part of the PBOC's e-CNY pilot phase.
+We continued to enhance our differentiated advertising solutions, while adapting to regulatory changes and the evolving
+macroeconomic environment. For the fourth quarter of 2021, Weixin's daily active advertisers expanded by over 30% year-
+on-year. Over one-third of Moments' advertising revenue was generated from advertisements using Mini Programs as landing
+pages and advertisements connecting users to customer service representatives via WeCom. We expect our advertising
+business to resume growth in late 2022, as we adapt to the new environment and further upgrade our advertising solutions.
+0.4%
+235.4
+7.7%
+219.5
+236.3
+Fee-based VAS registered subscriptions
+-3.8%
+0.4%
+BUSINESS REVIEW AND OUTLOOK
+1,262.6
+573.7
+594.9
+552.1
+Smart device MAU of QQ
+3.5%
+1,225.0
+1,268.2
+Combined MAU of Weixin and WeChat
+(in millions, unless specified)
+-7.2%
+Strategic Progress and Outlook
+2021 was a challenging year, in which we embraced changes and implemented certain measures that reinforced the
+Company's long-term sustainability, but had the effect of slowing our revenue growth. Despite financial headwinds, we
+continued to make strategic headway, including driving widespread adoption of our enterprise software and productivity
+tools, increasing content creation and consumption in our Video Accounts, and expanding our International Games business.
+We believe the China Internet industry is structurally shifting to a healthier mode characterised by a re-focus on user value,
+technology innovation, and social responsibility. We are proactively adapting to the new environment by managing costs,
+increasing efficiency, sharpening our focus on key strategic areas, and repositioning ourselves for sustainable long-term
+growth. Below are some highlights from our key products and business lines during the reporting quarter:
+00
+Online Advertising
+Going forward, we aim to grow further our existing titles via deepening market penetration, product enhancements and
+operational optimisation. In addition, we will continue to release new titles, which we expect to drive additional growth,
+particularly for 2023 and beyond.
+We achieved notable progress across different platforms and genres. Among international mobile games, we developed
+and operate 5 out of the top 10 titles measured by DAU. League of Legends' animated series, Arcane, topped Netflix's
+English-language TV series viewership chart during the week following its release. League of Legends World Championship
+consolidated its leadership as the world's most popular eSports tournament, attracting a record-high of approximately 74
+million peak concurrent viewers for its Finals. Clash Royale released one of the biggest updates in its history, boosting daily
+active users and grossing receipts. We launched our global game publishing brand, Level Infinite, to support our studios and
+partners in delivering games to international gamers.
+International Games
+Chairman's Statement
+5
+Annual Report 2021
+Looking ahead, we expect to fully digest the impact of Minor protection measures in the second half of 2022. We believe we
+will benefit from more new game launches when there are new releases of Banhao.
+Our industry-leading efforts in restricting time spent and spending by Minors yielded effective results. In the fourth quarter of
+2021, total time spent by Minors reduced by 88% year-on-year, and contributed 0.9% of the total time spent on our Domestic
+Games. Total grossing receipts from Minors reduced by 73% year-on-year, and contributed 1.5% of the total grossing receipts
+of our Domestic Games.
+We are cultivating our key IP franchises more deeply and broadly. For example, we are developing new games, animated series
+and a movie based on Honour of Kings' characters. We provided events tied into the Winter Olympics in Peacekeeper Elite, QQ
+Speed Mobile and QQ Dancer Mobile, delivering lifelike sports experience across multiple genres.
+Domestic Games
+Our fee-based VAS subscriptions grew 8% year-on-year to 236 million. Tencent Video increased its subscription counts 1%
+year-on-year to 124 million, and cemented its number one position in China with diversified content across animated series,
+drama series and sports. In view of the latest market conditions, we are implementing a cost optimisation process to reduce
+financial losses at Tencent Video while maintaining its leading position. For music, we grew subscription counts 36% year-on-
+year to 76 million, benefitting from expanded sales channels and high-quality content and services.
+Digital Content
+QQ integrated Unreal Engine's graphics capabilities to enable real-time rendering and physics simulation, providing more
+attractive visuals and lifelike interactions for users. We are testing an application of Unreal Engine in Super QQ Show, which
+allows users to customise and dress up their 3D virtual avatars, for use in various social scenarios.
+Weixin Video Accounts' time spent per user and total video views more than doubled year-on-year as we enriched content
+diversity and enhanced our product experience. Video Accounts Live Streaming achieved significant breakthroughs in
+user reach and engagement, exclusively hosting popular boy band Westlife's first-ever online concert, which drew 27
+million viewers. While our current focus is primarily on user engagement, we believe Video Accounts will provide significant
+monetisation opportunities, including short video feeds advertisements, live streaming tipping and live streaming eCommerce.
+Weixin Mini Programs facilitated independent merchants to thrive within their own private domains, with their physical goods
+GMV doubling in 2021. Our Health Code has served 1.3 billion users making 180 billion visits, becoming the most-used ePass
+for verifying health and travel status during the pandemic.
+Communication and Social
+Chairman's Statement
+Tencent Holdings Limited
+4
+FinTech
+Shenzhen, 518054
+Total comprehensive income attributable to
+PRINCIPAL PLACE OF BUSINESS
+253,968
+317,647
+484,812
+554,672
+723,521
+953,986
+1,333,425
+1,612,364
+217,080
+Equity and liabilities
+256,074
+323,510
+432,706
+703,984
+806,299
+Non-controlling interests
+21,019
+32,697
+Equity attributable to equity holders of the Company
+56,118
+178,446
+1,015,778
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+As at 31 December
+2017
+2018
+2019
+2020
+RMB'Million
+RMB'Million
+1,127,552
+RMB'Million
+2021
+RMB'Million
+Assets
+Non-current assets
+Current assets
+Total assets
+376,226
+506,441
+700,018
+RMB'Million
+74,059
+70,394
+Total equity
+Total equity and liabilities
+554,672
+723,521
+953,986
+1,333,425
+1,612,364
+Annual Report 2021
+3
+735,671
+Chairman's Statement
+RESULTS
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2021 was
+RMB224,822 million, an increase of 41% compared with the results for the previous year. Basic and diluted EPS for the year
+ended 31 December 2021 were RMB23.597 and RMB23.164, respectively.
+The Group's non-IFRS profit attributable to equity holders of the Company for the year ended 31 December 2021 was
+RMB123,788 million, an increase of 1% compared with the results for the previous year. Non-IFRS basic and diluted EPS for
+the year ended 31 December 2021 were RMB12.992 and RMB12.698, respectively.
+OPERATING INFORMATION
+As at
+As at
+Year-on-
+As at Quarter-on-
+I am pleased to present our annual report for the year ended 31 December 2021 to the shareholders.
+555,382
+465,162
+367,314
+277,093
+356,207
+488,824
+778,043
+876,693
+Non-current liabilities
+125,839
+164,879
+225,006
+286,303
+332,573
+Current liabilities
+151,740
+202,435
+240,156
+269,079
+403,098
+Total liabilities
+277,579
+123,788
+122,742
+94,351
+77,469
+Financial Summary
+Year ended 31 December
+2017
+2018
+RMB'Million
+RMB'Million
+2019
+RMB'Million
+2020
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+2021
+RMB'Million
+Revenues
+237,760
+312,694
+377,289
+482,064
+560,118
+Gross profit
+RMB'Million
+700
+Tencent Holdings Limited
+2
+IN HONG KONG
+29/F., Three Pacific Place
+No. 1 Queen's Road East
+Wanchai
+Hong Kong
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+Suntera (Cayman) Limited
+Suite 3204, Unit 2A
+Block 3, Building D
+P.O. Box 1586
+Gardenia Court
+Camana Bay
+Grand Cayman, KY1-1100
+Cayman Islands
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+Computershare Hong Kong Investor
+Services Limited
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+183 Queen's Road East
+Wan Chai, Hong Kong
+COMPANY WEBSITE
+www.tencent.com
+STOCK CODE
+00
+116,925
+The PRC
+142,120
+221,532
+281,173
+200,390
+(RMB in millions)
+equity holders of the Company
+78,218
+66,339
+116,670
+277,834
+119,901
+200,323
+82,023
+2021
+114,601
+149,404
+159,539
+Non-IFRS profit attributable to
+equity holders of the Company
+65,126
+Non-IFRS operating profit
+67,760
+79,061
+Total comprehensive income for the year
+245,944
+Profit before income tax
+88,215
+94,466
+109,400
+180,022
+248,062
+Profit for the year
+72,471
+79,984
+95,888
+160,125
+227,810
+Profit attributable to equity holders of the Company
+71,510
+78,719
+93,310
+159,847
+224,822
+167,533
+560,118
+57,131
+(314,174)
+Equity holders of the Company
+Non-controlling interests
+Non-IFRS operating profit
+Non-IFRS profit attributable to equity holders of the Company
+(20,252)
+(19,897)
+227,810
+160,125
+224,822
+159,847
+2,988
+278
+227,810
+160,125
+159,539
+149,404
+123,788
+122,742
+Annual Report 2021
+9
+482,064
+Attributable to:
+Profit for the year
+31 December
+180,022
+(260,532)
+245,944
+221,532
+6,650
+6,957
+149,467
+31 December
+(40,594)
+(33,758)
+(89,847)
+Income tax expense
+271,620
+184,237
+Finance costs, net
+(7,114)
+(7,887)
+Share of (loss)/profit of associates and joint ventures, net
+(16,444)
+3,672
+Profit before income tax
+248,062
+(67,625)
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+Corporate Governance Report
+Tencent Holdings Limited
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual or any of his associates was involved in determining his own remuneration. It also ensured that
+remuneration awards were determined by reference to the performance of the individual and the Company and were aligned
+with the market practice and conditions, the Company's goals and strategies. The remuneration awards are designed to attract,
+retain and motivate high performing individuals, and reflect the specifics of individual roles. For further details of emoluments
+of the senior management by band, please refer to Note 13 to the consolidated financial statements.
+0
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+As part of the Board's responsibilities, the Board ensures that the assessment over the Group's performance and prospects
+are clearly and comprehensively presented. The directors acknowledge that it is their ultimate responsibility to prepare
+the accounts which give a true and fair view of the financial position of the Group on a going-concern basis and other
+announcements and financial disclosures. To assist the Board in discharging their responsibilities, management provides
+updates to the Board from time to time, including the Group's detailed business and financial position, in order to give
+the directors a balanced, understandable and clear assessment of the performance, position and prospects of the Group.
+Management also provides all necessary and relevant information to the Board, giving the directors sufficient explanation and
+information they need to discharge their responsibilities and make an informed assessment of financial and other information
+put before them for approval. The Auditor's statement in respect of their reporting responsibilities is set out in the "Independent
+Auditor's Report" of this annual report.
+94
+Adequate and effective risk management and internal control systems are key to safeguarding the achievement of the
+Company's strategic objectives. Risk management and internal control systems shall ensure the Company's effective business
+operation, the accuracy and reliability of financial reporting, as well as the compliance with applicable laws, regulations and
+policies.
+Annual Report 2021
+Under the supervision and guidance of the Board, the Company has adopted a risk management and internal control
+structure, referred to as the "Three Lines of Defence" model, to ensure the effectiveness of its risk management and internal
+control systems.
+First Line of Defence - Operation and Management
+Our First Line of Defence is mainly comprised of business and functional departments of each business group of the Company
+who are responsible for the day-to-day operation and management. They are responsible for designing and implementing
+controls to address the risks.
+95
+Corporate Governance Report
+Second Line of Defence - Risk Management
+Our Second Line of Defence is mainly the IC. They are responsible for formulating policies related to the risk management
+and internal control of the Company and for planning and implementing the establishment of integrated risk control systems.
+To ensure the effective implementation of such systems, they also assist and supervise the first line of defence in the
+establishment and improvement of risk management and internal control systems.
+reviewing and approving the service contracts entered into by each executive director with the Group respectively.
+The Board acknowledges that it is their responsibility to ensure that the Company has established and maintained adequate
+and effective risk management and internal control systems. The Board delegates their responsibility to the Audit Committee
+to review the practices of management with respect to risk management and internal control, including the design,
+implementation and supervision of the risk management and internal control systems, on a quarterly basis. The Audit
+Committee also reviews the effectiveness of the risk management and internal control systems on an annual basis. The
+Board is responsible for overseeing the risk appetite of the Company including determining the Company's acceptable level
+of risk, and proactively considering, analysing and formulating strategies to manage the Company's significant risks. The
+risks mentioned above also include, but are not limited to, significant risks related to the environment, social and governance
+aspects of the Company.
+reviewing and endorsing the amendments to the 2013 Share Award Scheme and the 2019 Share Award Scheme; and
+93
+assessing performance and, reviewing and approving adjustments to the remuneration packages for the members of the
+senior management team;
+Corporate Governance Report
+Independent Views
+In assessing whether a potential candidate is qualified to become an independent non-executive
+director of the Company, the Nomination Committee and the Board will consider, among others,
+whether the candidate is able to devote sufficient time on performing his/her duties as an
+independent non-executive director of the Company, and the background and qualification of the
+candidate, in order to assess whether such candidate is able to bring independent views to the
+Board.
+In considering whether an independent non-executive director should be proposed for
+re-election, the Nomination Committee and the Board will assess and evaluate the independent
+non-executive director's contribution to the Board during the term, in particular, whether the
+independent non-executive director is able to bring independent views to the Board.
+The Company will ensure that there are channels (in addition to independent non-executive
+directors) where independent views are available, including but not limited to availability of
+access by directors of the Company to external independent professional advice to assist their
+performance of duties.
+Monitoring, Reporting
+and Review
+The Nomination Committee will report annually on the Board's composition and make
+appropriate disclosures regarding the board diversity policy in the Corporate Governance Report
+of the Company's annual reports. It will also monitor the implementation of the board diversity
+policy.
+reviewing and approving compensation awards granted to senior management team, recognising their contributions to
+the Company and providing incentives for future performances;
+Annual Report 2021
+Corporate Governance Report
+Remuneration Committee
+The Remuneration Committee comprises only non-executive directors. Its members are Mr lan Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). The
+Remuneration Committee is chaired by Mr lan Charles Stone.
+The Remuneration Committee met four times in 2021. Individual attendance of each Remuneration Committee member is set
+out on page 85.
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration package of each director.
+The Remuneration Committee's major work during the year 2021 includes the following:
+reviewing and recommending to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with a similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staff;
+reviewing and recommending to the Board on the remuneration packages for the directors;
+Third Line of Defence - Independent Assurance
+Our Third Line of Defence is comprised of the IA and the Anti-fraud Investigation Department.
+The Company has established a risk management system (including the "Three Lines of Defence" internal monitoring model
+as detailed above) which sets out the roles and responsibilities of each relevant party in the system as well as the relevant
+risk management policies and processes. Each business group of the Company, on a regular basis, identifies and assesses
+any risks that may negatively impact the achievement of its objectives, and formulates appropriate response measures. The
+Company also provides risk management and internal control training for staff on a regular basis.
+The Company has formulated policies and established management systems to enhance and support the Company's
+compliance with anti-corruption laws and regulations. The Anti-fraud Investigation Department is responsible for receiving
+whistleblower reports through various channels and following up and investigating alleged fraudulent activities. It also assists
+management in promoting the "Tencent Sunshine Code of Conduct" (the "Sunshine Code") and the value of integrity to all
+employees of the Company.
+1.
+Regulatory and compliance risk
+Regulatory authorities around the world have heightened the regulatory requirements for the Internet and technology
+industry and have introduced new laws and regulations. As the Company continuously expands its businesses both
+locally and overseas, it is required to keep up and comply with the relevant applicable laws and regulations in different
+countries and jurisdictions, including but not limited to laws and regulations relating to privacy and data protection,
+anti-trust, anti-unfair competition, IP, telecommunications and Internet, gaming, Internet finance, labour protection,
+foreign investment, international trade, etc. In addition, the development of various industries around the world may be
+impacted by global regulatory uncertainties and uncertainties in international relations.
+The Company has set up dedicated compliance departments and compliance specialist teams, engaging external
+professional consultants to work closely and communicate with management, communicating with regulatory authorities
+in a timely manner, actively staying on top of the changes to relevant laws and regulations, adjusting strategies and taking
+appropriate actions or measures, improving internal training and the understanding of the latest laws and regulations,
+and enhancing the corresponding management system to ensure the Company is in compliance with such applicable
+laws and regulations. The Company has taken practical steps to devote substantial resources in various areas to ensure
+the Company's compliance with regulatory requirements.
+00
+98
+Tencent Holdings Limited
+2.
+Below is a summary of the significant risks of the Company along with the applicable response strategies. The Company's risk
+profile may change and the list below is not intended to be exhaustive.
+Macroeconomic risk
+The Company's revenue generated from certain businesses is closely related to the macroeconomy and the overall
+consumption environment. Global and regional economic uncertainties, COVID-19 epidemic and other factors may
+reduce individual users' purchasing power and their willingness to consume, resulting in a decrease in corporates'
+revenue and thereby leading to a reduction in the resources they invest in market and business development. All of the
+above factors may adversely affect certain revenue streams of the Company. The changes in trading and investment
+policies and market changes resulting from the changes in international circumstances and the epidemic may negatively
+affect the Company's operation, market and collaboration with its business partners, which may in turn affect and
+weaken the Company's competitiveness and growth potential.
+In response to the macroeconomic uncertainties, the Company adjusts its business development strategy in a scientific,
+flexible and reasonable manner to align with the macroeconomic environment, and to continuously seek opportunities for
+business development. The Company attaches great importance to product and service solutions, achieves sustainable
+business growth through the improvement of user experience, and builds long-term and stable relationships with its
+existing customers. Despite an adverse macroeconomic environment where economic growth slows down, epidemic
+remains volatile, and international relations remain uncertain, the Company will continue to provide product solutions
+and digital services to assist corporates in further enhancing competitiveness and improving productivity during this
+particular period, create value for its customers and business partners, and fulfill its social responsibility with the mission
+of "Tech for Good".
+3.
+Crisis management, public relations and reputation risk
+As an Internet and technology company with a diverse portfolio of businesses, products, users and business partners, as
+well as increasingly complex business models, the Company draws attention from the public and media. The Company
+needs to fully consider possible crisis and actively responds to them, to avoid the escalation of problems or crisis. The
+Company also needs to disclose comprehensive and proper information to the public. Otherwise, it may damage the
+Company's reputation, brand and image, and adversely affect the business and prospects of the Company.
+In adherence to the principles of openness and transparency, the Company has communicated with the public in a
+timely manner and disclosed comprehensive and proper information. In response to crisis, the Company has established
+the corresponding emergency response mechanism, to follow up on the progression of crisis, assess risks, make
+prompt decisions, and adjust its businesses to reduce the impact. The Company has set up professional public relations
+department and teams for crisis management to continuously improve its crisis management and public relations
+capabilities, with established emergency response and public relations management mechanisms, and to provide
+training and guidance related to crisis management. The public relations teams have maintained close interaction with
+management and business groups of the Company, to continuously gather public opinions, analyse relevant market
+information for management to enable management timely respond and disclose comprehensive and proper information
+to the public according to the Company's policies and procedures; and protect the Company's reputation.
+Annual Report 2021
+99
+Corporate Governance Report
+On behalf of the Board, the Audit Committee supervises the overall risk status of the Company and assesses the change in
+the nature and severity of the Company's major risks. The Audit Committee considers that management has taken appropriate
+measures to address and manage the significant risks that they are responsible for at a level acceptable to the Board.
+Significant Risks of the Company
+Corporate Governance Report
+The IA and the Anti-fraud Investigation Department have direct reporting lines to the Audit Committee.
+The Three Lines of Defence model of the risk management and internal control systems are designed to manage rather than
+eliminate the risk of failure to achieve business objectives of the Company, and can only provide reasonable but not absolute
+assurance against material misstatement or loss.
+The Board and management have always placed importance on the Company's risk management and internal control systems.
+In 2021, the Company has invested more resources in the continuous improvement of the risk management and internal
+control systems, which have also continuously increased the awareness of risk management among the employees. The
+internal control function has continuously worked closely with and provided proactive support to the business groups in their
+business development and risk management. Furthermore, the IA has also continued to promote the deployment of various
+internal audit projects and continuous audits to provide more effective and timelier independent evaluations. The Anti-fraud
+Investigation Department further strengthened the values of integrity among the employees, followed up and investigated the
+alleged fraudulent activities. The connection and interaction among the three lines of defence have been further enhanced to
+provide more effective support to the Company's development.
+00
+96
+Tencent Holdings Limited
+Corporate Governance Report
+Risk Management
+The Company is committed to continuously improving its risk management system, including structure, process and culture,
+and its risk management ability, to ensure long-term growth and sustainable development of the Company's business.
+Tencent Holdings Limited
+Risk Management Process
+Being an Internet and technology company with a wide variety of rapidly-changing businesses, the Company has adopted the
+following dynamic risk management process in response to the ever-changing risk landscape:
+•
+Business and functional departments of each business group identify, assess and respond to risks in the course of
+operation in a systematic manner, escalating concerns and communicating results to the IC;
+The IC collects, analyses and consolidates a list of significant risks at the business level, and provides input on risk
+response strategies and control measures for such risks. These significant risks as well as the corresponding risk
+responses and control measures will be reviewed by management and subsequently by the Audit Committee before
+reporting to the Board;
+The IC analyses and evaluates the responses to significant risks from time to time, and reports to the Audit Committee at
+least once a year; and
+The Audit Committee, on behalf of the Board, assesses and determines the nature and level of the risks that the
+Company is willing to take in order to achieve its business objectives and formulates appropriate response strategies
+which include designating responsible departments for handling each significant risk. The Audit Committee provides
+guidance to the Company's management to implement effective risk management system with support from the IC.
+Annual Report 2021
+97
+The IA holds a high degree of independence and is responsible for providing independent evaluation on the effectiveness
+of the Company's risk management and internal control systems, and monitoring the Company's improvement on risk
+management and internal controls.
+The Nomination Committee will ensure that the Board has the appropriate balance of skills,
+experience and diversity of perspectives that are required to support the execution of its business
+strategy and in order for the Board to be effective.
+As the complexity of the Company's business increases and the external environment continues to evolve, the Company faces
+significant risks, including but not limited to ESG risk. Through risk management analysis and evaluation, the management has
+identified ten significant risks for the financial year 2021, nine of which remained the same as disclosed in financial year 2020.
+Among the nine significant risks, the "Regulatory and compliance risk", "Crisis management, public relations and reputation
+risk", "Information security risk" and "M&A and investment management risk” have increased while the other risks remain
+at a similar level as last year. Meanwhile, considering the global macroeconomic uncertainty and volatility and the impact of
+COVID-19 epidemic, one new significant risk, "Macroeconomic risk", is included in 2021.
+00
+(f)
+(e)
+the expected contribution that the candidate would add to the Board and to ensure the
+Board has a balance of skills, experience and diversity of perspectives appropriate to the
+requirements of the Company's business;
+(d)
+potential or actual conflicts of interest of the candidate or the re-elected director;
+(c)
+the independence of the independent non-executive directors and the independence
+criteria set out in Rule 3.13 of the Listing Rules;
+(b)
+the candidate or the re-elected director's reputation for integrity, accomplishment and
+experience in the relevant sectors;
+(a) the Company's prevailing board diversity policy and the requirements under the Listing
+Rules;
+00
+Director Selection Criteria
+The board nomination policy aims to set out the approach to enable the Nomination Committee
+to nominate a director to the Board.
+Purpose and Objectives
+A summary of the board nomination policy and related nomination procedures is set out as follows:
+Corporate Governance Report
+00
+92
+90
+the candidate or the re-elected director's ability to commit and devote sufficient time and
+attention to the Company's affairs; and
+In the determination of the suitability of a candidate, the Nomination Committee will consider
+a range of factors, including but not limited to the following selection criteria, before making
+recommendations to the Board:
+other relevant factors which will be considered by the Nomination Committee on a case-by-
+case basis.
+Board appointments will be made on the basis of merit and fairness, with due regard to the
+benefits of diversity on the Board. The Nomination Committee will continue to have primary
+responsibility for identifying suitably qualified candidates to become members of the Board and,
+in carrying out this responsibility, will give adequate consideration to the board diversity policy. In
+forming its perspective on diversity, the Nomination Committee will also take into account factors
+based on the Company's business model and specific needs from time to time, including without
+limitation, skills, knowledge, experience, gender and background.
+(g)
+Measurable Objectives
+The Company recognises the benefits of having a diverse Board, and views diversity at Board
+level as a business imperative that will help the Company achieve its strategic objectives and
+maintain a competitive advantage. A truly diverse Board will be achieved through a number of
+factors, including but not limited to differences in skills, knowledge, experience and background.
+Policy Statement
+The board diversity policy aims to set out the approach to enable the Nomination Committee to
+achieve diversity on the Board.
+A summary of the board diversity policy is set out as follows:
+Corporate Governance Report
+Annual Report 2021 91
+Purpose and Objectives
+Monitoring, Reporting
+and Review
+The Board will consider and approve the appointment, if appropriate, based upon the
+recommendation of the Nomination Committee.
+The Nomination Committee will assess the eligibility of a candidate to become a director of the
+Company taking into account factors, including without limitation his/her reputation, character,
+knowledge and experience, and make recommendations for the Board's consideration and
+approval.
+Where a retiring director, being eligible, offers himself/herself for re-election, the Nomination
+Committee will review the overall contribution to the Company of the retiring director and will
+also determine whether the retiring director continues to meet the selection criteria set out in the
+board nomination policy.
+The Nomination Committee will have a meeting at least once a year, and candidates, if any, will
+be identified for consideration. Nomination from the human resources department, external
+agencies, Board referrals, or shareholders, if appropriate, will be considered.
+Nomination Procedure by
+Nomination Committee
+Corporate Governance Report
+The Nomination Committee will report annually on the Board's composition and make
+appropriate disclosures regarding the board diversity policy in the Corporate Governance Report
+of the Company's annual reports.
+Tencent Holdings Limited
+The Nomination Committee has the discretion to nominate any person as it considers
+appropriate.
+101
+In addition, the IC supervises the establishment of the risk management and internal control systems set up by management,
+ensures that management has implemented appropriate measures and reports the general situation of risk management and
+internal control of the Company to the Audit Committee on a quarterly basis. The IA, serving as the independent third line of
+defence, conducts objective evaluation on the effectiveness of the Company's risk management and internal control systems
+and reports the results to the Audit Committee.
+The Company has a certain scale of investment activities in diverse fields. It is important for the Company to adopt
+robust procedures in the formulation of investment strategies and strong treasury management, both at the investment
+evaluation stage as well as the post-investment stage. Failure to promptly and effectively manage investment risks could
+hinder the realisation of investment strategies and lead to probable financial loss of the Company.
+The Company takes the management of investment risks seriously and has established an Investment Committee
+under the Board, dedicated an investment team to identify investment opportunities, appointed finance, legal and
+other relevant professional teams to manage relevant risks, put in place the investment risk evaluation and approval
+process, and conducted comprehensive analysis. The Company has also designated finance, legal and other relevant
+professional teams to support and monitor the performance of the investee companies. These teams periodically analyse
+and review relevant operating and financial information of the investee companies to ensure that they continue to satisfy
+the Company's investment strategies. In addition, the Company has invested resources in internal audit and internal
+control functions to continuously support the management of its controlling subsidiaries in establishing more sound risk
+management and internal control systems.
+The Company continues to accumulate and solidify its experience in the ToB business by analysing development trends
+in different industries and changes in user needs. The Company has started to increase its footprints in the ToB business
+by integrating cloud computing, Al, Internet of Things, security and other advanced technologies for deployments
+in various industry-specific scenarios, to build a new, intelligent ecosystem that efficiently connects customers and
+enterprises. This has been applied across many industries including social services, tourism, healthcare, industry,
+agriculture, transport, energy, retail, financial services, etc. Furthermore, the Company is continuously developing its ToB
+business, optimising its management over business structure, human resources, management policies and business
+processes, and improving its supply chain management capabilities to ensure the effective operation of the ToB business
+for rapid and sustainable development. Through continuous technological innovation, the Company continues to
+enhance its ability to serve corporate clients and to promote the integration and development of the digital economy with
+the real economy.
+ToB business risk
+The Company has actively developed various ToB businesses related to Industrial Internet. With the rapid development
+of the ToB business, if the Company fails to adjust its business strategy to respond to changes in industry trends and
+market needs on a timely basis, to keep optimising its organisational structure with support from professional talent, to
+improve its internal management system and processes for ToB business, to enhance its supply chain management
+capabilities, and to improve its cooperation mechanisms with various business partners, it may face more managerial
+challenges, and may affect the sustainable development of its ToB business and the realisation of the Company's
+strategic goals.
+Annual Report 2021
+Corporate Governance Report
+7.
+M&A and investment management risk
+All countries and jurisdictions continue to heighten its supervision over cyber security and personal information
+protection. Protecting and safeguarding user and customer data is the top priority of the Company. The Company
+continues to pay attention to the laws and policies relating to user privacy and data protection in various jurisdictions and
+is fully aware that any loss or leakage of such information could have a significant negative impact on the affected users
+and customers. This could expose the Company to significant liability and significant reputational risk.
+Tencent Holdings Limited
+100
+00
+The Company stays on top of trends in market and industry development, as well as user needs, keeps up with the
+technological development through innovation in frontier technology and explores application of technologies in new
+scenarios. The Company stays focused on expectation changes in user experience, stays active in promoting the
+incubation of new business, keeps exploring new forms of business, and recruits talent, optimises its organisational
+structure, and enhances the innovation capabilities by improving talent quality with cultivating young talent. The
+Company also continuously enhances its technical capabilities and innovation environment to develop products that
+meet the expectations of the market, to continuously improve user experience and to maintain its competitiveness in the
+market. The Company collaborates with its partners to jointly innovate, enhance its service capabilities, and create value
+for users and the society.
+The Internet and technology industry is highly competitive, innovative and ever-changing at all times. The development of
+technologies brings evolutional changes to the existing business models; and the cross-sectoral expansion of non-Internet
+and technology companies bring in more new players into the market. Users' expectations for innovative products and
+services are also increasing. Therefore, how to create value for more users and promote innovative and sustainable social
+values through innovation in technology, product and business model are the key challenges of the Company.
+Market competition and innovation risk
+5.
+The Company strongly believes that protecting user and customer data is the key prerequisite for delivering secured
+and high-quality products and user experience. With a strong commitment to protecting data privacy and security, the
+Company strictly complies with applicable laws and regulations, and strives to provide the highest level of protection
+on such information and data. In this regard, the Company has formulated and kept optimising control measures to
+protect such information and data. Information security is ensured through effective management systems, encryption,
+access restrictions and controls, the establishment of appropriate and effective management processes, and continuous
+improvement of the business continuity and disaster recovery management. In addition, the Company arranges regular
+reviews by independent specialists over the Company's data protection practices; and provides training for staff to
+enhance their awareness of information security.
+The Company has also engaged independent professional consulting firms to perform a review of the Group's internal control
+framework and an assessment of its internal audit quality to ensure their standards are in compliance with international best
+practices.
+Information security risk
+Corporate Governance Report
+6.
+8.
+104 Tencent Holdings Limited
+The stability of servers and network infrastructure for products and platforms of the Company is of vital importance for
+the successful operation of the Company's business as well as the provision of high-quality user experience. Any material
+functional defect, interruption, breakdown or other issues in connection are likely to adversely impact the Company's
+businesses. In addition, the Company's operations may be affected by uncontrollable external factors such as natural
+disasters, social security events, epidemic disease or energy supply. Relevant incidents may damage workplaces and
+equipment that are vital to the Company and its business partners, and threaten the health of their employees, which
+results in disruption of Company's normal operation.
+In order to further strengthen the accountability of the management team in the internal control systems of the Company
+and to assist in determining the effectiveness of such internal control systems, the management team of each business
+group conducts self-assessment and confirms the internal control status of the business group for which it is responsible.
+The IC assists management in preparing a self-assessment questionnaire according to the COSO Framework and guides
+the management of each business group to carry out the self-assessment. The IC is also responsible for collecting
+and summarising the results of self-assessment. The Chief Executive Officer of the Company reviews this summarised
+self-assessment of each business group, assesses the general effectiveness of the internal control systems of the Company and
+submits the written confirmation thereof on behalf of management to the Audit Committee and the Board.
+The Company's internal control systems clearly define the roles and responsibilities of each party as well as the authorisation
+and approvals required for the key actions of each party. Policies and procedures are in place for the key business processes.
+This information is clearly conveyed to employees in practice and emphasised the importance of the internal control systems.
+All employees must strictly follow the policies which cover, amongst other things, financial, legal and operational issues that set
+the control standards for the management of each business process.
+Management of the Company is responsible for the design, implementation and maintenance of the effectiveness of internal
+control systems. The Board and the Audit Committee are responsible for monitoring and overseeing the performance of
+management over the internal control systems to ensure its appropriateness and effectiveness.
+The Company has always valued the importance of the internal control systems and has implemented its internal control
+systems according to the COSO Framework.
+Internal Control
+Corporate Governance Report
+4.
+00
+The Company, with its belief in the value of integrity, has zero tolerance for fraud, and is determined to fight against
+any fraudulent activities. The Company has established effective internal control systems and is continuously improving
+it. These systems have been strengthened by systematic, transparent control measures and procedures. To enhance
+and promote integrity, the Company continuously conducts various training for its employees, suppliers, and business
+partners. For employees, the Company has established the Sunshine Code that the employees shall strictly follow
+during their employment and in the course of business dealing with suppliers and business partners. For suppliers and
+business partners, the Company cooperates with them to create an ecosystem with integrity. The Company has signed
+an Anti-commercial Bribery Declaration with its suppliers and business partners to alert the counterparts the importance
+of ethical value and to build a healthy and transparent environment for business. Furthermore, the Company has set up
+an Anti-fraud Investigation Department for years to proactively collect whistleblowing cases from various channels, and
+to follow up and investigate alleged fraudulent cases on a timely basis. The Company will terminate the employment
+immediately with any employee who has been found to be involved in any fraudulent activities. The Company may also
+pass the relevant case to initiate legal proceeding according to the relevant laws and regulations under more serious
+circumstances. Any supplier/business partner found to be involved in any fraudulent activities will be blacklisted and
+deprived of the opportunity to work with the Company permanently. The Company will announce to the public those
+criminal cases and serious abuse-of-power cases that were investigated and handled by the Company via the "Sunshine
+Tencent" WeChat official platform. This shows the Company's determination to fight against corruption and fraud, as well
+as its commitment towards creating a virtuous and honest atmosphere within the Company and the industry.
+In recent years, fraudulent activities have occurred frequently in the Internet and technology industry and therefore
+integrity has been an important concern. As the Company continues to develop its business, the form and complexity of
+its business evolved, and consequently the fraud risk inevitably increased to a certain extent. For example, fraudulent
+activities caused by collusion between suppliers/business partners and employees can have a negative impact on the
+reputation and financial position of the Company.
+Fraud risk
+10.
+Corporate Governance Report
+Annual Report 2021 103
+The Company is committed to promoting environmental sustainability and places environmental protection as one of
+its top priorities. The Company continuously pays attention to the environment and climate change. The Company also
+actively responds to China's goal in achieving carbon neutrality by announcing the launch of its carbon neutrality plan in
+January 2021 and releasing Tencent Carbon Neutrality Target and Roadmap Report in February 2022. The Company
+commits to carrying out green and low-carbon operations, introducing green and low-carbon concepts to the community
+and advocating relevant practices, whilst using its digital capabilities to help its partners in achieving low-carbon
+transformation and to jointly practice low-carbon development.
+Together with several renowned scientists, the Company established and continues to fund the "Xplorer Prize" to
+encourage the study and research of cutting-edge technologies and foundational science among young scientists. In
+respect of protection of Minors, the Company upgrades the facial recognition strategies and enhances facial patrolling
+mechanism on the established "Parental Guardian Platform" and "Healthy Gameplay System" to further prevent Minors
+from being addicted to games. The Company also provides interest classes in technology to teenagers in less developed
+areas to improve their Internet literacy. In respect of public emergencies, the Company established a public emergency
+platform and improves the social capabilities of handling public emergencies through the donation of emergency
+equipment, transfer of first-aid technical knowledge and cultivation of first-aid awareness. In respect of the supports
+to elderly and disabled, the Company encourages “Digital Inclusion" by optimising products for the elderly and people
+with disabilities under the philosophy of "Leave No One Behind" and "Information Accessibility". Meanwhile, the
+Company also leverages digital technologies, social media and digital content platforms to provide digital solutions for the
+preservation and inheritance of traditional culture.
+As the first Internet and technology enterprise to establish a charity foundation in China, the Company continues
+to make donations in various charitable fields, commits itself to providing digital support for charity fundraising and
+donations, empowers the digitalisation of public welfare, and promotes the sustainable development of the public welfare
+ecosystem.
+The Company takes equal emphasis on technology innovation and industrial development, continuously enhances the
+core capabilities such as cloud computing, Al, big data, security, etc., builds an open ecosystem, promotes industry
+collaboration, supports the transformation of various industries including healthcare, transportation, tourism, retail,
+and energy, etc., enhances its digital capabilities in supporting employment and entrepreneurship opportunities,
+and facilitates the development of digital economy comprehensively. By utilising its core competencies of an Internet
+company, the Company effectively supports rural governance, attracts talent to return to their villages and improves
+productivity of villages through the establishment of the "WeCounty" platform. The Company has also launched initiatives
+such as the "Cultivator Plan" for talent revitalisation, invested continuously in rural digital construction, and promoted
+rural revitalisation and common prosperity.
+The Company upholds its vision and mission of "Value for Users, Tech for Good", and constantly reviews its products
+and platforms from the perspective of social responsibility. With a strategic enhancement in 2021, the Company
+incorporated "Sustainable Innovations for Social Value" into its core strategy, and actively commits to social responsibility
+and promotes social and environmental sustainability using Internet and other technologies.
+Corporate Governance Report
+Social responsibility and environmental sustainability risk
+9.
+102 Tencent Holdings Limited
+00
+The Company continues to invest in its network infrastructure to enhance its established business recovery mechanism
+to ensure network security in order to provide consistent support to business development. Meanwhile, the Company
+has established dedicated teams to develop business contingency plans and to perform regular drills. All business
+departments also implemented various emergency measures to ensure smooth business operation. In addition, an
+independent dedicated team has been set up to perform regular checks on the effectiveness of the relevant emergency
+mechanisms and measures, as well as the drills and its results. In terms of energy use, the Company continues to
+increase the proportion of renewable energy, deploy rooftop solar PV system for data centers, build energy storage
+stations, and participate in green power trading. In the post-pandemic era, the Company's emergency response team
+continues to operate effectively, closely monitoring risks, keeping up with policy changes, and responding to both
+risks and policy changes in a timely and appropriate manner. For example, the Company provides mobile working
+solution plan and various functional support, to support the business group in responding to urgent needs through
+adjusting resource allocation and timely deployment of emergency measures to ensure employee safety and continued
+operations of the Company's business. The Company also performs emergency drills to improve business's capabilities
+in responding to emergencies. Meanwhile, the Company also works closely with partners to seek solutions to application
+scenarios during these special periods, and to jointly build an open, innovative and secured digital ecosystem to support
+the economic recovery and business development in the post-pandemic era.
+Business continuity risk
+Corporate Governance Report
+The Audit Committee, on behalf of the Board, continuously reviews the risk management and internal control systems.
+Corporate Governance Report
+Tencent Holdings Limited
+Corporate Governance Report
+The Company also encourages shareholders' active participation in annual general meetings and other general meetings.
+Notices to shareholders for annual general meetings are sent to shareholders at least 20 clear business days before the
+meetings and at least 10 clear business days for all other general meetings to allow sufficient time for their consideration of
+the proposed resolutions. Our shareholders communication policy also requires appropriate arrangements to be put in place
+for the annual general meetings to encourage and facilitate shareholders' participation, and the process of the meetings is
+monitored and reviewed on a regular basis to ensure that shareholders' needs are best served.
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board and the senior management team. The Chairman, other members of the Board and relevant members of the
+senior management team, under normal circumstances, attend to answer questions raised and discuss matters in relation to
+the Company in an open manner. Save as Mr Li Dong Sheng and Professor Ke Yang, all directors attended the 2021 AGM and
+the 2021 EGM, with a view to understanding the views of the Company's shareholders. The company secretary provided the
+minutes of the 2021 AGM and the 2021 EGM to all directors to have a thorough understanding of the views of the Company's
+shareholders. The Company's external auditor will also attend the annual general meeting to answer questions relating to the
+conduct of the audit, the auditor's report and auditor independence.
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition.
+Such requests must be sent to the Board or the company secretary at the Company's registered office at Cricket Square,
+Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands, or by email to cosec@tencent.com, and such
+meeting shall be held within two months after the deposit of such requisition. If a shareholder wishes to propose a person for
+election as a director at a general meeting, he/she should provide a written requisition to the Board or the company secretary
+to call an extraordinary meeting following the procedures set forth above, or lodge a written notice to nominate a person at the
+Company's Hong Kong principal place of business at 29/F., Three Pacific Place, No. 1 Queen's Road East, Wanchai, Hong
+Kong, or the Company's branch share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong. Detailed Procedures for Shareholders to Propose
+A Person for Election as A Director is also available on the Company Website.
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure that the shareholders are familiar with the detailed procedures for conducting a
+poll, detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions
+from shareholders on the voting procedures will be answered before the poll voting starts. An external scrutineer will be
+appointed to monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock
+Exchange's website after each general meeting.
+Annual Report 2021 107
+Corporate Governance Report
+Tencent Holdings Limited
+Apart from participating in the Company's general meetings, shareholders and other stakeholders may at any time contact
+or send enquiries and concerns to us via the Company Website, or by addressing them to the Investor Relations teams, and
+sending them by post to the Investor Relations, Tencent Holdings Limited, at 29/F., Three Pacific Place, No. 1 Queen's Road
+East, Wanchai, Hong Kong, or by email to ir@tencent.com. Shareholders may also contact the Company's Hong Kong branch
+share registrar, Computershare Hong Kong Investor Services Limited, if they have any enquiries about their shareholdings and
+entitlements to dividends.
+DIVIDEND POLICY
+The Company endeavours to maintain sufficient working capital to develop and operate the business of the Group and to
+provide sustainable returns to the shareholders of the Company.
+Under the current dividend policy of the Company, dividends may be declared out of the distributable earnings or reserves of
+the Company. While the dividend payout ratio is not pre-determined, in proposing or declaring any dividend payout, the Board
+shall take into account the Group's earnings performance, general financial position, debt covenants, future working capital
+and investment requirements, and other factors that the Board considers relevant and appropriate.
+DISCLOSURE OF OTHER INFORMATION
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. Set out below is the
+information which has not been covered above.
+Significant Change in the Constitutional Documents
+There has not been any change to the Company's memorandum and articles of association during the year ended
+31 December 2021.
+Model Code for Securities Transactions by Directors of Listed Issuers
+The Company has adopted the Model Code. The Company has also adopted an insider dealing policy to govern and regulate
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exacting than those of the Model Code. The Company has made specific enquiries with the directors and
+the directors have confirmed they have complied with the Model Code throughout 2021.
+Appointment Terms of Non-Executive Directors
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his/her appointment.
+106
+00
+To enable our shareholders and other stakeholders to exercise their rights in an informed manner based on a good
+understanding of the Group's operations, businesses and financial information, the Company adopted the shareholders
+communication policy which aims to ensure that our shareholders and other stakeholders at large are provided with ready,
+equal, regular and timely access to material information about the Group. The policy also sets out a number of ways to ensure
+effective and efficient communication with our shareholders and other stakeholders is achieved, including but not limited to our
+quarterly results announcements, webcasts, responses to shareholders' enquiries, corporate communications (in both English
+and Chinese, to facilitate shareholders' understanding), posting of relevant information on the Company Website, shareholders'
+meetings and investment market communications. To facilitate communication between the Company, our shareholders and
+the investment community, investor and analyst briefings, one-on-one meetings, domestic and international roadshows, media
+interviews and specialist industry forums are organised on a regular basis and are attended by our directors and designated
+spokespersons. In addition, the Company Website has been adopted as the designated hub for publication of the Company's
+announcements, press releases and other corporate communications including the shareholders communication policy and
+the investor calendar which highlights important dates for Shareholders' information. Our dividend policy also set out in the
+"Corporate Governance Report” on page 108 of this annual report and the historical information of dividend payout is available
+on the "Interactive Share Price Chart & Dividend History" section on the Company Website.
+SHAREHOLDERS
+109
+Annual Report 2021
+Under the framework, if an employee is aware of any project, transaction, information or situation which he/she thinks could
+potentially be inside information, he/she should contact the Head of Compliance and Transactions Department, the general
+counsel and the company secretary as soon as possible. Legal analysis and consultations with the Company's directors and
+senior executives will be made so as to identify whether any such information constitutes inside information and is required to
+be disclosed to the public pursuant to the SFO. The framework and its effectiveness are subject to review on a regular basis
+according to established procedures.
+The Company has in place a framework for the handling and disclosure of inside information in compliance with the SFO. The
+framework sets out the procedures and internal controls for the handling and dissemination of inside information in a timely
+manner so as to allow all the shareholders and stakeholders to assess the latest position of the Group.
+00
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set
+out in the "Independent Auditor's Report" on pages 160 to 168. During the year ended 31 December 2021, the remuneration
+paid/payable to the Company's external auditor, PwC, was disclosed in Note 8 to the consolidated financial statements. The
+audit and audit-related services conducted by the external auditor mainly comprise of statutory audits and reviews for the
+Group and its certain subsidiaries. The non-audit services conducted by the external auditor mainly include tax advisory
+services for our M&A and other corporate transactions, due diligence services and other services such as ESG assurance
+service and services relating to risk management and internal control review. Please refer to Note 8 to the financial statements
+for a breakdown of the fees paid for the key non-audit services.
+External Auditor and Auditor's Remuneration
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors
+and officers.
+Framework for Disclosure of Inside Information
+105
+Corporate Governance Report
+Effectiveness of Risk Management and Internal Control
+Directors and Officers Liability Insurance
+The review process comprises of, among other things, meetings with management of business groups, IA, IC, legal team, and
+the external auditor, reviewing the relevant work reports and information of key performance indicators, the management's
+self-assessment on internal control as detailed above and discussing the significant risks with senior management of the
+Company.
+The Board is of the view that throughout the year ended 31 December 2021, the risk management and internal control
+systems of the Company are effective and adequate.
+In addition, the Board believes that the Company's accounting and financial reporting functions as well as the ESG
+performance and reporting functions have been performed by staff with the appropriate qualifications and experience and
+that such staff receives appropriate and sufficient training and development. Based on the report of the Audit Committee, the
+Board also believes that sufficient resources have been obtained for the Company's internal audit function and that its staff
+qualifications and experience, training programmes and budgets etc., are sufficient.
+Annual Report 2021
+108
+14
+Data Privacy and Cyber Security
+15
+Protection of Minors
+16
+Digital Inclusion and Digital Literacy
+9
+Diversity and Equal Opportunity
+Employee Health and Safety
+10 Labour Standards
+11 Supply Chain Management
+12 Social Impact of Products & Services
+13 Responsibility of Content
+8
+14
+Employee Career Development
+7
+Employee Rights & Benefits
+6
+Environmental Impact of Products & Services
+5
+Energy Use
+17 Community Investment
+4
+MED
+Risk Management
+19 Anti-trust
+We will help mobilise the transition to a low-carbon society by leveraging the influence of our products and
+technological capabilities. For our users, we will promote a low-carbon lifestyle. For our business partners, we will
+assist them in their low-carbon transformation by providing innovative products and enabling technologies.
+We followed the best practice of prioritising the use of active emissions reduction measures while keeping the use
+of carbon offsets to a minimum. We will reduce or avoid emissions via a series of measures, including energy-
+saving initiatives, technological and management innovations to increase power use efficiency², transition to green
+power or renewable energy by procurement as well as building and investing in renewable energy projects. Steps
+to achieve our targets can be found in the "Energy Management" section.
+Scope 3: Indirect emissions generated from the supply chains (Scope 3) amounted to 2.743 million MtCO2e,
+or 53.7% of the emissions.
+Scope 2: Indirect emissions generated by purchased electricity and other purchased energy (Scope 2)
+amounted to 2.349 million MtCO2e, or 45.9% of the emissions.
+•
+Scope 1: Direct emissions from operations owned or controlled by the Company (Scope 1) amounted to 0.019
+million MtCO2e, or 0.4% of the emissions.
+Based on the Greenhouse Gas ("GHG") Protocol, we began an internal review of our greenhouse gas emissions
+and used 2021 as the base year to develop our carbon neutrality roadmap and decarbonisation pathways. Our
+total emissions of 5.111 million metric tons of carbon dioxide equivalents includes:
+We pledge to reach carbon neutrality across our operations and supply chains by 2030, and to switch our
+electricity supply to 100% green power or renewable energy where feasible. We have signed on the Science-Based
+Targets initiative ("SBTi") and will work to refine targets for our decarbonisation pathways in the following months.
+Metrics and Targets
+Environmental, Social and Governance Report
+Annual Report 2021 117
+In 2021, the Board and senior management evaluated the relative impacts of the climate-related risk factors,
+including acute physical risk, chronic physical risk, policy & legal risk, technology risk, market risk, and
+reputational risk on the business, and provided mitigation and adaptation responses. For acute physical risks, we
+have taken extreme weather events, such as rainstorms, typhoons and high temperatures into consideration during
+our site selection, construction, and operations of our data centres. We have also drafted corresponding mitigation
+and adaptation measures to address the potential impacts of these events.
+We have integrated ESG risks into the Company's overall risk assessment and management system, including
+risks related to climate change. As part of our climate risk assessment, we consider the probability and the relative
+impact of the risks on our Company.
+We believe that climate change has also brought various opportunities to Tencent. By improving the efficiencies
+of energy consumption and water use at our office buildings and data centres, we could optimise operating costs
+and minimise sensitivity to changes in carbon trading prices. We provide various products and services, including
+Tencent Cloud, WeCom, Tencent Meeting to help our users reduce their carbon footprint and accelerate their
+digital transformation.
+There are transition risks as well. In the context of accelerating the transition to a low-carbon economy, if we fail to
+effectively control or reduce the carbon emissions generated from our operations and provide low-carbon services
+and products, it may result in reputational damage, loss of users, or market share reduction. Our carbon neutrality
+initiative follows the principle of "prioritising the use of active emissions reduction measures while keeping the
+use of carbon offsets to a minimum". In addition to achieving our carbon neutrality goal, we aim to play a leading
+role in the transition towards a low-carbon society by (i) fostering open innovation and knowledge sharing and (ii)
+leveraging the reach and influence of our platforms and products.
+Details of Tencent's carbon neutrality goals can be found in the Tencent Carbon Neutrality Target and Roadmap
+Report.
+2
+Including the construction emission reduction, such as Dachan Bay.
+00
+Water Management
+Energy Management in Data Centres
+Our efforts in energy-saving at office buildings have earned certifications of international sustainable design
+standards. Tencent Binhai Towers, Tencent Beijing Headquarters, and Chengdu Tencent Towers A and B have
+obtained LEED Gold or Platinum certifications.
+By establishing the "Management + Technology + Procedure" system, we have successfully improved our energy
+use efficiency, thereby achieving our targets (shown in the Environmental Targets section).
+Our energy-saving policy drives our day-to-day energy-saving measures. Office lights and air conditioners are
+automatically turned on/off based on the schedule of employees. Whenever employees leave the workplace
+or meeting rooms, they are also encouraged to manually switch them off. We also have stringent onsite office
+management in place with routine inspections, where the property management companies closely monitor
+the electricity consumption.
+We continuously seek ways to improve our energy efficiency by regularly evaluating our office buildings'
+energy consumption and optimising our energy consumption through innovative technologies. In 2021, we
+executed energy-saving renovation projects in Tencent Binhai Towers: (i) we replaced LED lighting in our
+public areas, optimised lighting duration for our underground car parks, and (ii) installed thermostats and
+fan coil systems with automatic switches in our IT machine rooms and power distribution machine rooms.
+We manage our office building's energy and water consumption, through an online Tencent Facility
+Management system. In addition, we have introduced a real-time monitoring system for self-owned buildings,
+which provides statistical analysis on electricity and water consumption.
+In terms of physical risks, acute climate events caused by climate change, such as frequent typhoon weather and
+rainstorms, may affect our operational continuity. On the other hand, chronic risks, such as high temperatures
+and droughts may increase energy consumption and operating costs for our offices and data centres. Rising sea
+or water levels may lead to loss of assets in certain regions. We have considered the impact of regional climate
+when allocating assets and have formulated emergency measures for acute climate events to avoid and reduce
+operational impacts or asset losses.
+•
+.
+Our "Management + Technology + Procedure" approach underpins our energy conservation measures, through
+which:
+Environmental considerations are incorporated into the design, construction, and operation of our office buildings.
+All our new office buildings in China are designed and constructed to attain the Green Building Two Star standards.
+Energy Management in Office Buildings
+6.2 Energy Management
+Environmental, Social and Governance Report
+118 Tencent Holdings Limited
+•
+Environmental, Social and Governance Report
+116 Tencent Holdings Limited
+We acknowledge that climate change brings physical and transition risks and opportunities to our business. Our
+physical risks primarily result from acute and chronic risks caused by climate change, while transition risks mainly
+come from the market and policy changes that arise during the transition to a low-carbon economy. Reputational
+risks are linked to the potential failure in fulfilling our commitment to developing into a low-carbon business. On
+the other hand, climate change would also provide us with the opportunity to improve our energy efficiency and
+develop low-carbon technologies and climate-resilient products and services.
+.
+•
+•
+Integrity means to uphold principles, ethics, openness and fairness;
+The Company is committed to strengthening our corporate culture, which is built upon our values, vision and purpose.
+Our values are integrity, proactivity, collaboration and creativity.
+OUR CULTURE
+5.
+Proactivity means to pursue positive contributions, volunteer for responsibility and push for breakthroughs;
+The material topics which fell into the upper right quadrant of the matrix were defined as highly material to the Company.
+These material ESG topics include Data Privacy and Cyber Security, Protection of Minors, Responsibility of Content,
+Social Impact of Products & Services, Employee Health and Safety, Intellectual Property, Anti-corruption, Corporate
+Governance, Labour Standards, Active Stakeholder Engagement, and Anti-trust.
+114 Tencent Holdings Limited
+23 Active Stakeholder Engagement
+Impact on Tencent's Business
+(Extremely Important)
+22 Corporate Governance
+21 Anti-corruption
+20 Intellectual Property
+Environmental, Social and Governance Report
+18 Support Common Prosperity
+Collaboration means to be inclusive and collaborative, and strive to progress and evolve; and
+Our values and culture, which crystallised into our mission to create “Value for Users, Tech for Good", has guided the
+Company to incorporate social responsibility into our products and services, help industries digitally transform and
+collaborate with stakeholders to contribute to the sustainable development of society. The Company has continued
+to promote our culture and adopt various policies and initiatives to provide additional guidance to our employees. For
+example:
+Strategy
+Climate-related risks and issues are considered and monitored by the Board via the Corporate Governance
+Committee. Climate change is regarded as a specific issue for revision and discussion. During the reporting
+period, the Corporate Governance Committee has reviewed the Company's carbon footprint, net-zero goal, and
+decarbonisation pathways.
+Governance
+The risks and impacts of climate change are becoming increasingly significant. Tencent is committed to identifying
+and mitigating the impacts of climate change on our strategy, business operations, and financial performance.
+In 2021, we joined the global climate action (for example, achieving the objectives of the Paris Agreement and
+China's "3060" goal) by pledging to achieve carbon neutrality in our operations and supply chains (including
+Scope 1, 2 and 3 emissions) as well as transition to 100% green power by 2030.
+6.1 Tackling Climate Change
+00
+From operating our platforms daily to building our network of data centres, we have considered energy conservation,
+waste reduction, ecological impact, and climate-related risks in our decision-making process and policies. This has
+enabled us to meet the applicable regulatory requirements in China, including the Energy Conservation Law of the
+People's Republic of China and Environmental Protection Law of the People's Republic of China. In 2020, China
+announced that the country would reach carbon neutrality by 2060 and may introduce new regulatory requirements to
+ensure that this target can be met. The Company will closely monitor the latest developments and endeavour to tackle
+climate change.
+Creativity means to push for breakthrough innovations, and explore the possibilities of the future.
+We are committed to protecting the environment and conserving natural resources to ensure sustainability for future
+generations. In 2021, we voluntarily pledged to reach carbon neutral for our operations and supply chains by 2030, and
+announced our commitment to fully transition to green power.
+Environmental, Social and Governance Report
+Annual Report 2021 115
+We have developed technologies and solutions for social well-being, including but not limited to mobile applications
+suitable for the silver generation, enhanced accessibility solutions for communities with activity limitations as well
+as youth programmes that inspire creativity and teach coding skills.
+We developed technologies and software-as-a-solution products, including but not limited to WeCom and Tencent
+Meeting, to help industries reduce their carbon footprint and accelerate digital transformation.
+We voluntarily pledged to reach carbon neutrality in our operations and supply chains, and to transition to 100%
+green power by 2030.
+We have developed the Tencent Sunshine Code of Conduct (the "Sunshine Code") which, amongst others, sets
+the ethical standards and behaviour expected of our employees and prohibits activities that are not in compliance
+with applicable laws and regulations, and published an Anti-fraud and whistleblowing Policy that outlines multiple
+whistleblowing channels.
+•
+6. ENVIRONMENT
+3
+•
+2
+Business partners
+4.
+•
+Assist industries, especially small and medium-sized enterprises, in managing digital transformation;
+.
+Ensure fair and equitable treatment when dealing with our business partners; encourage them to give us
+feedback on our business practices; and
+Combat illegal or unwarranted behaviours that are harmful to long-term business partnerships by
+empowering our IC and Anti-Fraud Investigation Department.
+Community and industry
+•
+•
+Protect our users, especially Minors and content creators; take responsibility for the content on our online
+platforms.
+•
+Contribute to the advancement of the internet industry via open-source partnerships and open platform
+collaboration.
+Annual Report 2021 111
+Environmental, Social and Governance Report
+5. Environment
+•
+Consider the environmental impact of our products and services during the development and operation
+stages;
+Reduce our carbon footprint and increase renewable energy use, ultimately reaching net-zero in operations
+and supply chains by 2030; and
+•
+Assist in driving the transition towards a low-carbon society via the promotion of a low-carbon lifestyle for
+users, and technologies that enhance the management of climate change for enterprises.
+Our shareholders and stakeholders play an important role in our ESG strategy and implementation. The Company has
+commissioned an independent consultant to conduct online surveys and interviews with our stakeholders, and integrated
+their feedback into our materiality assessment. For details of our materiality assessment, overall ESG performance
+and the assurance report, please refer to the standalone ESG report¹ to be disclosed on the Company's website:
+www.tencent.com/esg.
+Increase community investment, and leverage our platforms and technologies to implement “Tech for Good";
+Create and promote a digitally inclusive environment; and
+Listen to feedback from users and actively respond to their needs, enquiries and complaints, based on which
+we continuously enhance the quality of our products and services; and
+Protect the privacy of our users and the security of their data and digital properties;
+.
+Environmental, Social and Governance Report
+1. ENVIRONMENTAL, SOCIAL AND GOVERNANCE STRATEGY
+Tencent's Environmental, Social and Governance ("ESG") strategy is guided by our long-established mission and vision,
+"Value for Users, Tech for Good”. The mission and vision, in which our employees respond to what they like most
+about Tencent in the annual employee surveys, is the driving force behind the incorporation of ESG considerations into
+our products, services and business operations. In view of the rapid changes in societal and business environments,
+including the COVID-19 pandemic, extreme weather, macroeconomic challenges, regulatory tightening, mobile internet
+ubiquity and new enabling technologies, as well as the digital upgrade of local economies, we have strengthened our
+capabilities to manage the associated risks and nurture new opportunities. Since April 2021, we have taken an innovative
+and coordinated approach to create value for our users, business partners and the society, and to strengthen our
+foundation in ESG governance. Specifically:
+•
+We upgraded our corporate strategy to promote "Sustainable Innovations for Social Value" alongside our existing
+consumer internet and industrial internet strategies.
+We integrated our corporate social responsibility and charitable activities to form a new Sustainable Social Value
+("SSV") organisation. SSV is funded with an initial capital of RMB50 billion to invest in key areas, including
+research in basic sciences, education innovation, rural revitalisation, carbon neutrality, primary healthcare,
+philanthropic platform, assisting with public emergencies, technologies enabling the silver generation, enhanced
+accessibility, and digitalisation of culture. We allocated an additional RMB50 billion to support the "Common
+Prosperity" initiative in China.
+We established a new ESG governance structure to support the Board's expanded oversight on the Company's
+ESG matters, coordinate internal priorities and engage stakeholders via the ESG Working Group and the ESG
+Coordination Office.
+Our ESG strategy focuses on the management of risks and the pursuit of opportunities, unlocked by the ongoing
+convergence of physical and virtual worlds as well as the digital transformation enabling industries to extend their
+presence online and expand globally. The implementation of our ESG strategy can be summarised as follows:
+00
+110
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+1.
+Business operations
+•
+•
+Operate in compliance with applicable laws and regulations;
+Operate business with integrity and protect the interests of shareholders and stakeholders; and
+Provide our employees a safe, inclusive and equitable work environment; empower them to pursue
+professional growth.
+3.
+Users
+•
+•
+2.
+Waste Management
+ESG GOVERNANCE STRUCTURE
+In 2021, the Corporate Governance Committee expanded its focus to ESG oversight. It shall report regularly to the
+Board relevant ESG issues as well as the progress of key performance indicators ("KPIs"). The Corporate Governance
+Committee shall exercise oversight via inquiries, regular updates on the Company's ESG initiatives, reviewing and
+approving annual ESG reports submitted by the ESG Working Group.
+We regularly engage with our stakeholders to learn about their expectations and feedback on our ESG performance.
+Our stakeholders include users, employees, government and regulatory bodies, investors, business partners, the media
+and public, and non-governmental organisations ("NGOS"). Our communication channels include but are not limited to
+regular meetings, investor and press conferences, satisfaction surveys and social media platforms.
+Assessment on the Materiality of the ESG Topics
+To identify and understand various ESG topics that are of high priority to Tencent, we have engaged with an external
+professional agency to conduct a materiality assessment. The assessment process is as follows:
+1.
+2.
+Identify a list of potential ESG material topics by taking into consideration: (i) common issues raised by internal and
+external stakeholders, and (ii) topics highlighted in recognised reporting frameworks, including the ESG Reporting
+Guide, the Task Force on Climate-Related Financial Disclosures ("TCFD"), the Global Reporting Initiative ("GRI")
+standards, and the Sustainability Accounting Standards Board ("SASB") standards.
+Identify key concerns via interviews and online surveys across stakeholder groups, including the Board members,
+senior executives, employees, customers (users and business partners), suppliers, investors, governments and
+regulators, academics, media and NGOs.
+3. Prioritise relevant material ESG topics through materiality mapping.
+MED
+LOW
+Stakeholder Engagement
+Ο
+11
+17
+OO 16
+00
+23
+19
+HIGH
+15
+1
+Climate Change & Greenhouse Gas Emissions
+00
+MATERIALITY
+(Important)
+4.
+The ESG Working Group (the "Working Group") is a cross-functional body established in January 2022 and reports to
+the Corporate Governance Committee twice a year. The Working Group, which is tasked to advance Tencent's overall
+ESG performance and promotes internal coordination, operates on three levels:
+• ESG Steering Team leads the Working Group to set out the Company's ESG strategy and priorities. Co-chaired by
+the Chief Strategy Officer and Chief Financial Officer, it has a good representation of senior executives from various
+business groups or functional lines covering specific ESG topics.
+1
+Our standalone ESG report will be downloadable from our Company Website. We decided to distribute electronic versions only in favour
+of nature conservation and carbon emissions reduction. Our ESG report will only be published on a standalone basis for the financial
+years commencing on or after 1 January 2022.
+00
+112
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+ESG Coordination Office supports the ESG Steering Team in identifying ESG objectives and collaborating with
+various business and functional teams to develop action plans and track progress. In addition, it serves as the
+secretariat of the Working Group and reports the Company's ESG matters to the Corporate Governance Committee
+regularly.
+ESG Champions comprise of employee representatives from various business groups and functional teams covering
+specific ESG topics. Leveraging their respective areas of expertise, ESG Champions drive the implementation of the
+Company's ESG initiatives and provide regular updates to the ESG Coordination Office.
+We will review the composition of the Working Group from time and time to ensure the Corporate Governance Committee
+is kept abreast of the Company's ESG initiatives and overall performance.
+3.
+BOARD STATEMENT
+The Board oversees ESG matters via the Corporate Governance Committee and is engaged in formulating and
+implementing the Company's ESG strategy. The Corporate Governance Committee supported the Company's decision to
+strengthen ESG governance via the establishment of the ESG Working Group, where the ESG Coordination Office serves
+as the secretariat.
+The Board was involved in the materiality assessment and prioritisation of key ESG topics of Tencent, which was
+conducted by an independent professional consultancy. The Board has participated in surveys and interviews that solicit
+views and recommendations on ESG topics that may have significant influence on the Company's long-term sustainability
+(please refer to the sections titled "Stakeholder Engagement” and “Assessment on the Materiality of the ESG Topics" for
+more details). Key ESG risks have been incorporated into the Company's comprehensive risk management system. From
+principal business leaders to senior management, the Group has formulated risk response measures by considering
+the possibility, impact, and trends of key ESG risks. The Board has regularly reviewed these key risks at the Board and
+Corporate Governance Committee meetings and has made recommendations to the measures taken.
+During the reporting period, the Board has reviewed the Company's carbon neutrality plan, progress in certain
+sustainable social value projects and the annual ESG report.
+Annual Report 2021
+113
+(Important)
+Impact on Stakeholders
+(Extremely Important)
+00
+Environmental, Social and Governance Report
+ESG governance at Tencent is overseen by the Board's Corporate Governance Committee and implemented by the
+Company's ESG Working Group.
+2.
+Annual Report 2021 119
+We have always focused our efforts on improving resource efficiency and increasing the proportion of renewable
+energy use in our data centres, which are pivotal to reducing our carbon footprint.
+• By the end of 2021, Tencent Beijing
+Headquarters would have obtained LEED Gold
+certification.
+0.019
+Scope 1 emissions (million MtCO2e) 2,3
+5.111
+Total GHG emissions (Scope 1, 2, 3) (million MtCO2e) 1,2,3
+31 December 2021
+As at
+Environmental, Social and Governance Report
+Indicators
+Environmental Performance
+Tencent Holdings Limited
+122
+00
+has been achieved.
+The target for 2021
+has been achieved.
+Waste Management
+The target for 2021
+The target for 2021
+has been achieved.
+• For any given year, all destroyed hard
+drive components and waste lead-acid
+accumulators will be collected by qualified
+vendors for harmless disposal.
+For any given year, all Tencent-owned office
+buildings in the Mainland of China will
+categorise waste.
+Scope 2 emissions (million MtCO2e) 2,3,4
+2.349
+Scope 3 emissions (million MtCO2e) 2,3,5
+2.743
+4,308,960
+Indirect energy consumption: Purchased electricity (MWh)2,10
+3,111,654
+Natural gas (m³)
+3,261,448
+Diesel (L)⁹
+34,160
+Including: Gasoline (L)
+66,293
+Direct energy consumption (MWh)
+For any given year, at least one additional data
+centre will obtain ISO 50001 or GB/T 23331
+energy management system certification.
+4,375,253
+0.053
+Non-hazardous waste per unit of revenue (tonnes/RMB Million)
+29,850
+Non-hazardous waste (tonnes)
+0.00058
+Hazardous waste per unit of revenue (tonnes/RMB Million)
+324
+Hazardous waste (tonnes)6
+9.12
+Total GHG emissions per unit of revenue (MtCO2e/RMB Million)
+Total energy consumption (MWh) 2,8
+•
+Energy Management in Data
+Centres
+The target for 2021
+has been achieved.
+For Tencent Binhai Towers and Beijing Headquarters, we monitor the levels of air pollutants, including PM2.5,
+PM10, carbon monoxide, and carbon dioxide inside and outside the buildings with an online monitoring system,
+which is backed up by a manual measuring system. A smart ventilation system is installed to respond to the
+changing carbon monoxide and carbon dioxide levels in our underground car park and office spaces. For our office
+cafeterias, the cooking ventilation comprises a fire-resistant environmental exhaust hood that removes oil droplets,
+activated carbon filtration and air ionisation.
+We have implemented water-saving measures across our office buildings, including utilising water-saving
+appliances, monitoring daily water consumption, setting water-use targets, and educating employees on water
+conservation. To accelerate the efforts around water conservation at our data centres, we are preparing to kickstart
+a few research projects on water cooling and recycling.
+Our impacts on the environment and natural resources primarily come from greenhouse gas emissions, energy
+consumption and waste production, where relevant policies and measures can be found in the previous sections.
+This section elucidates our strategies around water and other emission management.
+6.4 Water and Other Emission Management
+We have entered into agreements that guarantee 100% of our hazardous waste will be handled in strict
+compliance with relevant regulations. These types of wastes include lead-acid accumulators and destroyed hard
+drive components from data centres and waste toner and waste ink cartridges from office printers.
+We have implemented an electronic waste recycling and disposal programme at our data centres. The programme
+first examines whether old servers can be reused before they are dissembled. Otherwise, obsolete servers and
+other electronic waste, including waste computers, notebooks and monitors will be recycled and reused by
+qualified second-hand vendors.
+In response to the national call and local policy on garbage classification, we reinforced recycling practices by
+educating our employees on waste management. On-site inspections are performed to ensure proper garbage
+classification. Waste generated in office buildings is categorised and transferred to a government-authorised waste
+treatment agency. In 2021, we strengthened the waste management of Tencent-owned offices by tracking and
+monitoring our generated waste.
+6.3 Waste Management
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+120
+00
+Lowest PUE achieved in the Qingyuan pilot site.
+3
+In terms of building green data centres, we have completed environmental impact assessments on all self-built
+data centres and have obtained approvals or filings in accordance with the Law of the People's Republic of China
+on Environmental Impact Appraisal. We also pursued third-party building certifications to validate our commitment.
+In 2021, Tencent Tianjin Data Centre earned a LEED Platinum certification.
+To increase the proportion of renewable energy use, we actively participate in green power trading and explore
+distributed energy systems. In 2021, we explored the feasibility of green power trading with our newly assembled
+team of green energy professionals. In September 2021, we made our first attempt in purchasing 60 million kWh
+hydropower for our Chongqing Cloud Data Centre, allowing the data centre to be supported by 100% renewable
+energy from August to December 2021. At the Tencent Qingyuan Qingxin Data Centre campus, we built a rooftop
+photovoltaic power generation system that has generated over 2 million kWh of electricity from September to
+December 2021.
+In terms of operations and management systems, our proprietary Al platform can automatically and
+accurately monitor energy data in real-time and conduct refined classification, statistics, and scientific
+modelling to provide emission reduction solutions.
+Regarding innovative designs and technologies, Tencent's fourth-generation T-block data centre uses
+energy-saving technologies that include (i) High Voltage Direct Current technology for electrical systems,
+(ii) liquid cooling technology, and (iii) indirect evaporative cooling units. These have allowed us to lower the
+power usage effectiveness ("PUE") to 1.063.
+In the site selection phase, we prioritise areas with abundant renewable and clean energy to power our data
+centres. For example, the sites in Zhangjiakou Huailai are rich in wind and solar resources, and the sites
+in Qingyuan, Chongqing, and Guian have strong hydropower and other forms of clean energy. With the
+development of these data centres, we continue to invest in a wide range of renewable energy technologies,
+such as photovoltaic systems, hydropower, and wind power technologies.
+.
+.
+Environmental Performance Summary
+Total energy consumption per unit of revenue (MWh/RMB Million)
+Unless otherwise specified, the following environmental targets and performance data cover Tencent's office
+buildings and data centres in the Mainland of China and Hong Kong.
+121
+For any given year, the average annual PUE of
+self-built data centres will not be greater than
+1.35.
+Energy Management in Office
+Buildings
+Tackling Climate Change
+Section with Detailed Steps
+to Achieve the Targets
+The interim target
+for 2021 has been
+achieved.
+The interim target
+for 2021 has been
+achieved.
+The target for 2021
+has been achieved.
+The target for 2021
+has been achieved.
+Target and baseline
+have been set recently.
+Target has been set
+recently.
+Progress Updates
+in 2021
+Using the electricity consumption per capita
+in 2019 as a benchmark, the electricity
+consumption per capita in all Tencent-owned
+office buildings in the Mainland of China will
+be reduced by 15% by the end of 2025.
+Using the water consumption per capita in
+2019 as a benchmark, the water consumption
+per capita in all Tencent-owned office
+buildings in the Mainland of China will be
+reduced by 15% by the end of 2025.
+certification.
+For any given year, the property management
+companies of all Tencent-owned office
+buildings in the Mainland of China will obtain
+the environmental management system (EMS)
+Using green power for 100% of all electricity
+consumed by 2030.
+Achieving carbon neutrality by 2030 across
+our operations and supply chains.
+•
+•
+Targets
+In 2021, we formulated environmental targets. The progress is shown in the following table.
+Environmental Targets
+Environmental, Social and Governance Report
+Annual Report 2021
+•
+7.81
+63,000
+Communication
+We strive to provide employees with a wide variety of health-related benefits. For more details related to the specific
+benefits, please refer to the "Health and Safety" section.
+In November 2021, we announced the introduction of a new benefit scheme to reward long-serving employees to
+be implemented in 2022. On top of the statutory retirement plan, our employees will be provided with a package
+which includes customised souvenirs, a long-service gratuity, and a retirement honorarium when they legally
+retire from Tencent. Incumbent employees who have served the Company for over 5 years will be provided with
+long-term health insurance. Incumbent employees who have worked for over 10 years will be given customised
+souvenirs and an additional 10-day leave. Incumbent employees who have worked for over 15 years will be offered
+lifetime health insurance and the option to retire early with a retirement package. Employees who have worked for
+over 20 years will receive a tailor-made commemoration gift package and customised employee badge.
+We have put in place housing benefit programmes, namely the Tencent Anju Plan and Yiju Plan. Since 2011,
+Tencent Anju Plan has provided interest-free loans to certain employees in the Mainland of China, where the
+skyrocketing property price misinformation has placed a lot of pressure on first-time home buyers. The Yiju Plan,
+launched in 2016, provides recent graduates with a rental subsidy to help reduce their financial burden as they
+start their careers. In 2021, we raised the upper limit of interest-free loans under the Tencent Anju Plan and
+increased the rental subsidy under the Tencent Yiju Plan.
+Under our leave scheme, employees can enjoy fully-paid annual leave and sick leave, half-paid personal leave,
+and a fully-paid Chinese New Year leave, which are above the statutory standards. New fathers and mothers are
+entitled to take fully-paid paternity or maternity leave. For parents with children under the age of three, our updated
+leave scheme provides fully-paid parental leave each year. In addition, all employees are entitled to one day of
+fully-paid volunteer leave per year.
+Environmental, Social and Governance Report
+126 Tencent Holdings Limited
+The primary benefits system complies with the relevant laws, regulations, and current market practices. On this
+basis, we offer a well-established and distinctive welfare programme for employees.
+We offer our employees an equitable and competitive compensation and benefits package. It aims to attract,
+motivate, and retain talents as they develop their long-term career with the Company. Our remuneration and bonus
+system, which includes salary, special and year-end bonuses, and share option and share reward schemes, is
+performance-based and designed to reward employees for their outstanding performance.
+Compensation and Benefits
+In 2021, we received the annual China's Best Employer Award organised by Zhaopin and Peking University Social
+Survey Research Centre, and the Most Caring Employer for Women Award by Lagou.com, a popular job-seeking
+platform in China.
+We provide applicants and employees access to grievance procedures, where job applicants can raise issues
+related to discrimination through surveys after interviews, and employees can report workplace discrimination
+through email and our internal grievance platform. In case of such a report, an independent investigation will
+follow, and remedies will be implemented accordingly.
+We support employees who are starting a family with appropriate benefits, including maternity/paternity leave,
+breastfeeding leave, parental leave, flexible working hours, maternity allowance and family insurance.
+Our corporate culture supports diversity and inclusion. Employees and management are provided with cross-
+cultural training and workshops. To foster a community where women can be empowered by each other, we have
+launched the Women's Leadership and Empowerment initiative, which calls on outstanding female employees to
+share their stories in the workplace. In 2021, we collaborated with the United Nations Development Programme
+("UNDP") to produce inspiring videos and articles about women in the technology industry. By the end of 2021,
+25% of our managerial positions were held by female employees. We are committed to inspiring and promoting
+women in leadership across multiple functions and management levels.
+In addition to regulatory requirements, the protection of human rights and fundamental freedoms have been
+codified and enforced through our internal policies, including the Sunshine Code. We condemn and prohibit
+discrimination against any employees and job applicants on the basis of their nationality, race, religion, sex (sexual
+orientation and gender identity), age, or disability.
+Equality, Diversity and Inclusion
+00
+Environmental, Social and Governance Report
+125
+Annual Report 2021
+We value our relationship with our employees and handle employee departure strictly in accordance with the
+applicable local laws and regulations. An exit interview is conducted with each departing employee to understand
+the reasons for their departure and where we can improve as an employer.
+We engage with our employees through various communication channels, including annual gatherings, internal
+forums and emails. Our objective is to foster a culture where employees are encouraged to freely express their
+views. We also respond and address employees' concerns throughout their career development and learning
+process. Every year, we conduct a company-wide anonymous employee engagement and satisfaction survey
+through an independent third-party agency. Based on the survey analysis, our Human Resources Department
+works with managers to develop action plans to strengthen the overall performance and development accordingly.
+In 2021, a total of 46,437 employees responded to the annual survey, which revealed greater engagement and
+overall satisfaction rates. The top three aspects employees were most satisfied with were "Culture/Values", "Tech
+for Good", and "Company's Future Development". For three consecutive years, “Culture/Values" received the
+highest recognition from our employees, scoring over 85% satisfaction rate.
+Our employment practice complies with relevant national and regional legislations such as the Labour Law of the
+People's Republic of China on working hours, training, social insurance and welfare, and health and safety. We
+offer a flexible work schedule for our employees so that they can achieve greater work-life balance and autonomy.
+We strictly prohibit child labour and any forms of forced labour. All applicants are asked to provide proof of their
+educational backgrounds, qualifications, and work experiences. To ensure the legitimacy of the information, a due
+diligence agent will review and verify the details. Our Group Procurement Department requires suppliers to sign
+the Corporate Social Responsibility Commitment and operate in accordance with our requirements concerning
+child labour and forced labour. In the case of any violation of the rules, measures and investigations will be taken
+immediately in accordance with the applicable laws and regulations. In 2021, there were no violations related to
+child labour and forced labour.
+Annual Report 2021
+Environmental, Social and Governance Report
+Annual Report 2021 129
+We are committed to supporting the well-being of our employees. To prevent accidents and reduce occupational
+hazards in the workplace, we have established a framework that complies with international guidelines, applicable
+laws, and regulations, such as the Guidelines on Occupational Health and Safety Management Systems by the
+International Labour Organisation and Law of the People's Republic of China on the Prevention and Control of
+Occupational Diseases. We have employed a Safety Management Policy and Public Emergency Management
+Policy.
+7.3 Health and Safety
+In 2021, we increased the transparency of the review process by encouraging colleagues to attend promotion
+presentations given by individuals from similar professions. We believe the events can help employees develop a
+deeper understanding of relevant career trajectories and requirements.
+In case of disagreement on the performance and promotion assessment results, employees can appeal through
+our grievance procedure and request a re-assessment via our independent internal promotion management
+platform.
+Employees may apply for promotion after their interim and year-end performance reviews, provided that they
+satisfy the requirements with regard to the length of service and performance. Depending on the work scope, the
+promotion will be reviewed and considered by the relevant internal committee.
+To encourage continuous growth and development, employees receive regular objective and fair assessments
+regarding their performance. A merit-based incentive and performance management system are in place to
+streamline our assessment processes and ensure consistency across the Company. Employees are expected to
+write their self-evaluation twice per year, followed by comprehensive feedback provided by their direct supervisor.
+In addition to the bi-annual evaluation, we encourage supervisors to communicate with their subordinates regularly
+in order to help employees grow and succeed.
+Performance Evaluation and Promotion
+Tencent Academy invited experts to share their knowledge on scientific innovation, technology, and product design
+at the Tencent Technology Week in October 2021 and Tencent Design Week in December 2021, as well as other
+professional events. We believe that these opportunities can inspire and help employees gain new perspectives
+for their personal growth. In the spirit of sharing, we have an internal interactive platform for senior employees
+or domain experts to share their experiences with employees. To promote capacity building within our industry's
+value chain, we have made some of our training resources available to certain business partners and investee
+companies.
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+128
+00
+To help employees of different positions address various professional needs, Tencent Academy offers courses on
+products, operational skills, technology, data analysis, marketing, design, risk management, customer engagement,
+and many more. As of 2021, Tencent Academy has offered 784 types of courses, of which 111 of them were
+recently added. These courses were offered all year round and added up to 12,000 classes in total. The average
+training hours and participation rate were over 40 hours and 99.61% respectively.
+Established in 2007, Tencent Academy runs a suite of training programmes such as on-boarding, on-the-job
+training and leadership training to support employees at every stage of their careers. As employees gradually gain
+work experience and promotion opportunities, we offer them a curated series of relevant courses to complement
+their development and learning goals. The Academy also offers employees qualification programmes and monetary
+rewards for those who have successfully obtained certifications. In addition to on-site training, Tencent Academy
+also provides an online learning platform that enables employees to learn anytime, anywhere.
+Training Programmes
+We have also built a mechanism for employees who wish to pursue a new direction in their careers within
+Tencent's diverse business portfolio. Huoshui Programme ("HSP"), an internal talent transfer portal, was launched
+in 2012. Employees can apply for a role across various functions and regions after their first year of employment. In
+2021, HSP facilitated over 4,000 internal transfers. It greatly boosted the vitality of the Company as it brought more
+talents from different backgrounds to our core products and fast-growing businesses. For those who are planning
+to relocate to another city or country, HSP can be an alternative option for them without leaving the Company. Our
+effective talent allocation programme was used as a case study by the Harvard Business School previously and
+was included in the case library of Tsinghua School of Economics and Management in 2021.
+There are two internal career development channels, namely a professional channel and a management channel.
+The professional channel branches out to multiple fields of expertise, and each field further diversifies into various
+development paths with built-in tiers of seniority. The management channel is more streamlined. Our employees
+can choose to take the development channel that is most suitable for their career at Tencent. These approaches
+enable our employees to develop their careers in a thoughtful manner and be recognised for their contributions to
+the Company.
+Career Path System
+We provide a career development system and professional training for our employees as they build their careers
+at Tencent. In 2019, we updated our Employee Career Development Management Policy to better support the
+development of our employees.
+7.2 Growth and Development
+127
+Labour Practices
+7.1 Rights and Benefits
+Employees are the most valuable asset of Tencent. We believe that fostering a sustainable working environment and
+investing in the development of our employees are crucial to maintaining the long-term competitiveness of the Company.
+Our employment practices comply with the United Nations Declaration of Human Rights, as well as applicable local laws
+and regulations in the markets where we operate.
+GHG inventory includes carbon dioxide, methane and nitrous oxide. GHG emissions data as at 31 December 2021 is
+presented in carbon dioxide equivalent. The GHG calculation methodology has been updated based on the 2006 IPCC
+Guidelines for National Greenhouse Gas Inventories issued by the Intergovernmental Panel on Climate Change ("IPCC"),
+the IPCC Fifth Assessment Report, and the provincial electricity emission factors published by the Ministry of Ecology and
+Environment of China.
+3.
+We expand the 2021 reporting scope of our environmental performance to cover all office buildings and data centres in
+the Mainland of China and Hong Kong within our operational control. Leased data centres that we do not have operational
+control are excluded. The reporting scope of 2020 covered only the main office buildings and main data centres in the
+Mainland of China. We adjusted the reporting scope to align with industry best practices; such an adjustment is the
+primary driver against the year-on-year increases of the environmental performance reported, while another key driver is
+the organic growth of our businesses.
+Due to the nature of the business, the material air emissions of the Company are GHG emissions, arising from fuels and
+purchased electricity produced from fossil fuels.
+2.
+1.
+Note:
+Environmental, Social and Governance Report
+123
+Annual Report 2021
+1
+Number of LEED certified data centres
+11.07
+887,700
+LEED certified office space (m²)
+Water consumption per unit of revenue (tonnes/RMB Million)
+6,201,652
+Water consumption (tonnes)2,12
+1.32
+Average PUE in data centre¹l
+2,334
+On-Site renewable energy (MWh)
+4.
+5.
+The adjusted Scope 2 emissions in 2020 is 1.71 million MtCO2e by applying the 2021 reporting scope.
+Scope 3 emissions are calculated based on broad-based assumptions with emission factors published in the UK
+Government GHG Conversion Factors for Company Reporting and EPA Emissions & Generation Resource Integrated
+Database. The carbon footprint of leased data centres both in China and international markets, where we do not have
+operational control, is included in Scope 3 accounting.
+OUR PEOPLE
+Data regarding packaging materials are not applicable to the Company.
+Water supply mainly comes from the municipal water supply and there is no issue in sourcing water. In January 2021,
+we upgraded our capability in water management at our office buildings with the introduction of the Tencent Facility
+Management system, which allowed us to track, record and analyse water consumption data every month. This upgrade
+will lay a solid foundation for our expanded reporting scope in the future. Comparable historical numbers are not available
+as we have only partly collected data at some of our leased sites, where the water usage was managed by third-party
+property management companies in 2020.
+13.
+12.
+PUE of data centres is a ratio of the total energy consumption to the energy consumption of IT equipment. During the
+reporting period, the annual average PUE is calculated by considering all data centres within our operational control that
+have operated for more than 12 months with a minimum utilisation rate of 30%.
+11.
+Environmental, Social and Governance Report
+7.
+Tencent Holdings Limited
+Renewable energy purchased (MWh)
+124
+The adjusted total indirect energy consumption in 2020 is 3,128,144 MWh by applying the 2021 reporting scope.
+10.
+Diesel is consumed by backup power generators.
+9.
+Total energy consumption is calculated based on the data of purchased electricity and fuel with reference to the
+coefficients in the National Standards of the PRC General Principles for Calculation of the Comprehensive Energy
+Consumption (GB/T 2589-2020).
+8.
+In 2021, we reported the actual weight of garbage collected at our office buildings and have enhanced waste accounting
+for non-hazardous wastes. The garbage in 2020 was estimated with reference to the Handbook on Domestic Discharge
+Coefficients for Towns in the First Nationwide Census on Contaminant Discharge published by the State Council of the
+People's Republic of China in 2008. Non-hazardous wastes produced by data centres mainly includes obsolete servers.
+Hazardous wastes produced at office buildings mainly includes waste toner cartridges and waste ink cartridges from our
+printers. Hazardous wastes produced by data centres mainly includes waste lead-acid accumulators and destroyed hard
+drive components.
+7.
+6.
+00
+Environmental, Social and Governance Report
+We consider the green aspects of our self-built data centres, beginning from site selection, design and technologies
+to operations and management systems. Each data centre implements the applicable resource conservation and
+emission regulation measures outlined in its Operational Policy, which includes reducing GHG emissions, water
+consumption, and the process to handle hazardous and non-hazardous waste appropriately. In terms of energy
+conservation, we implemented the following measures:
+In the spirit of enhancing internal anti-trust scrutiny, we have upgraded and optimised our anti-monopoly
+compliance system. In accordance with the latest anti-trust legislation, law enforcement and judicial
+practices, we made revisions to the 2016 Corporation Fair Competition Guidelines and upgraded it to the
+Group's Anti-trust Compliance Guidelines in 2021. For instance, the updated Guidelines provide more
+specific compliance guidance for different business scenarios by referring to typical cases published by the
+authorities.
+Environmental, Social and Governance Report
+Annual Report 2021 135
+In 2021, five directors participated in either the Audit Committee meeting, internal audit committee meeting, other
+internal meetings, or study the Sunshine Code related online video courses to learn about the Risk Management
+Policy, anti-fraud policies and measures, anti-corruption related laws and regulations, the Sunshine Code, as well
+as internal corruption cases.
+In order to educate our employees about anti-corruption behaviours, we have provided them with mandatory
+training on our Sunshine Code. We promote anti-corruption through emails, elevator pitch videos, and other
+internal communication channels. In 2021, we updated the Sunshine Code related online video courses and
+required the participation of all employees of the Group. For new hires and employees in sensitive positions,
+we have provided them with a total of 76 face-to-face anti-fraud training courses, covering more than 10,000
+participants. In 2021, 100% of our employees have received anti-corruption training.
+All employees of the Group are required to strictly follow and comply with the Sunshine Code. It prohibits all kinds
+of fraudulent activities, bribery, embezzlement, misappropriation of the Company's assets, extortion, falsification
+of information and any other activities that are not in compliance with the applicable laws and regulations. The
+Sunshine Code is reviewed annually and updated against the ever-changing needs of the Group as appropriate.
+That way, it could cater to our business development, reflect the applicable laws and regulations, and capture all
+kinds of fraudulent activities. Our Sunshine Code was further enhanced in 2021 to (i) strengthen the enforcement
+and punishment of Code violations, and (ii) revise the conflict-of-interest parameters.
+Sunshine Code and Anti-Corruption Training
+The Risk Management Policy sets out the roles and responsibilities of different stakeholders in risk management
+and control (including those in relation to fraud). Such Policy emphasises that each business group is primarily
+responsible for its department's risk management and internal control. If any fraudulent activity is detected, the
+management of the relevant department shall improve their control procedures promptly to prevent the recurrence
+of similar incidents. In 2021, our Anti-Fraud Investigation Department found more than 50 cases in violation of
+Tencent's "high voltage line". Approximately 70 people have been dismissed, amongst which more than 10 people
+suspected of crimes have been reported to relevant government authorities in accordance with applicable laws and
+regulations.
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+00
+134
+Through the three lines of defence, we regularly provide targeted risk control training for employees from different
+positions and businesses to enhance their overall awareness of risk management.
+The third line of defence is made up of the IA and the Anti-Fraud Investigation Department. The IA is highly
+independent and responsible for providing independent evaluation and assurance regarding the effectiveness
+of the Company's risk management and internal control system. It supervises the management team and
+helps them improve their risk management and internal monitoring capability. The Anti-Fraud Investigation
+Department is responsible for receiving reports from various channels and investigating suspected fraud
+cases. It also assists the management in advocating integrity values by ensuring all employees understand
+and fully acknowledge the Sunshine Code. Both the Internal Audit and the Anti-Fraud Investigation
+Departments report directly to the Audit Committee.
+The second line of defence comprises of the IC. It establishes a list of major risks at the business level by
+collecting, summarising, analysing various data, and ensuring that appropriate risk response strategies and
+monitoring measures have been taken. The management first reviews the information. Then, it is submitted
+to the Audit Committee for further revision before reporting to the Board. The IC performs timely analysis
+and evaluation on the response to major risks and reports the results to the Audit Committee quarterly. The
+Board entrusts the Audit Committee to (i) assess the nature and extent of the risks the Company is willing to
+accept to achieve its corporate objectives, (ii) determine the major risk response strategies and responsible
+departments, and (iii) promote the implementation of the response strategies from top-down, supported by
+the IC.
+The first line of defence consists of business and functional departments. We provide targeted training and
+guidance for relevant employees to help them identify potential risks in their daily work and report such risks
+to their superiors.
+•
+•
+In 2016, we updated the Risk Management and Internal Control Policy (the "Risk Management Policy") and
+established a system comprising of three risk management lines of defence.
+Risk Management and Internal Control Policy
+Environmental, Social and Governance Report
+00
+Anti-Fraud and Whistleblowing Policy
+We have published an Anti-Fraud and Whistleblowing Policy (the "Whistleblowing Policy"), which conveys the
+message of our zero-tolerance in relation to fraudulent activities for all the employees and suppliers/business
+partners. The Group encourages employees and suppliers/business partners to report any concerns that they may
+have regarding any non-compliant or potentially fraudulent activities. The Whistleblowing Policy outlines multiple
+whistleblowing channels and our whistle-blower protection system. We protect the safety of whistle-blowers by
+ensuring that they do not receive unfair treatment or any form of retaliation during the process. Since 2016, we
+have used our Weixin Official Account, "Sunshine Tencent" to raise employee's awareness of anti-fraud policies
+and whistleblowing channels and provide our suppliers/business partners a means to file a formal report directly.
+Employees, suppliers/business partners and other stakeholders can also report other violations (including but not
+limited to employees' misconduct, deception, disclosure of trade secrets, or other breaches of business ethics)
+through our open channels. We encourage the informants to leave their contact information so that we can conduct
+follow-up investigations and provide them with updates on the progress. We guarantee that anonymous reports
+that provide adequate information will be dealt with seriously. We guarantee the confidentiality of the submitted
+information and the informant's identity and take measures to protect the informant from retaliation.
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+138
+00
+In terms of organisational structure, in 2021, we set up a specialised Anti-Monopoly Compliance Department
+("AMCD") that reports regularly to the senior management. The AMCD coordinates with relevant teams
+and resources to strengthen our anti-trust compliance. The AMCD's work scope includes (i) providing anti-
+monopoly compliance advice on daily operation, (ii) conducting merger filings, (iii) following up with the
+domestic and global anti-monopoly legislation, rule-making progress, enforcement and judicial initiatives and
+analysing impacts on the operation, (iv) training on anti-trust compliance, and (v) actively cooperating with
+anti-trust regulators' requirements, if any. Our AMCD works closely with different business groups and other
+stakeholders to continuously improve the formulation and implementation of the relevant compliance policies
+and mechanisms (including but not limited to the daily compliance initiatives and merger filings). We aim to
+strengthen our anti-trust compliance and help maintain a fair and competitive environment.
+Establish a new specialised compliance department and strengthen daily compliance initiatives
+•
+In 2021, we further enhanced our anti-trust compliance system, which focuses on the following three main areas:
+We advocate fair competition and have issued the Corporation Fair Competition Guidelines since 2016. It contains
+a comprehensive introduction to the Anti-monopoly Law of the People's Republic of China, the implementing
+regulations, and the enforcement practices. It also sets out compliance requirements corresponding to our
+business practices. It serves as the basic guide to assist relevant employees in following the rules of fair competition
+and conducting business activities in conformity with these laws and regulations. In 2016, we established a
+Competition Policy Office, a specialised department with professional lawyers in charge of anti-trust compliance
+matters. To the best of our knowledge, we are among the first in the industry to establish such a specialised
+department.
+We are committed to competing in a fair way and respecting the relevant anti-trust laws and regulations of the
+jurisdictions where we operate our business. In China, we are committed to complying with the Anti-monopoly Law
+of the People's Republic of China, which took effect on 1 August 2008, the Anti-monopoly Guidelines of the Anti-
+monopoly Commission of the State Council on Platform Economy promulgated on 7 February 2021, and other
+antitrust-related laws, regulations and guidelines.
+8.2 Anti-Trust
+Environmental, Social and Governance Report
+137
+Annual Report 2021
+Our IC has established a procurement management control unit to optimise the Group's Supplier Management
+System. Through the centralised system, the bidding process can be more standardised and transparent. The
+Supplier Management System also provides communication channels for suppliers to collect their feedback or
+complaints. Fraud complaints will be directly transferred to the Anti-Fraud Investigation Department for follow-
+up. The goal is to ensure that suppliers' complaints and concerns can be resolved in a timely manner, thereby
+minimising the risk of fraud.
+Our stance against fraud is clear. In order to convey a message regarding our determination to fight against fraud
+and introduce our Whistleblowing Policy externally, we sent a letter to our suppliers and business partners and
+requested them to complete a questionnaire annually since 2015. The questionnaire delineates our corporate
+values, the Whistleblowing Policy and various reporting channels. By doing so, we learn from our suppliers and
+business partners whether our employees have requested any gifts, cash, or other benefits and whether they have
+been mistreated during the course of business. Upon receiving the feedback, we ensure that the questions or
+concerns raised by our suppliers and our business partners are addressed promptly. The Anti-Fraud Investigation
+Department will commence a formal investigation when necessary.
+With the Management Policy for Sensitive Positions (the "Management Policy") in place, we strengthened the
+construction of the Company's integrity system by improving our corporate governance standards and supervision
+requirements on risk management and internal control. The Management Policy also defines which positions
+are regarded as sensitive, including those that are involved in procurement (supplies, services, and resources),
+marketing, channel sales and resource management, external events, evaluation and selection of potential
+partners, pricing, resource allocation, key decision-making and other high-risk duties. Corresponding management
+measures are taken for these positions, including requiring regular job rotation, stripping sensitive responsibilities,
+participating in various risk management training. The Management Policy also stipulates that the IA reserves the
+right to audit all sensitive personnel positions and may conduct audits on current or former personnel in sensitive
+positions at any time.
+Environmental, Social and Governance Report
+136 Tencent Holdings Limited
+When suspected fraudulent activities are discovered or when a report of suspected fraudulent activities is
+received, the Anti-Fraud Investigation Department (consisting of professionals who used to be a part of the anti-
+corruption function at a governmental authority or private enterprise and have profound knowledge in fraud risk
+management and investigation) is assigned to handle the investigation independently. After the investigation has
+been completed, the employee found and proven to have committed fraud shall be subject to immediate dismissal.
+The department in question must, with the assistance of the IC, take corrective actions in response to the business
+risk or loophole identified during the investigation. If we find that any suppliers or business partners have engaged
+in serious corruption or fraudulent activities, we will terminate the contracts immediately and will never conduct
+business with them. In the event that any fraudulent activity violates any relevant laws or regulations, such cases
+shall be reported to appropriate government authorities. In 2021, we received the results of the four corruption-
+related cases (including cases we transferred in previous years) that we have transferred to the authorities. Six
+employees who were involved were dismissed and have faced criminal punishment. Because these cases were
+discovered and handled in time, they did not incur much impact on the Company's business. After the occurrence
+of these cases, according to the Sunshine Code, the direct and indirect managers of the employees involved bore
+the management responsibilities and consequences, such as reprimand, decrease in performance appraisal rating,
+demotion, dismissal and termination of labour contract. Relevant departments have also taken effective internal
+control measures to prevent similar cases from recurring.
+Fraud Detection and Corruption Prevention
+133
+Annual Report 2021
+According to the Law Against Unfair Competition in the PRC, business operators shall not use monies, assets,
+or other means to bribe an entity or individuals to obtain transaction opportunities or competitive advantage.
+According to the Criminal Law of the People's Republic of China, corruption and bribery may constitute a serious
+criminal offence. We strictly comply with the local anti-corruption and bribery laws and regulations.
+We have developed robust systems and measures to prevent, detect, and deter corruption, bribery, or other
+fraudulent activities while promoting integrity. High-risk business activities and management are subject to periodic
+audits to assess the effectiveness of the internal control system and ensure the Group complies with the ethical
+standards that we strive to uphold.
+Under 30
+30 to 50
+Male
+Female
+Number of employees by employment type
+Number of employees by management level
+Number of employees by geographic region
+Number of employees by age group
+Number of employees by gender
+Total number of employees¹
+Indicators
+As at
+Environmental, Social and Governance Report
+Employment Performance
+Employment Data Summary
+Tencent Holdings Limited
+130
+Environmental, Social and Governance Report
+To maintain a safe and comfortable workplace, we have a security system, fire safety system, and food safety
+monitoring system in place. We invite third parties to conduct security risk audits on our premises every year to
+identify hardware defects and deficiencies in the operation management system and address other hidden risks.
+We attend to the health and well-being of our employees by investing in various resources, including annual
+medical check-ups, health seminars, fitness and mindfulness sessions, on-site as well as in-person counselling for
+physical and mental health, and 24-hour telephone support from relevant professionals.
+We also organise a wide variety of recreational clubs, such as running, photography, music, dance, language
+classes, and celebratory activities, including work anniversaries and festival celebrations for our employees.
+Wherever feasible, we reserve dedicated spaces for recreational facilities on our campuses. For example, in our
+Shenzhen Headquarters, we have built a 300-meter running track, an indoor rock-climbing wall, table tennis
+tables, pool tables, a badminton court and a basketball court.
+There are various kinds of insurance available for employees, including social insurance, commercial medical
+insurance, critical illness insurance, accident insurance, life insurance, and many more.
+We formulate detailed emergency plans for fire safety, natural disasters, personal injury and other life-threatening
+events, and conduct regular drills and simulation tests. In response to medical emergencies in the workplace,
+we have formed an internal emergency rescue team and provided employees with first-aid training. We have
+approximately 400 automated external defibrillators ("AED") across our 50-plus offices and data centres. In 2021,
+our internal first-aid team hosted 150 in-person first-aid training sessions for 5,498 participants and provided
+online first-aid training courses to 13,838 participants.
+Above 50
+•
+The Mainland of China
+Other countries and regions
+Management
+Non-management
+Formal employees
+Other categories²
+8.1 Anti-Corruption
+We uphold the value of integrity, proactivity, cooperation, and creativity in our business operation. We comply with all
+applicable laws and regulations to ensure sustainable development. To achieve business stability, we uphold ourselves to
+the business ethics and practise risk prevention and control.
+8. OPERATING PRINCIPLES AND PRACTICES
+Note: Training refers to in-person and online courses offered by the Company to employees.
+39.53
+Non-management
+55.52
+3,117
+65,109
+62,107
+6,119
+1,077
+243
+66,906
+198
+39,420
+28,608
+19,820
+48,406
+68,226
+31 December 2021
+Hong Kong, Macao and Taiwan
+Update anti-trust compliance guidelines for business
+00
+•
+The relatively high number of lost working days in 2019 was mainly due to the significant recovery time that we had
+provided to the employees with fractures.
+4.
+The rate of work-related injuries = (Number of recordable work-related injuries / Number of hours worked) * 1,000,000 * 100%.
+Work-related fatality rate = (Total number of work-related fatalities / Total number of employees) * 100%.
+3.
+2.
+The data refers to the work-related deaths and injuries from accidents reported by Tencent's Human Resources team and
+verified by local relevant government authorities. In the Mainland of China, such cases, if any, are reported to the Human
+Resources Department and verified by the Human Resources and Social Security Bureau.
+1.
+Note:
+1,0584
+281
+480
+0.21
+0.27
+0.25
+(number of injuries / million of hours worked)³
+Working days lost due to work-related injury (days)
+Rate of work-related injuries
+Number of injuries
+18
+28
+32
+00
+0
+132
+Training Performance
+Management
+Average training hours of employees by management level
+44.12
+Female
+39.68
+Male
+Average training hours of employees by gender
+99.60%
+Non-management
+99.79%
+Management
+Percentage of employees trained by management level
+99.59%
+Female
+99.63%
+Male
+31 December 2021
+Percentage of employees trained by gender
+Indicators
+As at
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+Over the past year, COVID-19 outbreaks resurged globally, bringing suffering to people and forcing local economies
+to a halt. We continue to closely monitor the pandemic and inform employees to quarantine or work from home, if
+needed. Surgical masks, hand disinfectants and personal protective equipment are provided at our offices, and to
+employees in need. A continuously updated Tencent COVID-19 Response Guideline is used to provide guidance on
+office management and promote anti-pandemic awareness among employees. We apply strict practices to ensure
+a safe working environment, including enhanced cleaning and sanitation procedures, temperature monitoring,
+social distancing, and other measures that can minimise transmission risks.
+0
+0
+Employee turnover rate by geographic region
+19.39%
+Above 50
+10.89%
+14.59%
+13.53%
+11.90%
+Male
+12.37%
+30 to 50
+Under 30
+Female
+Employee turnover rate by age group
+Employee turnover rate by gender
+Total turnover rate³
+Annual Report 2021 139
+The Group strictly abides by applicable laws and regulations related to anti-money laundering ("AML") and
+counter-terrorist financing (“CTF") in the PRC and other countries and regions in which we provide payment
+processing services. We monitor regulatory changes and respond in a timely manner by engaging in legal
+interpretation, gap analysis and training, as well as with the assistance of external consultants. We fulfil all relevant
+regulatory obligations under such applicable rules and regulations including but not limited to the Anti-Money
+Laundering Law of the People's Republic of China and Administrative Measures for Anti-Money Laundering and
+Anti-Terrorism Financing of Payment Institutions.
+8.3 Anti-Money Laundering
+In the future, Tencent will continue to actively engage with the regulatory authorities and comply with relevant anti-
+trust laws and regulations.
+We continue to strengthen the relevant compliance training across the Group. The training scheme aims
+to continually enhance employees' awareness around anti-trust law compliance. We have also invited
+professionals to host anti-trust related seminars to further advocate anti-trust compliance.
+Strengthen anti-trust compliance training and advocacy
+The Mainland of China
+0
+12.32%
+15.61%
+0
+0
+2019
+2020
+2021
+Work-related fatality rate (%)²
+Number of work-related fatalities¹
+Indicators
+Health and Safety Performance¹
+Environmental, Social and Governance Report
+131
+Annual Report 2021
+Employee turnover rate = (Number of formal employees who left during the reporting year / Number of formal employees
+at the end of the reporting year) * 100%. Employee turnover reflects the number of formal employees who have left (due
+to voluntary resignations, dismissals, retirement).
+Other categories refer to consultants and interns engaged in the businesses directly operated and managed by the
+Company.
+The scope of employees includes the number of formal employees and employees of other categories in the businesses
+directly operated and managed by the Company.
+3.
+2.
+1.
+Note:
+15.00%
+Other countries and regions
+Hong Kong, Macao and Taiwan
+Environmental, Social and Governance Report
+•
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+146
+00
+We are committed to a privacy-conscious culture and making the protection of user privacy our top priority. We
+believe that ensuring privacy is a shared responsibility for all Tencent employees, regardless of their roles or ranks
+at Tencent. We regularly provide comprehensive and company-wide privacy education and awareness training
+programmes to all our employees. These programmes are designed to provide employees with an understanding
+of general privacy and data protection considerations, including "Privacy Protection in Design" and "Privacy
+Protection by Default," how to build privacy-centric user interfaces, how to identify privacy issues in mergers and
+acquisitions, how to respect the rights of data subjects and handle related requests, and the risks of cross-border
+data transfers. We systematically communicate our privacy protection and cybersecurity guidelines and procedures
+to all employees and strictly enforce safeguards across our products and services at all levels.
+Culture and Responsibility
+Tencent has comprehensive systems in place to empower our teams to respond rapidly and effectively to all types
+of information security incidents, including attacks from attrition, ransomware, the web, email, impersonation,
+improper usage, system outages and deletion, loss, or theft of data. Our main goals are to continuously ensure the
+cybersecurity of our platforms, to protect the information entrusted to us by users, and to ensure our operations
+meet the applicable laws and regulations. We also use various incident analysis mechanisms and risk protocols to
+ensure that Tencent responds appropriately and swiftly to any threat detected.
+Incident Management
+Our privacy protection policy is also published on the product's official website and app, which is also accessible
+on the Tencent Privacy Protection Platform. Users can also submit complaints or make inquiries through the
+feedback button on the website, app and privacy feedback email (Dataprivacy@tencent.com).
+As part of our privacy-focused work, we regularly undertake Privacy Impact Assessments ("PIAS") for our products
+and services. These PIAS evaluate the privacy-related risks of our products and services in the relevant jurisdictions
+where we operate. Our dedicated privacy legal team is trained to identify, highlight, and manage privacy risks,
+minimise potential impacts to individual rights, and address other adverse privacy issues.
+Privacy Impact Assessments and follow-up
+Environmental, Social and Governance Report
+145
+Annual Report 2021
+Our Data Protection Officer undertakes the related responsibilities according to laws, including communicating
+with regulators and providing advice to management on related compliance requirements in different jurisdictions.
+The Data Protection Officer is supported by a team of qualified privacy protection professionals and is available
+to address any questions regarding Tencent's privacy practices, or any product-specific privacy policy, at
+Dataprotection@tencent.com.
+"Data" refers to user data we safeguard with our thorough and cutting-edge cybersecurity technology and
+management protocols. Our round-the-clock Security Platform Department comprises some of the world's
+leading data security experts who collaborate with external security researchers and partners worldwide
+through our online Tencent Security Response Centre Platform to create a more robust and secure digital
+environment. Together, these provide world-class threat monitoring, defence, and response mechanisms to
+safeguard user data and enable prompt detection and remedy of security incidents.
+"Button" symbolises a reminder of our commitment to providing users with the ability to manage their data in
+an easy, seamless fashion - like the click of a button. Our products and services generally include a privacy
+control suite or centre where users are empowered to access their data, obtain a copy of their data, request
+for deletion of their data, or for its migration, in accordance with applicable laws.
+"Person" refers to how the needs of our users are central to everything we do. Core to this is the notion of
+transparency and our commitment to letting users know how their data is used. Privacy remains our highest
+priority in all that we do. Users can manage their personal data, and we facilitate this in line with applicable
+laws and regulations. We only collect the minimum amount of data required to power our products and
+services. We do not provide users' data to third parties without a clear legal basis, and users are informed as
+to what data is shared, how it is shared, and with whom it is shared.
+Our approach to data protection follows the widely recognised "Privacy by Design" concept, which dictates that
+all our products and services are designed with privacy protection from the outset and that we continuously think
+about privacy protection throughout the product lifecycle. Our approach to "Privacy by Design" is encapsulated in
+three words: "Person-Button-Data".
+We believe that users should be able to manage their own data. Therefore, our products and services are designed
+to the maximal extent that restricts the collection of and access to user data by Tencent or anyone else. While
+using our products and services, users can manage the scope and extent to which their data is collected, used,
+and shared. These features have been researched, designed, and implemented over many years in order to protect
+users' privacy and allow them to directly manage their data.
+Approach and Procedures
+Environmental, Social and Governance Report
+Tencent Holdings Limited
+144
+00
+The Board and Management have always attached great importance to the protection of our users' personal data.
+Tencent's Management is committed to a privacy-first governance approach and has institutionalised a robust
+internal evaluation process to ensure that all products are fully assessed to comply with all applicable data privacy
+laws and that all data collected are securely transmitted and stored. From top-down, to bottom-up, data privacy is
+an organisational effort.
+Oversight
+141
+4
+Whenever possible and subject to applicable laws, we are transparent with our users in the actions that
+we take in response to valid legal requests, to provide affected users with an opportunity to respond to the
+request; and
+Environmental, Social and Governance Report
+In September 2021, we established the Security Technology Committee to enhance the internal coordination of
+security technologies development and application. We have also strengthened the comprehensive systems by
+applying various incident analysis mechanisms and risk protocols, enabling us to respond to various information
+security threats and incidents appropriately and swiftly.
+149
+Annual Report 2021
+Besides the measures on healthy gameplay, we also pay close attention to the usage habits of the Minors in our
+entertainment and social products. We launched “underage mode" in a number of products, including but not
+limited to Tencent Video, Weishi, and Weixin, or developed alternative versions of these products suitable for
+Minors. When the "underage mode" is activated by the guardian or the minor in Tencent Video and Weishi, viewers
+will have their screen time set on a limit and reminded to take breaks. In addition, we updated Weixin in 2021
+with a variety of functions to protect Minors, including (i) parental control over their children's access to videos,
+subscriptions and Mini Programmes; (ii) curated content for teenagers in Weixin Video Accounts; (iii) closed live
+broadcast portal to Minors, where they are not allowed to initiate a live broadcast or use the tipping function within;
+and (iv) disabled access to Q coins top-up, credit card repayment and other services that are not suitable for
+Minors.
+In the fourth quarter of 2021, total time spent by Minors reduced by 88% year-on-year and contributed 0.9%
+of the total time spent on our Domestic Games. Total grossing receipts from Minors reduced by 73% year-
+on-year and contributed 1.5% of the total grossing receipts of our Domestic Games.
+Minors can only play games between 8-9 pm on Fridays, Saturdays, Sundays, and statutory holidays since
+1 September 2021. Industry-leading measures were taken to prevent Minors from using adult accounts.
+For example, we (i) upgraded our screening system to identify misused adult accounts; and (ii) proactively
+cracked down on illegal transactions of adult accounts; and
+Prevented in-game spending by players aged under 12 since August 2021;
+Introduced the strictest measures in the industry, with mandatory real-name verification and limits on game
+time and spending in September 2018;
+Pioneered a system for parents to manage their children's playtime in February 2017;
+•
+•
+•
+As one of the leading companies in the game industry, Tencent is committed to creating a healthy game-playing
+environment for many years. In China, we work with the industry to explore various measures for building a healthy
+game-playing environment for Minors. We have implemented the real-name system and anti-addiction system in
+accordance with the regulatory requirements of the PRC. We have also leveraged various advanced technologies
+within the industry to further enhance our protection system for Minors. In recent years, we have introduced the
+following measures:
+Environmental, Social and Governance Report
+148 Tencent Holdings Limited
+00
+Tencent has always attached great importance to protecting and promoting the healthy development of Minors,
+which can be demonstrated through our products and services. We utilise technological innovations to upgrade
+the protection system for Minors and create a series of programmes to support their growth and development. With
+the Law of the People's Republic of China on the Protection of Minors that came into effect in June 2021, which
+stipulates the responsibilities and obligations of internet service providers, we have rolled out Minors protection
+programmes in our various products and fully implemented such measures as required.
+Protection of Minors
+9.3 User Protection
+We apply our internal best practices in data security to Tencent Cloud's security products and services, including
+the intelligent gateway, cloud firewall, DDoS (distributed denial-of-service) protection, network intrusion protection,
+and anti-fraud. It has achieved all-rounded security by identifying and deploying protection measures on physical
+security, virtualisation security, network security, host security, data security, application security, business
+security, security audit and security management. With the evolution of cloud computing and security technologies,
+Tencent Cloud will continue to build an efficient security internal control system, enhance security compliance
+capabilities, and upgrade cloud security and big data security standards.
+Tencent Cloud has established an efficient internal control system and strengthened its foundation in data security
+from the aspects of system process and control activities. Our Cloud Security Management System has also
+received accreditations globally.
+Tencent Cloud
+Environmental, Social and Governance Report
+Annual Report 2021 147
+"Percentage of the total number of products sold or shipped subject to recalls for health and safety reasons” and “recall procedures"
+are not closely relevant to the Company's main businesses.
+We provide a variety of security solutions for enhancing users' account security. We continue to conduct self-
+assessment, optimisation and standardisation of our financial products in accordance with applicable laws
+and regulations, including the Measures for the Supervision and Administration of Publicly-offered Securities
+Investment Fund Distributors, the Circular on Standardising the Retrospective Administration of Online Insurance
+Sales Practices, and the Measures for the Regulation of Internet Insurance Business. Our risk control system
+provides real-time monitoring 24/7 to ensure the safety of account funds. Users will be informed of any changes in
+the amount of funds immediately via mobile phone messages, email, and other means.
+FinTech
+We keep the personal information of users collected and used during the provision of our services strictly
+confidential and shall not leak, distort, damage, sell or illegally provide such information to others. We establish
+and improve the user information protection system by hierarchically managing the access rights of internal staff to
+ensure data security and prevent any leakage, damage, or loss of information. We provide an easy-to-use channel
+for employees to look up the Company's data security policy through internal communication tools to timely confirm
+whether their behaviour meets the Company's security policy requirements. When employees discover potential
+data security violations, they can report the cases through the internal communication tools or reporting system;
+once the violations are verified, the Company will take strict disciplinary measures, including but not limited to
+notice of criticism and corresponding punishment. We provide privacy protection and data security training to all
+employees, including full-time, part-time and interns, to instill a long-term data security protection culture.
+9.2 Data Security4
+We respond to valid legal requests consistently and fairly across all jurisdictions where we offer our products
+and services, subject to applicable laws and regulations and our interpretation of potential differences
+between jurisdictions;
+We carefully review all requests to ensure that we comply with all applicable laws and regulations in our
+response, while respecting our users' rights. That may include taking sufficient internal and third-party
+professional advice.
+Tencent acts in accordance with applicable laws and follows the following general principles whenever we receive
+requests to disclose data from government agencies and regulators:
+•
+.
+•
+We adhere to the following principles for user privacy protection and data security:
+Security, autonomy, compliance, and transparency laid the foundation of our privacy protection policy. Tencent is
+privacy-focused on every level. Our dedicated privacy and legal teams work hand-in-hand with our product teams
+to ensure that our products and services are built with privacy in mind from the ground up, and comply with all
+applicable laws and regulations. Our product teams also work together with our engineering teams to ensure that
+our data collection and use practices for products and services are transparent, and that users have control over
+how their data is used.
+Management Approach
+At Tencent, user privacy and data security are our highest priorities. We believe that protecting the data privacy of
+our users is essential to creating a safe and market-leading user experience, and that users should be in control of
+their data and be well-informed of our data policies and practices. Our belief has followed through to our adoption
+of "Privacy by Design" and "Privacy by Default" when developing our products and services.
+9.1 User Privacy
+Tencent Holdings Limited
+142
+00
+We strive to provide the best user experience with high-quality and reliable products and services. We focus our efforts
+on protecting data security and user privacy, product health and safety, customer complaints, advertising content and IP
+rights. We also conduct strict reviews of our products and services offered and related sales, marketing and advertising
+strategies and materials to ensure compliance with applicable laws and regulations.
+•
+PRODUCT RESPONSIBILITY
+4,865
+1,711
+32,439
+31 December 2021
+As at
+Other countries and regions
+Hong Kong, Macao and Taiwan
+The Mainland of China
+Number of suppliers by geographical region
+Number of Suppliers
+Suppliers, which the Group Procurement Department formally engages with, are also required to sign a Corporate
+Social Responsibility Commitment. It is a declaration that covers labour rights, child labour-free and forced labour-
+free practices, health and safety, and environmental protection. We prioritise environmentally friendly products and
+services when selecting suppliers related to office buildings. We have required all property management companies
+of our self-owned office buildings to obtain the ISO 14001 environmental management system certification, which
+has been checked by the Administrative Department every year.
+9.
+Note: The "number of suppliers" refers to the number of active suppliers in the supplier database during the reporting period,
+and the "geographical region" refers to the place where the suppliers were registered.
+Annual Report 2021
+•
+Supplier evaluation: We regularly evaluate the performance of our suppliers and take appropriate steps
+to address any issues concerning the quality of the suppliers. For underperforming suppliers, subject
+to applicable contractual arrangements, we may (i) discuss with them about their remedial plans, (ii)
+suspend the cooperation, (iii) reduce the order volume, (iv) impose penalties, or (v) suspend payment. The
+Procurement Department may disqualify a supplier for the following events when (i) we suffer from material
+economic losses due to the delayed delivery, quality issue, or breach of contract by the supplier; (ii) the
+supplier has received the lowest rating on the rating scale for two consecutive quarters, and (iii) the supplier
+is in serious breach of business ethics.
+Environmental, Social and Governance Report
+Annual Report 2021 143
+Tencent complies with all applicable privacy protection and data security laws and regulations in the jurisdictions
+we operate. To ensure the Company's products and business processes comply with the regulatory requirements,
+we monitor the relevant regulations and laws in China and international markets closely, implement such new
+requirements and upgrade our know-how in a timely manner.
+Integrate privacy protection into product design.
+•
+Clarity and transparency. We strive to introduce the privacy policy on data processing to users in easy-to-
+understand language.
+Reasonability and necessity. We only collect necessary data to provide better services to users.
+Protect communication secrets. We strictly abide by laws and regulations, protect users' communication
+secrets and provide secure communication services.
+Independent choice. We provide convenient data management options for users to make appropriate choices
+and manage personal data.
+Environmental, Social and Governance Report
+In view of the complex legal and regulatory compliance landscape across multiple jurisdictions, we continue to
+improve our money laundering risk management.
+Security and reliability. We work to prevent user data leakage, damage and loss through reasonable and
+effective data security technology and management.
+In 2021, we updated our policy and released the second version of Tencent's Minimum Standards for
+Anti-Money Laundering and Sanctions Compliance. The revised standard closely follows domestic and
+global regulatory requirements and trends. It also re-examines the AML control measures based on the
+development of the Group's business and products.
+•
+•
+We have also published the Tencent Anti-Money Laundering Policy Statement and the Tencent Sanctions Policy
+Statement on the Corporate Governance page of the Company Website.
+Supplier selection: We have an internal policy that sets out the procedures and mechanisms for supplier
+onboarding. The Procurement Department looks for qualified suppliers in the market and evaluates offers
+based on the duration of the cooperation, order volume, and nature of the request. In principle, we will
+ask for price quotations from at least three vendors whilst considering factors such as the delivery time,
+operational and technical capabilities, and environmental and social responsibilities. If there is only one
+vendor available for selection as it dominates the relevant market or it is the only vendor with access to the
+required goods or services, the particular procurement arrangement will require special approval along with
+a sufficient and reasonable justification. Before engaging with a supplier, we will conduct due diligence,
+including qualification checks and site visits on the supplier. The findings and evaluation will be reported to
+the Procurement Department for final decision.
+•
+The online Supplier Management System is used for managing qualified suppliers and the procurement lifecycle.
+It covers the aspects of finding and selecting suppliers, evaluating supplier performance, and terminating the
+engagement of suppliers. All details are recorded within the system.
+The Group's Anti-Money Laundering and Sanctions Compliance Department is responsible for (i)
+coordinating the management of money laundering and sanctions risk at the Group level for all businesses,
+(ii) fulfilling AML and sanctions requirements under relevant laws and regulations, and (iii) managing and
+promoting the implementation of various AML and sanctions initiatives.
+Having a sustainable supply chain is one of the fundamental factors for ensuring long-term business growth. We
+have formulated the Tencent Supplier Management Policy together with the Supplier Management System to
+provide effective and standardised management of our suppliers.
+8.4 Supply Chain Management
+The Supplier Management Policy stipulates the requirements and practices for supplier legal and regulatory
+compliance, supplier selection and evaluation. The Policy is also set to manage the ethical risks associated with
+the relationships between our procurement employees and business partners. The Policy and the Sunshine Code
+specify standardised processes for procurement employees when engaging in procurement activities. Suppliers
+are required to declare any relationship they may have with our employees in written form. Suppliers must agree
+to the terms of the Anti-Commercial Bribery Declaration, which requires suppliers to conduct business with the
+Company in an ethical manner. As of 31 December 2021, all suppliers have been required to comply with the
+Tencent Supplier Management Policy, and all suppliers in the Mainland of China have been required to sign the
+Anti-Commercial Bribery Declaration.
+Tencent Holdings Limited
+140
+00
+In 2021, we sought strict compliance with all applicable AML and sanctions requirements and promoted initiatives
+under the framework of the Tencent's Minimum Standards for Anti-Money Laundering and Sanctions Compliance.
+We will continue to (i) increase staffing and better equip the team via on-the-job and professional training
+periodically; (ii) improve and update our internal system and processes to comprehensively address all applicable
+regulatory requirements; (iii) periodically carry out assessments on our systems and processes to enhance the
+implementation of AML and sanctions compliance, including customer and product risk assessment, transaction
+monitoring and suspicious transaction report compliance assessment, and list management systems inspection;
+(iv) deepen cooperation with authorities to fight against money laundering and terrorist financing; and (v) actively
+participate in international AML and CTF events to exchange industry best practices.
+Environmental, Social and Governance Report
+Aspect B8:
+•
+Anti-Corruption
+OPERATING PRINCIPLES AND PRACTICES
+Anti-Corruption
+General Disclosure
+COMMUNITY
+Community Investment
+Governance Structure
+B8.2
+COMMUNITY
+Community Investment
+COMMUNITY
+• Charity Donation
+Volunteering
+Annual Report 2021
+OPERATING PRINCIPLES AND PRACTICES
+B8.1
+Anti-Corruption
+B5.3
+Anti-Corruption
+Environmental Performance Summary
+ENVIRONMENT
+A1.3
+Environmental Performance Summary
+Tackling Climate Change
+ENVIRONMENT
+A1.2
+Environmental Performance Summary
+ENVIRONMENT
+A1.1
+ENVIRONMENT
+General Disclosure
+COMPILATION ILLUSTRATION
+Emissions
+Aspect A1:
+Reporting Boundary
+COMPILATION ILLUSTRATION
+MATERIALITY
+ESG GOVERNANCE STRUCTURE
+BOARD STATEMENT
+Sections in this Report
+Environmental, Social and Governance Report
+Responsible Content and Internet Community
+According to the relevant national laws and regulations, and agreements such as Wexin Software License and
+Service Agreement, Wexin Official Accounts Platform Service Agreement and QQ Software License and Service
+Agreement, if users spread unlawful information through Wexin personal account, Wexin Official Accounts, QQ and
+Qzone, once found and proven, the platform will remove the unlawful content and take actions upon the relevant
+accounts (such as warning, blocking and limiting some functions of the account). We continue to optimise the audit
+standards and inspection mechanism of Mini Programmes and Mini Games access. We conduct reviews and tests
+in accordance with legal and regulatory requirements on the developers and their submitted application contents
+for gaining access to the Mini Programmes and Mini Games platform. Developers who offer services that involve
+special industries, such as medical, finance and games, shall provide corresponding qualifications and approval
+documents. If the developers fail to provide the relevant certificates, their request to publish their Mini Programmes
+and Mini Games onto the platform will be consequently denied. We manage the platform in accordance with the
+above-mentioned relevant agreements and platform rules, and take timely actions upon receiving users' complaints
+and reports, as well as taking corresponding measures for developers who fail to operate legally. We attach great
+importance to educating our users on various risk prevention topics, such as internet pornography and fraud
+through the "Weixin Safety Centre", "QQ Security Centre" official accounts and other official channels. Weixin and
+QQ each provides a mechanism for users to report any false or improper content published on their platforms. We
+continue to improve the efficiency of handling users' complaints regarding infringement and promote access to the
+reporting channels. We also provide guidance to users on filing complaints and reports on any violations of laws
+and regulations, or violations of their legitimate rights and interests through prescribed channels on our platforms.
+In 2021, Tencent released 3,189 articles on dispelling misinformation, which has been viewed more than 310
+million times.
+In order to help the silver generation and other vulnerable groups gain better access to the mobile internet, for
+instance, Wexin and a number of products launched the "Easy Mode" in 2021, which offers big text fonts, large
+icons and high contrast colours to enhance their product experience.
+00
+150
+Tencent Holdings Limited
+A1.4
+ENVIRONMENT
+Environmental Performance Summary
+A1.5
+ENVIRONMENT
+Environmental Performance Summary
+ENVIRONMENT
+. Environmental Performance Summary
+ENVIRONMENT
+Energy Management
+ENVIRONMENT
+Sections in this Report
+A2.5
+A2.4
+A2.3
+A2.2
+A2.1
+Environmental, Social and Governance Report
+General Disclosure
+Use of Resources
+Aspect A2:
+Disclosure Requirements
+Environmental Targets
+Tencent Holdings Limited
+156
+00
+• Waste Management
+A1.6
+ENVIRONMENT
+Environmental Targets
+Tackling Climate Change
+ENVIRONMENT
+Environmental, Social and Governance Report
+Responsible Advertising
+According to the Advertising Law of the People's Republic of China and the Interim Measures for Administration of
+Internet Advertising, advertising operators and advertising publishers shall verify all relevant business documents
+pursuant to laws and administrative regulations and verify the advertising contents. We review the advertising
+contents strictly in accordance with the above laws and regulations and require clients who intend to use the
+Tencent Marketing Solution platform to publish advertisements to ensure the legality of the advertising content.
+They must also show that they have valid qualifications to publish relevant advertisements and that the advertising
+contents are proven to be genuine. After the review is approved, we conduct checks on the advertising content to
+ensure its compliance through our automatic inspection system which is equipped with multiple capabilities along
+with our professional inspectors. Once violations of laws and regulations or relevant rules of Tencent Marketing
+Solution are found, we will take measures, such as refusing the release of illegal advertising materials, removing
+illegal advertisements from the platforms, requiring the violator to bear liability for breach of contract. Meanwhile,
+we strive to better protect the rights and interests of users and comply with the requirements of current laws and
+regulations; for that, we continue to establish and improve the compliance assessment regarding the advertising
+business, promote training and advocacy for employees and partners, enhance system capabilities so as to
+continuously strengthen our compliance with the relevant laws for the advertising business. In 2021, the Group
+strictly complied with the applicable laws and regulations.
+9.4 Customer Service
+10.2 Charity Donation
+Initiated and operated by the Tencent Charity Foundation, Tencent Fundraising Platform is a public donation and
+information platform open to qualified public charities for free. The platform uses internet technology and social
+media to connect public charity organisations with internet users, enterprises and the media to build an interactive,
+dynamic and transparent philanthropic online network. In 2021, Tencent Fundraising Platform supported over
+26,000 public welfare projects in the Mainland of China and raised a total of RMB5.45 billion.
+The Group has donated in 2021 a total of RMB1.513 billion, in cash and materials, to Tencent Charity Foundation
+(the Mainland of China) and RMB7.888 billion since 2007.
+10.3 Volunteering
+Over the last decade, the Tencent Volunteer's Association has been involved and contributed to the areas of online
+charity, promotion of unhindered Internet access, information technology popularisation, cybersecurity, emergency
+support, poverty relief, environmental protection, care for the elderly and children with special needs, as well as
+animal protection.
+As of 31 December 2021, the Tencent Volunteers' Association has participated in approximately 200,000 hours of
+voluntary services from approximately 18,000 volunteers.
+Since April 2012, volunteers were granted one day of fully-paid leave per year. From 1 January 2022, a new
+matching donation programme will come into effect. For every donation our employee makes, the Company
+will match a donation to the same amount. For every qualified hour of voluntary work our employee serves, the
+Company will donate RMB100 correspondingly.
+00
+154
+Tencent Holdings Limited
+Environmental, Social and Governance Report
+ESG APPENDIX 1. COMPILATION ILLUSTRATION
+This ESG report is prepared in accordance with the ESG Reporting Guide. This report also references selected disclosures
+from the GRI standards and the SASB standards. It also applies the disclosure recommendations developed by the TCFD
+for climate-related disclosure in accordance with the Stock Exchange's requirements. For more details about our ESG
+performance, please refer to the standalone ESG report to be disclosed on the Company's website: www.tencent.com/esg.
+Environmental, Social and Governance Report
+PricewaterhouseCoopers has been commissioned by the Company to conduct a limited assurance on the selected ESG KPIs
+in accordance with the International Standard on Assurance Engagements - Assurance Engagements Other than Audits or
+Reviews of Historical Financial Information (ISAE) 3000 (Revised). For more details regarding the assurance process and the
+complete assurance report, please refer to the standalone ESG report to be disclosed on the Company Website.
+The report is aligned with the principles of "materiality", "quantitative", "balance" and "consistency" as follows.
+Materiality: We have conducted a detailed materiality assessment to identify and evaluate key ESG issues that are most
+important to our business as well as our internal and external stakeholders. The information gathered from the materiality
+assessment was then used to determine the disclosure content of this report. For details of the materiality assessment, please
+refer to the chapter titled "Materiality".
+Quantitative: We disclose measurable environmental and social KPIs and set quantitative performance targets where
+applicable. The measurement standards, methodologies, assumptions and/or calculation tools of the KPIs in this report, as well
+as the source of the conversion factors used, have been explained in the corresponding context (where applicable).
+Balance: This report aims to provide a balanced representation of the Group's ESG efforts around the environment, our people,
+operating principles and practices product responsibility and community.
+Consistency: This year's ESG report has been prepared with the same method used in previous years. Changes that may affect
+a meaningful comparison with previous reports have been explained in the corresponding section.
+The ESG report is to be read together with this annual report, in particular the Corporate Governance Report within this annual
+report, the ESG standalone report, as well as the section headed "ESG" on our Company's website.
+Should
+you have any questions, please contact us at ESG@tencent.com.
+Annual Report 2021
+155
+Environmental, Social and Governance Report
+ESG APPENDIX 2. ESG INDICATOR INDEX
+Disclosure Requirements
+During the process of identifying the scope of the reporting boundary, we ensure that the report reflects our ESG impact and
+performance. Unless otherwise specified, the report covers the ESG performance of the business activities directly operated
+and managed by the Company during the reporting period from 1 January 2021 to 31 December 2021.
+• Energy Management
+Annual Report 2021 153
+To ensure our community investments carry a long-term impact, we engage with experts on various social or
+environmental topics to better understand the needs of different communities. We have explored and developed
+various tools and systems that are related to social investment, so as to guide and manage our investment and
+evaluate impacts in the following ways: (i) identify opportunity and problem to solve within key issue areas; (ii)
+design solutions and partner with right stakeholders; (iii) monitor and evaluate performance to ensure outcome and
+impact; and (iv) advocate and scale evidence-based solutions to enable system change.
+Internet services
+We have established an accessible and effective mechanism for our internet service for receiving and handling
+feedback/complaints via our open reporting channels. Product Departments of the Company learn about users'
+opinions through online surveys, questionnaires, social media platforms, phone calls with users and regular
+product researches. We incorporate their suggestions accordingly during product design and product optimisation.
+Our Customer Service Department is responsible for handling and answering customers' complaints and inquiries
+about our business. In 2021, Tencent customer service assisted approximately 470 million users and provided
+services approximately 2.28 billion times. Regarding users' complaints received during our provision of services,
+a dedicated team under Customer Service is responsible for conducting a comprehensive investigation of the
+incident and providing solutions to the user. In 2021, a total of 2,009,210 user complaints were received, 99%
+of the complaints were handled within three working days. In terms of the business types, there were 1,238,395
+complaints related to games, accounting for 61.6%, 171,955 complaints related to payment, accounting for 8.6%,
+289,661 complaints related to social networks, accounting for 14.4%, and 309,199 complaints related to other
+businesses, accounting for 15.4%.
+Annual Report 2021
+151
+Environmental, Social and Governance Report
+Cloud Services
+Tencent provides global leading cloud computing, big data, Al and other technological products and services
+to government agencies, corporations and individual developers. The Cloud Technology Operation Service
+Department is supported by a professional team responsible for customer's pre-sales, after-sales, technical delivery
+consultation and complaint handling.
+With the expansion of Tencent Cloud business, the scale of services undertaken by Tencent Cloud has also
+increased year by year, with 4.76 million number of services in 2021. In response to the users' complaints received
+during our provision of service, Tencent Cloud has set up a dedicated handling team and a comprehensive process
+to provide satisfactory solutions to better protect the rights of its users. In 2021, 320 complaints were received from
+users and 85% of the complaints were handled within seven days.
+9.5 Intellectual Property
+Tencent protects the intellectual property rights of third-party platforms and its own platforms via our team of
+dedicated intellectual property enforcement attorneys who are committed to fighting infringement.
+Our dedicated IP team is mainly responsible for the day-to-day management of legal matters involving
+trademark, patent, copyright, domain names and other IP rights. We began a comprehensive programme for
+the management of IP since the early stages of our establishment, and have regularly applied for the registration
+of IP rights. With the development of our business, we have expanded our global IP portfolio to cover more
+than 100 countries and regions. As of 31 December 2021, we have obtained over 36,000 officially registered
+trademarks and over 24,000 issued patents. Coupled with our creation of a vast amount of copyrighted content,
+we have accumulated IP assets of considerable value. Our IP team has developed a comprehensive database
+for our patents, trademarks and copyrights, and our strong data analytical skills enable us to manage and
+monitor our IP rights in a meticulous and efficient manner. To combat infringement of IP rights, our IP team has
+also established a comprehensive and efficient monitoring and maintenance system and has devised various
+enforcement policies and measures to protect our IP rights. Please see further details on the Company's website
+(https://www.tencent.com/legal/html/en-us/property.html).
+00
+In addition, Tencent has also developed technologies and solutions for social well-being, including but not limited
+to developing mobile applications suitable and helpful for the silver generation, creating affordable and effective
+hearing-aid devices for the hearing impaired, designing programmes to inspire creativity and teach coding skills.
+152
+Environmental, Social and Governance Report
+Major laws and regulations we follow include:
+Trademark Law of the People's Republic of China amended on 23 April 2019;
+Patent Law of the People's Republic of China amended on 17 October 2020;
+•
+•
+Copyright Law of the People's Republic of China amended on 11 November 2020; and
+The Administrative Measures for Internet Domain Names issued on 24 August 2017 and implemented on
+1 November 2017, which specifies rules on the ownership, protection period, registration method and legal
+responsibility of trademark, patent, copyright and domain names.
+10. COMMUNITY
+Tencent is always thinking about how we can assist social development through the synergistic efforts of our people,
+platforms and technologies.
+10.1 Community Investment
+In April 2021, the Company established its SSV division, which is a new core engine that drives sustainable
+innovation for social value. With the initial funding of RMB50 billion, SSV division will promote social value
+innovation in areas, including (i) research in basic sciences, (ii) education innovation, (iii) rural revitalisation, (iv)
+carbon neutrality, (v) primary healthcare, (vi) philanthropic platform, (vii) assisting with public emergencies, (viii)
+technologies enabling the silver generation, (ix) enhanced accessibility for communities with activity limitation,
+and (x) digitalisation of culture. In August, we further dedicated another RMB50 billion to fund the "Common
+Prosperity" initiatives in China. This will be mainly used to support low-income communities, improve health
+care coverage, help rural economic development, and promote grassroots education. As of the end of 2021, SSV
+division had spent a total of RMB695 million on the above initiatives.
+Tencent Holdings Limited
+•
+Environmental Targets
+ENVIRONMENT
+Environmental, Social and Governance Report
+Supply Chain Management
+OPERATING PRINCIPLES AND PRACTICES
+Supply Chain Management
+Tencent Holdings Limited
+158
+00
+B5.4
+OPERATING PRINCIPLES AND PRACTICES
+Reporting Principles
+Supply Chain Management
+OPERATING PRINCIPLES AND PRACTICES
+B5.2
+Disclosure Requirements
+Supply Chain Management
+Supply Chain Management
+B5.1
+Supply Chain Management
+Aspect B5:
+OPERATING PRINCIPLES AND PRACTICES
+General Disclosure
+Rights and Benefits
+OUR PEOPLE
+Rights and Benefits
+•
+OUR PEOPLE
+B4.2
+B4.1
+OPERATING PRINCIPLES AND PRACTICES
+Labour Standards
+Sections in this Report
+General Disclosure
+B7.3
+B7.2
+B7.1
+Anti-corruption
+OPERATING PRINCIPLES AND PRACTICES
+General Disclosure
+Aspect B7:
+User Privacy
+PRODUCT RESPONSIBILITY
+Company's main business
+The "recall procedures" is not closely relevant to the
+User Protection
+Data Security
+Aspect B6:
+•
+.
+PRODUCT RESPONSIBILITY
+Intellectual Property
+PRODUCT RESPONSIBILITY
+Customer Service
+Not closely relevant to the Company's main businesses
+PRODUCT RESPONSIBILITY
+B6.5
+B6.4
+B6.3
+B6.2
+B6.1
+Product Responsibility
+PRODUCT RESPONSIBILITY
+User Privacy
+OPERATING PRINCIPLES AND PRACTICES
+Aspect B4:
+General Disclosure
+Employment Data Summary
+OUR PEOPLE
+B1.2
+Employment Data Summary
+OUR PEOPLE
+B1.1
+OUR PEOPLE
+General Disclosure
+Tackling Climate Change
+Tackling Climate Change
+ENVIRONMENT
+A4.1
+•
+ENVIRONMENT
+Annual Report 2021 157
+ENVIRONMENT
+Aspect B1:
+Climate Change
+General Disclosure
+Aspect A4:
+A3.1
+The Environment and Natural Resources
+General Disclosure
+Aspect A3:
+ENVIRONMENT
+Not closely relevant to the Company's main businesses
+Environmental Targets
+Water and Other Emission Management
+•
+Employment
+OUR PEOPLE
+Environmental, Social and Governance Report
+Sections in this Report
+Employment Data Summary
+OUR PEOPLE
+Employment Data Summary
+•
+OUR PEOPLE
+B3.2
+B3.1
+Development and Training
+Aspect B3:
+Growth and Development
+OUR PEOPLE
+General Disclosure
+Health and Safety
+Disclosure Requirements
+OUR PEOPLE
+•
+OUR PEOPLE
+Employment Data Summary
+•
+OUR PEOPLE
+B2.3
+B2.2
+B2.1
+Health and Safety
+Health and Safety
+OUR PEOPLE
+General Disclosure
+Aspect B2:
+Employment Data Summary
+159
+12(a)
+In respect of the impairment assessments of cash
+generating units that contain goodwill, investments
+in associates and investments in joint ventures using
+discounted cash flows, we assessed the key assumptions
+adopted including revenue growth rates, profit margins,
+discount rates and other assumptions by examining
+the approved financial/business forecast models, and
+comparing actual results for the year against the previous
+period's forecasts and the applicable industry/business data
+external to the Group. We assessed certain of these key
+assumptions with the involvement of our internal valuation
+experts. We considered that the key assumptions adopted
+by management were in line with our expectation and
+evidence obtained.
+We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including
+International Independence Standards) issued by the International Ethics Standards Board for Accountants ("IESBA Code"),
+and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code.
+Independence
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
+We conducted our audit in accordance with International Standards on Auditing ("ISAS"). Our responsibilities under those
+standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
+of our report.
+BASIS FOR OPINION
+Independent Auditor's Report
+160 Tencent Holdings Limited
+00
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group
+as at 31 December 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended
+in accordance with International Financial Reporting Standards ("IFRSS") and have been properly prepared in compliance with
+the disclosure requirements of the Hong Kong Companies Ordinance.
+Our opinion
+the notes to the consolidated financial statements, which include significant accounting policies and other explanatory
+information.
+the consolidated statement of cash flows for the year then ended; and
+the consolidated statement of changes in equity for the year then ended;
+•
+the consolidated statement of comprehensive income for the year then ended;
+KEY AUDIT MATTERS
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
+consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
+these matters.
+Key audit matters identified in our audit are summarised as follows:
+We tested, on a sample basis, key controls in respect of the
+recognition of revenue from sales of virtual items, including
+management's review and approval of (i) determination of
+the estimated lifespans of new virtual items prior to their
+launches; and (ii) changes in the estimated lifespans of
+existing virtual items based on periodic reassessment on
+any indications triggering such changes. We also assessed
+the data generated from the Group's information system
+supporting the management's review, tested the information
+system logic for generation of reports, and checked, on
+a sample basis, the monthly computation of revenue
+recognised on selected virtual items generated directly from
+the Group's information system.
+We discussed with management and evaluated their
+judgments on key assumptions in determining the
+estimated lifespans of the virtual items that were based on
+the expected users' relationship periods.
+How our audit addressed the Key Audit Matter
+We focused on this area due to the fact that management
+applied significant judgments in determining the expected
+users' relationship periods for certain virtual items. These
+judgments included (i) the determination of key assumptions
+applied in the expected users' relationship periods, including
+but not limited to historical users' consumption patterns, churn
+rates and reactivity on marketing activities, games life-cycle,
+and the Group's marketing strategy; and (ii) the identification
+of events that may trigger changes in the expected users'
+relationship periods.
+During the year ended 31 December 2021, majority of the
+Group's revenue from value-added services was contributed by
+online games and was predominately derived from the sales of
+virtual items.
+The Group recognises revenue from sales of virtual items to
+the users in respect of value-added services rendered on the
+Group's online platforms. The relevant revenue is recognised
+over the lifespans of the respective virtual items determined by
+the management, on an item by item basis, with reference to
+the expected users' relationship periods or the stipulated period
+of validity of the relevant virtual items, depending on the terms
+of the virtual items.
+Refer to Notes 2.28(a), 4(a) and 5(b) to the consolidated
+financial statements
+•
+Revenue recognition on provision of online games value-added
+services - estimates of the lifespans of virtual items
+Independent Auditor's Report
+161
+Annual Report 2021
+Fair value measurement of financial instruments, including financial assets at fair value through profit or loss, financial
+assets at fair value through other comprehensive income and other financial liabilities
+Impairment assessments of goodwill, investments in associates and joint ventures
+Revenue recognition on provision of online games value-added services - estimates of the lifespans of virtual items
+•
+Key Audit Matter
+We assessed, on a sample basis, the expected users'
+relationship periods adopted by management by testing
+the data integrity of historical users' consumption patterns
+and calculation of the churn rates. We also evaluated the
+consideration made by management in determining the
+underlying assumptions for expected users' relationship
+periods with reference to historical operating and marketing
+data of the relevant games. We also assessed, on a
+sample basis, the historical accuracy of the management's
+estimation process by comparing the actual users'
+relationship periods for the year against the original
+estimation for selected virtual items.
+• the consolidated income statement for the year then ended;
+•
+19
+10
+Share of (loss)/profit of associates and joint ventures, net
+Finance costs, net
+184,237
+271,620
+Operating profit
+(67,625)
+(89,847)
+8
+(33,758)
+(40,594)
+57,131
+149,467
+7
+(7,114)
+(7,887)
+(16,444)
+3,672
+The consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries (the "Group"), which
+are set out on pages 169 to 310, comprise:
+What we have audited
+OPINION
+(incorporated in the Cayman Islands with limited liability)
+TO THE SHAREHOLDERS OF TENCENT HOLDINGS LIMITED
+Independent Auditor's Report
+Profit for the year
+the consolidated statement of financial position as at 31 December 2021;
+160,125
+(19,897)
+(20,252)
+11
+Income tax expense
+180,022
+248,062
+Profit before income tax
+227,810
+00
+162
+Tencent Holdings Limited
+concern.
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit
+evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
+on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
+to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
+disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
+date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
+disclosures made by the directors.
+Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal
+control.
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
+or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
+and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
+fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
+misrepresentations, or the override of internal control.
+•
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
+throughout the audit. We also:
+Independent Auditor's Report
+Tencent Holdings Limited
+166
+00
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
+from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report
+our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to
+any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee
+that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can
+arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
+influence the economic decisions of users taken on the basis of these consolidated financial statements.
+AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as
+a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
+unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
+disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
+manner that achieves fair presentation.
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
+within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
+supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
+Equity holders of the Company
+Non-controlling interests
+160,125
+23.597
+16.844
+12(b)
+23.164
+16.523
+The notes on pages 180 to 310 are an integral part of these consolidated financial statements.
+The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and
+fair view in accordance with IFRSS and the disclosure requirements of the Hong Kong Companies Ordinance, and for such
+internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are
+free from material misstatement, whether due to fraud or error.
+Annual Report 2021
+2,988
+159,847
+224,822
+- diluted
+- basic
+of the Company (in RMB per share)
+Earnings per share for profit attributable to equity holders
+169
+RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
+FINANCIAL STATEMENTS
+If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
+required to report that fact. We have nothing to report in this regard.
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
+in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
+knowledge obtained in the audit or otherwise appears to be materially misstated.
+Impairment assessments of goodwill, investments in associates
+and joint ventures (continued)
+Key Audit Matter
+Independent Auditor's Report
+163
+Annual Report 2021
+Management adopted different valuation models, on
+a case by case basis, in carrying out the impairment
+assessments, mainly including discounted cash flows
+and market approach. We assessed, on a sample basis,
+the basis management used to identify separate groups
+of cash generating units that contain goodwill, the
+impairment approaches and the valuation models used in
+management's impairment assessments, which we found
+to be appropriate.
+We also tested, on a sample basis, key controls in respect
+of the impairment assessments, including the determination
+of appropriate impairment approaches, valuation models
+and assumptions and the calculation of impairment
+provisions, where we found no material exceptions.
+How our audit addressed the Key Audit Matter
+We tested management's assessment including periodic
+impairment indications evaluation as to whether indicators
+of impairment exist by corroborating with management and
+market information.
+We focused on this area due to the magnitude of the carrying
+amounts of these assets and the fact that significant judgments
+were required by management (i) to identify whether any
+impairment indicators existed for any of these assets during the
+year; (ii) to determine the appropriate impairment approaches,
+i.e. fair value less costs of disposal or value in use; and (iii) to
+select key assumptions to be adopted in the valuation models,
+including discounted cash flows and market approach, for the
+impairment assessments.
+As at 31 December 2021, the Group held significant amounts
+of goodwill, investments in associates and joint ventures
+amounting to RMB112,173 million, RMB316,574 million and
+RMB6,614 million, respectively. Impairment of RMB8,702
+million, RMB15,391 million and RMB904 million had
+been provided for against the carrying amounts of goodwill,
+investments in associates and investments in joint ventures,
+respectively, during the year ended 31 December 2021.
+Refer to Notes 2.12(a), 2.14, 4(b), 20, 21 and 22 to the
+consolidated financial statements
+Impairment assessments of goodwill, investments in associates
+and joint ventures
+Key Audit Matter
+Independent Auditor's Report
+We found that the results of our procedures performed to
+be materially consistent with management's assessment.
+How our audit addressed the Key Audit Matter
+6,957
+00
+Attributable to:
+Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
+assurance conclusion thereon.
+The directors of the Company are responsible for the other information. The other information comprises all of the information
+included in the annual report other than the consolidated financial statements and our auditor's report thereon.
+OTHER INFORMATION
+Independent Auditor's Report
+Annual Report 2021 165
+We involved our internal valuation experts to discuss with
+management and assess the appropriateness of valuation
+methodology and assumptions used. We tested, on a
+sample basis, valuation of Level 3 financial instruments
+as at 31 December 2021 by evaluating the underlying
+assumptions and inputs including risk-free rates, expected
+volatility, relevant underlying financial projections, and
+market information of recent transactions (such as recent
+fund raising transactions undertaken by the investees)
+as well as underlying supporting documentation. We also
+tested, on a sample basis, the arithmetical accuracy of
+the valuation computation. We found that the valuation
+methodology of Level 3 financial instruments was
+acceptable and the assumptions made by management
+were supported by available evidence.
+In respect of the fair value measurement of Level 3 financial
+instruments, we tested the key controls, on a sample basis,
+in relation to the valuation process including the adoption
+of applicable valuation methodology and the application
+of appropriate assumptions in different circumstances, by
+inspection of the evidence of management's review, where
+we found no material exceptions.
+164 Tencent Holdings Limited
+How our audit addressed the Key Audit Matter
+As at 31 December 2021, the Group's financial assets and
+financial liabilities which were carried at fair value mainly
+comprised financial assets at fair value through profit or loss,
+financial assets at fair value through other comprehensive
+income and other financial liabilities of approximately
+RMB202,757 million, RMB250,257 million and RMB2,802
+million, respectively, of which approximately RMB193,591
+million of these financial assets and approximately RMB2,444
+million of these financial liabilities were measured based on
+significant unobservable inputs and classified as "Level 3
+financial instruments".
+Refer to Notes 3.3, 4(c), 24, 25 and 39 to the consolidated
+financial statements
+Fair value measurement of financial instruments, including
+financial assets at fair value through profit or loss, financial
+assets at fair value through other comprehensive income and
+other financial liabilities
+Key Audit Matter
+Independent Auditor's Report
+We independently tested, on a sample basis, the accuracy
+of mathematical calculation applied in the valuation models
+and the calculation of impairment charges. We did not
+identify any material exceptions from our testing.
+In respect of the impairment assessments of cash
+generating units that contain goodwill, investments in
+associates and investments in joint ventures using market
+approach, we assessed the valuation assumptions including
+the selection of comparable companies, recent market
+transactions, and liquidity discount for lack of marketability,
+etc. We assessed these key assumptions adopted by
+management with the involvement of our internal valuation
+experts based on our industry knowledge and independent
+research performed by us. We considered that the key
+assumptions adopted by management were in line with our
+expectation and evidence obtained.
+We focused on this area due to the high degree of judgment
+required in determining the respective fair values of Level 3
+financial instruments, which do not have direct open market
+quoted values, with respect to the adoption of applicable
+valuation methodology and the application of appropriate
+assumptions in the valuation.
+227,810
+6,650
+245,944
+RMB'Million
+2020
+RMB'Million
+Note
+2021
+Year ended 31 December
+For the year ended 31 December 2021
+Consolidated Income Statement
+Tencent Holdings Limited
+168
+00
+Hong Kong, 23 March 2022
+Certified Public Accountants
+PricewaterhouseCoopers
+The engagement partner on the audit resulting in this independent auditor's report is Tong Yu Keung.
+From the matters communicated with those charged with governance, we determine those matters that were of most
+significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
+matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the
+matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
+because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
+communication.
+We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
+regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
+bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
+We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
+audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
+Independent Auditor's Report
+Annual Report 2021 167
+221,532
+Revenues
+Value-added Services
+278
+FinTech and Business Services
+Online Advertising
+(260,532)
+(314,174)
+482,064
+560,118
+6 18 00
+General and administrative expenses
+Selling and marketing expenses
+Other gains, net
+Interest income
+58
+Cost of revenues
+7,495
+7,685
+128,086
+172,195
+82,271
+88,666
+264,212
+Others
+Gross profit
+291,572
+- vesting of awarded shares
+(2,827)
+19,501
+543
+(2,827)
+- shares withheld for share award schemes
+18,958
+(2,090)
+(2,827)
+2,090
+Repurchase and cancellation of shares
+462
+4662
+'
+462
+66%
+Profit appropriations to statutory reserves
+669
+(669)
+611
+(2,170)
+(2,170)
+Tax benefit from share-based payments
+18,347
+612
+-
+capital
+premium award schemes
+reserves
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+earnings
+RMB'Million
+Total
+RMB'Million
+interests
+RMB'Million
+equity
+RMB'Million
+1,661
+1,043
+- 53 -
+1,714
+1,043
+(2,170)
+1112
+612
+412
+54
+43
+54
+1,768
+1,043
+- value of employee services
+Cash dividends
+(1,401)
+(12,683)
+1,483
+88
+1,571
+Lapses of put option liabilities in respect
+of non-controlling interests
+783
+783
+783
+783
+Recognition of put option liabilities arising from
+business combinations
+(1,289)
+(1,289)
+(1,289)
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+1,746
+306
+(2,323)
+(271)
+10
+(261)
+Total transactions with equity holders at their
+1,483
+of non-controlling interests
+Changes in put option liabilities in respect
+941
+(1,015)
+(13,698)
+Dividends distribution in specie (Note 15(b))
+(102,451)
+(102,451)
+(102,451)
+Distributions from a non wholly-owned subsidiary
+(1,401)
+Non-controlling interests arising from
+business combinations (Note 42)
+Disposal and deemed disposal of subsidiaries
+(12,683)
+Acquisition of additional equity interests in
+1,289
+(33)
+(33)
+non wholly-owned subsidiaries
+Dilution of/changes in interests in subsidiaries
+(4,305)
+(4,305)
+(8,921)
+205
+205
+736
+1,289
+(4,616)
+37,177
+18,537
+Share
+for share
+Other
+Retained
+Non-controlling
+Total
+capital
+premium award schemes
+RMB'Million
+Share
+RMB'Million
+reserves
+RMB'Million
+earnings
+RMB'Million
+Total
+interests
+RMB'Million
+RMB'Million
+equity
+RMB'Million
+1,768
+1,716
+RMB'Million
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2021
+Share of other changes in net assets of
+associates and joint ventures
+3,320
+3,320
+(2)
+3,318
+Transfer of share of other changes in net assets
+of associates to profit or loss upon disposal and
+deemed disposal
+(154)
+(154)
+(154)
+00
+176
+Tencent Holdings Limited
+Transactions with equity holders
+Capital injection
+Employee share option schemes:
+- value of employee services
+- proceeds from shares issued
+Consolidated Statement of Changes in Equity
+314
+314
+60
+60
+588
+Profit appropriations to statutory reserves
+736
+(736)
+(10,449)
+(10,449)
+(1,176)
+(11,625)
+Dividends
+Non-controlling interests arising from
+business combinations
+Disposal and deemed disposal of subsidiaries
+Acquisition of additional equity interests in
+non wholly-owned subsidiaries
+Dilution of/changes in interests in subsidiaries
+Changes in put option liabilities in respect
+of non-controlling interests
+12,459
+12,459
+15
+15
+588
+5,151
+588
+1,209
+1,828
+62
+60
+1,890
+1,716
+1,716
+Employee share award schemes:
+-
+- value of employee services
+9,720
+413
+13
+- shares withheld for share award schemes
+(1,865)
+10,133
+433
+10,566
+(1,865)
+(1,865)
+- vesting of awarded shares
+(1,209)
+Tax benefit from share-based payments
+capacity as equity holders for the year
+(5,151)
+disposal of financial instruments to
+Retained
+Non-controlling
+Total
+capital
+premium award schemes
+reserves
+RMB'Million
+RMB'Million
+RMB'Million
+Other
+RMB'Million
+Total
+interests
+equity
+RMB'Million
+RMB'Million
+RMB'Million
+35,271
+(4,002)
+16,786
+earnings
+RMB'Million
+for share
+Share
+Share
+(431)
+(3,651)
+(115,803)
+(101,348)
+(3,733)
+(105,081)
+Balance at 31 December 2021
+Total
+67,330
+(4,843)
+73,901
+669,911
+806,299
+70,394
+876,693
+Annual Report 2021
+175
+Consolidated Statement of Changes in Equity
+For the year ended 31 December 2021
+Attributable to equity holders of the Company
+Shares held
+384,651
+432,706
+56.118
+488,824
+127,873
+127,873
+2,652
+130,525
+-currency translation differences
+(9,016)
+(9,016)
+469
+(8,547)
+- other fair value losses, net
+(1,214)
+(1,214)
+(47)
+(1,261)
+Total comprehensive income for the year
+117,987
+159,847
+277,834
+3,339
+281,173
+Transfer of gains on disposal and deemed
+comprehensive income
+retained earnings
+financial assets at fair value through other
+(3)
+Balance at 1 January 2020
+Comprehensive income
+Profit for the year
+Other comprehensive income, net of tax:
+- share of other comprehensive income/(loss)
+of associates and joint ventures
+347
+42
+159,847
+159,847
+278
+160,125
+347
+133
+(13)
+334
+- transfer of share of other comprehensive
+income to profit or loss upon disposal and
+deemed disposal of associates
+(3)
+(3)
+- net gains from changes in fair value of
+Non-controlling
+(1,918)
+Other
+2021
+As at 31 December
+As at 31 December 2021
+Consolidated Statement of Financial Position
+ASSETS
+281,173
+200,390
+3,339
+67
+277,834
+200,323
+281,173
+200,390
+121,048
+(27,420)
+291
+(1,285)
+130,525
+(16,166)
+(558)
+5,380
+387
+Note
+(1,552)
+RMB'Million
+RMB'Million
+583
+517
+Intangible assets
+Investment properties
+4,939
+5,923
+19
+Construction in progress
+12,929
+20,468
+18
+Right-of-use assets
+16,091
+17,728
+17
+Land use rights
+59,843
+61,914
+16
+Property, plant and equipment
+Non-current assets
+2020
+(7,262)
+(19,392)
+2,796
+(3)
+Items that will not be subsequently reclassified to profit or loss
+Share of other comprehensive income of associates and joint ventures
+Transfer of share of other comprehensive loss/(income) to profit or loss
+upon disposal and deemed disposal of associates and joint ventures
+Currency translation differences
+Items that may be subsequently reclassified to profit or loss
+Other comprehensive income, net of tax:
+Profit for the year
+For the year ended 31 December 2021
+Consolidated Statement of Comprehensive Income
+(2,795)
+34
+73,901
+121,139
+669,911
+538,464
+806,299
+703,984
+70,394
+74,059
+876,693
+778,043
+Non-current liabilities
+Borrowings
+Year ended 31 December
+2021
+2020
+Note
+8
+334
+125
+Tencent Holdings Limited
+170
+00
+The notes on pages 180 to 310 are an integral part of these consolidated financial statements.
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+Investments in associates
+Total comprehensive income for the year
+Currency translation differences
+Net (losses)/gains from changes in fair value of financial assets at
+fair value through other comprehensive income
+32
+32
+Gain from changes in fair value of assets held for distribution
+Share of other comprehensive income of associates and joint ventures
+160,125
+227,810
+RMB'Million
+RMB'Million
+Other fair value gains
+Investments in joint ventures
+Financial assets at fair value through profit or loss
+Financial assets at fair value through other comprehensive income
+49,331
+44,981
+26
+65,390
+40,321
+27
+1,749
+1,133
+24
+10,573
+6,593
+29
+83,813
+68,487
+31
+2,476
+2,520
+31
+167,966
+152,798
+102,451
+30
+322 223
+Assets held for distribution
+Cash and cash equivalents
+24,630
+27
+1,261
+4
+28
+26,068
+21,348
+29
+19,491
+31,681
+484,812
+1,127,552
+Current assets
+Inventories
+1,063
+814
+Accounts receivable
+Prepayments, deposits and other assets
+Other financial assets
+Financial assets at fair value through profit or loss
+Term deposits
+Restricted cash
+1,015,778
+36
+317,647
+1,612,364
+33
+(4,843)
+(4,412)
+213,091
+250,257
+25
+165,944
+192,184
+24
+7,649
+6,614
+297,609
+316,574
+159,437
+171,376
+20
+222222222
+Term deposits
+Deferred income tax assets
+Other financial assets
+Prepayments, deposits and other assets
+48,793
+67,330
+33
+RMB'Million
+1,333,425
+Annual Report 2021
+171
+Consolidated Statement of Financial Position
+As at 31 December 2021
+EQUITY
+As at 31 December
+2021
+Note
+RMB'Million
+Total assets
+Equity attributable to equity holders of the Company
+33
+Share premium
+Shares held for share award schemes
+Other reserves
+Retained earnings
+ww ww
+Non-controlling interests
+Total equity
+LIABILITIES
+2020
+Share capital
+Retained
+136,936
+Notes payable
+224,822
+2,988
+227,810
+512
+512
+888
+- gain from changes in fair value of
+assets held for distribution
+5,380
+5,380
+5,380
+- net losses from changes in fair value of
+financial assets at fair value through
+other comprehensive income
+(15,073)
+(15,073)
+(1,093)
+(16,166)
+-currency translation differences
+(18,032)
+(18,032)
+224,822
+26
+12
+778,043
+for share
+award schemes
+Other
+Retained
+Non-controlling
+Total
+RMB'Million
+RMB'Million
+reserves
+RMB'Million
+earnings
+RMB'Million
+Total
+interests
+equity
+RMB'Million
+RMB'Million
+RMB'Million
+48,793
+(4,412)
+121,139
+538,464
+703,984
+74,059
+512
+(19,950)
+- other fair value gains, net
+2,706
+Transfer of share of other changes in net assets
+of associates and joint ventures to profit or
+loss upon disposal and deemed disposal
+(5,089)
+(5,089)
+(5,089)
+00
+174 Tencent Holdings Limited
+Transactions with equity holders
+Capital injection
+Employee share option schemes:
+- value of employee services
+- proceeds from shares issued
+Employee share award schemes:
+Consolidated Statement of Changes in Equity
+For the year ended 31 December 2021
+Attributable to equity holders of the Company
+Shares held
+Share
+Share
+for share
+8,430
+1
+8,429
+8,429
+2,706
+90
+2,796
+Total comprehensive income for the year
+(24,499)
+224,822
+200,323
+67
+200,390
+Transfer of gains on disposal and deemed
+premium
+disposal of financial instruments to
+(22,393)
+22,393
+Transfer of share of other comprehensive
+income to retained earnings upon disposal
+and deemed disposal of associates and
+joint ventures
+(35)
+35
+Share of other changes in net assets of
+associates and joint ventures
+retained earnings
+capital
+RMB'Million
+Share
+Share
+172 Tencent Holdings Limited
+Consolidated Statement of Financial Position
+As at 31 December 2021
+As at 31 December
+2021
+Note
+RMB'Million
+2020
+RMB'Million
+Current liabilities
+Accounts payable
+Other payables and accruals
+Borrowings
+Current income tax liabilities
+Other tax liabilities
+ུ # 9
+41
+40
+109,470
+94,030
+60,582
+00
+286,303
+332,573
+6,678
+37
+145,590
+122,057
+Long-term payables
+38
+9,966
+9,910
+Other financial liabilities
+39
+5,912
+54,308
+9,254
+28
+13,142
+16,061
+Lease liabilities
+18
+16,501
+10,198
+Deferred revenue
+5(c)(i)
+4,526
+Deferred income tax liabilities
+112,145
+36
+14,242
+1,333,425
+The notes on pages 180 to 310 are an integral part of these consolidated financial statements.
+The consolidated financial statements on pages 169 to 310 were approved by the Board of Directors on 23 March 2022 and
+were signed on its behalf:
+Ma Huateng
+Lau Chi Ping Martin
+Director
+Director
+Annual Report 2021
+173
+Consolidated Statement of Changes in Equity
+For the year ended 31 December 2021
+Balance at 1 January 2021
+Comprehensive income
+Profit for the year
+Other comprehensive income, net of tax:
+- share of other comprehensive income
+of associates and joint ventures
+-transfer of share of other comprehensive
+loss to profit or loss upon disposal and
+deemed disposal of associates and
+joint ventures
+Attributable to equity holders of the Company
+Shares held
+1,612,364
+Total equity and liabilities
+555,382
+735,671
+12,506
+12,134
+2,240
+2,149
+Other financial liabilities
+39
+3,554
+5,567
+Lease liabilities
+18
+19,003
+5,446
+Deferred revenue
+5(c)(i)
+87,846
+82,827
+Dividends payable for distribution in specie
+15(b)
+102,451
+403,098
+269,079
+Total liabilities
+3,822
+(2,795)
+Other fair value gains/(losses)
+(5,975)
+(178,549)
+(181,955)
+00
+178 Tencent Holdings Limited
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2021
+Cash flows from financing activities
+Proceeds from short-term borrowings
+Repayments of short-term borrowings
+Proceeds from long-term borrowings
+Repayments of long-term borrowings
+Net proceeds from issuance of notes payable
+Repayments of notes payable
+Principal elements of lease payments
+Interest paid
+Payments for repurchase of shares
+Proceeds from issuance of ordinary shares as a result of exercise
+of share options
+Shares withheld for share award schemes
+Year ended 31 December
+2021
+RMB'Million
+2020
+2,153
+RMB'Million
+3,324
+Dividends received
+13,168
+(2,202)
+(859)
+Proceeds from disposals of other financial assets
+338
+1,626
+Payments for loans to investees and others
+(11,251)
+(1,755)
+Loans repayments from investees and others
+1,127
+484
+Receipt from maturity of term deposits with initial terms of over three months
+55,140
+32,177
+Placement of term deposits with initial terms of over three months
+(55,713)
+(59,169)
+Interest received
+4,923
+5,610
+Net cash flows used in investing activities
+28,800
+23,103
+(22,944)
+Cash and cash equivalents at beginning of the year
+Exchange losses on cash and cash equivalents
+Cash and cash equivalents at end of the year
+The notes on pages 180 to 310 are an integral part of these consolidated financial statements.
+(9,199)
+(9,263)
+(12,503)
+(10,339)
+(1,403)
+(1,079)
+21,620
+13,647
+18,257
+25,811
+152,798
+132,991
+(3,089)
+(6,004)
+167,966
+152,798
+179
+(3,180)
+Net increase in cash and cash equivalents
+5,090
+Net cash flows generated from financing activities
+Dividends paid to the Company's shareholders
+(8,512)
+33,348
+26,323
+(777)
+(15,899)
+27,060
+47,948
+(10,460)
+(4,423)
+(3,537)
+(7,525)
+(7,076)
+(2,170)
+1,043
+1,716
+(2,827)
+(1,865)
+Proceeds from issuance of additional equity of non wholly-owned subsidiaries
+Proceeds from partial disposals of equity interests in non wholly-owned subsidiaries
+Payments for acquisition of non-controlling interests in non wholly-owned
+subsidiaries
+727
+600
+110
+Dividends paid to non-controlling interests
+(60,066)
+Annual Report 2021
+Payments for acquisition of financial assets at fair value through profit or loss
+Proceeds from disposals of financial assets at fair value through profit or loss
+Payments for acquisition/settlements of other financial instruments
+(11,649)
+(11,185)
+(9,722)
+14,604
+4,882
+Balance at 31 December 2020
+48,793
+(4,412)
+121,139
+538,464
+703,984
+74,059
+778,043
+The notes on pages 180 to 310 are an integral part of these consolidated financial statements.
+Annual Report 2021
+177
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2021
+Cash flows from operating activities
+Cash generated from operations
+Income tax paid
+(410)
+Net cash flows generated from operating activities
+13,522
+Total transactions with equity holders at their
+(79,350)
+(684)
+1,407
+723
+(765)
+(765)
+(293)
+(1,058)
+Recognition of put option liabilities arising from
+business combinations
+(2,730)
+(2,730)
+(2,730)
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+1,527
+246
+(6,472)
+(4,699)
+4,563
+(136)
+capacity as equity holders for the year
+Year ended 31 December
+(684)
+Note
+Purchase of/prepayment for land use rights
+(1,704)
+(5,347)
+Payments for acquisition of investments in associates
+(50,091)
+(30,533)
+Proceeds from disposals of investments in associates
+4,035
+Payments for acquisition of investments in joint ventures
+(364)
+(247)
+Proceeds from disposals of investments in joint ventures
+1,383
+Payments for acquisition of financial assets at fair value through other
+comprehensive income
+(28,251)
+(12,719)
+Proceeds from disposals of financial assets at fair value through other
+comprehensive income
+7,648
+33,521
+2021
+(27,182)
+(31,159)
+2,208
+191
+RMB'Million
+2020
+Purchase of/prepayment for intangible assets
+43(a)
+203,712
+214,441
+(28,526)
+(20,322)
+175,186
+194,119
+Cash flows from investing activities
+RMB'Million
+Net inflow of cash in respect of disposal of a subsidiary
+Proceeds from disposals of property, plant and equipment
+(21,944)
+(15,097)
+15
+Purchase of property, plant and equipment, construction in progress
+and investment properties
+(29,302)
+Payments for business combinations, net of cash acquired
+(34,070)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+(b) Separate financial statements
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined in
+Note 48(f)), a controlled structured entity, is stated at cost in "Contribution to Share Scheme Trust”, and will
+be transferred to the "Shares held for share award schemes" under equity when the contribution is used for
+the acquisition of the Company's shares.
+2
+When the Group ceases to have control, any retained interest in the entity is re-measured to its
+fair value at the date when control is lost, with the change in carrying amount recognised in the
+consolidated income statement. The fair value is the initial carrying amount for the purposes of
+subsequently accounting for the retained interest as an associate, a joint venture or a financial asset.
+In addition, any amounts previously recognised in other comprehensive income in respect of that entity
+are accounted for as if the Group had directly disposed of the related assets or liabilities. It means that
+amounts previously recognised in other comprehensive income are reclassified to the consolidated
+income statement or transferred to another category of equity as specified/permitted by applicable
+IFRSS.
+Annual Report 2021 185
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+The Group determines at each reporting date whether there is any objective evidence that investments accounted
+for using the equity method, including investments in associates and joint arrangements (Note 2.4), are impaired.
+If this is the case, the Group calculates the amount of impairment as the difference between the recoverable
+amount of the investment and its carrying value and recognises the amount in "Other gains/(losses), net" in the
+consolidated income statement.
+Associates are all entities over which the Group has significant influence but not control or joint control, generally
+but not necessarily accompanying a shareholding of between 20% and 50% of the voting rights. Investments
+in associates are accounted for using the equity method of accounting and are initially recognised at cost. The
+Group's investments in associates include underlying goodwill identified on acquisition, net of any accumulated
+impairment loss.
+The Group's share of its associates' post-acquisition profit or loss is recognised in the consolidated income
+statement, and its share of post-acquisition movements in other comprehensive income is recognised in other
+comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the
+carrying amount of the investment. Where the Group's share of losses in an associate equals or exceeds its
+interests in the associate, including any other unsecured long-term receivables, the Group does not recognise
+further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
+Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's
+interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an
+impairment of the asset transferred. Accounting policies of associates have been changed where necessary to
+ensure consistency with the policies adopted by the Group.
+Gains or losses on dilution of equity interest in associates are recognised in the consolidated income statement.
+If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate
+share of the amounts previously recognised in other comprehensive income is reclassified to consolidated income
+statement where appropriate.
+00
+186
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+(iii) Disposal of subsidiaries
+2.3 Associates
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions - that is, as transactions with the owners of the subsidiary in their capacity as
+owners. The difference between fair value of any consideration paid and the relevant share acquired of
+the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals
+to non-controlling interests are also recorded in equity.
+183
+(ii)
+Annual Report 2021
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.2 Subsidiaries (continued)
+(a) Consolidation (continued)
+(i) Business combinations (continued)
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets.
+Acquisition-related costs are expensed as incurred.
+If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed
+to be an asset or liability is recognised in profit or loss. Contingent consideration that is classified as
+equity is not re-measured, and its subsequent settlement is accounted for within equity.
+The excess of the total of consideration transferred, the amount of any non-controlling interest in the
+acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the
+fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration
+transferred, non-controlling interest recognised and previously held interest measured is less than the
+fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference
+is recognised directly in the consolidated income statement.
+00
+184
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+2.2 Subsidiaries (continued)
+(a) Consolidation (continued)
+Changes in ownership interests in subsidiaries without change of control
+2
+2.8 Foreign currency translation
+For the year ended 31 December 2021
+188
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.8 Foreign currency translation (continued)
+(b) Transactions and balances (continued)
+Non-monetary items that are measured at fair value in foreign currency are translated using the exchange
+rates at the date when the fair value was determined. Translation differences on non-monetary assets and
+liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation
+differences on non-monetary financial assets and liabilities such as equity instruments held at fair value
+through profit or loss are recognised in the consolidated income statement as part of the fair value gain or
+loss and translation differences on non-monetary financial assets, such as equity instruments classified as
+FVOCI, are included in other comprehensive income.
+00
+(c)
+The results and financial position of all the group entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+(i)
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+(ii)
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+(iii)
+All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred also includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement, which is recognised under "Other financial assets" or "Other financial
+liabilities" in the consolidated financial statements. Identifiable assets acquired and liabilities and
+contingent consideration assumed in a business combination are measured initially at their fair values
+at the acquisition date.
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other financial instruments designated as hedges of such investments, are
+taken to other comprehensive income.
+Group companies
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised in the consolidated income statement.
+Transactions and balances
+(b)
+2.4 Joint arrangements
+Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures
+depending on the contractual rights and obligations of each investor.
+Joint operations
+The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its
+share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the
+financial statements under the appropriate headings.
+Joint ventures
+Joint ventures are accounted for using the equity method.
+Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted
+thereafter to recognise the Group's share of the post-acquisition profit or loss and movements in other
+comprehensive income. Where the Group's share of losses in a joint venture equals or exceeds its interests in
+the joint venture (which includes any other unsecured long-term receivables that, in substance, form part of the
+Group's net investment in the joint venture), the Group does not recognise further losses, unless it has incurred
+legal or constructive obligations or made payments on behalf of the joint venture.
+Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
+Group's interests in the joint ventures. Unrealised losses are also eliminated unless the transaction provides
+evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed
+where necessary to ensure consistency with the policies adopted by the Group.
+2.5 Investments in associates/joint ventures achieved in stages
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint
+venture, is measured as the sum of the fair value of the interests previously held plus the fair value of any
+additional consideration transferred as of the date when they become associates/joint ventures. A gain or loss on
+remeasurement of the previously held interests is taken to the consolidated income statement.
+Annual Report 2021 187
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.6 Disposal of associates and joint ventures
+When the Group ceases to continue equity accounting for an associate or joint venture because of a loss of
+significant influence or joint control, it measures any retained investment at fair value. A gain or loss is recognised
+at any difference between the fair value of any retained interest plus any proceeds from disposing part of the
+interests in the associate or joint venture and the carrying amount of the investment at the date the equity method
+of accounting was discontinued. The amounts previously recognised in other comprehensive income in respect of
+an associate or joint venture should be reclassified to the consolidated income statement or transferred to another
+category of equity as specified and permitted by applicable IFRSS when the Group ceases to continue equity
+accounting for the associate or joint venture.
+2.7 Segment reporting
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+decision-makers, who are responsible for allocating resources and assessing performance of the operating
+segments and making strategic decisions. The chief operating decision-makers mainly include the executive
+directors.
+(a) Functional and presentation currency
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the "functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the PRC, the Group presents its consolidated financial statements
+in Renminbi ("RMB"), unless otherwise stated.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Business combinations
+Sale or Contribution of Assets between an Investor
+and its Associate or Joint Venture
+Property, Plant and Equipment: Proceeds
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards ("IFRSS"). The consolidated financial statements have been prepared
+under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or
+loss ("FVPL"), financial assets at fair value through other comprehensive income ("FVOCI"), dividends payable for
+distribution in specie, certain other financial assets and liabilities, which are carried at fair value.
+The preparation of financial statements in conformity with IFRSS requires the use of certain critical accounting
+estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting
+policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
+are significant to the consolidated financial statements are disclosed in Note 4.
+(a)
+Amendments to standards adopted by the Group
+The following amendments to standards have been adopted by the Group for the first time for the financial
+year beginning on 1 January 2021:
+Amendments to IFRS 9, IAS 39, IFRS 7,
+IFRS 4 and IFRS 16
+Interest rate benchmark reform - phase 2 ("phase 2")
+Annual Report 2021 181
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.1
+Basis of preparation (continued)
+(a)
+Amendments to standards adopted by the Group (continued)
+(b)
+The amendments are relevant to the Group given that it applies hedge accounting to its benchmark interest
+rate exposures. The Group has floating rate debts, linked to USD LIBOR, including borrowings and senior
+notes, whose cash flows are hedged by using interest rate swaps. The LIBOR benchmark in which the Group
+continues to have hedging instrument is USD LIBOR. It is expected that the transition out of USD LIBOR
+hedging derivatives will be completed before 30 June 2023, and no significant impact arose as a result of
+applying those amendments during the year ended 31 December 2021.
+New standards and amendments to standards issued but not yet effective
+For the year ended 31 December 2021
+For the year ended 31 December 2021
+1 GENERAL INFORMATION
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the Main Board of the Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
+liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are
+recognised in other comprehensive income.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
+2
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company. See details in Note 48.
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.2(a) and Note 48)
+and the formation of the Group in 2000 was accounted for as a business combination between entities under common
+control under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor
+carrying amounts. This approach was adopted because in management's belief it best reflected the substance of the
+formation.
+GENERAL INFORMATION (continued)
+1
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+180
+00
+the right to control the management, financial and operating policies of Tencent Computer.
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer; and
+189
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+•
+Under a series of contractual arrangements (collectively, “Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable the Company to own and control
+the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen) Company Limited
+("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24 February 2000.
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of Value-added Services ("VAS"), Online Advertising services and FinTech and
+Business Services.
+The following new standards and amendments to standards have not come into effect for the financial year
+beginning on 1 January 2021 and have not been early adopted by the Group in preparing the consolidated
+financial statements. None of these is expected to have a significant effect on the consolidated financial
+statements of the Group.
+Effective for annual
+periods beginning
+on or after
+Amendments to IAS 28
+and IFRS 10
+Amendments to IAS 16
+1 January 2023
+Amendments to IAS 12
+Deferred Tax related to Assets and Liabilities
+1 January 2023
+arising from a Single Transaction
+00
+182
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.1
+Basis of preparation (continued)
+(b)
+For the year ended 31 December 2021
+New standards and amendments to standards issued but not yet effective (continued)
+The Group considers the lease as a single transaction in which the assets and liabilities are integrally linked.
+There is no net temporary difference at inception. Subsequently, when differences on settlement of the
+liabilities and the amortisation of right-of-use assets arise, there will be a net temporary difference on which
+deferred income tax is recognised. Upon the effective date of amendments to IAS 12 on 1 January 2023, the
+Group will need to recognise a deferred income tax asset and a deferred income tax liability for the temporary
+differences arising on a lease on initial recognition.
+2.2
+Subsidiaries
+(a) Consolidation
+Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
+controls an entity where the Group is exposed to, or has rights to, variable returns from its involvement
+with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
+consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
+date that control ceases.
+Definition of Accounting Estimates
+(i)
+1 January 2023
+Classification of Liabilities as Current or Non-current
+To be determined
+1 January 2022
+before Intended Use
+Amendments to IFRS 3
+Reference to the Conceptual Framework
+1 January 2022
+Amendments to IFRSS
+Amendments to IAS 37
+IFRS 17
+Amendments to IAS 1
+Amendments to IAS 1 and
+IFRS Practice Statement 2
+Amendments to IAS 8
+Annual Improvements to IFRS Standards
+2018-2020 Cycle
+Insurance Contracts
+Disclosure of Accounting Policies
+Onerous Contracts - Cost of Fulfilling a Contract
+1 January 2022
+1 January 2022
+1 January 2023
+1 January 2023
+Annual Report 2021
+2.1 Basis of preparation
+The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+Three months ended
+31 December
+31 December
+2021
+2020
+(RMB in millions)
+144,188
+133,669
+Unaudited
+(86,371)
+57,817
+58,881
+Interest income
+1,703
+1,708
+Other gains, net
+Selling and marketing expenses
+(74,788)
+Gross profit
+Cost of revenues
+Revenues
+Cost of revenues for FinTech and Business Services increased by 32% year-on-year to RMB120.8 billion for the
+year ended 31 December 2021, reflecting increased transaction costs due to payment volume growth, as well as our
+continuous investment in cloud computing talent and operations.
+Other gains, net. We recorded net other gains of RMB149.5 billion for the year ended 31 December 2021, which were
+primarily non-IFRS adjustment items such as net gains on deemed disposals and disposals of certain investee companies
+(including a RMB78.2 billion gain from deemed disposal of JD.com), and net fair value gains from revaluation of certain
+investee companies, partly offset by impairment provisions against certain investee companies reflecting revisions of their
+financial outlooks and changes in their business environments.
+Selling and marketing expenses. Selling and marketing expenses increased by 20% to RMB40.6 billion for the year ended 31
+December 2021 on a year-on-year basis, reflecting greater marketing spending on games and Business Services, including
+those associated with the consolidation of recently acquired subsidiaries. As a percentage of revenues, selling and marketing
+expenses was 7% for the year ended 31 December 2021, broadly stable compared to the year ended 31 December 2020.
+General and administrative expenses. General and administrative expenses increased by 33% to RMB89.8 billion for the year
+ended 31 December 2021 on a year-on-year basis, mainly driven by increased R&D expenses and staff costs, including higher
+share-based compensation expenses, reflecting unusually intense competition for talent in 2020 and 2021, which we expect to
+moderate in 2022. As a percentage of revenues, general and administrative expenses increased to 16% for the year ended 31
+December 2021 from 14% for the year ended 31 December 2020.
+00
+12
+Tencent Holdings Limited
+Management Discussion and Analysis
+Finance costs, net. Net finance costs decreased by 10% to RMB7.1 billion for the year ended 31 December 2021 on a
+year-on-year basis, primarily due to net exchange gains recognised for the year ended 31 December 2021 compared to
+net exchange losses for the year ended 31 December 2020, partly offset by the increase in interest expenses as a result of
+increased indebtedness.
+Share of loss/profit of associates and joint ventures, net. We recorded share of losses of associates and joint ventures of
+RMB16.4 billion for the year ended 31 December 2021, compared to share of profits of RMB3.7 billion for the year ended
+31 December 2020. Non-IFRS share of losses of associates and joint ventures were RMB1.0 billion for the year ended 31
+December 2021, compared to non-IFRS share of profits of RMB6.7 billion for the year ended 31 December 2020, reflecting
+increased investments in community retail initiatives by certain associates, and losses recognised from an associate in the
+transportation services vertical.
+Income tax expense. Income tax expense increased by 2% to RMB20.3 billion for the year ended 31 December 2021 on a
+year-on-year basis.
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 41% to
+RMB224.8 billion for the year ended 31 December 2021 on a year-on-year basis. Non-IFRS profit attributable to equity holders
+of the Company increased by 1% to RMB123.8 billion for the year ended 31 December 2021.
+Annual Report 2021
+13
+Management Discussion and Analysis
+FOURTH QUARTER OF 2021 COMPARED TO FOURTH QUARTER OF 2020
+The following table sets forth the comparative figures for the fourth quarter of 2021 and the fourth quarter of 2020:
+General and administrative expenses
+Cost of revenues for Online Advertising increased by 20% year-on-year to RMB48.1 billion for the year ended 31
+December 2021, driven by increased server and bandwidth costs including those associated with our Video Accounts
+service, as well as increased content costs, primarily for our Tencent Video and Tencent Sports services.
+Operating profit
+32,936
+Attributable to:
+Equity holders of the Company
+94,958
+59,302
+Non-controlling interests
+747
+67
+59,369
+95,705
+Non-IFRS operating profit
+33,151
+38,084
+Non-IFRS profit attributable to equity holders of the Company
+24,880
+33,207
+00
+59,369
+95,705
+(3,709)
+(3,888)
+(11,616)
+(10,033)
+(24,380)
+(19,779)
+109,723
+63,713
+Finance costs, net
+(1,863)
+(2,253)
+Share of (loss)/profit of associates and joint ventures, net
+(8,267)
+1,618
+Profit before income tax
+99,593
+63,078
+Income tax expense
+Profit for the period
+86,199
+Cost of revenues for VAS increased by 14% year-on-year to RMB138.6 billion for the year ended 31 December 2021,
+due to revenue sharing costs associated with our Video Accounts live streaming service, increased channel and content
+costs for games, as well as increased costs associated with the consolidation of HUYA.
+100%
+11
+17%
+FinTech and Business Services
+Others
+172,195
+31%
+128,086
+27%
+7,685
+82,271
+1%
+1%
+Total revenues
+560,118
+100%
+482,064
+100%
+Revenues from VAS¹ increased by 10% to RMB291.6 billion for the year ended 31 December 2021 on a year-on-
+year basis. Domestic Games revenues grew by 6% to RMB128.8 billion, driven by games including Honour of Kings,
+Call of Duty Mobile and Moonlight Blade Mobile, partly offset by a decrease in revenues from DnF and Peacekeeper
+Elite. We implemented a comprehensive set of measures for the protection of Minors within our Domestic Games,
+which impacted revenue growth directly (less spending by Minors) and indirectly (developer resources focused on
+implementation of new measures). International Games revenues grew by 31% to RMB45.5 billion, due to robust
+performance of games including PUBG Mobile, Valorant, Brawl Stars and Clash of Clans. Social Networks revenues
+increased by 8% to RMB117.3 billion, driven by our Video Accounts live streaming service, video subscription service,
+and contribution from consolidation of HUYA since April 2020.
+7,495
+16%
+88,666
+Online Advertising
+Management Discussion and Analysis
+Revenues. Revenues increased by 16% to RMB560.1 billion for the year ended 31 December 2021 on a year-on-year basis.
+The following table sets forth our revenues by line of business for the years ended 31 December 2021 and 2020:
+Year ended 31 December
+2021
+2020
+% of total
+% of total
+revenues
+Amount
+revenues
+Amount
+(RMB in millions, unless specified)
+VAS
+291,572
+52%
+264,212
+55%
+1
+From the third quarter of 2021, we disclose revenues from Domestic Games and International Games as new sub-segments under
+VAS, reflecting the increasing scale of our International Games business. Mobile games VAS revenues (including mobile games
+revenues attributable to our Social Networks business) increased by 12% year-on-year to RMB164.8 billion, while PC client games
+revenues grew by 2% year-on-year to RMB45.3 billion for the year ended 31 December 2021.
+10
+Tencent Holdings Limited
+54%
+40,011
+49%
+FinTech and Business Services
+120,799
+70%
+91,835
+72%
+Others
+6,667
+87%
+7,399
+99%
+Total cost of revenues
+314,174
+260,532
+Annual Report 2021
+48,072
+14
+Online Advertising
+121,287
+Management Discussion and Analysis
+Revenues from Online Advertising increased by 8% to RMB88.6 billion for the year ended 31 December 2021 on a
+year-on-year basis, with strong growth witnessed in the early half of the year, followed by significant slowdown and then
+decline in the latter half of the year as our advertisers and our own advertising services adapted to the new economic
+and regulatory environment, particularly in the third and fourth quarters. Online Advertising full year revenue growth
+reflected the relative resilience of the consumer staples category, as well as consolidation of Bitauto's and Sogou's
+advertising revenues, partly offset by headwinds from regulatory changes in advertiser categories including education,
+property and insurance, as well as by regulatory measures on the online advertising industry itself, such as limitations
+on launch screen advertisements. Social and Others Advertising revenues grew by 11% to RMB75.3 billion, driven by
+increased advertiser demand for Weixin properties. Media Advertising revenues decreased by 7% to RMB13.3 billion,
+mainly due to lower advertising revenues from our media platforms including Tencent News and Tencent Video amid
+the challenging macro environment and delays to content launches.
+Revenues from FinTech and Business Services increased by 34% to RMB172.2 billion for the year ended 31
+December 2021 on a year-on-year basis. FinTech Services revenue growth primarily reflected increasing commercial
+payment volume. Business Services revenues increased rapidly year-on-year, due to digitalisation of traditional
+industries and videolisation of the Internet industry, as well as consolidation of Bitauto's Business Services revenue
+since November 2020.
+Cost of revenues. Cost of revenues increased by 21% to RMB314.2 billion for the year ended 31 December 2021 on a
+year-on-year basis, primarily driven by transaction costs to handle increased payment-related transaction volumes, content
+and infrastructure investments, cloud project deployment costs, as well as channel and distribution costs. As a percentage
+of revenues, cost of revenues increased to 56% for the year ended 31 December 2021 from 54% for the year ended 31
+December 2020, reflecting our continuous investment in key strategic areas, as well as a revenue mix shift toward currently
+lower gross margin activities. The following table sets forth our cost of revenues by line of business for the years ended 31
+December 2021 and 2020:
+Year ended 31 December
+2021
+2020
+% of
+segment
+revenues
+% of
+segment
+Amount
+revenues
+Amount
+(RMB in millions, unless specified)
+VAS
+138,636
+48%
+46%
+Management Discussion and Analysis
+Tencent Holdings Limited
+Revenues. Revenues increased by 8% to RMB144.2 billion for the fourth quarter of 2021 on a year-on-year basis. The
+following table sets forth our revenues by line of business for the fourth quarter of 2021 and the fourth quarter of 2020:
+Annual Report 2021
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 60% to
+RMB95.0 billion for the fourth quarter of 2021 on a year-on-year basis. Non-IFRS profit attributable to equity holders of the
+Company decreased by 25% to RMB24.9 billion for the fourth quarter of 2021 as costs and expenses generally increased
+faster than revenues, and as net associate contributions moved from profits to losses, for the reasons cited above.
+Income tax expense. Income tax expense increased by 5% to RMB3.9 billion for the fourth quarter of 2021 on a year-on-year
+basis.
+Share of loss/profit of associates and joint ventures, net. We recorded share of losses of associates and joint ventures of
+RMB8.3 billion for the fourth quarter of 2021, compared to share of profits of RMB1.6 billion for the fourth quarter of 2020.
+Non-IFRS share of losses of associates and joint ventures were RMB0.8 billion for the fourth quarter of 2021, compared to
+non-IFRS share of profits of RMB2.7 billion for the fourth quarter of 2020, reflecting increased investments in community retail
+initiatives by certain associates, and losses recognised from an associate in the transportation services vertical.
+Finance costs, net. Net finance costs decreased by 17% to RMB1.9 billion for the fourth quarter of 2021 on a year-on-year
+basis, primarily due to foreign exchange gains recognised this quarter compared to losses for the fourth quarter of 2020, partly
+offset by the increase in interest expenses as a result of increased indebtedness.
+General and administrative expenses. General and administrative expenses increased by 23% to RMB24.4 billion for the
+fourth quarter of 2021 on a year-on-year basis, mainly driven by increased R&D expenses and staff costs, including higher
+share-based compensation expenses, reflecting unusually intense competition for talent in 2020 and 2021, which we expect to
+moderate in 2022. As a percentage of revenues, general and administrative expenses increased to 17% for the fourth quarter
+of 2021 from 15% for the fourth quarter of 2020.
+Selling and marketing expenses. Selling and marketing expenses increased by 16% to RMB11.6 billion for the fourth quarter
+of 2021 on a year-on-year basis, reflecting increased marketing spending on games partly offset by decreased spending on
+digital content services. As a percentage of revenues, selling and marketing expenses was 8% for the fourth quarter of 2021,
+broadly stable compared to the fourth quarter of 2020.
+17
+Other gains, net. We recorded net other gains of RMB86.2 billion for the fourth quarter of 2021, which were primarily non-IFRS
+adjustment items such as net gains on deemed disposals and disposals of certain investee companies (including a RMB78.0
+billion gain arising from the cessation of JD.com as an associate, due to the resignation of our board representative).
+Management Discussion and Analysis
+Tencent Holdings Limited
+16
+00
+Cost of revenues for Online Advertising increased by 7% to RMB12.3 billion for the fourth quarter of 2021 on a year-on-
+year basis, driven by increased server and bandwidth costs including those associated with our Video Accounts service,
+as well as increased content costs, partly offset by decreased channel and distribution costs.
+Cost of revenues for VAS increased by 13% to RMB36.9 billion for the fourth quarter of 2021 on a year-on-year basis,
+mainly due to increased content and channel costs for games, as well as revenue sharing costs associated with our
+Video Accounts live streaming service.
+74,788
+Cost of revenues for FinTech and Business Services increased by 27% to RMB34.9 billion for the fourth quarter
+of 2021 on a year-on-year basis, reflecting increased transaction costs due to payment volume growth, and our
+continuous investment in cloud computing talent and operations.
+Management Discussion and Analysis
+FOURTH QUARTER OF 2021 COMPARED TO THIRD QUARTER OF 2021
+The following table sets forth the comparative figures for the fourth quarter of 2021 and the third quarter of 2021:
+(86,371)
+142,368
+144,188
+(RMB in millions)
+2021
+2021
+30 September
+Three months ended
+31 December
+Unaudited
+Operating profit
+General and administrative expenses
+Selling and marketing expenses
+Other gains, net
+Interest income
+Gross profit
+Cost of revenues
+Revenues
+86,371
+(79,621)
+Total cost of revenues
+3,218
+Amount
+% of
+segment
+% of
+segment
+31 December 2020
+31 December 2021
+Unaudited
+Three months ended
+Cost of revenues. Cost of revenues increased by 15% to RMB86.4 billion for the fourth quarter of 2021 on a year-on-year
+basis, driven by transaction costs to handle increased payment-related transaction volumes, cloud project deployment
+costs, server and bandwidth costs, as well as content costs, partly offset by decreased channel and distribution costs. As a
+percentage of revenues, cost of revenues increased to 60% for the fourth quarter of 2021 from 56% for the fourth quarter of
+2020, reflecting costs growing faster than revenues in certain businesses and our continued investment in key strategic areas.
+The following table sets forth our cost of revenues by line of business for the fourth quarter of 2021 and the fourth quarter of
+2020:
+revenues
+Revenues from FinTech and Business Services increased by 25% to RMB48.0 billion for the fourth quarter of 2021
+on a year-on-year basis. FinTech Services revenue growth mainly reflected increasing commercial payment volume.
+Business Services revenue growth was primarily driven by increased use of our services by Internet services, public
+transportation and retail industries.
+15
+Annual Report 2021
+2 Mobile games VAS revenues (including mobile games revenues attributable to our Social Networks business) increased by 9% year-on-
+year to RMB40.0 billion, while PC client games revenues grew by 4% year-on-year to RMB10.6 billion for the fourth quarter of 2021.
+Revenues from Online Advertising decreased by 13% to RMB21.5 billion for the fourth quarter of 2021 on a year-
+on-year basis. The year-on-year decrease in Online Advertising revenues reflected weakness in advertiser categories
+including education, games and Internet services, partly offset by the consolidation of Sogou's advertising revenue.
+Social and Others Advertising revenues decreased by 10% to RMB18.3 billion, primarily due to lower advertising
+revenues from our mobile advertising network and Weixin Moments. Media Advertising revenues decreased by 25% to
+RMB3.2 billion, reflecting lower advertising revenues from Tencent Video and Tencent News services.
+Revenues from VAS2 increased by 7% to RMB71.9 billion for the fourth quarter of 2021 on a year-on-year basis.
+Domestic Games revenues grew by 1% to RMB29.6 billion, driven by games including Honour of Kings, as well as
+recently launched titles such as Fight of The Golden Spatula and League of Legends: Wild Rift, partly offset by the
+decrease in revenues from Moonlight Blade Mobile and Peacekeeper Elite. International Games revenues grew by 34%
+to RMB13.2 billion, reflecting new content for Valorant and Clash Royale, a true-up adjustment to revenue of Supercell
+upon periodic review of our revenue deferral periods, and consolidation of Digital Extremes. Social Networks revenues
+grew by 4% to RMB29.1 billion, driven by our Video Accounts live streaming service, video and music subscription
+services.
+100%
+133,669
+Management Discussion and Analysis
+Amount
+revenues
+(RMB in millions, unless specified)
+79%
+2,222
+72%
+27,538
+73%
+34,942
+FinTech and Business Services
+Others
+47%
+11,520
+57%
+12,338
+Online Advertising
+49%
+32,512
+51%
+36,869
+VAS
+91%
+57,817
+62,747
+1,703
+47,958
+33%
+38,494
+29%
+2,799
+2%
+3,541
+FinTech and Business Services
+Others
+3%
+19
+Annual Report 2021
+Revenues from FinTech and Business Services increased by 11% to RMB48.0 billion for the fourth quarter of 2021,
+reflecting seasonally higher revenues from cloud services due to year-end project deployments, as well as higher
+revenues from payment services.
+Revenues from Online Advertising decreased by 4% to RMB21.5 billion for the fourth quarter of 2021, reflecting a
+slower-than-usual seasonal spending upturn in advertiser categories such as eCommerce and consumer staples,
+as well as weakness in categories such as Internet services, education, and games. Social and Others Advertising
+revenues decreased by 4% to RMB18.3 billion, reflecting lower advertising revenues from Weixin and QQ properties,
+as well as our mobile advertising network, partly offset by the consolidation of Sogou's advertising revenue. Media
+Advertising revenues decreased by 8% to RMB3.2 billion, primarily due to lower advertising revenues from the Tencent
+Video service.
+Revenues from VAS decreased by 4% to RMB71.9 billion for the fourth quarter of 2021. Domestic Games revenues
+decreased by 12% to RMB29.6 billion due to lower revenues from several of our existing games reflecting seasonally
+lower revenues in the fourth quarter as well as additional measures implemented in the quarter for the protection of
+Minors. This weakness was partly offset by revenue contributions from recently launched titles including League of
+Legends: Wild Rift and Fight of The Golden Spatula. International Games revenues increased by 16% to RMB13.2
+billion, reflecting revenue growth from games such as Valorant, Brawl Stars, and Clash Royale, as well as a true-up
+adjustment to revenue of Supercell upon periodic review of our revenue deferral periods. Social Networks revenues
+decreased by 4% to RMB29.1 billion, due to the decrease in revenues from in-game item sales, partly offset by revenue
+growth from our Video Accounts live streaming service.
+Revenues. Revenues increased by 1% to RMB144.2 billion for the fourth quarter of 2021 on a quarter-on-quarter basis.
+Management Discussion and Analysis
+Total revenues
+18%
+24,655
+15%
+Unaudited
+Three months ended
+31 December 2021
+31 December 2020
+% of total
+% of total
+Amount
+revenues
+Amount
+revenues
+(RMB in millions, unless specified)
+VAS
+71,913
+50%
+66,979
+50%
+Online Advertising
+21,518
+Tencent Holdings Limited
+18
+00
+31,751
+99,593
+Profit before income tax
+(5,668)
+(8,267)
+Share of losses of associates and joint ventures, net
+(1,942)
+(1,863)
+Finance costs, net
+53,137
+109,723
+(23,862)
+(24,380)
+(10,435)
+(11,616)
+22,984
+86,199
+1,703
+45,527
+144,188
+Income tax expense
+(3,888)
+24,880
+Non-IFRS profit attributable to equity holders of the Company
+40,828
+33,151
+Non-IFRS operating profit
+40,075
+95,705
+565
+747
+Non-controlling interests
+39,510
+94,958
+Equity holders of the Company
+Attributable to:
+40,075
+95,705
+(5,452)
+Profit for the period
+Management Discussion and Analysis
+For the year ended 31 December 2021
+For the year ended 31 December 2021
+195
+Annual Report 2021
+Impairment on deposits and other receivables is measured as either 12-month expected credit losses or
+lifetime expected credit losses, depending on whether there has been a significant increase in credit risk
+since initial recognition. If a significant increase in credit risk of a deposit or receivable has occurred since
+initial recognition, the impairment is measured as lifetime expected credit losses.
+For accounts receivable and contract assets, the Group applies the simplified approach permitted by IFRS 9,
+which requires expected lifetime losses to be recognised since initial recognition.
+The Group assesses on a forward-looking basis the expected credit losses associated with its debt
+instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether
+there has been a significant increase in credit risk.
+Impairment
+(b)
+FVPL include financial assets designated upon initial recognition at fair value through profit or loss and
+financial assets that do not meet the criteria for amortised cost or FVOCI. Changes in the fair value of FVPL
+are recognised in "Other gains/(losses), net" in the consolidated income statement.
+Where the Group has made the irrevocable election to present fair value gains and losses on equity
+investments in other comprehensive income, there is no subsequent reclassification of fair value gains and
+losses to profit or loss following the derecognition of the investments. Dividends from such investments
+continue to be recognised in profit or loss as “Other gains/(losses), net” when the Group's right to receive
+payments is established. Equity instruments designated as FVOCI are not subject to impairment assessment.
+The Group initially recognises and subsequently measures all equity investments at fair value. Upon initial
+recognition, the Group's management can elect to classify irrevocably its equity investments as financial
+assets at FVOCI when they meet the definition of equity instrument under IAS 32 and are not held for trading.
+The classification is determined on an instrument-by-instrument basis.
+Equity instruments
+(a) Classification and measurement (continued)
+2.15 Investments and other financial assets (continued)
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For any other cash flow hedges, the gain or loss relating to the effective portion of the derivatives is
+reclassified to profit or loss at the same time when the hedged cash flows affects profit or loss.
+•
+Where the hedged item subsequently results in the recognition of a non-financial asset, the amounts
+accumulated in equity are removed from other reserves and included within the initial cost of the asset.
+These deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss.
+•
+2.16 Derivative and hedging activities (continued)
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+196
+00
+Gains or losses relating to the effective portion of the change in intrinsic value of the options are recognised in the
+cash flow hedge reserve within equity. The changes in the time value of the options that relate to the hedged item
+("aligned time value") are recognised within other comprehensive income in the costs of hedging reserve within
+equity.
+A hedging relationship qualifies for hedge accounting if it meets all of the hedge effectiveness requirements under
+IFRS 9. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
+flow hedges is recognised through other comprehensive income within equity, while any ineffective portion is
+recognised immediately in profit or loss, within “Other gains/(losses), net".
+The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of a
+recognised asset or liability or a highly probable forecast transaction (cash flow hedges). The Group documents
+at the inception of the hedging relationship the economic relationship between hedging instruments and hedged
+items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The
+Group documents its risk management objective and strategy for undertaking various hedge transactions at the
+inception of each hedge relationship.
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive
+and as financial liabilities when the fair value is negative, which are recognised under "Other financial assets'
+and "Other financial liabilities” in the consolidated financial statements, respectively. The method of recognising
+the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the
+nature of the item being hedged.
+2.16 Derivative and hedging activities
+2
+194
+00
+The Group reclassifies debt investments when and only when its business model for managing those assets
+changes.
+2.15 Investments and other financial assets
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might
+be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's
+carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value
+less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest
+levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than
+goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
+2.14 Impairment of non-financial assets
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+192
+00
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium".
+The consideration paid by the Share Scheme Trust (see Note 48(f)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as “Shares held for share award
+schemes" and the amount is deducted from total equity.
+2.13 Shares held for share award schemes
+Land with indefinite useful life is not subject to amortisation and impairment reviews are undertaken annually
+or more frequently if events or changes in circumstances indicate a potential impairment. Other intangible
+assets are amortised over their estimated useful lives (generally one to ten years) using the straight-line
+method which reflects the pattern in which the intangible assets' future economic benefits are expected to
+be consumed.
+Other intangible assets mainly include trademarks, other copyrights, computer software and technology, non-
+compete agreements, customer relationships and land with indefinite useful life. They are initially recognised
+and measured at cost or estimated fair value of intangible assets acquired through business combinations.
+(c) Other intangible assets
+Notes to the Consolidated Financial Statements
+(a) Classification and measurement
+The Group classifies its financial assets in the following measurement categories:
+•
+those to be measured subsequently at fair value (either through other comprehensive income, or
+through profit or loss); and
+FVPL: Financial assets that do not meet the criteria for amortised cost or FVOCI are classified as and
+measured at fair value through profit or loss. A gain or loss on a debt investment measured at fair
+value through profit or loss which is not part of a hedging relationship is recognised in profit or loss and
+presented in "Other gains/(losses), net" for the period in which it arises.
+FVOCI: Financial assets that are held for collection of contractual cash flows and for selling the
+financial assets, where the assets' cash flows represent solely payments of principal and interest, are
+classified as and measured at FVOCI. Movements in the carrying amount of these financial assets
+are taken through other comprehensive income, except for the recognition of impairment losses or
+reversals, interest income and foreign exchange gains and losses which are recognised in profit or
+loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in
+other comprehensive income is reclassified from equity to profit or loss and recognised in "Other gains/
+(losses), net" in the consolidated income statement. Interest income from these financial assets is
+recognised using the effective interest method. Foreign exchange gains and losses are presented in
+"Finance costs, net" and impairment losses or reversals are presented in "Other gains/(losses), net".
+•
+• Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash
+flows represent solely payments of principal and interest are classified as and measured at amortised
+cost. A gain or loss on a debt investment measured at amortised cost which is not part of a hedging
+relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income
+from these financial assets is recognised using the effective interest method.
+Initial recognition and subsequent measurement of debt instruments depend on the Group's business model
+for managing the asset and the contractual cash flow characteristics of the asset. There are three categories
+into which the Group classifies its debt instruments:
+Debt instruments
+Financial assets with embedded derivatives are considered in their entirety when determining whether their
+cash flows are solely payments of principal and interest.
+(a) Classification and measurement (continued)
+When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for
+hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remain
+in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the
+cumulative gain or loss and deferred costs of hedging included in equity are immediately reclassified to profit or
+2.15 Investments and other financial assets (continued)
+2
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+193
+Annual Report 2021
+Except for accounts receivable, at initial recognition, the Group measures a financial asset at its fair value
+plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly
+attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value
+through profit or loss are expensed in profit or loss.
+The classification depends on the Group's business model for managing the financial assets and the
+contractual terms of the cash flows.
+• those to be measured at amortised cost.
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+loss.
+Amounts accumulated in equity are accounted for, depending on the nature of the underlying hedged transaction,
+as follows:
+The "phase 2" amendments address issues arising during interest rate benchmark reform, including specifying
+when the Interest rate benchmark reform - phase 1 ("phase 1") amendments will cease to apply, when hedge
+designations and documentation should be updated, and when hedges of the alternative benchmark rate as the
+hedged risk are permitted.
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+2.10 Investment properties
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+Depreciation is calculated on the straight-line method to allocate their costs net of their residual values over their
+estimated useful lives of 20-50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts (Note 2.14).
+2.11 Land use rights
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease.
+2.12 Intangible assets
+(a)
+Hedge relationships
+Goodwill on acquisition of subsidiaries is recognised as described in Note 2.2(a) and included in "Intangible
+assets" in the consolidated financial statements.
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUs"), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within
+the entity at which the goodwill is monitored for internal management purposes.
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying amount of the CGU or group of CGUs including
+the allocated goodwill is compared to the recoverable amount, which is the higher of value in use and the fair
+value less costs of disposal. Any impairment is recognised immediately under "Other gains/(losses), net" and
+is not subsequently reversed.
+190
+00
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.14).
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.9 Property, plant and equipment
+All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated
+impairment charges. Historical costs include expenditures that are directly attributable to the acquisition of the
+items.
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the items will flow to the Group and the cost
+of the items can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the reporting period in which they are
+incurred.
+Depreciation is calculated using the straight-line method to allocate their cost net of their residual values over their
+estimated useful lives, as follows:
+20-50 years
+Buildings
+Annual Report 2021
+Computer and other operating equipment
+2-5 years
+5 years
+Shorter of their useful lives and the lease term
+Furniture and office equipment
+Motor vehicles
+Leasehold improvements
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+Construction in progress represents buildings under construction, which is stated at actual construction costs less
+any impairment loss. Construction in progress is transferred to property, plant and equipment when completed and
+ready for use.
+2~10 years
+191
+Goodwill
+For the year ended 31 December 2021
+Cash and cash equivalents mainly include cash on hand, deposits held at call with banks, and other short-term
+highly liquid investments with initial maturities of three months or less.
+2.20 Cash and cash equivalents
+Accounts receivable are recognised initially at the amount of consideration that is unconditional unless they contain
+significant financing components, when they are recognised at fair value and subsequently measured at amortised
+cost using the effective interest method, less provision for impairment that is subject to expected credit loss model
+(Note 3.1(b)).
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. Accounts receivable are presented as current assets unless collection is not expected
+within 12 months after the end of the reporting period.
+Notes to the Consolidated Financial Statements
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average
+method and are stated at the lower of cost and net realisable value.
+2.18 Inventories
+Financial assets and liabilities are offset, and the net amount is reported in the consolidated statement of financial
+position when there is a legally enforceable right to offset the recognised amounts and there is an intention to
+settle on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right
+must not be contingent on future events and must be enforceable in the normal course of business and in certain
+circumstances, such as default, insolvency, bankruptcy or the termination of a contract.
+2.17 Offsetting financial instruments
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+197
+Annual Report 2021
+The LIBOR benchmark in which the Group continues to have hedging instrument is USD LIBOR, for which
+it is expected that the transition out will be completed before 30 June 2023. The Group will update its hedge
+documentation to reflect the changes in designation (including designating an alternative benchmark rate
+as a hedged risk, amending the description of the hedged item, and amending the description of hedging
+instrument) by the end of the reporting period in which the changes are made. These amendments to the hedge
+documentation do not require the Group to discontinue its hedge relationships.
+The "phase 1" amendments provided temporary relief from applying specific hedge accounting requirements
+to hedging relationships directly affected by Inter Bank Offered Rate ("IBOR") reform. The reliefs had the effect
+that IBOR reform should not generally cause hedge accounting to terminate prior to contracts being amended.
+However, any hedge ineffectiveness continued to be recorded in the income statement. Furthermore, the
+amendments set out triggers for when the reliefs would end, which included the uncertainty arising from interest
+rate benchmark reform no longer being present.
+The Group does not recognise cash amounts deposited with banks in the Mainland of China (which are received
+under its payment business) under users' entrustment in the consolidated statement of financial position as the
+Group holds these cash amounts as a custodian according to the relevant users' agreements.
+00
+2.19 Accounts receivable
+Tencent Holdings Limited
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.12 Intangible assets (continued)
+(b)
+198
+Media contents mainly include game licenses, video and music contents, and literature copyrights. They are
+initially recognised and measured at cost or estimated fair value as acquired through business combinations.
+Media contents are amortised using a straight-line method or an accelerated method which reflects the
+estimated consumption patterns.
+Annual Report 2021 199
+The put option liabilities are current liabilities unless the put option first becomes exercisable 12 months after the
+end of the reporting period.
+Put options on non-controlling interest of the Group are financial instruments granted by the Group which permit
+the holders to put back to the Group their shares in certain non wholly-owned subsidiaries of the Group for cash or
+other financial instruments when certain conditions are met. If the Group does not have the unconditional right to
+avoid delivering cash or other financial instruments under the put option, a financial liability is initially recognised
+under "Other financial liabilities” in the consolidated financial statements at the present value of the estimated
+future cash outflows on exercise under the put option. Subsequently, if the Group revises its estimates of payments,
+the Group will adjust the carrying amount of the financial liability to reflect actual and revised estimated cash
+outflows. The Group will recalculate the carrying amount based on the present value of revised estimated future
+cash outflows at the financial instrument's original effective interest rate and the adjustment will be recognised in
+the consolidated statement of changes in equity. In the event that the put option expires unexercised, the liability is
+derecognised with a corresponding adjustment to equity.
+2.23 Put option arrangements on non-controlling interest
+Media contents
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are presented as current liabilities unless payment is not due within 12
+months after the end of the reporting period.
+2.22 Accounts payable
+Where any Group company purchases the Company's equity instruments, the consideration paid, including
+any directly attributable incremental costs, is deducted from equity attributable to the Company's equity holders
+as treasury shares until the shares are cancelled or reissued. Where such shares are subsequently reissued,
+any consideration received (net of any directly attributable incremental transaction costs) is included in equity
+attributable to the Company's equity holders.
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
+options are shown in equity as a deduction from the proceeds.
+2.21 Share capital
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+Notes to the Consolidated Financial Statements
+00
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority
+will accept an uncertain tax treatment. When it is not probable, the Group measures its tax balances either based
+on the most likely amount or the expected value, depending on which method provides a better prediction of the
+resolution of the uncertainty.
+The income tax expense for the year comprises current and deferred income tax, which is recognised in the
+consolidated income statement, except to the extent that it relates to items recognised in other comprehensive
+income or directly in equity. In this case, the income tax is also recognised in other comprehensive income or in
+equity, respectively.
+2.25 Current and deferred income tax
+General and specific finance costs directly attributable to the acquisition and construction of qualifying assets,
+which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
+added to the cost of those assets, until such time as the assets are substantially ready for their intended use or
+sale. During the year ended 31 December 2021, finance cost capitalised was insignificant to the Group.
+Borrowings and notes payable are classified as current liabilities unless the Group has an unconditional right to
+defer settlement of the liability for at least 12 months after the end of the reporting period.
+2.24 Borrowings, notes payable and borrowing costs
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their terms using the
+effective interest method.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+200
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan facilities to the
+extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the
+draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn
+down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility to
+which it relates.
+Tencent Holdings Limited
+Deferred income tax assets and liabilities are offset where there is a legally enforceable right to offset current tax
+assets against current tax liabilities and where the deferred income tax assets and liabilities relate to income taxes
+levied by the same taxation authority on either the taxable entity or different taxable entities where there is an
+intention to settle the balances on a net basis.
+Notes to the Consolidated Financial Statements
+Cloud services are mainly charged on either a subscription or consumption basis. For cloud service contracts
+billed based on a fixed amount for a specified service period, revenue is recognised over the subscribed
+period when the services are delivered to customers. For cloud service provided on a consumption basis,
+revenue is recognised based on the customer utilisation of the resources. When a cloud-based service
+includes multiple performance obligations, the Group allocates the transaction price to each performance
+obligation on a relative stand-alone selling price basis, which is determined based on the prices charged to
+or expected to recover from customers.
+FinTech service revenues mainly include commissions from payment, wealth management and other
+FinTech services, which are generally determined as a percentage based on the value of transaction amount
+or retention amount. Revenue related to such commissions is recognised upon a point in time when the
+Group satisfies its performance obligations by rendering services.
+FinTech and Business Services revenues mainly comprise revenues derived from provision of FinTech and
+cloud services.
+FinTech and Business Services
+Revenue from display-based advertising is recognised on number of display/impression basis or depending
+on the contractual measures. Revenue from performance-based advertising is recognised when relevant
+specific performance measures are fulfilled. Where the contracts include multiple performance obligations,
+the Group allocates the transaction price to each performance obligation on a relative stand-alone selling
+price basis, which is determined based on the prices charged to or expected to recover from customers.
+Advertising contracts are signed to establish the prices and advertising services to be provided based on
+different arrangements, including display-based advertising that are display of ads for an agreed period of
+time, and performance-based advertising that are based on actual performance measurement.
+(c)
+Online Advertising revenues mainly comprise revenues derived from media advertisements and from social
+and other advertisements, depending on the placement of advertising properties and inventories.
+Online Advertising
+(b)
+2.28 Revenue recognition (continued)
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+2
+00
+The Group adopts different revenue recognition methods based on its specific responsibilities/obligations in
+different VAS offerings.
+The Group also opens its online platforms to third-party game/application developers under certain co-
+operation agreements, of which the Group pays to the third-party game/application developers a pre-
+determined percentage of the fees paid by and collected from the users of the Group's online platforms for
+the virtual items purchased. The Group recognises the related revenue on a gross or net basis depending on
+whether the Group is acting as a principal or an agent in the transaction.
+In respect of the Group's VAS directly delivered to the Group's customers and paid through various third-
+party platforms, these third-party platforms collect the relevant service fees (the “Online Service Fees") on
+behalf of the Group and they are entitled to a pre-determined percentage of platform provider fees (as part
+of "Channel and distribution costs"). Such Channel and distribution costs are withheld and deducted from
+the gross Online Service Fees collected by these platforms from the users, with the net amounts remitted
+to the Group. The Group recognises the Online Service Fees as revenue on a gross or net basis depending
+on whether the Group is acting as a principal or an agent in these transactions based on the assessment
+according to the criteria stated in (e) below.
+Where the contracts include multiple performance obligations, the Group allocates the transaction price to
+each performance obligation on a relative stand-alone selling price basis, which is determined based on the
+prices charged to or expected to recover from customers.
+VAS (continued)
+(a)
+2.28 Revenue recognition (continued)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+205
+Annual Report 2021
+207
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+209
+Annual Report 2021
+The Group leases land (Note 2.11), various buildings, computer and other operating equipment and others.
+Rental contracts other than land are typically made for fixed periods of no longer than 10 years. Lease terms are
+negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements
+do not impose any covenants, but leased assets may not be used as security for borrowing purposes. A lease is
+recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for
+use by the Group. A right-of-use asset arising from land lease is presented as “Land use rights".
+2.32 Leases
+Under these circumstances, the grants/subsidies are recognised as income or matched with the associated costs
+and expenses which the grants/subsidies are intended to compensate.
+Grants/Subsidies from government are recognised at their fair values where there is a reasonable assurance that
+the grants/subsidies will be received and the Group will comply with all attached conditions.
+2.31 Government grants/subsidies
+Dividends are received from FVPL and FVOCI. Dividends are recognised in "Other gains/(losses), net" in the
+consolidated income statement when the right to receive payment is established. This applies even if they are paid
+out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of an investment.
+In this case, the dividend is recognised in other comprehensive income if it relates to an investment measured at
+FVOCI.
+2.30 Dividend income
+Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial
+asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets
+the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss
+allowance). Interest income is presented as “Interest income" where it is mainly earned from financial assets that
+are held for cash management purposes.
+2.29 Interest income
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Annual Report 2021
+2
+208
+00
+Contract costs include incremental costs of obtaining a contract and costs to fulfil a contract with the
+customers. The contract costs are amortised using a method which is consistent with the pattern of
+recognition of the respective revenues. The Group has applied the practical expedient to recognise the
+contract cost relating to obtaining a contract as an expense when incurred, if otherwise the amortisation
+period is one year or less.
+A contract liability is the Group's obligation to transfer goods or services to a customer for which the Group
+has received consideration (or an amount of consideration is due) from the customer. The Group's contract
+liabilities mainly comprise virtual items, unamortised pre-paid tokens or cards, Internet traffic and other
+support to be offered to certain investee companies in the future periods measured at their fair value on the
+inception dates, and customer loyalty incentives offered to the customers (Note 5(c)).
+Contract liabilities and contract costs
+(f)
+The Group reports the revenue on a gross or net basis depending on whether the Group is acting as a
+principal or an agent in a transaction. The Group is a principal if it controls the specified product or service
+before that product or service is transferred to a customer or it has a right to direct others to provide the
+product or service to the customer on the Group's behalf. Indicators that the Group is a principal include
+but are not limited to whether the Group (i) is the primary obligor in the arrangement; (ii) has latitude in
+establishing the selling price; (iii) has discretion in supplier selection; (iv) changes the product or performs
+part of the service, and (v) has involvement in the determination of product or service specifications.
+Principal agent consideration
+(e)
+The Group's other revenues are primarily derived from production of and distribution of, films and television
+programmes for third parties, copyrights licensing, merchandise sales and various other activities. The Group
+recognises other revenues when the respective services are rendered, or when the control of the products is
+transferred to customers.
+Other revenues
+(d)
+2.28 Revenue recognition (continued)
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+Tencent Holdings Limited
+Revenue from VAS is recognised when the Group satisfies its performance obligations by rendering services.
+Given that there is an explicit or implicit obligation of the Group to maintain the virtual items operated on the
+Group's platforms and allow users to gain access to them, revenue is recognised over the estimated lifespans
+of the respective virtual items. The estimated lifespans of different virtual items are determined by the
+management based on either the expected user relationship periods or the stipulated period of validity of the
+relevant virtual items depending on the respective term of virtual items.
+206
+(a) VAS
+2.26 Employee benefits (continued)
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+202
+00
+These long-term employee benefit obligations are measured as the present value of expected future
+payments to be made in respect of services provided by employees up to the end of the reporting period
+using the projected unit credit method. Expected future payments are discounted using market yields at the
+end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely
+as possible, the estimated future cash outflows. For currencies for which there is no deep market in such
+high-quality corporate bonds, the market yields on government bonds denominated in that currency were
+applied. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are
+recognised in profit or loss.
+In addition to participating in the defined contribution plan as described above, the Group also provides
+commercial health insurance benefits to certain eligible employees till their resignation or retirement. These
+obligations are classified as non-current liabilities unless it is expected to be settled wholly within 12 months
+after the end of the reporting period.
+(c) Long-term employee benefit obligations
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund. The Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee services in the current and prior years. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the plans prior to vesting fully in the contributions.
+Pension obligations
+Revenues from VAS primarily include revenues from the provision of online games and social networks
+services. Online games revenues are mainly derived from sales of in-game virtual items, and social networks
+revenues are mainly derived from sales of virtual items such as VAS subscriptions across various online
+platforms, and games revenues attributable to social networks business. The Group offers virtual items to
+users on the Group's online platforms. The VAS fees are paid directly by end users mainly via online payment
+channels.
+(d) Long-term service awards
+Employee entitlements to annual leave are recognised when they are accrued to employees. A provision is
+made for the estimated liability for annual leave as a result of services rendered by employees up to the end
+of the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time
+of leave.
+2.26 Employee benefits
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+201
+Annual Report 2021
+Deferred income tax assets are recognised on deductible temporary differences arising from investments in
+subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will
+reverse in the future and there is sufficient taxable profit available against which the temporary difference can be
+utilised.
+Deferred income tax liabilities are provided on temporary differences arising from investments in subsidiaries,
+associates and joint ventures, except for deferred income tax liability where the timing of the reversal of the
+temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse
+in the foreseeable future. Generally, the Group is unable to control the reversal of the temporary difference for
+associates and joint ventures. Only when there is an agreement in place that gives the Group the ability to control
+the reversal of the temporary difference in the foreseeable future, deferred income tax liability in relation to taxable
+temporary differences arising from the associates' and joint ventures' undistributed profit is not recognised.
+Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
+available to utilise those temporary differences and tax losses.
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
+deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in
+a transaction other than a business combination that at the time of the transaction neither accounting nor taxable
+profit or loss is affected. Deferred income tax is determined using tax rates (and laws) that have been enacted
+or substantively enacted by the end of the reporting period and are expected to apply when the related deferred
+income tax asset is realised or the deferred income tax liability is settled.
+2.25 Current and deferred income tax (continued)
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+(a) Employee leave entitlements
+The Group recognises a liability and an expense for long-term service awards where cash is paid to retired
+employees qualified for certain criteria as one-off retirement bonus and it was considered as defined benefit
+plan. The method of accounting is similar to those used for long-term employee benefits as described above,
+except that remeasurement gains and losses arising from experience adjustments and changes in actuarial
+assumptions are recognised in other comprehensive income in the period in which they occur.
+(b)
+Share-based compensation benefits
+(e)
+2.28 Revenue recognition
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
+specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably
+estimated. Provisions are not recognised for future operating losses.
+2.27 Provisions
+For the year ended 31 December 2021
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+204
+00
+For cash-settled share-based payments, a liability equal to the portion of the services received is recognised
+at the current fair value determined at the end of the reporting period.
+Cash-settled share-based payment transactions are those arrangements which the terms provide the Group
+to settle the transaction in cash. Upon the satisfaction of the vesting conditions, the Group shall account for
+that transaction as a cash-settled share-based payment transaction if, and to the extent that, the Group has
+incurred a liability to settle in cash.
+The Group generates revenues primarily from provision of VAS, Online Advertising services, FinTech and Business
+Services, and other online related services in the PRC. Revenue is recognised when the control of the goods
+or services is transferred to a customer. Depending on the terms of the contract and the laws that apply to the
+contract, control of the goods and services may be transferred over time or at a point in time.
+If the Group repurchases vested equity instruments, the payments made to the employees and other
+qualifying participants shall be accounted for as a deduction from equity, except to the extent that the
+payment exceeds the fair value of the equity instruments repurchased, measured at the repurchase date.
+Any such excess shall be recognised as an expense.
+If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the terms
+had not been modified. An additional expense is recognised for any modification that increases the total
+fair value of the share-based payment arrangement, or is otherwise beneficial to the employees and other
+qualifying participants, as measured at the date of modification.
+For grant of share options, the total amount to be expensed is determined by reference to the fair value of
+the options granted by using option-pricing model, “Enhanced FAS 123" binomial model (the “Binomial
+Model"), which includes the impact of market performance conditions (such as the Company's share price)
+but excludes the impact of service condition and non-market performance conditions. For grant of award
+shares, the total amount to be expensed is determined by reference to the market price of the Company's
+shares at the grant date. The Group also adopts valuation and actuarial techniques to assess the fair value of
+other equity instruments of the Group granted under the share-based compensation plans as appropriate.
+Non-market performance and service conditions are included in assumptions about the number of options
+that are expected to become vested.
+From the perspective of the Company, the grants of its equity instruments to employees of its subsidiaries are
+made in exchange for their services related to the subsidiaries. Accordingly, the share-based compensation
+expenses are treated as part of the “Investments in subsidiaries” or “Other receivables” in the Company's
+statement of financial position.
+Annual Report 2021
+203
+Notes to the Consolidated Financial Statements
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees and other qualifying
+participants as consideration for equity instruments (including share options and awarded shares) of
+the Group. The fair value of the employee services and other qualifying participants' services received in
+exchange for the grant of equity instruments of the Group is recognised as an expense over the vesting
+period, i.e. the period over which all of the specified vesting conditions are to be satisfied and credited to
+equity.
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.26 Employee benefits (continued)
+(e) Share-based compensation benefits (continued)
+At each reporting period end, the Group revises the estimates of the number of options and awarded shares
+that are expected to ultimately vest. It recognises the impact of the revision to original estimates, if any, in the
+consolidated income statement of the Group, with a corresponding adjustment to equity.
+When the options are exercised, the proceeds received net of any directly attributable transaction costs
+are credited to share capital (nominal value) and share premium. When the vested equity instruments are
+later forfeited prior to expiry date, the amount previously recognised in share premium will be transferred to
+retained earnings.
+For the year ended 31 December 2021
+(b) Credit risk (continued)
+For the year ended 31 December 2021
+FINANCIAL RISK MANAGEMENT (continued)
+3
+Notes to the Consolidated Financial Statements
+Stage 2: If the credit risk has increased significantly since its initial recognition but not yet deemed to
+be credit-impaired, the financial instrument is included in stage 2.
+Stage 3: If the financial instrument is credit-impaired, the financial instrument is included in stage 3.
+Stage 1: If the credit risk has not increased significantly since its initial recognition, the financial asset
+is included in stage 1.
+218
+00
+The Group considers the credit risk characteristics of different financial instruments when determining if
+there is significant increase in credit risk. For financial instruments with or without significant increase in
+credit risk, lifetime or 12-month expected credit losses are provided respectively.
+For financial assets whose impairment losses are measured using expected credit loss model, the Group
+assesses whether their credit risk has increased significantly since their initial recognition, and applies a
+three-stage impairment model to calculate their impairment allowance and recognise their expected credit
+losses, as follows:
+Tencent Holdings Limited
+The Group considers the probability of default upon initial recognition of asset and whether there has been a
+significant increase in credit risk on an ongoing basis throughout each of the years. To assess whether there
+is a significant increase in credit risk, the Group compares risk of a default occurring on the assets as at
+year end with the risk of default as at the date of initial recognition. In particular, the following indicators are
+incorporated:
+(i)
+•
+external credit rating (as far as available);
+•
+actual or expected significant adverse changes in business, financial economic conditions that are
+expected to cause a significant change to the counterparty's ability to meet its obligations;
+actual or expected significant changes in the operating results of the counterparty; and
+significant changes in the expected performance and behavior of the counterparty, including changes
+in the payment status of the counterparty.
+Credit risk of cash and deposits
+(!!)
+To manage this risk, the Group only makes transactions with state-owned banks and financial
+institutions in the PRC and reputable international banks and financial institutions outside of the PRC.
+There has been no recent history of default in relation to these banks and financial institutions. The
+expected credit loss is close to zero.
+Credit risk of accounts receivable
+The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS
+9, which permits the use of the lifetime expected loss provision for all accounts receivable. In view of
+the sound financial position and collection history of receivables due from these counterparties and
+insignificant risk of default, to measure the expected credit losses, accounts receivable have been
+grouped based on shared credit risk characteristics and the days past due.
+Annual Report 2021
+219
+Other receivables are mainly comprised of receivables related to financial services, interest receivables, loans
+to investees and investees' shareholders, lease deposits and other receivables. Management manages the
+loans by category, makes periodic assessments as well as individual assessment on the recoverability of
+other receivables based on historical settlement records and past experience.
+• internal credit rating;
+The majority of the balances of accounts receivable are due from online advertising customers and agencies,
+content production related customers, FinTech and cloud customers and third party platform providers. To
+manage the risk arising from accounts receivable, the Group has policies in place to ensure that revenues
+of credit terms are made to counterparties with an appropriate credit history and the management performs
+ongoing credit evaluations of its counterparties. The credit periods granted to these customers are disclosed
+in Note 30 and the credit quality of these customers is assessed, which takes into account their financial
+position, past experience and other factors. The Group has a large number of customers and there is no
+significant concentration of credit risk.
+3.1 Financial risk factors (continued)
+(b) Credit risk
+Annual Report 2021
+213
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.1 Financial risk factors (continued)
+(a) Market risk (continued)
+477
+(i)
+During the year ended 31 December 2021, the Group reported exchange gains of approximately
+RMB804 million (2020: exchange losses of approximately RMB438 million) within "Finance costs,
+net" in the consolidated income statement.
+As at 31 December 2021, management considers that any reasonable changes in foreign exchange
+rates of the above currencies against the two major functional currencies would not result in a
+significant change in the Group's results, as the net carrying amounts of financial assets and liabilities
+denominated in a currency other than the respective subsidiaries' functional currencies are considered
+to be not significant. Accordingly, no sensitivity analysis is presented for foreign exchange risk.
+(ii)
+Price risk
+00
+214
+The Group is exposed to equity price risk mainly arising from investments held by the Group that
+are classified either as FVPL (Note 24) or FVOCI (Note 25). To manage its price risk arising from
+the investments, the Group diversifies its investment portfolio. The investments are made either for
+strategic purposes, or for the purpose of achieving investment yield and balancing the Group's liquidity
+level simultaneously. Each investment is managed by management on a case by case basis.
+Foreign exchange risk (continued)
+Sensitivity analysis is performed by management to assess the exposure of the Group's financial
+results to equity price risk of FVPL and FVOCI at the end of each reporting period. If prices of the
+respective instruments held by the Group had been 5% (31 December 2020: 5%) higher/lower as
+at 31 December 2021, profit for the year would have been approximately RMB9,815 million (2020:
+RMB8,326 million) higher/lower as a result of gains/losses on financial instruments classified as at
+FVPL, other comprehensive income would have been approximately RMB12,348 million (2020:
+RMB10,529 million) higher/lower as a result of gains/losses on financial instruments classified as at
+FVOCI.
+(5,041)
+(6,663)
+Monetary liabilities, non-current
+(5,241)
+(721)
+(406)
+1,195
+As at 31 December 2020
+Monetary assets, current
+(1,021)
+10,238
+Monetary assets, non-current
+34
+4
+Monetary liabilities, current
+(8,650)
+(2,408)
+Monetary liabilities, non-current
+3,902
+(2,671)
+Tencent Holdings Limited
+3
+The effects of the interest rate swaps on the Group's financial position and performance are as follows:
+Interest rate swaps
+2021
+2020
+RMB'Million
+RMB'Million
+Carrying amount (current assets)
+(iii) Interest rate risk (continued)
+Carrying amount (non-current assets)
+Carrying amount (non-current liabilities)
+Notional amount
+Maturity date
+Hedge ratio
+Changes in fair value of outstanding hedging instruments
+1
+1,253
+Carrying amount (current liabilities)
+Notes to the Consolidated Financial Statements
+(a) Market risk (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+3.1
+Financial risk factors (continued)
+For the year ended 31 December 2021
+(a) Market risk (continued)
+(iii) Interest rate risk
+The Group's income and operating cash flows are substantially independent of changes in market
+interest rates and the Group has no significant interest-bearing assets except for loans to investees and
+investees' shareholders, term deposits with initial terms of over three months, restricted cash and cash
+and cash equivalents, details of which have been disclosed in Notes 26, 29 and 31.
+3.1 Financial risk factors (continued)
+If the interest rate of term deposits with initial terms of over three months had been 50 basis points
+higher/lower, the profit before income tax for the year ended 31 December 2021 would have been
+RMB517 million (2020: RMB501 million) higher/lower. If the interest rate of cash and cash equivalents
+had been 50 basis points higher/lower, the profit before income tax for the year ended 31 December
+2021 would have been RMB840 million (2020: RMB764 million) higher/lower.
+The Group regularly monitors its interest rate risk to identify if there are any undue exposures to
+significant interest rate movements and manages its cash flow interest rate risk by using interest rate
+swaps, whenever considered necessary.
+The Group entered into certain interest rate swap contracts to hedge its exposure arising from
+borrowings and senior notes carried at floating rates. Under these interest rate swap contracts, the
+Group agreed with the counterparties to exchange, at specified interval, the difference between
+fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional
+amounts. These interest rate swap contracts had the economic effect of converting borrowings and
+senior notes from floating rates to fixed rates and were qualified for hedge accounting. Details of the
+Group's outstanding interest rate swap contracts as at 31 December 2021 are mainly disclosed in both
+Note 27 and 39.
+Annual Report 2021
+215
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+3
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 36 and 37, representing a substantial portion
+of the Group's debts. Borrowings and notes payable carried at floating rates expose the Group to cash
+flow interest-rate risk whereas those carried at fixed rates expose the Group to fair value interest-rate
+risk.
+(6,224)
+Monetary liabilities, current
+Monetary assets, non-current
+makes adjustments specific to the lease, e.g. term, country, currency and security.
+00
+210 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2021
+uses a build-up approach that starts with a risk-free rate adjusted for credit risk for leases held by the Group,
+which does not have recent third-party financing; and
+2.32 Leases (continued)
+Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over
+the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for
+each period.
+Right-of-use assets are measured at cost comprising the following:
+• the amount of the initial measurement of lease liability;
+•
+any lease payments made at or before the commencement date less any lease incentives received;
+•
+any initial direct costs; and
+If a readily observable amortising loan rate is available to the individual lessee (through recent financing or market
+data) which has a similar payment profile to the lease, then the Group entities use that rate as a starting point to
+determine the incremental borrowing rate.
+restoration costs.
+where possible, uses recent third-party financing received by the individual lessee as a starting point,
+adjusted to reflect changes in financing conditions since third-party financing was received;
+To determine the incremental borrowing rate, the Group:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.32 Leases (continued)
+Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include
+the net present value of the following lease payments:
+•
+fixed payments (including in-substance fixed payments), less any lease incentives receivable;
+•
+.
+.
+amounts expected to be payable by the lessee under residual value guarantees;
+•
+the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
+•
+payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
+The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
+determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used,
+being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of
+similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
+variable lease payments that are based on an index or a rate;
+A right-of-use asset is generally depreciated over the shorter of the asset's useful life and the lease term on a
+straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is
+depreciated over the underlying asset's useful life.
+Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss.
+Short-term leases are leases with a lease term of 12 months or less without a purchase option.
+Annual Report 2021 211
+(a) Market risk
+(i)
+Foreign exchange risk
+For the year ended 31 December 2021
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to Hong Kong Dollars ("HKD"), USD and Euro ("EUR").
+Foreign exchange risk arises when future commercial transactions or recognised assets and
+liabilities are denominated in a currency that is not the respective functional currency of the Group's
+subsidiaries. The functional currency of the Company and majority of its overseas subsidiaries is USD
+whereas the functional currency of the subsidiaries which operate in the PRC is RMB.
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures.
+As at 31 December 2021, the Group's major monetary assets and liabilities exposed to foreign
+exchange risk are listed below:
+3.1 Financial risk factors (continued)
+USD
+Non-USD
+denominated
+RMB'Million
+RMB'Million
+As at 31 December 2021
+Monetary assets, current
+11,059
+4,587
+denominated
+FINANCIAL RISK MANAGEMENT (continued)
+3
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+2 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
+2.33 Dividends distribution
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or board of
+directors where appropriate and no longer at the discretion of the Group.
+In respect of a dividend by way of distribution of non-cash assets, the liability to distribute the non-cash assets
+as a dividend is measured at the fair value of the assets to be distributed on the declaration date. At the end of
+the reporting period and at the date of settlement, the Group reviews and adjusts the carrying amount of the
+dividend liability, and any subsequent change in the fair value of the dividend liability is recognised in equity as an
+adjustment to the amount of the dividend distribution. Upon settlement, the difference between the fair value of
+the assets distributed, which is also the carrying amount of the dividend liability, and the carrying amount of the
+assets distributed, if any, is recognised in profit or loss.
+The non-cash assets to be distributed are presented as “Assets held for distribution" in the consolidated statement
+of financial position.
+2.34 Research and development expenses
+Research expenditure is recognised as an expense as incurred.
+Costs incurred on development projects (relating to the design and testing of new or improved products)
+are capitalised when recognition criteria are fulfilled and tests for impairment are performed annually. Other
+development expenditures that do not meet those criteria are recognised as expenses as incurred. Development
+costs previously recognised as expenses are not recognised as assets in subsequent periods.
+3
+FINANCIAL RISK MANAGEMENT
+3.1 Financial risk factors
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price
+risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to
+minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out
+by the management of the Group.
+00
+212
+Tencent Holdings Limited
+4
+(109)
+For the year ended 31 December 2021
+(1,937)
+Measured at fair value
+7,970
+140,552
+(249)
+Liabilities
+RMB'Million
+RMB'Million
+Other financial assets
+Assets
+RMB'Million
+Assets
+Carrying amount at
+31 December 2021
+The Group is exposed to credit risk in relation to its cash and deposits placed with banks and financial
+institutions, accounts receivable, other receivables, as well as short-term investments measured at amortised
+cost, at FVOCI and at FVPL. The carrying amount of each class of these financial assets represents the
+Group's maximum exposure to credit risk in relation to the corresponding class of financial assets.
+Of which: Have not yet to
+transitioned to an alternative
+benchmark interest rate
+as at 31 December 2021
+Notes payable
+Liabilities
+RMB'Million
+Other financial liabilities
+1,253
+1,253
+3.1 Financial risk factors (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+3
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Annual Report 2021 217
+Management is closely monitoring the progress of the alternative selection and assessing the potential
+impacts on a continuous basis. It is expected that the transition will be completed before 30 June
+2023, and no significant impact arose during the year ended 31 December 2021.
+148,880
+1,253
+148,880
+1,253
+to USD LIBOR
+Total assets and liabilities exposed
+358
+358
+Borrowings
+Measured at amortised cost
+140,552
+7,970
+The LIBOR benchmark in the aforesaid floating-rate borrowings and notes payable in which the Group
+continues to have hedging instrument is USD LIBOR. The following table contains details of all the
+financial instruments that the Group held at 31 December 2021 which reference USD LIBOR and have
+not yet transitioned to an alternative interest rate benchmark:
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+216
+00
+As at 31 December 2021 and 2020, management considered that any reasonable changes in the
+interest rates would not result in a significant change in the Group's results as the Group's exposure to
+cash flow interest-rate risk arising from its borrowings and notes payable carried at floating rates after
+considering the effect of hedging is considered to be insignificant.
+Swaps currently in place covered majority of the floating-rate borrowings and notes payable principal
+outstanding.
+100,889
+104,708
+0.88%
+0.77%
+Notional amount directly impacted by IBOR reform
+Weighted average hedged rate for the year
+3
+effectiveness
+2,796
+Change in value of hedged item used to determine hedge
+since 1 January
+(1,552)
+2,796
+1:1
+1:1
+Assets and liabilities exposed to USD LIBOR
+2026/2/24
+2021/6/15 ~
+2022/3/29 -
+100,889
+104,708
+(1,552)
+FINANCIAL RISK MANAGEMENT (continued)
+2024/12/23
+(a) Market risk (continued)
+3.1 Financial risk factors (continued)
+(iii) Interest rate risk (continued)
+121,903
+costs and welfare accruals)
+customers and others, staff
+prepayments received from
+and accruals (excluding
+Accounts payable, other payables
+12,083
+603
+4,279
+2,207
+171,122
+4,994
+Other financial liabilities
+15,237
+2,465
+5,492
+3,294
+3,986
+Lease liabilities
+131,300
+2
+121,903
+Derivatives:
+31
+110,160
+Total debts
+Notes payable (Note 37)
+Borrowings (Note 36)
+The Group assesses its creditworthiness based on its business and financial risk profile and monitors its capital by
+regularly reviewing its debts to adjusted earnings before interest, tax, depreciation and amortisation ("EBITDA")
+(Note) ratio, being the measure of the Group's ability to pay off all of its debts which in turn reflects the Group's
+financial health and liquidity position. The total debts/adjusted EBITDA ratio calculated by dividing the total debts
+by adjusted EBITDA is as follows:
+Capital refers to equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+The Group's objectives on managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+3.2 Capital risk management
+For the year ended 31 December 2021
+FINANCIAL RISK MANAGEMENT (continued)
+Other financial liabilities
+3
+222 Tencent Holdings Limited
+461,302
+122,685
+169,281
+18,819
+150,517
+1,957
+1,617
+309
+Notes to the Consolidated Financial Statements
+5,529
+15,609
+Borrowings
+(c) Liquidity risk (continued)
+3.1 Financial risk factors (continued)
+00
+FINANCIAL RISK MANAGEMENT (continued)
+3
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+221
+Annual Report 2021
+663,009
+Less than
+157,323
+3
+FINANCIAL RISK MANAGEMENT (continued)
+00
+3.3 Fair value estimation (continued)
+During the year ended 31 December 2021, there was no transfer between level 1 and 2 for recurring fair value
+measurements. Transfers in and out of level 3 measurements are set out in the following table, which presents the
+changes of financial instruments in level 3 for the years ended 31 December 2021 and 2020:
+Opening balance
+Additions
+Business combinations
+Financial assets
+Financial liabilities
+For the year ended 31 December 2021
+Adjusted EBITDA (Note)
+Between 1
+1 year
+10,157
+120
+6,551
+3,486
+Long-term payables
+168,665
+119,495
+41,182
+3,994
+3,994
+Between 2
+Notes payable
+At 31 December 2020
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Over 5 years
+and 5 years
+and 2 years
+Non-derivatives:
+Total debts/Adjusted EBITDA ratio
+As at 31 December
+8,069
+FVOCI
+199,465
+13,626
+213,091
+Other financial assets
+1,120
+9
+1,129
+Other financial liabilities
+1,957
+3,352
+5,309
+00
+224
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.3 Fair value estimation (continued)
+Note:
+For the year ended 31 December 2021
+172,537
+It represented the dividend liability resulting from distribution in specie which was measured at fair value of JD.com Inc. ("JD.
+com") shares to be distributed (Note 15(b)).
+139,271
+27,620
+202,757
+FVOCI
+227,788
+22,469
+250,257
+Assets held for distribution
+102,451 --
+102,451
+Other financial assets
+Other financial liabilities
+1,709
+358
+17
+1,726
+2,444
+2,802
+Dividends payable for distribution
+in specie (Note)
+102,451
+102,451
+As at 31 December 2020
+FVPL
+5,646
+Note:
+The fair value of financial instruments traded in active markets is determined with reference to quoted market
+prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly
+available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
+represent actual and regularly occurring market transactions on an arm's length basis. These instruments are
+included in level 1.
+If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.
+FINANCIAL RISK MANAGEMENT (continued)
+Notes to the Consolidated Financial Statements
+3
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+223
+Annual Report 2021
+1.36
+1.55
+183,314
+194,798
+248,444
+301,529
+122,057
+145,590
+126,387
+155,939
+RMB'Million
+RMB'Million
+2020
+2021
+3.3 Fair value estimation
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in level 2.
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2021 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+2021
+Specific valuation techniques used to value financial instruments mainly include:
+• Dealer quotes for similar instruments;
+•
+•
+The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows
+based on observable yield curves; and
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+instruments.
+Annual Report 2021 225
+23,566
+As at 31 December 2021
+FVPL
+RMB'Million
+Total
+Level 3
+RMB'Million
+RMB'Million
+RMB'Million
+Level 2
+Level 1
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
+(level 3).
+Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
+•
+•
+2020
+Adjusted EBITDA represents operating profit less interest income and other gains/(losses), net, and adding back depreciation of
+property, plant and equipment, investment properties as well as right-of-use assets, amortisation of intangible assets and land
+use rights, and equity-settled share-based compensation expenses.
+2020
+220
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+3
+FINANCIAL RISK MANAGEMENT (continued)
+For the year ended 31 December 2021
+3.1 Financial risk factors (continued)
+(c) Liquidity risk
+The Group aims to maintain sufficient cash and cash equivalents and readily marketable securities, which
+are classified as FVPL. Due to the dynamic nature of the underlying businesses, the Group maintains
+flexibility in funding by maintaining adequate balances of such.
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date (or the earliest date
+a financial liability may become payable in the absence of a fixed maturity date). The amounts disclosed in
+the table are the contractual undiscounted cash flows or the carrying amount of the financial assets to be
+delivered.
+Less than
+1 year
+Between 1
+and 2 years
+Between 2
+and 5 years
+Over 5 years
+Total
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+00
+At 31 December 2021
+Management considers the credit risk of other receivables is insignificant when they have a low risk of
+default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near
+term, and the loss allowance recognised is therefore limited to 12 months expected losses. In view
+of insignificant risk of default and credit risk since initial recognition, management believes that the
+expected credit loss under the 12 months expected losses method is immaterial.
+Impairment losses on accounts receivables are presented as net impairment losses within operating
+profit. Subsequent recoveries of amounts previously written off are credited against the same item.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+(a) The estimates of the lifespans of virtual items provided on the Group's online platforms (continued)
+Significant judgments are required in determining the expected users' relationship periods, including but not
+limited to historical users' consumption patterns, churn out rate and reactivity on marketing activities, games life-
+cycle, and the Group's marketing strategy. The Group has adopted a policy of assessing the estimated lifespans
+of virtual items on a regular basis whenever there is any indication of change in the expected users' relationship
+periods.
+The Group will continue to monitor the average lifespans of the virtual items. The results may differ from the
+historical period, and any change in the estimates may result in the revenue being recognised on a different basis
+from that in prior periods.
+(b) Recoverability of non-financial assets
+The Group tests annually whether goodwill has suffered any impairment. Goodwill and other non-financial assets,
+mainly including property, plant and equipment, construction in progress, other intangible assets, investment
+properties, land use rights, right-of-use assets as well as investments in associates and joint ventures are reviewed
+for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully
+recoverable. The recoverable amounts have been determined based on value-in-use calculations or fair value less
+costs of disposal. These calculations require the use of judgments and estimates.
+Judgment is required to identify any impairment indicators existing for any of the Group's goodwill and other non-
+financial assets, to determine appropriate impairment approaches, i.e., fair value less costs of disposal or value
+in use, for impairment review purposes, and to select key assumptions applied in the adopted valuation models,
+including discounted cash flows and market approach. Changing the assumptions selected by management
+in assessing impairment could materially affect the result of the impairment test and in turn affect the Group's
+financial condition and results of operations. If there is a significant adverse change in the key assumptions
+applied, it may be necessary to take additional impairment charge to the consolidated income statement.
+Annual Report 2021 229
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.1 Financial risk factors (continued)
+(b)
+Credit risk (continued)
+(ii)
+Credit risk of accounts receivable (continued)
+The expected loss rates are based on the payment profiles of revenue over 12 months before 31
+December 2021 and the corresponding historical credit losses experienced within this period or
+probability of a receivable progressing through successive stages of delinquency to write-off. The
+historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic
+factors affecting the ability of the customers to settle the receivables. The Group has identified the
+Gross Domestic Product ("GDP") to be the most relevant factor. Various economic scenarios are
+considered in generating the forward-looking adjustment, including the recent influences of the
+coronavirus pandemic situation.
+A default on accounts receivable occurs when the counterparty fails to make contractual payments
+within 90 days when they fall due. To measure the expected credit losses, accounts receivable are
+grouped on the basis of shared credit risk characteristics, such as industry, with the objective of
+facilitating an analysis to identify significant increases in credit risk and recognition of loss allowance
+on a timely basis. Accounts receivable are written off, in whole or in part, when it has exhausted all
+practical recovery efforts and has concluded that there is no reasonable expectation of recovery.
+Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a
+debtor to engage in a repayment plan within the Group, and a failure to make contractual payments for
+a period of greater than 3 years past due.
+(iii) Credit risk of other receivables
+Non-derivatives:
+190,354
+36,617
+9,541
+5,192
+5,877
+Lease liabilities
+161,494
+6
+131,505
+9,046
+Borrowings
+10,060
+51
+4,092
+5,917
+Long-term payables
+213,859
+152,539
+42,196
+14,268
+4,856
+Notes payable
+2021
+3,711
+24,321
+Other financial liabilities
+3,795
+278,715
+358
+172
+77
+109
+Other financial liabilities
+Derivatives:
+102,451
+102,451
+in specie
+Tencent Holdings Limited
+Dividends payable for distribution
+140,690
+costs and welfare accruals)
+customers and others, staff
+prepayments received from
+and accruals (excluding
+Accounts payable, other payables
+9,776
+1,016
+2,848
+2,117
+140,690
+228
+20,937
+As mentioned in Note 2.28(a), the end users purchase certain virtual items provided on the Group's online
+platforms and the relevant revenue is recognised based on the estimated lifespans of the virtual items. The
+estimated lifespans of different virtual items are determined by the management based on either the expected
+users' relationship periods or the stipulated period of validity of the relevant virtual items depending on the
+respective terms of virtual items.
+Changes in fair value recognised in profit or loss*
+52,076
+25,748
+(46)
+635
+Currency translation differences
+(6,139)
+(7,916)
+(161)
+(52)
+Closing balance
+193,608
+152,906
+2,444
+3,352
+*Includes unrealised gains/(losses)
+recognised in profit or loss attributable
+to balances held at the end of the
+reporting period
+12,053
+11,032
+2,133
+(113)
+17,120
+Changes in fair value recognised in other
+00
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+152,906
+123,093
+3,352
+79,756
+56,393
+102
+2,142
+10
+(11,333)
+(4,902)
+(803)
+(1,246)
+(90,778)
+(41,653)
+Disposals/Settlements
+Transfers
+comprehensive income
+636
+1,873
+Notes to the Consolidated Financial Statements
+companies in
+FVPL and FVOCI
+27% 63% Depends on rights and
+restrictions of shares
+held by the Group
+Risk-free rate
+-0.58%-5.39% 0.15%-5.35%
+Annual Report 2021
+227
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+3
+FINANCIAL RISK MANAGEMENT (continued)
+3.3 Fair value estimation (continued)
+Note: (continued)
+For contingent consideration related to a business combination of a subsidiary, which is principally engaged in the television
+series and film production business, the significant unobservable inputs are growth rate of net profit and expected volatility, which
+are 10% (31 December 2020: 15%) and 30% (31 December 2020: 35%), respectively. The higher the growth rate, the higher
+the fair value; and the higher the expected volatility, the lower the fair value.
+For the fair value of the Group's investments in unlisted companies, the sensitivity analysis is performed by management, see
+Note 3.1(a)(ii) for details.
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
+Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
+expectations of future events that are believed to be reasonable under the circumstances.
+226 Tencent Holdings Limited
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk
+of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
+addressed below:
+(a) The estimates of the lifespans of virtual items provided on the Group's online platforms
+29%-70%
+147,132 Expected volatility
+For the fair value of contingent consideration related to business combination, if growth rate of net profit had been 5% higher or
+lower as at 31 December 2021, the fair value would have increased by approximately RMB36 million (2020: RMB73 million) or
+decreased by approximately RMB45 million (2020: RMB97 million). If the expected volatility had been 5% higher or lower as at
+31 December 2021, the fair value would have decreased by approximately RMB37 million (2020: RMB66 million) or increased
+by approximately RMB41 million (2020: RMB66 million).
+Investments in unlisted
+185,774
+FINANCIAL RISK MANAGEMENT (continued)
+Note:
+For the year ended 31 December 2021
+3
+Valuation processes inputs and relationships to fair value (Level 3)
+The Group has a team of personnel who performs valuation on these level 3 instruments for financial reporting purposes. The
+team performs valuation, or necessary updates, at least once every quarter, which coincides with the Group's quarterly reporting
+dates. On an annual basis, the team adopts various valuation techniques to determine the fair value of the Group's level 3
+instruments. External valuation experts may also be involved and consulted when it is necessary.
+The components of the level 3 instruments mainly include investments in unlisted companies classified as FVPL or FVOCI,
+other financial assets, and other financial liabilities. Other financial liabilities mainly include contingent consideration payable
+related to certain business combinations. As these investments and instruments are not traded in an active market, the majority
+of their fair values have been determined using applicable valuation techniques including comparable companies approach,
+comparable transactions approach and other option pricing approach. These valuation approaches require significant judgments,
+assumptions and inputs, including risk-free rates, expected volatility, relevant underlying financial projections, and market
+information of recent transactions (such as recent fund-raising transactions undertaken by the investees) and other exposure,
+etc.
+The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
+measurements of investments in unlisted companies.
+Description
+During the years ended 31 December 2021 and 2020, transfers from level 3 to level 1 were mainly due to the successful Initial
+Public Offerings ("IPOS") of existing investees.
+3.3 Fair value estimation (continued)
+Fair value
+as at 31 December
+2020
+2021
+2021
+RMB'Million
+2020
+Relationship of
+unobservable inputs
+Range of inputs
+as at 31 December
+Significant
+unobservable inputs
+to fair value
+RMB'Million
+17,594
+26,758
+87
+17,771
+6,628
+30
+2,329
+Revenues
+Annual Report 2021
+233
+Notes to the Consolidated Financial Statements
+5 SEGMENT INFORMATION AND REVENUES (continued)
+(a) Description of segments and principal activities (continued)
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in the Mainland
+of China. During the years ended 31 December 2021 and 2020, breakdown of the total revenues by geographical
+location is as follows:
+9,170
+00
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+For the year ended 31 December 2021
+142,925
+5,006
+RMB'Million
+RMB'Million RMB'Million
+- The Mainland of China
+- Others
+RMB'Million
+RMB'Million
+Segment revenues
+264,212
+82,271
+128,086
+7,495
+482,064
+Gross profit
+42,260
+36,251
+96
+221,532
+Cost of revenues
+Depreciation
+Amortisation
+3,331
+2021
+Investments
+RMB'Million
+415,685
+- North America
+148,455
+141,876
+- Asia excluding the Mainland of China and Hong Kong
+103,386
+61,894
+- Europe
+539,900
+63,117
+Others
+23,795
+13,681
+1,612,364
+1,333,425
+234 Tencent Holdings Limited
+Total
+Notes to the Consolidated Financial Statements
+57,750
+2020
+The Mainland of China and Hong Kong
+243,296
+RMB'Million
+513,688
+448,165
+46,430
+33,899
+560,118
+482,064
+The Group also conducts operations in the North America, Europe and other regions, and holds investments
+(including investments in associates, investments in joint ventures, FVPL, FVOCI and assets held for distribution) in
+various territories. The geographical information on the total assets is as follows:
+242,477
+Operating assets
+- Others
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+490,415
+400,062
+- The Mainland of China
+Others
+Other information, together with the segment information, provided to the chief operating decision-makers, is
+measured in a manner consistent with that applied in these consolidated financial statements. There were no
+segment assets and segment liabilities information provided to the chief operating decision-makers.
+Online
+Advertising
+Annual Report 2021
+231
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+5 SEGMENT INFORMATION AND REVENUES
+(a) Description of segments and principal activities
+The chief operating decision-makers mainly include executive directors of the Company. They review the Group's
+internal reporting in order to assess performance, allocate resources, and determine the operating segments based
+on these reports.
+The Group has the following reportable segments for the years ended 31 December 2021 and 2020:
+The Group is required to reassess whether it controls the investee if facts and circumstances indicate a change to
+one or more of the three factors of control.
+00
+Online Advertising;
+FinTech and Business Services; and
+- Others.
+The "Others" business segment consists of the financials of investment in, production of and distribution of, films
+and television programmes for third parties, copyrights licensing, merchandise sales and various other activities.
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit of each operating segment. The selling and marketing expenses and general and
+administrative expenses are common costs incurred for these operating segments as a whole and therefore, they
+are not included in the measure of the segments' performance which is used by the chief operating decision-
+makers as a basis for the purpose of resource allocation and assessment of segment performance. Interest income,
+other gains/(losses), net, finance costs, net, share of profit/(loss) of associates and joint ventures, net and income
+tax expense are also not allocated to individual operating segment.
+There were no material inter-segment sales during the years ended 31 December 2021 and 2020. The revenues
+from external customers reported to the chief operating decision-makers are measured in a manner consistent with
+that applied in the consolidated income statement.
+232 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+VAS;
+5
+Consolidation is required only if control exists. The Group controls an investee when it has all the following: (i)
+power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii)
+the ability to use its power over the investee to affect the amount of the Group's returns. Power results from rights
+that can be straightforward through voting rights or complicated in contractual arrangements. Variable returns
+normally encompass financial benefits and risks, but in certain cases, they also include operational values specific
+to the Group. These three factors cannot be considered in isolation by the Group in its assessment of control over
+an investee. Where the factors of control are not apparent, significant judgement is applied in the assessment,
+which is based on an overall analysis of all of the relevant facts and circumstances.
+(f)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+4
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+(c) Fair value measurement of FVPL, FVOCI and other financial liabilities
+The fair value assessment of FVPL, FVOCI and other financial liabilities that are measured at level 3 fair value
+hierarchy requires significant estimates, which include risk-free rates, expected volatility, relevant underlying
+financial projections, market information of recent transactions (such as recent fund raising transactions
+undertaken by the investees) and other assumptions. Changes in these assumptions and estimates could
+materially affect the respective fair value of these investments.
+(d) Share-based compensation arrangements
+Scope of consolidation
+As mentioned in Note 2.26(e), the Group has granted share options to its employees and other qualifying
+participants. The directors have adopted the Binomial Model to determine the total fair value of the options
+granted, which is to be expensed over the respective vesting periods. Significant estimates and judgment on key
+parameters, such as risk free rate, dividend yield and expected volatility, are required to be made by the directors
+based on historical experience and other relevant factors in applying the Binomial Model (Note 35). Changes in
+these estimates and judgments could materially affect the fair value of these options granted.
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the “Expected Retention Rate") in order to determine the
+amount of share-based compensation expenses charged to the consolidated income statement. Where the final
+retention rate is different from the initial estimate, such difference will impact the share-based compensation
+expenses in subsequent periods. As at 31 December 2021, the Expected Retention Rate of the Group's wholly-
+owned subsidiaries was assessed to be not lower than 89% (31 December 2020: not lower than 91%).
+00
+230 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+(e) Income taxes
+The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
+worldwide provision for income taxes. Where the final tax outcome of these matters is different from the amounts
+that were initially recorded, such differences will impact current income tax and deferred income tax in the period
+in which such determination is made.
+The fair value of share options granted to employees and other qualifying participants determined using the
+Binomial Model was approximately HKD2,994 million (equivalent to approximately RMB2,513 million) in 2021
+(2020: approximately HKD1,073 million (equivalent to approximately RMB976 million)).
+Business
+Services
+SEGMENT INFORMATION AND REVENUES (continued)
+(a) Description of segments and principal activities (continued)
+51,396
+1,018
+245,944
+Cost of revenues
+Depreciation
+5,797
+5,322
+Amortisation
+40,594
+18,740
+10,268
+72
+106
+21,493
+1,973
+28,595
+Year ended 31 December 2020
+FinTech and
+VAS
+7,810
+For the year ended 31 December 2021
+152,936
+560,118
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2021 and 2020 is as follows:
+Year ended 31 December 2021
+FinTech and
+Online
+VAS
+Advertising
+Business
+Services
+Others
+Gross profit
+Total
+RMB'Million RMB'Million
+RMB'Million
+RMB'Million
+Segment revenues
+291,572
+88,666
+172,195
+7,685
+RMB'Million
+5
+For the year ended 31 December 2021
+(a) Description of segments and principal activities (continued)
+net gains of approximately RMB18,646 million (2020: RMB 15,492 million) on dilution of the Group's equity interests
+in certain associates due to new equity interests being issued by these associates (Note 21). These investee companies
+are principally engaged in games development, finance, online video-sharing platform, eCommerce and Internet-related
+businesses; and
+aggregated net gains of approximately RMB99,405 million (2020: RMB8,898 million) on disposals, partial disposals or
+other deemed disposals of various investments of the Group, which mainly comprised the following:
+(i)
+step down gain of approximately RMB78.0 billion arising from the investment in JD.com, details of which are
+explained in Note 21(b)(i);
+SEGMENT INFORMATION AND REVENUES (continued)
+(iii)
+step down gain of approximately RMB11.6 billion arising from the transfer of an investee company engaged in
+games development from associate to FVOCI as a result of retirement of board representatives (Note 25(v)); and
+step up gain of approximately RMB3,807 million arising from the completion of privatisation of Sogou Inc. ("Sogou"),
+an investment transferred from investment in an associate to a subsidiary (Note 42(a)).
+During the year ended 31 December 2021, the net fair value gains on FVPL comprised net gains of approximately RMB47,424
+million (2020: RMB37,257 million) as a result of increase in valuations of certain investee companies, and approximately
+RMB136 million associated with treasury investments (2020: nil).
+00
+238 Tencent Holdings Limited
+The disposal and deemed disposal gains of approximately RMB118,051 million recognised during the year ended 31 December
+2021 comprised the following:
+7
+Note: (continued)
+(c)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+The impairment provision for investee companies, goodwill and other intangible assets arising from acquisitions mainly comprised
+the following:
+2021
+2020
+RMB'Million
+RMB'Million
+Investments in associates (Note 21)
+15,391
+OTHER GAINS, NET (continued)
+5,254
+57,131
+(1,833)
+24,390
+47,560
+37,257
+Impairment provision for investee companies, goodwill and other intangible
+assets arising from acquisitions (Note (c))
+Subsidies and tax rebates
+Net fair value gains on other financial instruments
+Donations (Note (d))
+Dividend income
+Others
+Note:
+149,467
+(a)
+(25,028)
+(11,422)
+8,888
+7,922
+157
+1,652
+(2,050)
+(2,600)
+660
+1,765
+1,229
+(b)
+118,051
+Investments in joint ventures and others
+1,388
+27,260
+21,876
+Depreciation of property, plant and equipment, investment properties and
+right-of-use assets (Note 16 and Note 18)
+26,166
+21,458
+Auditor's remuneration
+- Audit and audit-related services
+- Non-audit services
+- Tax advisory
+- Due diligence service
+Bandwidth and server custody fees (excluding depreciation of right-of-use assets)
+Other services
+127
+54
+37
+14
+11
+23
+8
+17
+18
+Annual Report 2021
+239
+148
+924
+26,596
+Promotion and advertising expenses
+Goodwill and other intangible assets arising from acquisitions (Note 20)
+8,713
+4,780
+25,028
+11,422
+(d)
+The donations mainly include RMB1,600 million of charity funds and RMB450 million for Sustainable Social Value and Common
+Prosperity Programme ("SSV & CPP").
+8 EXPENSES BY NATURE
+2021
+2020
+RMB'Million
+31,335
+RMB'Million
+129,136
+107,628
+Employee benefits expenses (Note (b) and Note 13)
+95,523
+69,638
+Content costs (excluding amortisation of intangible assets)
+66,911
+58,285
+Amortisation of intangible assets (Note (c) and Note 20)
+31,430
+29,073
+Transaction costs (Note (a))
+Net gains on disposals and deemed disposals of investee companies (Note (a))
+Net fair value gains on FVPL (Note (b))
+(ii)
+RMB'Million
+172,195
+128,086
+- Others
+7,685
+7,495
+560,118
+482,064
+Annual Report 2021
+235
+Notes to the Consolidated Financial Statements
+5
+- FinTech and Business Services
+SEGMENT INFORMATION AND REVENUES (continued)
+The Group has recognised the following liabilities related to contracts with customers under "Deferred revenue":
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+Contract liabilities:
+VAS
+62,261
+60,612
+Online Advertising
+(c) Assets and liabilities related to contracts with customers
+2,588
+14,292
+Media advertising
+As at 31 December 2021, the total non-current assets other than financial instruments and deferred income tax
+assets located in the Mainland of China and other regions amounted to RMB446,565 million (31 December 2020:
+RMB400,877 million) and RMB182,612 million (31 December 2020: RMB177,427 million), respectively.
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues
+during the years ended 31 December 2021 and 2020.
+(b) Disaggregation of revenue from contracts with customers
+In the following table, revenue of the Group from contracts with customers is disaggregated by revenue source.
+The table also includes a reconciliation to the segment information (Note 5(a)).
+2021
+2020
+RMB'Million
+RMB'Million
+Revenue from contracts with customers
+- VAS
+291,572
+13,317
+264,212
+174,314
+156,101
+Social networks
+117,258
+108,111
+- Online Advertising
+RMB'Million
+82,271
+Social and others advertising
+75,349
+67,979
+Games
+4,797
+88,666
+6,601
+FinTech and Business Services
+Others
+56,562
+43,030
+2,665
+3,034
+5,636
+1,783
+181
+137
+65,044
+Online Advertising
+47,984
+6
+Interest income mainly represents interest income from bank deposits, including bank balance and term deposits.
+Annual Report 2021 237
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+7
+OTHER GAINS,
+NET
+2021
+2020
+FinTech and Business Services
+Others
+As at 31 December 2021 and 2020, total capitalised contract costs to obtain or fulfill contracts with customers
+were immaterial.
+VAS
+INTEREST INCOME
+Revenue recognised that was included in the contract liability balance
+6,952
+at the beginning of the year:
+108
+181
+Note:
+(i)
+71,558
+72,542
+Contract liabilities mainly comprised virtual items, unamortised pre-paid tokens or cards, Internet traffic and other support
+to be offered to certain investee companies in the future periods measured at their fair value on the relevant inception
+dates, and customer loyalty incentives offered to the customers.
+00
+236
+Tencent Holdings Limited
+Contract liabilities
+5
+RMB'Million
+Notes to the Consolidated Financial Statements
+2020
+2021
+For the year ended 31 December 2021
+The following table shows the extent of the revenue recognised in the current reporting period which relates to carried-
+forward contract liabilities:
+(ii)
+Note: (continued)
+(c) Assets and liabilities related to contracts with customers (continued)
+SEGMENT INFORMATION AND REVENUES (continued)
+Revenue recognised in relation to contract liabilities
+RMB'Million
+RMB'000
+(Note (i))
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+110
+1,148
+7,331
+35,522
+24
+44,135
+RMB'000
+Lau Chi Ping Martin
+Ma Huateng (CEO)
+RMB'000
+Contributions
+in kind
+1,148
+(a) Directors' and the chief executive's emoluments
+The remuneration of every director and the CEO is set out below:
+During the year ended 31 December 2021:
+For the year ended 31 December 2021
+Share-based
+Total
+Allowances
+and benefits
+Name of director
+Fees
+Salaries
+Bonuses
+plans expenses
+to pension compensation
+6,949
+14,280
+291,775
+981
+736
+5,056
+6,037
+2,298
+3,034
+6,192
+Ke Yang
+58,519
+309,326
+123
+388,550
+Annual Report 2021
+249
+14 BENEFITS AND INTERESTS OF DIRECTORS
+110
+22,997
+Yang Siu Shun
+Jacobus Petrus (Koos) Bekker
+99
+322,968
+lain Ferguson Bruce
+462
+1,474
+1,936
+Charles St Leger Searle
+lan Charles Stone
+5,815
+6,796
+Li Dong Sheng
+736
+2,908
+3,644
+981
+Notes to the Consolidated Financial Statements
+9,650
+1
+Profit attributable to equity holders of the Company for
+the calculation of diluted EPS (RMB'Million)
+Weighted average number of ordinary shares in issue (million shares)
+Adjustments for share options and awarded shares (million shares)
+Weighted average number of ordinary shares for the calculation of
+diluted EPS (million shares)
+Diluted EPS (RMB per share)
+2021
+2020
+224,822
+159,847
+non wholly-owned subsidiaries and associates (RMB'Million)
+(217)
+224,605
+159,444
+9,528
+9,490
+168
+160
+9,696
+23.164
+(403)
+16.523
+Dilution effect arising from share-based awards issued by
+In addition, the profit attributable to equity holders of the Company (numerator) has been adjusted by the effect of
+the share options and restricted shares granted by the Company's non wholly-owned subsidiaries and associates,
+excluding those which have anti-dilutive effect on the Group's diluted EPS.
+Weighted average number of ordinary shares in issue (million shares)
+Basic EPS (RMB per share)
+00
+244
+Tencent Holdings Limited
+2021
+2020
+224,822
+Profit attributable to equity holders of the Company (RMB'Million)
+159,847
+9,490
+23.597
+16.844
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+12 EARNINGS PER SHARE (continued)
+(b) Diluted
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption of
+the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted by
+the Company (collectively forming the denominator for computing the diluted EPS).
+9,528
+Annual Report 2021
+245
+Notes to the Consolidated Financial Statements
+The majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred.
+The applicable percentages used to provide for these social security plans for the years ended 31 December 2021 and 2020 are listed
+below:
+Pension insurance
+Medical insurance
+Unemployment insurance
+Housing fund
+Percentage
+12.0 20.0%
+5.0-10.0%
+0.25 1.5%
+Note:
+10.0-12.0%
+00
+246
+1
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+8 EXPENSES BY NATURE (continued)
+Note:
+(a)
+The Group has announced policies which become effective on 1 January 2022, that, additional employee benefits will
+be provided by the Group to certain employees, including (i) commercial health insurance benefits to certain eligible
+employees who have completed a required period of service; and (ii) one-off retirement cash bonus upon the retirement
+of the qualified employees. The financial impacts relating to these employee benefits for the year ended 31 December
+2021 were immaterial.
+69,638
+95,523
+111
+For the year ended 31 December 2021
+13 EMPLOYEE BENEFITS EXPENSES
+2021
+RMB'Million
+RMB'Million
+Wages, salaries and bonuses
+61,058
+48,192
+Contributions to pension plans (Note)
+5,630
+2,911
+Share-based compensation expenses
+22,222
+13,745
+Welfare, medical and other expenses (Note)
+6,470
+4,679
+Training expenses
+143
+Profit attributable to equity holders of the Company (RMB'Million)
+Basic earnings per share ("EPS") is calculated by dividing the profit attributable to equity holders of the Company
+by the weighted average number of ordinary shares in issue during the year.
+(a) Basic
+12 EARNINGS PER SHARE
+RMB'Million
+Profit before income tax
+248,062
+180,022
+Share of loss/(profit) of associates and joint ventures, net
+16,444
+(3,672)
+264,506
+RMB'Million
+176,350
+66,126
+44,087
+Effects of different tax rates applicable to different subsidiaries of
+the Group
+(49,202)
+(29,779)
+Effects of tax holiday and preferential tax benefits on assessable
+profits of subsidiaries incorporated in the Mainland of China
+(4,945)
+Tax calculated at a tax rate of 25%
+2020
+2021
+The taxation on the Group's profit before income tax differs from the theoretical amount that would arise using the
+tax rate of 25% for the year (2020: 25%), being the general tax rate of the major subsidiaries of the Group before
+enjoying preferential tax treatments, as follows:
+00
+242
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+11 TAXATION (continued)
+(a) Income tax expense (continued)
+The income tax expense of the Group is analysed as follows:
+Current income tax
+Deferred income tax (Note 28)
+For the year ended 31 December 2021
+2021
+2020
+RMB'Million
+RMB'Million
+26,039
+(5,787)
+19,499
+398
+20,252
+19,897
+(3,466)
+Transaction costs primarily consist of bank handling fees, channel and distribution costs.
+Income not subject to tax
+(65)
+Category
+Tax rate
+Value-added tax ("VAT")
+6-13%
+Basis of levy
+Sales value of goods sold and services fee income,
+offset by VAT on purchases
+Taxable advertising income
+Cultural construction fee
+The operations of the Group are also mainly subject to the following taxes in the PRC:
+3%
+City construction tax
+7%
+Net VAT payable amount
+Educational surcharge
+5%
+Net VAT payable amount
+Note:
+(i) Effective from 1 July 2019 and until 31 December 2024, the rate of cultural construction fee has been reduced by 50% in
+certain regions, while during the period from 1 January 2020 to 31 December 2021, this fee is exempted.
+(Note i)
+(b) Value-added tax and other taxes
+11 TAXATION (continued)
+For the year ended 31 December 2021
+Expenses not deductible for tax purposes
+1,539
+1,555
+Withholding tax on earnings expected to be remitted by subsidiaries
+(Note 28)
+1,050
+3,900
+Unrecognised deferred income tax assets
+5,462
+3,658
+Others
+Income tax expense
+285
+7
+20,252
+19,897
+Annual Report 2021
+243
+Notes to the Consolidated Financial Statements
+(63)
+(b)
+2020
+During the year ended 31 December 2021, employee benefits expenses included the share-based compensation expenses of
+approximately RMB22,222 million (2020: RMB13,745 million), which contained those incurred for SSV & CPP of approximately
+RMB21 million (2020: nil).
+For the year ended 31 December 2021
+11 TAXATION (continued)
+(a) Income tax expense (continued)
+(iii) PRC CIT
+PRC CIT has been provided for at applicable tax rates under the relevant regulations of the PRC after
+considering the available preferential tax benefits from refunds and allowances, and on the estimated
+assessable profit of entities within the Group established in the Mainland of China for the years ended 31
+December 2021 and 2020. The general PRC CIT rate is 25% in 2021 and 2020.
+Certain subsidiaries of the Group in the Mainland of China were approved as High and New Technology
+Enterprise and they were subject to a preferential corporate income tax rate of 15% for the years ended
+31 December 2021 and 2020. Moreover, according to the announcement and circular issued by relevant
+government authorities, a subsidiary was qualified as national key software enterprise and subject to a
+preferential corporate income tax rate of 10%.
+In addition, certain subsidiaries of the Company are entitled to other tax concessions, mainly including the
+preferential policy of "2-year exemption and 3-year half rate concession" and the preferential tax rate of 15%
+applicable to some subsidiaries located in certain areas of the Mainland of China upon fulfillment of certain
+requirements of the respective local governments.
+(iv)
+Corporate income tax in other jurisdictions
+(v)
+Income tax on profit arising from other jurisdictions, including the United States, Europe, Asia and South
+America, had been calculated on the estimated assessable profit for the year at the respective rates
+prevailing in the relevant jurisdictions, ranging from 12.5% to 35%.
+Withholding tax
+According to applicable tax regulations prevailing in the PRC, dividends distributed by a company
+established in the Mainland of China to a foreign investor with respect to profit derived after 1 January 2008
+are generally subject to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong, under the
+double taxation arrangement between the Mainland of China and Hong Kong, the relevant withholding tax
+rate applicable to such foreign investor will be reduced from 10% to 5% subject to the fulfilment of certain
+conditions.
+Dividends distributed from certain jurisdictions that the Group's entities operate in are also subject to
+withholding tax at respective applicable tax rates.
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+13 EMPLOYEE BENEFITS EXPENSES (continued)
+(a) Senior management's emoluments
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services excluding the directors and the
+CEO, whose details have been reflected in Note 14(a), is as follows:
+Salaries, bonuses, allowances and benefits in kind
+Contributions to pension plans
+Share-based compensation expenses
+The emoluments of the senior management fell within the following bands:
+Notes to the Consolidated Financial Statements
+241
+Annual Report 2021
+Hong Kong profits tax has been provided for at the rate of 16.5% on the estimated assessable profits for the
+years ended 31 December 2021 and 2020.
+7,918
+7,449
+(804)
+438
+7,114
+7,887
+Interest and related expenses mainly arose from borrowings, notes payable and lease liabilities disclosed in Notes 36, 37
+and 18, respectively.
+10 SHARE OF (LOSS)/PROFIT OF ASSOCIATES AND JOINT VENTURES, NET
+Share of (loss)/profit of associates (Note 21)
+Share of profit/(loss) of joint ventures (Note 22)
+2021
+2020
+Emolument bands
+RMB'Million
+(16,592)
+148
+3,748
+(76)
+(16,444)
+3,672
+11 TAXATION
+(a) Income tax expense
+Income tax expense is recognised based on management's best knowledge of the income tax rates expected for
+the financial year.
+(i)
+Cayman Islands and British Virgin Islands corporate income tax
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2021 and 2020.
+(ii) Hong Kong profits tax
+RMB'Million
+RMB'Million
+HKD8,000,000 - HKD50,000,000
+HKD200,000,001 ~ HKD400,000,000
+HKD400,000,001 ~ HKD800,000,000
+2020
+RMB'000
+35,290
+1,063,362
+30,241
+523,349
+10,455
+2,884,398
+3,846
+1,957,518
+163
+156
+3,993,668
+2,515,110
+The emoluments of the above five individuals (2020: four) fell within the following bands:
+Emolument bands
+HKD352,500,001 ~ HKD353,000,000
+HKD357,500,001 ~ HKD358,000,000
+HKD553,000,001 ~ HKD553,500,000
+HKD590,000,001 ~ HKD590,500,000
+HKD1,121,500,001 ~ HKD1,122,000,000
+HKD1,155,500,001 ~ HKD1,156,000,000
+HKD1,588,500,001 ~ HKD1,589,000,000
+HKD1,599,000,001 ~ HKD1,599,500,000
+248 Tencent Holdings Limited
+Number of individuals
+2021
+2020
+1
+1
+||2-||--
+--| ||
+1
+2021
+RMB'000
+Allowances and benefits in kind
+Share-based compensation expenses
+Contributions to pension plans
+HKD800,000,001 ~ HKD1,200,000,000
+HKD1,200,000,001 ~ HKD2,000,000,000
+2021
+RMB'000
+2020
+RMB'000
+464,262
+466,665
+729
+713
+During the year ended 31 December 2021, the Group incurred expenses for the purpose of research and development of
+approximately RMB51,880 million (2020: RMB38,972 million), which comprised employee benefits expenses of approximately
+RMB42,958 million (2020: RMB31,643 million).
+2,696,137
+5,056,376
+3,163,515
+Number of individuals
+HKD50,000,001 ~ HKD200,000,000
+2021
+26312|
+1333 1
+2
+Annual Report 2021 247
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+13 EMPLOYEE BENEFITS EXPENSES (continued)
+(b) Five highest paid individuals
+The five individuals whose emoluments were the highest in the Group did not include any director during the year
+2021 (2020: included one director). All of these individuals have not received any emolument from the Group as
+an inducement to join the Group during the years ended 31 December 2021 and 2020. The emoluments paid/
+payable to the five (2020: remaining four) individuals during the years were as follows:
+00
+Salaries
+Bonuses
+2020
+RMB'Million
+4,591,385
+2021
+(d)
+Amortisation charges of intangible assets are mainly in respect of media content including video and music content, game
+licenses, and other content. During the year ended 31 December 2021, amortisation of media content was approximately
+RMB28,393 million (2020: RMB26,620 million).
+No significant development expenses had been capitalised for the years ended 31 December 2021 and 2020.
+(c)
+2020
+(e)
+During the year ended 31 December 2021, expenses incurred for SSV & CPP (excluding share-based compensation expenses)
+were approximately RMB224 million (2020: nil).
+During the year ended 31 December 2021, expenses incurred for regulatory fines in the Mainland of China and certain litigation
+settlements were approximately RMB976 million (2020: nil), of which approximately RMB630 million (2020: nil) were included
+in "Other gains, net".
+During the year ended 31 December 2021, amortisation of intangible assets included the amortisation of intangible assets
+resulting from business combinations of approximately RMB4,651 million (2020: RMB3,299 million).
+240
+Tencent Holdings Limited
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Exchange (gains)/losses, net
+Interest and related expenses
+9
+FINANCE COSTS, NET
+00
+Net book amount
+108,623
+3,627
+34,162
+10,000
+Year ended 31 December 2021
+159,437
+Opening net book amount
+108,623
+3,627
+10,000
+3,025
+159,437
+Business combinations (Note 42)
+19,259
+3,025
+34,162
+168
+(49)
+12,015
+5,965
+244,220
+Accumulated amortisation and impairment
+(5,573)
+(3,251)
+(73,366)
+(2,183)
+(2,891)
+(87,264)
+Currency translation differences
+2,106
+(1)
+257
+4,920
+2,481
+1,595
+31,598
+3,402
+(8,702)
+(3)
+9
+(1)
+(3)
+(8,700)
+Currency translation differences
+(7,005)
+(82)
+(723)
+(614)
+(108)
+(8,532)
+Closing net book amount
+112,173
+Impairment (provision)/reversal
+954
+(31,430)
+(1,071)
+30,130
+Additions
+780
+30,759
+7
+52
+107,271
+Disposals
+(2)
+(1,120)
+(3)
+(1,127)
+Amortisation
+(999)
+(28,393)
+(967)
+6,879
+Total
+Cost
+24
+19
+4,649
+3,773
+719
+559
+Interest expense (included in finance costs, net)
+Expense relating to short-term leases not included in lease liabilities
+(included in cost of revenues and expenses)
+1,721
+1,475
+Expense relating to variable lease payments not included in lease liabilities
+(included in cost of revenues and expenses)
+4,947
+3,983
+Some leases of computer and other operating equipment contain variable lease payments. Variable payments are
+used for a variety of reasons, including managing cash outflows and minimising the fixed costs. Variable lease
+payments that depend on usage of bandwidth are recognised in profit or loss in the period in which the conditions
+that trigger those payments occur. Variable lease payments relating to computer and other operating equipment
+leases during the year ended 31 December 2021 were considered to be insignificant.
+The total cash outflow in financing activities for leases during the year ended 31 December 2021 was
+approximately RMB5,086 million (2020: RMB4,068 million), including principal elements of lease payments of
+approximately RMB4,423 million (2020: RMB3,537 million) and related interest paid of approximately RMB663
+million (2020: RMB531 million), respectively.
+00
+256 Tencent Holdings Limited
+1,972
+19 CONSTRUCTION IN PROGRESS
+2,422
+2,203
+(287)
+20,468
+12,929
+The reduction of right-of-use assets for the years ended 31 December 2021 and 2020 mainly arose from the early termination
+and modification of lease contracts.
+Annual Report 2021 255
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+18 LEASES (EXCLUDING LAND USE RIGHTS) (continued)
+(b) Amounts recognised in consolidated income statement
+The consolidated income statement included the following amounts relating to leases (excluding the amortisation
+of land use rights, disclosed in Note 17):
+Depreciation charge of right-of-use assets
+Buildings
+Computer and other operating equipment
+Others
+2021
+2020
+RMB'Million
+RMB'Million
+1,782
+112,090
+Opening net book amount
+Notes to the Consolidated Financial Statements
+Annual Report 2021
+257
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+20 INTANGIBLE ASSETS
+Computer
+software and
+Media
+Goodwill
+RMB'Million
+technology
+contents
+Trademarks
+Others
+8,241
+RMB'Million RMB'Million RMB'Million RMB'Million
+RMB'Million
+At 1 January 2021
+As at 31 December 2021, construction in progress mainly comprised office buildings and data centers under
+construction located in the PRC.
+Additions
+4,939
+11
+For the year ended 31 December 2021
+Transfer to property, plant and equipment
+Business combinations
+Currency translation differences
+Closing net book amount
+2021
+2020
+RMB'Million
+RMB'Million
+4,939
+124
+4,173
+3,408
+(3,180)
+(2,415)
+1
+(10)
+5,923
+36,289
+12,977
+5,398
+(3,251)
+(73,366)
+(2,183)
+(2,891)
+(87,264)
+Currency translation differences
+2,106
+(5,573)
+257
+(49)
+2,481
+Net book amount
+108,623
+3,627
+34,162
+10,000
+168
+3,025
+Accumulated amortisation and impairment
+5,965
+159
+(55)
+1,547
+Closing net book amount
+108,623
+3,627
+34,162
+244,220
+10,000
+159,437
+At 31 December 2020
+Cost
+112,090
+6,879
+107,271
+12,015
+3,025
+8,535
+159,437
+259
+Tencent Holdings Limited
+258
+00
+171,376
+5,398
+9,275
+36,289
+20 INTANGIBLE ASSETS (continued)
+8,241
+112,173
+Net book amount
+(6,051)
+(157)
+(446)
+(466)
+(83)
+(173)
+Annual Report 2021
+Notes to the Consolidated Financial Statements
+Computer
+78,911
+4,553
+94,056
+Cost
+At 1 January 2020
+RMB'Million
+RMB'Million
+For the year ended 31 December 2021
+Total
+Trademarks
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+Media
+contents
+technology
+Goodwill
+software and
+Others
+9,275
+4,049
+Accumulated amortisation and impairment
+(483)
+(92)
+(92)
+(4,205)
+Impairment provision
+(29,073)
+(956)
+(4,872)
+(866)
+(631)
+Amortisation
+(1,716)
+(13)
+(1,667)
+(36)
+Disposals
+(26,620)
+36,209
+Currency translation differences
+(4,899)
+171,376
+At 31 December 2021
+Cost
+131,347
+12,679
+125,114
+9,354
+1,338
+291,471
+(14,275)
+(4,355)
+(88,359)
+(3,256)
+(3,799)
+(114,044)
+Currency translation differences
+Accumulated amortisation and impairment
+190,104
+1,079
+34,314
+23,540
+1,956
+93,456
+Net book amount
+934
+9
+133
+7,759
+18
+Currency translation differences
+(62,178)
+(1,906)
+(785)
+(55,504)
+(2,615)
+(1,368)
+768
+1
+2,149
+Year ended 31 December 2020
+815
+Additions
+28,482
+821
+3,430
+4,563
+1,634
+128,860
+18,034
+128,860
+2,149
+7,759
+23,540
+1,956
+93,456
+Opening net book amount
+Business combinations
+(7)
+3,935
+(177)
+(3,511)
+(40,653)
+(1,218)
+(42)
+(1,854)
+(47,278)
+Currency translation differences
+(1)
+(91)
+Accumulated depreciation and impairment
+10
+44
+(39)
+Net book amount
+11,228
+46,202
+988
+70
+70
+1,355
+(1)
+107,160
+3,165
+113
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+16 PROPERTY, PLANT AND EQUIPMENT
+Computer
+and other
+Furniture
+Buildings
+RMB'Million
+operating
+equipment
+and office
+equipment
+Motor
+vehicles improvements
+Leasehold
+Total
+RMB'Million RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+At 1 January 2021
+(169)
+Cost
+14,740
+86,946
+2,196
+59,843
+Year ended 31 December 2021
+Opening net book amount
+11,228
+37
+705
+25,149
+(5)
+(10)
+(1,581)
+(460)
+(21,497)
+Impairment
+(2)
+(1)
+(3)
+Currency translation differences
+(57)
+(201)
+(13)
+(45)
+(316)
+Closing net book amount
+13,112
+46,077
+319
+252 Tencent Holdings Limited
+51
+1,355
+46,202
+888
+988
+Business combinations
+242
+25
+Additions
+3,074
+20,946
+387
+Disposals
+(53)
+(1,508)
+(5)
+Depreciation
+(1,080)
+(19,602)
+(327)
+(28)
+23581
+70
+59,843
+1,055
+The share certificates for the JD.com Shares to be distributed are dispatched to the qualifying shareholders in
+March 2022.
+"
+88
+24
+58,738
+Lau Chi Ping Martin
+1,174
+6,499
+33,616
+386,340
+85
+50,746
+427,714
+1,010
+3,630
+4,640
+lan Charles Stone
+1,010
+4,636
+5,646
+Li Dong Sheng
+758
+lain Ferguson Bruce
+6,706
+1,174
+Ma Huateng (CEO)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+14 BENEFITS AND INTERESTS OF DIRECTORS (continued)
+(a) Directors' and the chief executive's emoluments (continued)
+During the year ended 31 December 2020:
+Contributions Share-based
+Allowances
+to pension compensation and benefits
+Name of director
+Fees
+Salaries
+Bonuses
+RMB'000
+RMB'000 RMB'000
+plans expenses
+RMB'000
+in kind
+Total
+RMB'000
+RMB'000
+RMB'000
+(Note (i))
+2,318
+3,076
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+14 BENEFITS AND INTERESTS OF DIRECTORS (continued)
+(b) Directors' termination benefits
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(c) Consideration provided to third parties for making available directors' services
+No consideration provided to or receivable by third parties for making available directors' services subsisted at the
+end of the year or at any time during the year.
+(d) Information about loans, quasi-loans and other dealings in favour of directors, their controlled bodies and
+connected entities
+No loans, quasi-loans and other dealings in favour of directors, their controlled bodies corporate and connected
+entities subsisted at the end of the year or at any time during the year.
+(e) Directors' material interests in transactions, arrangements or contracts
+No significant transactions, arrangements and contracts in relation to the Group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+15 DIVIDENDS
+(a) Final dividends
+The final dividends amounting to HKD15,238 million (2020: HKD11,378 million) were paid during the year ended
+31 December 2021.
+A final dividend in respect of the year ended 31 December 2021 of HKD1.60 per share (2020: HKD1.60 per
+share) was proposed pursuant to a resolution passed by the Board on 23 March 2022 and subject to the approval
+of the shareholders at the 2022 annual general meeting of the Company to be held on 18 May 2022 or any
+adjournment thereof. This proposed dividend is not reflected as dividend payable in the consolidated financial
+statements.
+Annual Report 2021 251
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+15 DIVIDENDS (continued)
+(b) Interim dividend by way of distribution in specie
+As announced on 23 December 2021 (the “Declaration Date"), the Company resolved to declare a special interim
+dividend in the form of a distribution in specie of approximately 457 million Class A ordinary shares of JD.com
+("JD.com Shares") to the shareholders whose names appeared on the register of members of the Company on
+25 January 2022 in proportion to their then respective shareholdings in the Company on the basis of 1 Class A
+ordinary share of JD.com for every 21 shares held by the shareholders, being rounded down to the nearest whole
+number of Class A ordinary shares of JD.com and fractional entitlements to the JD.com Shares will be distributed
+in the form of cash-in-lieu payment, except that the net proceeds of less than HKD100 will not be distributed.
+Accordingly, approximately 457 million Class A ordinary shares of JD.com are expected to be distributed ("JD.com
+Shares to be distributed"), representing approximately 14.7% of the total number of issued shares of JD.com as at
+the Declaration Date.
+00
+These JD.com Shares to be distributed (Note 21(b)) are classified and presented as “Assets held for distribution'
+upon the Declaration Date (Note 32).
+For the year ended 31 December 2021
+Dividends payable for distribution in specie of approximately RMB97.1 billion was recognised on the Declaration
+Date and measured at fair value using the market price of the JD.com Shares to be distributed. Subsequent
+changes in the fair value of the said dividends payable as a result of the changes in the fair value of the JD.com
+Shares to be distributed was recognised in equity as an adjustment to the amount of the dividend distribution
+until its settlement. Fair value changes on the dividends payable amounting to approximately RMB5.4 billion were
+recognised in equity since the Declaration Date up to 31 December 2021. As at 31 December 2021, the amount
+of dividends payable for distribution in specie was approximately RMB102.5 billion.
+Notes to the Consolidated Financial Statements
+250
+Yang Siu Shun
+Ke Yang
+926
+757
+3,919
+4,845
+1,444
+2,201
+6,809
+13,205
+84,362
+88
+402,287
+109
+506,860
+Note:
+(i) Allowances and benefits in kind include leave pay, insurance premium and club membership.
+(ii)
+(iii)
+During the year ended 31 December 2021, 3,374,630 options (2020: 4,399,815 options) were granted to one executive
+director of the Company, out of which 843,657 options were voluntarily waived in February 2022, and 40,500 awarded
+shares were granted to four independent non-executive directors of the Company (2020: 59,500 awarded shares were
+granted to five independent non-executive directors of the Company).
+No director received any emolument from the Group as an inducement to join or leave the Group or compensation for
+loss of office. No director waived or has agreed to waive any emoluments during the years ended 31 December 2021 and
+2020.
+00
+Tencent Holdings Limited
+75
+(19)
+61,914
+1,595
+1,952
+28,186
+421
+28
+221
+30,808
+Disposals
+(1)
+Additions
+(109)
+(124)
+Depreciation
+(970)
+(16,023)
+(270)
+133
+(384)
+(17,658)
+Currency translation differences
+(6)
+250
+59
+31
+(a) Amounts recognised in the consolidated statement of financial position
+18 LEASES (EXCLUDING LAND USE RIGHTS)
+The land use rights mainly represented prepaid operating lease payments in respect of land in the Mainland of China
+with remaining lease periods of 27 to 49 years.
+16,091
+17,728
+(1)
+(5)
+6
+(465)
+(484)
+793
+2,120
+155
+15,609
+Currency translation differences
+RMB'Million
+RMB'Million
+2020
+2021
+9
+18
+(199)
+(4)
+(53)
+(257)
+Impairment reversal
+Amortisation
+Additions
+Business combinations
+Opening net book amount
+17 LAND USE RIGHTS
+Tencent Holdings Limited
+254
+00
+During the year ended 31 December 2021, depreciation of RMB 19,098 million (2020: RMB15,654 million), RMB257
+million (2020: RMB256 million) and RMB2,142 million (2020: RMB1,748 million) were charged to cost of revenues,
+selling and marketing expenses and general and administrative expenses, respectively.
+59,843
+1,355
+70
+988
+46,202
+11,228
+Net book amount
+(39)
+44
+10
+(91)
+Currency translation differences
+Movement of right-of-use assets (excluding land use rights, disclosed in Note 17) is analysed as follows:
+Closing net book amount
+For the year ended 31 December 2021
+Closing net book amount
+11,228
+46,202
+988
+70
+1,355
+59,843
+At 31 December 2020
+Cost
+14,740
+86,946
+2,196
+113
+3,165
+107,160
+Accumulated depreciation and impairment
+(3,511)
+(40,653)
+(1,218)
+(42)
+(1,854)
+Notes to the Consolidated Financial Statements
+Opening net book amount
+16,091
+Additions
+16 PROPERTY, PLANT AND EQUIPMENT (continued)
+Buildings
+RMB'Million
+Computer
+and other
+operating
+equipment
+RMB'Million RMB'Million
+Furniture
+and office
+equipment
+Motor Leasehold
+vehicles improvements
+RMB'Million RMB'Million
+Total
+RMB'Million
+At 1 January 2020
+Cost
+12,805
+62,094
+For the year ended 31 December 2021
+1,788
+2,930
+79,673
+Accumulated depreciation and impairment
+(2,566)
+(27,988)
+(973)
+(32)
+(1,508)
+(33,067)
+Currency translation differences
+108
+14
+97
+56
+Notes to the Consolidated Financial Statements
+253
+Annual Report 2021
+At 31 December 2021
+Cost
+17,767
+102,278
+2,545
+137
+3,860
+126,587
+Accumulated depreciation and impairment
+(4,597)
+(55,909)
+(1,487)
+(61)
+(2,264)
+(64,318)
+Currency translation differences
+(58)
+(292)
+(3)
+(1)
+(1)
+(355)
+Net book amount
+13,112
+46,077
+1,055
+75
+1,595
+61,914
+218
+Net book amount
+10,238
+34,214
+46,824
+Business combinations
+(3,773)
+(4,649)
+5,991
+12,365
+320
+10,847
+12,929
+180
+RMB'Million
+RMB'Million
+2020
+2021
+Note:
+Closing net book amount
+Currency translation differences
+Impairment
+Reduction (Note)
+Depreciation
+Business combinations
+1,519
+(47,278)
+829
+829
+24
+1,519
+46,824
+Year ended 31 December 2020
+Opening net book amount
+10,238
+34,214
+24
+1,726
+Other financial assets (Note 27)
+102,451
+Assets held for distribution (Note 32)
+Financial liabilities at amortised cost:
+250,257
+FVOCI (Note 25)
+1,129
+213,091
+914,234
+customers and others, staff costs and welfare accruals) (Note 41)
+Other payables and accruals (excluding prepayments received from
+Borrowings (Note 36)
+155,939
+126,387
+Notes payable (Note 37)
+145,590
+122,057
+Long-term payables (Note 38)
+9,966
+Financial liabilities
+704,759
+6,664
+9,512
+Accounts payable (Note 40)
+109,470
+94,030
+Lease liabilities (Note 18)
+21,947
+14,020
+Other financial liabilities (Note 39)
+9,910
+171,048
+297,609
+The remaining goodwill allocated to the CGUS (or groups of CGUs) after impairment related to Online Advertising
+segment and interactive live video business was not material to the Group's consolidated financial statements and
+therefore no sensitivity analysis was presented.
+Annual Report 2021 261
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+21 INVESTMENTS IN ASSOCIATES
+Investments in associates
+- Listed entities
+In the CGUS related to interactive live video business and Online Advertising segment, the recoverable amounts were
+determined using discounted cash flow calculations which derived from five-year period financial projections with
+compound annual revenue growth rates of not more than 15% plus a terminal value calculated at a growth rate of not
+more than 5%. Pre-tax discount rate of 15% was applied in the discounted cash flows calculations, which reflected time
+value of money and the assessment of specific risks of the respective industries.
+- Unlisted entities
+2021
+2020
+RMB'Million
+RMB'Million
+200,785
+31,220
+115,789
+As at 31 December
+In light of the economic, operating environment and market uncertainties at the financial year end, the carrying amounts
+of the CGUS related to interactive live video business within VAS segment and Online Advertising segment have been
+reduced to their respective recoverable amounts through recognition of impairment loss against goodwill of RMB4,012
+million and RMB4,500 million respectively as a result of the impairment test performed as detailed below.
+Management has not identified any reasonably possible change in key assumptions that could cause carrying amounts
+of the above CGUS (or groups of CGUS) to exceed the recoverable amounts.
+For goodwill attributable to the Group's online music business and online literature business within VAS segment,
+FinTech and Business Services segment and television series and film production within Others segment, value in use
+using discounted cash flows was calculated, generally, based on five-year financial projections plus a terminal value
+related to cash flows beyond the projection period extrapolated at an estimated terminal growth rate of generally not
+more than 5% (2020: not more than 5%). Pre-tax discount rates ranging from 14% to 22% (2020: 13% to 23%) were
+applied, which reflected assessment of time value and specific risks relating to the industries that the Group operates
+in. Management leveraged their experiences in the industries and provided forecast based on past performance and
+their anticipation of future business and market developments. Key parameters applied in the financial projections for
+impairment review purpose also included revenue growth rates, on a compound annual basis, of not more than 25%
+(2020: not more than 22%).
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+20 INTANGIBLE ASSETS (continued)
+During the year ended 31 December 2021, amortisation of RMB28,595 million (2020: RMB26,758 million) and
+RMB2,835 million (2020: RMB2,315 million) were charged to cost of revenues and general and administrative
+expenses, respectively.
+During the year ended 31 December 2021, impairment losses of RMB8,713 million (2020: RMB4,780 million) on
+goodwill and other intangible assets arising from acquisitions were charged to the consolidated income statement under
+"Other gains/(losses), net", and RMB13 million were reversed from (2020: RMB92 million were charged to) "Cost of
+revenues".
+Impairment tests for goodwill
+Goodwill was allocated to VAS segment with RMB101,345 million (31 December 2020: RMB104,688 million), Online
+Advertising segment with RMB6,478 million (31 December 2020: nil), FinTech and Business Services segment with
+RMB1,433 million (31 December 2020: RMB1,018 million) and Others segment with RMB2,917 million (31 December
+2020: RMB2,917 million).
+The Group carries out its impairment testing on goodwill by comparing the recoverable amounts of CGUS or groups of
+CGUS to their carrying amounts. For the purpose of goodwill impairment review, the recoverable amount of a CGU (or
+groups of CGUS) is the higher of its fair value less costs of disposal and its value in use.
+The key assumptions used for the calculation of the recoverable amounts of the CGUs (or groups of CGUs) under
+impairment testing were as follows:
+For goodwill attributable to the Group's online game business within VAS segment, fair value less costs of disposal was
+primarily determined based on ratios of EV (enterprise value) divided by EBITDA of several comparable public companies
+(range: 15-22x) (2020: range: 20-27x) multiplied by the EBITDA of the related CGU (or group of CGUs) and discounted
+for lack of marketability at a range of 10% to 20% (2020: 10% to 20%). The comparable public companies were chosen
+based on factors such as industry similarity, company size, profitability and financial risks etc.
+00
+260
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+20 INTANGIBLE ASSETS (continued)
+Impairment tests for goodwill (continued)
+126,561
+316,574
+297,609
+2021
+Share of other changes in net assets of associates
+8,430
+3,310
+Dividends
+(1,407)
+(344)
+Disposals
+(3,238)
+(2,227)
+Impairment provision, net (Note (c))
+(15,391)
+(5,254)
+Currency translation differences
+At end of the year
+(3,548)
+(2,329)
+316,574
+363
+00
+508
+3,748
+2020
+RMB'Million
+RMB'Million
+At beginning of the year
+297,609
+213,614
+Additions (Note (a))
+Transfers (Note (b))
+51,288
+37,651
+(19,731)
+33,585
+Dilution gains on deemed disposal (Note 7(a))
+18,646
+15,492
+Share of (loss)/profit of associates (Note 10)
+(16,592)
+Share of other comprehensive income of associates
+27,873
+10,569
+Other financial liabilities (Note 39)
+(13,799)
+634,661
+Non-listed entities
+292,195
+176,406
+54,369
+(2,636)
+351
+(2,285)
+643,552
+326,978
+339,926
+(16,592)
+508
+(16,084)
+2020
+Listed entities
+313,183
+142,135
+202,612
+3,867
+549
+4,416
+981,902
+Non-listed entities
+157
+314,850
+(13,956)
+150,572
+During the year ended 31 December 2021, an aggregate impairment loss of approximately RMB15,391 million (2020:
+RMB5,254 million) has been recognised for associates with impairment indicators. The majority of these associates' recoverable
+amounts were determined using fair value less costs of disposal where the fair value is determined according to the principle set
+out in Note 3.3.
+00
+264 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+21 INVESTMENTS IN ASSOCIATES (continued)
+The associates of the Group have been accounted for by using equity method based on the financial information of the
+associates prepared under the accounting policies generally consistent with those of the Group.
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates,
+as well as the fair value of its stakes in the associates which are listed entities, are shown in aggregate as follows:
+Fair value
+of stakes
+(Loss)/profit
+in listed
+from
+Other
+Total
+associates
+Assets
+RMB'Million
+Liabilities
+RMB'Million
+Revenues
+RMB'Million
+as at
+31 December
+RMB'Million
+2021
+Listed entities (Note)
+351,357
+285,557
+In respect of the recoverable amount using value in use, the discounted cash flows calculations were based on cash flow
+projections estimated by management and the key assumptions adopted in these cash flow projections included revenue growth
+rates, profit margins and discount rates. In respect of the recoverable amount based on fair value less costs of disposal, the
+amount was calculated with reference to their respective market prices, or using certain key valuation assumptions including the
+selection of comparable companies, recent market transactions and liquidity discount for lack of marketability.
+188,289
+(119)
+2021
+2020
+RMB'Million
+RMB'Million
+Financial assets at amortised cost:
+Deposits and other receivables (Note 26)
+32,682
+17,527
+Term deposits (Note 29)
+103,304
+100,168
+Accounts receivable (Note 30)
+49,331
+44,981
+Cash and cash equivalents (Note 31(a))
+167,966
+152,798
+Restricted cash (Note 31(b))
+2,476
+2,520
+Other financial assets (Note 27)
+1,284
+8
+Financial assets at fair value:
+FVPL (Note 24)
+As at 31 December
+54,044
+Financial assets
+23 FINANCIAL INSTRUMENTS BY CATEGORY
+(186)
+(305)
+628,033
+330,424
+256,656
+3,748
+363
+4,111
+Note:
+As at 31 December 2021, listed entities of the investments in associates consist of directly and indirectly held listed equity interests.
+Annual Report 2021
+265
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+21 INVESTMENTS IN ASSOCIATES (continued)
+Management has assessed the level of influence that the Group exercises on certain associates with the respective
+shareholding below 20% and certain associates with shareholding over 50% (voting power is below 50%), with
+total carrying amounts of RMB214,927 million and RMB18,675 million as at 31 December 2021, respectively (31
+December 2020: RMB212,349 million and RMB15,936 million, respectively). Management determined that it has
+significant influence thereon through the board representation or other arrangements made, and it has no control or
+joint control over such investees as the Group has no power to direct relevant activities due to other arrangements made.
+Consequently, these investments have been classified as associates.
+There were no material contingent liabilities relating to the Group's interests in the associates.
+22 INVESTMENTS IN JOINT VENTURES
+As at 31 December 2021, the Group's investments in joint ventures of RMB6,614 million (31 December 2020:
+RMB7,649 million) mainly comprised an investee company that is a special purpose vehicle of which the Group has a
+majority stake therein for the investment in one of the telecommunication carriers in the PRC and other joint venture
+initiatives in new retail and entertainment-related businesses.
+00
+Share of profit amounting to RMB148 million was recognised during the year ended 31 December 2021 (2020: share of
+loss amounting to RMB76 million) (Note 10).
+During the year ended 31 December 2021, the Group made an aggregate impairment provision of RMB904 million (2020:
+RMB1,388 million) against the carrying amounts of the investments in joint ventures, based on the respective assessed
+recoverable amounts.
+266 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+As at 31 December 2021, the financial instruments of the Group are analysed as follows:
+Both external and internal sources of information of associates are considered in assessing whether there is any indication that
+the investment may be impaired, including but not limited to financial position, business performance and market capitalisation.
+The Group carries out impairment assessment on those investments with impairment indications, and the respective recoverable
+amounts of investments are determined with reference to the higher of fair value less costs of disposal and value in use.
+(c)
+Note: (continued)
+9,000
+8,884
+192,184
+165,944
+Included in current assets:
+Investments in listed entities
+4
+10
+Treasury investments and others
+6,583
+10,573
+6,593
+202,757
+172,537
+268 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+24 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
+Movement of FVPL is analysed as follows:
+2021
+2020
+RMB'Million
+RMB'Million
+At beginning of the year
+172,537
+Treasury investments and others
+135,936
+133,506
+Investments in unlisted entities
+2,802
+5,309
+Financial liabilities measured according to IFRIC 17:
+Dividends payable for distribution in specie (Note 15(b))
+102,451
+586,049
+409,098
+Annual Report 2021
+267
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+23 FINANCIAL INSTRUMENTS BY CATEGORY (continued)
+The Group's exposure to various risks associated with the financial instruments is discussed in Note 3. The maximum
+exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
+mentioned above.
+24 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
+00
+FVPL include the following:
+Included in non-current assets:
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+Investments in listed entities
+19,802
+23,554
+163,382
+Additions and transfers (Note (a) and Note 21(b))
+23,240
+21,960
+Note:
+(a)
+During the year ended 31 December 2021, the Group's additions to investments in associates mainly comprised the following:
+(i)
+a consortium (the "UMG Consortium") formed together with Tencent Music Entertainment Group ("TME"), a non wholly-
+owned subsidiary of the Company, and certain global financial investors to acquire additional 10% equity interests in
+Universal Music Group ("UMG") from its parent company, Vivendi S.A.. The Group's additional investment in the UMG
+Consortium amounted to approximately EUR975 million (equivalent to approximately RMB7,792 million), and the
+investment remained as an associate;
+(ii)
+(iii)
+(iv)
+the Group acquired additional ordinary shares of an existing investee, which is engaged in eCommerce at a cash
+consideration of approximately RMB3,554 million. Upon completion of the additional investment, the Group's equity
+interests in the investee have been increased from 5.23% to 6.26%. Since there is no change in the assessment of
+significant influence, this investment continues to be considered as an associate of the Group;
+the Group acquired 27% shares of a new investee engaged in games development at a cash consideration of
+approximately USD540 million (equivalent to approximately RMB3,474 million);
+the Group acquired additional ordinary shares of an existing investee, which is engaged in games development at a cash
+consideration of approximately RMB2,795 million. Upon completion of the additional investment, the Group's equity
+interests in the investee have been increased from 5% to 10%. Since there is no change in the assessment of significant
+influence, this investment continues to be considered as an associate of the Group; and
+(b)
+(v)
+new associates and additional investments in existing associates with an aggregate amount of approximately RMB33,673
+million during the year ended 31 December 2021, which are principally engaged in games development, eCommerce
+platform and other Internet-related businesses.
+During the year ended 31 December 2021, transfers mainly comprised the following:
+(i)
+(ii)
+the entire investment in JD.com of the Group with a carrying value of approximately RMB39.0 billion was transferred
+from investment in an associate to financial instruments as a result of resignation of board representative and the Group
+irrevocably designated it as FVOCI (Note 25(iv)) with step down gain of approximately RMB78.0 billion recognised in "Other
+gains, net" (Note 7(a));
+investment in an existing associate engaged in games development of approximately RMB6.6 billion transferred to FVOCI
+(Note 25(v)) as a result of retirement of board representative; and
+(iii)
+investments in associates of approximately RMB33,982 million transferred from FVPL mainly due to conversion of the
+redeemable instruments into ordinary shares upon their IPOs or obtaining board representatives.
+Annual Report 2021 263
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+21 INVESTMENTS IN ASSOCIATES (continued)
+21 INVESTMENTS IN ASSOCIATES (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+262 Tencent Holdings Limited
+Changes in fair value (Note 7)
+47,560
+37,257
+Disposals and others
+(34,282)
+(13,314)
+Currency translation differences
+(6,298)
+(9,302)
+At end of the year
+202,757
+172,537
+Financial liabilities at fair value:
+Note:
+(b)
+During the year ended 31 December 2021, the Group's additions and transfers mainly comprised the following:
+(i)
+(ii)
+(iii)
+an additional investment in a social network platform of approximately USD531 million (equivalent to approximately
+RMB3,432 million);
+new investments and additional investments with an aggregate amount of approximately RMB80,946 million in listed
+and unlisted entities. These companies are principally engaged in express delivery, Internet platform, retail, eCommerce,
+technology and other Internet-related businesses. None of the above investment was individually significant that triggers
+any disclosure requirements pursuant to Chapter 14 of the Listing Rules at the time of inception; and
+except as described in Note 21(b), transfers also mainly comprised certain investments with an aggregate amount of
+approximately RMB27,233 million designated as FVOCI due to the conversion of preferred shares into ordinary shares
+upon their IPOs.
+Management has assessed the level of influence that the Group exercises on certain FVPL with shareholding exceeding 20%.
+Since these investments are either held in form of redeemable instruments or interests in limited life partnership without
+significant influence, these investments have been classified as FVPL.
+Annual Report 2021
+269
+172,537
+(a)
+continuing comprehensive comprehensive
+operation
+income (loss)/income
+RMB'Million RMB'Million RMB'Million
+202,757
+100,168
+247
+421
+668
+Currency translation differences
+(79)
+375
+296
+Set-off of deferred income tax assets/liabilities
+(1,119)
+1,119
+At 31 December 2021
+26,068
+(13,142)
+12,926
+Deferred
+Deferred
+income tax
+165
+Business combinations
+5,368
+(12,841)
+18,209
+At 1 January 2020
+Credited to consolidated statement of changes in equity
+RMB'Million
+RMB'Million
+net
+liabilities
+assets
+Deferred
+income tax,
+income tax
+RMB'Million
+3,313
+3,313
+Withholding taxes paid
+Deferred
+income tax
+income tax
+Deferred
+The movements of the deferred income tax assets/liabilities account were as follows:
+28 DEFERRED INCOME TAXES (continued)
+For the year ended 31 December 2021
+assets
+Notes to the Consolidated Financial Statements
+00
+(19,718)
+(17,918)
+(1,727)
+(1,299)
+― to be recovered within 12 months
+272 Tencent Holdings Limited
+(1,985)
+liabilities
+RMB'Million
+5,787
+232
+5,555
+Credited to consolidated income statement (Note 11)
+(2,425)
+(2,541)
+Deferred
+income tax,
+net
+116
+5,287
+(16,061)
+21,348
+At 1 January 2021
+RMB'Million
+RMB'Million
+Business combinations
+(17,991)
+(1,820)
+4,731
+payments
+and others
+RMB'Million
+Total
+RMB'Million
+(Note)
+At 1 January 2021
+7,167
+297
+10,458
+7,083
+25,005
+Business combinations
+13
+84
+19
+116
+Credited to consolidated income statement
+1,087
+1,707
+8,267
+At 31 December 2021
+(79)
+(115)
+36
+expenses
+RMB'Million
+Currency translation differences
+247
+Credited to consolidated statement of changes in equity
+5,555
+1,614
+1,480
+1,374
+247
+Tax losses
+RMB'Million
+RMB'Million
+assets
+Set-off of deferred income tax assets/liabilities
+(210)
+35
+(245)
+Currency translation differences
+(1,130)
+(1,488)
+(1,106)
+Charged to consolidated statement of changes in equity
+3,477
+3,477
+Withholding taxes paid
+(398)
+(5,129)
+(24)
+Credited/(charged) to consolidated income statement (Note 11)
+1,488
+21,348
+Accrued
+of intangible
+Share-based
+amortisation
+Accelerated
+Deferred income tax assets on temporary differences arising from
+At 31 December 2020
+The movements of deferred income tax assets before offsetting were as follows:
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+273
+Annual Report 2021
+5,287
+(16,061)
+28 DEFERRED INCOME TAXES (continued)
+(16,619)
+― to be recovered after more than 12 months
+Deferred income tax liabilities:
+(33,555)
+(6,957)
+(5,656)
+(9,802)
+250,257
+213,091
+During the year ended 31 December 2021, except as described in Note 24(a)(iii), the Group's additions and transfers mainly comprised
+the following:
+(i)
+an additional investment in an eCommerce entity of approximately JPY72,406 million (equivalent to approximately RMB4,294
+million);
+(ii)
+a new investment in a games development entity of approximately RMB2,616 million;
+(iii)
+new investments and additional investments with an aggregate amount of approximately RMB23,473 million. These companies
+are principally engaged in publishing, Internet platform, technology, property management and other Internet-related businesses;
+(iv)
+(v)
+transfer from investment in an associate in relation to the Class A ordinary shares of JD.com held by the Group to the extent of
+approximately RMB15.2 billion (Note 21(b)(i)) (other than those held by the Group for the Distribution in Specie of approximately
+RMB97.1 billion that were classified as "Assets held for distribution" (Note 32)); and
+an existing investee company engaged in games development with carrying value of approximately RMB6.6 billion transferred
+from investment in an associate to FVOCI due to retirement of board representative, resulting in step down gain of approximately
+RMB11.6 billion (Note 7(a)(ii)).
+Prepayments for capital transactions
+15,415
+18,518
+Prepayments for media contents and game licences
+RMB'Million
+RMB'Million
+131,655
+2021
+Included in non-current assets:
+26 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+270 Tencent Holdings Limited
+00
+As at 31 December
+(16,834)
+16,474
+93,211
+At end of the year
+Currency translation differences
+Disposals
+Changes in fair value
+Additions and transfers (Note)
+At beginning of the year
+Note:
+Movement of FVOCI is analysed as follows:
+Equity investments in unlisted entities
+Equity investments in listed entities
+FVOCI include the following:
+25 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Treasury investments
+6,717
+As at 31 December
+2020
+81,721
+213,091
+RMB'Million
+RMB'Million
+2020
+2021
+2021
+213,091
+13,626
+22,392
+77
+199,465
+227,788
+RMB'Million
+RMB'Million
+250,257
+889
+Loans to investees and investees' shareholders (Note (a))
+4,058
+27 OTHER FINANCIAL ASSETS
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Annual Report 2021 271
+As at 31 December 2021, the carrying amounts of deposits and other assets (excluding prepayments and refundable
+value-added tax) approximated their fair values. As at 31 December 2021, loss allowances made against the gross
+amounts of deposits and other assets were not significant.
+Running royalty fees for online games comprised prepaid royalty fees, unamortised running royalty fees and deferred Online
+Service Fees.
+As at 31 December 2021, the Group's other financial assets mainly comprised the treasury investments measured at
+amortised cost amounting to RMB1,284 million (31 December 2020: RMB8 million), and the outstanding interest rate
+swap contracts measured at fair value amounting to RMB1,253 million (31 December 2020: RMB5 million) to hedge the
+Group's exposure arising from borrowings and senior notes carried at floating rates.
+(b)
+(a)
+Note:
+64,951
+102,567
+40,321
+65,390
+As at 31 December 2021, the balances of loans to investees and investees' shareholders were mainly repayable within a period
+of one to five years (included in non-current assets), or within one year (included in current assets), and are interest-bearing at
+rates of not higher than 12.0% per annum (31 December 2020: not higher than 12.0% per annum).
+6,659
+28 DEFERRED INCOME TAXES
+The analysis of deferred income tax assets and liabilities before offsetting is as follows:
+25,005
+30,844
+11,873
+12,966
+13,132
+17,878
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+RMB'Million
+2020
+2021
+As at 31 December
+- to be recovered within 12 months
+- to be recovered after more than 12 months
+Deferred income tax assets:
+RMB'Million
+12,022
+10,211
+182
+15,795
+Running royalty fees for online games (Note (b))
+10,244
+18,714
+Prepayments and prepaid expenses
+Included in current assets:
+14,499
+24,630
+6,581
+7,439
+667
+445
+Running royalty fees for online games (Note (b))
+Others
+1,078
+37,177
+Others
+Receivables related to financial services
+3,700
+1,128
+Dividend and other investment-related receivables
+865
+1,151
+Refundable value-added tax
+258
+10,343
+1,154
+966
+1,290
+Lease deposits and other deposits
+2,948
+5,604
+Interest receivables
+Loans to investees and investees' shareholders (Note (a))
+103,304
+8,848
+At 1 January 2020
+68,487
+279
+Annual Report 2021
+On the Declaration Date, the JD.com Shares of approximately RMB97.1 billion designated as FVOCI were measured at
+fair value and classified as assets held for distribution. Subsequent changes in the fair value of these JD.com Shares
+amounting to approximately RMB5.4 billion were recorded in other comprehensive income during the year ended
+31 December 2021.
+As at 31 December 2021, assets held for distribution represented the JD.com Shares held by the Group to be distributed
+in specie as the interim dividend declared on 23 December 2021 (Note 15(b) and Note 25(iv)).
+32 ASSETS HELD FOR DISTRIBUTION
+As at 31 December 2021, restricted deposits held at banks of RMB2,476 million (31 December 2020: RMB2,520
+million) were mainly denominated in RMB, the majority of which were reserves provided for certain licensed
+business under regulatory requirements.
+(b) Restricted cash
+Approximately RMB77,181 million (31 December 2020: RMB58,651 million) and RMB1,133 million (31
+December 2020: RMB7,207 million) within the total balance of the Group's cash and cash equivalents were
+denominated in RMB and placed with banks in the Mainland of China and Hong Kong, respectively.
+152,798
+167,966
+67,565
+83,156
+Term deposits and highly liquid investments with initial terms
+within three months
+Bank balances and cash
+85,233
+84,810
+The Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised
+from initial recognition of the assets. The provision matrix is determined based on historical observed default rates over
+the expected life of the receivables with similar credit risk characteristics and is adjusted for forward-looking estimates.
+The historical observed default rates are updated and changes in the forward-looking estimates are analysed at year end.
+For the years ended 31 December 2021 and 2020, information about the impairment of accounts receivable and the
+Group's exposure to credit risk and foreign exchange risk can be found in Note 3.1.
+As at 31 December 2021, the carrying amounts of accounts receivable approximated their fair values.
+00
+278
+Tencent Holdings Limited
+31 BANK BALANCES AND CASH
+83,813
+(a) Cash and cash equivalents
+For the year ended 31 December 2021
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+Notes to the Consolidated Financial Statements
+2,913
+3,964
+14,083
+Other currencies
+RMB term deposits
+Included in non-current assets:
+An analysis of the Group's term deposits by currencies is as follows:
+29 TERM DEPOSITS
+As at 31 December 2021, the Group recognised the relevant deferred income tax liabilities of RMB3,926 million (31
+December 2020: RMB6, 188 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable
+future. No withholding tax had been provided for the earnings of approximately RMB96,262 million (31 December 2020:
+RMB33,832 million) expected to be retained by the PRC subsidiaries and not to be remitted to a foreign investor in the
+foreseeable future based on several factors, including management's estimation of overseas funding requirements.
+As at 31 December
+28 DEFERRED INCOME TAXES (continued)
+Notes to the Consolidated Financial Statements
+275
+Annual Report 2021
+(19,718)
+(300)
+(3,845)
+For the year ended 31 December 2021
+Some online advertising customers and agencies are usually granted with a credit period within 90 days immediately
+following the month-end in which the relevant obligations under the relevant contracted advertising orders are delivered.
+Third party platform providers usually settle the amounts due by them within 60 days. Other customers, mainly including
+content production related customers and FinTech and cloud customers, are usually granted with a credit period within
+90 days.
+2021
+2020
+24,039
+51,491
+55,810
+Other currencies
+USD term deposits
+RMB term deposits
+RMB'Million
+Included in current assets:
+19,491
+16
+18
+31,665
+19,473
+RMB'Million
+31,681
+(928)
+44,981
+5,189
+RMB'Million
+2020
+2021
+As at 31 December
+44,981
+49,331
+(3,892)
+(4,129)
+48,873
+53,460
+RMB'Million
+RMB'Million
+2020
+2021
+As at 31 December
+The majority of the Group's accounts receivable were denominated in RMB.
+Over 90 days
+Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2021, the
+carrying amounts of the term deposits with initial terms of over three months approximated their fair values.
+00
+276
+Tencent Holdings Limited
+30 ACCOUNTS RECEIVABLE
+Notes to the Consolidated Financial Statements
+RMB'Million
+Accounts receivable from contracts with customers
+For the year ended 31 December 2021
+Accounts receivable and their ageing analysis, based on recognition date, are as follows:
+0-30 days
+31 - 60 days
+61 - 90 days
+~
+Loss allowance
+21,639
+19,708
+13,255
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+19,548
+Others
+15,835
+12,961
+6,087
+5,416
+4,324
+5,580
+5,621
+13,751
+49,331
+Content production related customers
+Online advertising customers and agencies
+10,867
+6,105
+4,506
+8,332
+9,900
+49,331
+Third party platform providers
+44,981
+277
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+30 ACCOUNTS RECEIVABLE (continued)
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+FinTech and cloud customers
+Annual Report 2021
+(3,561)
+(6,188)
+(4,896)
+Withholding
+Intangible
+assets
+tax on the
+acquired
+earnings
+anticipated to
+Changes in
+fair value
+Deemed
+Accelerated
+in business
+be remitted by
+of FVPL
+disposals of
+tax
+combinations
+subsidiaries
+and FVOCI
+investees
+(928)
+(3,561)
+(6,188)
+(4,896)
+At 1 January 2021
+RMB'Million
+Deferred income tax liabilities on temporary differences arising from
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+Total
+Others
+depreciation
+RMB'Million
+For the year ended 31 December 2021
+The movements of deferred income tax liabilities before offsetting were as follows:
+28 DEFERRED INCOME TAXES (continued)
+4,731
+2,214
+1,792
+(387)
+1,112
+Credited/(charged) to consolidated income statement
+Charged to consolidated statement of changes in equity
+165
+Business combinations
+20,378
+4,973
+8,666
+684
+6,055
+165
+(3,845)
+(24)
+Currency translation differences
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+274
+00
+The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable profits will be
+available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting
+periods. As at 31 December 2021, the Group did not recognise deferred income tax assets of RMB2,922 million (31 December 2020:
+RMB2,783 million) in respect of cumulative tax losses amounting to RMB13,412 million (31 December 2020: RMB12,690 million).
+These tax losses in the Mainland of China will expire from 2022 to 2026.
+Note:
+(24)
+25,005
+10,458
+297
+7,167
+At 31 December 2020
+(245)
+(245)
+7,083
+(300)
+(19,718)
+Business combinations
+(3,900)
+760
+income statement
+Credited/(charged) to consolidated
+(1,985)
+(20)
+(794)
+(1,965)
+(15,010)
+(227)
+(2,746)
+(886)
+(1,743)
+(5,781)
+Business combinations
+(3,627)
+(42)
+(54)
+At 31 December 2020
+35
+(1,106)
+82
+16
+(64)
+(1,099)
+Currency translation differences
+changes in equity
+Charged to consolidated statement of
+3,477
+3,477
+Withholding tax paid
+(5,129)
+(1,106)
+30,844
+At 1 January 2020
+(122)
+3,313
+3,313
+Withholding tax paid
+232
+(98)
+190
+Credited to consolidated statement of
+(35)
+(1,050)
+962
+income statement
+Credited/(charged) to consolidated
+(2,541)
+(2,541)
+263
+(17,918)
+changes in equity
+Currency translation differences
+(3,655)
+(963)
+(2,827)
+(3,926)
+(6,425)
+At 31 December 2021
+421
+375
+276
+50
+421
+1280
+(1)
+50
+16
+2020
+Notes to the Consolidated Financial Statements
+4,260
+RMB'Million
+for share
+award schemes
+RMB'Million
+Total
+RMB'Million
+At 1 January 2020
+9,552,615,286
+35,271
+(4,002)
+31,269
+Employee share option schemes:
+- value of employee services
+- shares issued (Note (a))
+1,768
+14,656,747
+1,716
+1,768
+1,716
+Employee share award schemes:
+Share capital Share premium
+RMB'Million
+-value of employee services
+paid ordinary
+shares*
+Number of
+issued and fully
+(2,170)
+Transfer of equity interests of subsidiaries to
+non-controlling interests
+At 31 December 2021
+1,746
+306
+2,052
+9,608,378,469
+67,330
+(4,843)
+62,487
+00
+280
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+33 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (continued)
+Shares held
+- shares withheld for share award schemes (Note (b))
+9,720
+9,720
+(a)
+(b)
+During the year ended 31 December 2021, 4,834,315 Post-IPO options (2020: 15,656,921 Post-IPO options) with exercise
+prices ranging from HKD116.40 to HKD546.50 (2020: HKD112.30 to HKD444.20) were exercised. In 2020, the right to
+receive 1,000,174 options was surrendered by the grantees under the Post-IPO Option Scheme II to set off against the exercise
+consideration and individual income tax payable by the grantees when they exercise their options.
+During the year ended 31 December 2021, the Share Scheme Trust withheld 5,921,232 ordinary shares (2020: 4,259,939
+ordinary shares) of the Company for an amount of approximately HKD3,394 million (equivalent to approximately RMB2,827
+million) (2020: HKD2,108 million (equivalent to approximately RMB1,865 million)), which had been deducted from the equity.
+00
+(c)
+During the year ended 31 December 2021, the Company allotted 15,213,243 ordinary shares (2020: 26,640,678 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the Share Award
+Schemes.
+(d)
+(e)
+During the year ended 31 December 2021, the Share Scheme Trust transferred 32,749,222 ordinary shares of the Company
+(2020: 27,351,216 ordinary shares) to the share awardees upon vesting of the awarded shares (Note 35(b)).
+During the year ended 31 December 2021, the Company repurchased 5,581,800 of its own shares from the market which were
+subsequently cancelled (2020: nil). The shares were acquired at prices ranging from HKD412.60 to HKD516.00, with an average
+price of HKD465.58 per share.
+282 Tencent Holdings Limited
+34 OTHER RESERVES
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+Investments
+in associates
+Note:
+33 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+(1,865)
+(1,865)
+- shares allotted for share award schemes (Note (c))
+26,640,678
+- shares vested from share award schemes and
+transferred to the grantees (Note (d))
+Transfer of equity interests of subsidiaries to
+(1,209)
+1,209
+non-controlling interests
+(2,170)
+At 31 December 2020
+1,527
+246
+1,773
+48,793
+(4,412)
+44,381
+As at 31 December 2021, the total number of issued ordinary shares of the Company included 69,902,440 shares (31 December
+2020: 81,517,187 shares) held under the Share Award Schemes.
+Annual Report 2021 281
+9,593,912,711
+(5,581,800)
+2,090
+(2,090)
+(765)
+of non-controlling interests
+Changes in put option liability in respect
+(2,730)
+arising from business combinations
+Recognition of put option liabilities
+(6,472)
+to non-controlling interests
+Transfer of equity interests of subsidiaries
+(2,795)
+in non wholly-owned subsidiaries
+Acquisition of additional equity interests
+Tax benefit from share-based payments
+- Employee share award schemes
+- Employee share option schemes
+Value of employee services:
+loss upon disposal and deemed
+disposal
+Dilution of/changes in interests
+in subsidiaries
+(684)
+Profit appropriations to statutory reserves
+(765)
+(2,730)
+(6,472)
+(2,795)
+588
+588
+413
+413
+net assets of associates to profit or
+60
+(154)
+347
+(154)
+127,873
+income to profit or loss upon disposal
+associates and joint ventures
+Transfer of share of other comprehensive
+Share of other comprehensive income of
+Net gains from changes in fair value of
+FVOCI
+60
+Currency
+Transfer of share of other changes in
+3,320
+- value of employee services
+- shares issued (Note (a))
+1,661
+4,834,315
+1,043
+1,661
+1,043
+Employee share award schemes:
+- value of employee services
+- shares withheld for share award schemes (Note (b))
+18,347
+18,347
+(2,827)
+(2,827)
+- shares allotted for share award schemes (Note (c))
+15,213,243
+- shares vested from share award schemes and
+transferred to the grantees (Note (d))
+Repurchase and cancellation of shares (Note (e))
+Employee share option schemes:
+44,381
+(4,412)
+48,793
+associates and joint ventures
+Share of other changes in net assets of
+(5,151)
+(420)
+For the year ended 31 December 2021
+33 SHARE CAPITAL, SHARE PREMIUM AND SHARES HELD FOR SHARE AWARD SCHEMES
+As at 31 December 2021 and 2020, the authorised share capital of the Company comprises 50,000,000,000 ordinary
+shares with par value of HKD0.00002 per share.
+Number of
+issued and fully
+3,320
+Shares held
+Share capital
+RMB'Million
+Share premium
+RMB'Million
+for share
+award schemes
+RMB'Million
+Total
+RMB'Million
+At 1 January 2021
+9,593,912,711
+paid ordinary
+shares*
+(684)
+Capital
+translation
+2,706
+2,706
+Gain from changes in fair value of
+assets held for distribution
+5,380
+5,380
+Balance at 31 December 2021
+(32,684)
+102,223
+14,743
+(23,903)
+4,929
+8,004
+589
+73,901
+Annual Report 2021
+283
+Other fair value gains, net
+Notes to the Consolidated Financial Statements
+783
+non-controlling interests
+512
+(4,305)
+(2,323)
+(1,289)
+1,483
+205
+669
+669
+(15,073)
+512
+disposal of associates
+and joint ventures
+Currency translation differences
+8
+(18,032)
+8
+(18,032)
+Lapses of put option liability in respect of
+783
+For the year ended 31 December 2021
+34
+OTHER RESERVES (continued)
+RMB'Million
+Total
+RMB'Million
+(Note (a))
+(Note (b))
+(Note (c))
+Balance at 1 January 2020
+(13,792)
+11.167
+7,408
+3,145
+3,524
+5,817
+(483)
+16,786
+Transfer of gains on disposal and
+deemed disposal of financial
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Investments
+in associates
+Currency
+PRC Share-based
+Capital
+and
+translation
+statutory
+12
+compensation
+FVOCI
+joint ventures
+differences
+reserves
+reserves
+Others
+RMB'Million
+RMB'Million
+reserves
+(15,073)
+upon disposal and deemed
+loss to profit or loss
+(5,871)
+(4,731)
+6,878
+(2,117)
+121,139
+Transfer of gains on disposal and
+deemed disposal of financial
+instruments to retained earnings
+(Note (d))
+(22,393)
+Share of other changes in net assets of
+associates and joint ventures
+8,429
+(22,393)
+8,429
+Transfer of share of other changes in
+net assets of associates and
+10,918
+134,309
+(27,238)
+Balance at 1 January 2021
+PRC
+statutory
+Share-based
+compensation
+reserves
+FVOCI
+ventures
+differences
+reserves
+RMB'Million
+joint ventures to profit or
+RMB'Million
+RMB'Million
+RMB'Million
+reserves
+RMB'Million
+Others
+RMB'Million
+Total
+RMB'Million
+(Note (a))
+(Note (b))
+(Note (c))
+RMB'Million
+and joint
+loss upon disposal and deemed
+(5,089)
+to non-controlling interests
+(2,323)
+Recognition of put option liabilities
+arising from business combinations
+(1,289)
+Changes in put option liabilities in respect
+of non-controlling interests
+1,483
+Dilution of/changes in interests
+in subsidiaries
+205
+Profit appropriations to statutory reserves
+Net losses from changes in fair
+value of FVOCI
+Share of other comprehensive income of
+associates and joint ventures
+Transfer of share of other comprehensive
+Transfer of equity interests of subsidiaries
+(4,305)
+(Note (e))
+in non wholly-owned subsidiaries
+(5,089)
+Transfer of share of other comprehensive
+income to retained earnings upon
+disposal and deemed disposal
+of associates and joint ventures
+Value of employee services:
+- Employee share option schemes
+- Employee share award schemes
+disposal
+Tax benefit from share-based payments
+Acquisition of additional equity interests
+(35)
+53
+611
+611
+ទ≡
+53
+462
+462
+(35)
+736
+736
+127,873
+(i)
+Movements in share options (continued)
+During the year ended 31 December 2021, 3,374,630 options (2020: 4,399,815 options) were granted to an
+executive director of the Company, out of which 843,657 options were voluntarily waived in February 2022.
+As a result of the Distribution in Specie (Note 15(b)), pursuant to the scheme rules of the Post-IPO Option
+Scheme II and the Post-IPO Option Scheme IV, adjustments had been made to the exercise price of the
+share options which remained outstanding thereunder as at the Ex-dividend Date. Please refer to the
+announcement of the Company dated 14 March 2022 for details.
+During the year ended 31 December 2021, 4,834,315 options (2020: 15,656,921 options) were exercised.
+The weighted average price of the shares at the time these options were exercised was HKD559.01 per
+share (equivalent to approximately RMB464.92 per share) (2020: HKD539.43 per share (equivalent to
+approximately RMB464.09 per share)).
+(ii)
+Outstanding share options
+(a) Share option schemes (continued)
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2021 and 2020 are as follows:
+31 December
+31 December
+Expiry Date
+Range of exercise price
+2021
+2020
+7 years commencing from
+the date of grant of options
+(Post-IPO Option Scheme II and
+Post-IPO Option Scheme IV)
+Number of share options
+35 SHARE-BASED PAYMENTS (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+HKD185.86
+Granted
+Exercised
+HKD129.34 (12,919,216)
+Lapsed/forfeited
+HKD175.14
+(4,450)
+50,358,800 HKD375.36 61,738,193 112,096,993
+HKD396.39 9,318,989 9,318,989
+HKD321.74 (2,737,705) (15,656,921)
+HKD364.34 (512,727) (517,177)
+At 31 December 2020
+HKD205.36
+37,435,134 HKD380.50
+67,806,750 105,241,884
+Exercisable as at 31 December 2020
+HKD200.96
+30,654,571
+HKD376.39 20,038,030 50,692,601
+Annual Report 2021 287
+HKD112.30 HKD174.86
+10,018,592
+11,082,519
+HKD225.44~HKD272.36
+(a) Share option schemes (continued)
+(iii) Fair value of options
+The directors of the Company have used the Binomial Model to determine the fair value of the options as at
+the respective grant dates, which is to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2021 was HKD178.35 per share (equivalent
+to approximately RMB149.72 per share) (2020: HKD115.13 per share (equivalent to approximately
+RMB104.72 per share)).
+Other than the exercise price mentioned above, significant judgment on parameters, such as risk free rate,
+dividend yield and expected volatility, are required to be made by the directors in applying the Binomial
+Model, which are summarised as below.
+2021
+2020
+Weighted average share price at the grant date
+Risk free rate
+Dividend yield
+HKD582.94
+0.94% 1.35%
+0.23%
+Expected volatility (Note)
+31.00% 32.00%
+HKD396.24
+0.27% 1.52%
+0.23%
+30.00% 31.00%
+Note:
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the
+average daily trading price volatility of the shares of the Company.
+Annual Report 2021 289
+instruments to retained earnings
+35 SHARE-BASED PAYMENTS (continued)
+At 1 January 2020
+For the year ended 31 December 2021
+Tencent Holdings Limited
+29,843,566
+32,520,471
+HKD334.20~HKD386.60
+36,336,078
+37,549,600
+HKD403.16~HKD444.20
+22,263,239
+22,362,446
+HKD502.50~HKD586.00
+HKD606.30~HKD618.00
+9,797,440
+1,726,848
+8,576,483
+116,835,398
+105,241,884
+The outstanding share options as of 31 December 2021 were divided into one to four tranches on an equal
+basis as at their grant dates. The first tranche can be exercised after a specified period ranging from one
+month to five years from the grant date, and then the remaining tranches will become exercisable in each
+subsequent year.
+00
+288
+Notes to the Consolidated Financial Statements
+HKD381.54 30,418,848 65,443,152
+(Note (d))
+HKD206.36
+284
+Tencent Holdings Limited
+34 OTHER RESERVES (continued)
+Note:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+(a)
+(b)
+(c)
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries
+with limited liabilities in the PRC, appropriation of net profit (after offsetting accumulated losses from prior years) should be
+made by these companies to their respective Statutory Surplus Reserve Funds and the Discretionary Reserve Funds before
+distributions are made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount
+to be transferred to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance
+of the Statutory Surplus Reserve Fund reaches 50% of the registered capital, such transfer needs not to be made. Both the
+Statutory Surplus Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the
+remaining Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly owned foreign subsidiaries in the PRC, appropriation from net profit (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, such transfer needs not to be made.
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+Share-based compensation reserve arises from share option schemes and share award schemes adopted by the subsidiaries of
+the Group (Note 35(d)).
+(d)
+(e)
+The Group has elected to recognise changes in the fair value of certain investments in equity instruments in other comprehensive
+income. These changes are accumulated with FVOCI reserve with equity. The Group transfers amounts from this reserve to
+retained earnings when the relevant equity instruments are derecognised.
+00
+During the year ended 31 December 2021, the acquisition of additional equity interests in non wholly-owned subsidiaries mainly
+comprised the additional acquisition of equity interest of Halti S.A. ("Halti"), a non wholly-owned subsidiary of the Group. The
+Group acquired additional 12.81% equity interest of Halti based on the agreed purchase price. This transaction was accounted
+for as transaction with non-controlling interest, and the excess of considerations over the aggregate carrying amounts of acquired
+non-controlling interests of RMB2,409 million was recognised directly in equity.
+(2,117)
+4,260
+35,024,304
+347
+and deemed disposal of associates
+Currency translation differences
+Other fair value losses, net
+(3)
+(3)
+1
+(9,016)
+(9,016)
+(1,214)
+(1,214)
+Balance at 31 December 2020
+(27,238)
+134,309
+10,918
+(5,871)
+6,878
+Annual Report 2021
+121,139
+Notes to the Consolidated Financial Statements
+No. of
+options
+At 1 January 2021
+HKD205.36
+37,435,134
+Granted
+Exercised
+Lapsed/forfeited
+HKD124.30
+(10,938)
+HKD380.50
+HKD587.26
+HKD321.25
+HKD429.76
+67,806,750 105,241,884
+16,785,250 16,785,250
+(2,556,236) (4,834,315)
+(346,483) (357,421)
+At 31 December 2021
+HKD206.40
+35,146,117
+285
+Exercisable as at 31 December 2021
+HKD424.63 81,689,281 116,835,398
+No. of
+options
+Total
+HKD189.79 (2,278,079)
+During the year ended 31 December 2021, the Company allowed certain grantees under the Post-IPO Option
+Scheme II and the Post-IPO Option Scheme IV to surrender their rights to receive a portion of the underlying
+shares (with equivalent fair value) to set off against the exercise price and/or individual income tax payable when
+they exercised their options.
+(a) Share option schemes
+Post-IPO Option Scheme IV
+No. of
+Average
+options exercise price
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV.
+The Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the Post-IPO Option Scheme II and the Post-IPO
+Option Scheme III expired on 31 December 2011, 23 March 2014, 16 May 2017 and 13 May 2019, respectively.
+Upon the expiry of these schemes, no further options would be granted under these schemes, but the options
+granted prior to such expiry continued to be valid and exercisable in accordance with provisions of the schemes.
+As at 31 December 2021, there were no outstanding options exercisable of the Pre-IPO Option Scheme, the Post-
+IPO Option Scheme I and the Post-IPO Option Scheme III.
+In respect of the Post-IPO Option Scheme IV which continues to be in force, the Board may, at its discretion, grant
+options to any qualifying participants to subscribe for shares in the Company, subject to the terms and conditions
+stipulated therein. The exercise price must be in compliance with the requirement under the Listing Rules. In
+addition, the option vesting period is determined by the Board provided that it is not later than the last day of a 7-year
+period for the Post-IPO Option Scheme IV after the date of grant of option.
+For the year ended 31 December 2021
+00
+286
+35 SHARE-BASED PAYMENTS
+Tencent Holdings Limited
+For the year ended 31 December 2021
+35 SHARE-BASED PAYMENTS (continued)
+(a) Share option schemes (continued)
+(i) Movements in share options
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+Post-IPO Option Scheme II
+Average
+exercise price
+Notes to the Consolidated Financial Statements
+11,063
+Capital expenditures (d)
+11,661
+Interest and related expenses
+9,659
+(20,243)
+33,392
+7,061
+11,063
+2,092
+(20,243)
+Net (debt)/cash (c)
+7,449
+7,918
+1,766
+2,188
+33,960
+(26,146)
+Note:
+31 December
+2020
+EBITDA is calculated as operating profit minus interest income and other gains/losses, net, and adding back depreciation of property,
+plant and equipment, investment properties as well as right-of-use assets, and amortisation of intangible assets and land use rights.
+Adjusted EBITDA is calculated as EBITDA plus equity-settled share-based compensation expenses.
+38%
+31 December
+31 December
+2021
+2021
+Year ended
+Unaudited
+Three months ended
+30 September
+31 December
+Operating profit
+Adjustments:
+The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
+Management Discussion and Analysis
+21
+Annual Report 2021
+Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in
+progress, investment properties, land use rights and intangible assets (excluding video and music content, game licences and other
+content).
+Net (debt)/cash represents period end balance and is calculated as cash and cash equivalents, plus term deposits and others, minus
+borrowings and notes payable.
+(d)
+(c)
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+(b)
+(a)
+35%
+Selling and marketing expenses. Selling and marketing expenses increased by 11% to RMB11.6 billion for the fourth quarter
+of 2021 on a quarter-on-quarter basis, due to increased marketing spending related to games (including expenses associated
+with the global launch of the Arcane animated series), and Business Services, partly offset by decreased spending on user
+acquisition for non-core areas.
+35%
+31 December
+Year ended
+Three months ended
+Unaudited
+Management Discussion and Analysis
+OTHER FINANCIAL INFORMATION
+Tencent Holdings Limited
+20
+30 September
+20
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 140% to
+RMB95.0 billion for the fourth quarter of 2021 on a quarter-on-quarter basis. Non-IFRS profit attributable to equity holders of
+the Company decreased by 22% to RMB24.9 billion for the fourth quarter of 2021.
+Share of losses of associates and joint ventures, net. We recorded share of losses of associates and joint ventures of RMB8.3
+billion for the fourth quarter of 2021, compared to share of losses of RMB5.7 billion for the third quarter of 2021. Non-IFRS
+share of losses of associates and joint ventures were RMBO.8 billion for the fourth quarter of 2021, compared to non-IFRS
+share of losses of RMBO.3 billion for the third quarter of 2021, reflecting increased losses recognised from certain associates
+in verticals such as transportation services and local services.
+General and administrative expenses. General and administrative expenses increased by 2% to RMB24.4 billion for the fourth
+quarter of 2021 on a quarter-on-quarter basis.
+2021
+Cost of revenues for FinTech and Business Services increased by 13% to RMB34.9 billion for the fourth quarter of
+2021, primarily due to increased investment in cloud computing talent and operations, costs associated with year-end
+cloud project deployments, as well as increased transaction costs due to payment volume growth.
+Cost of revenues for Online Advertising increased by 2% to RMB12.3 billion for the fourth quarter of 2021, driven by
+increased bandwidth and server costs, including those associated with Video Accounts, partly offset by decreased
+channel and distribution costs as well as content costs.
+Cost of revenues for VAS increased by 4% to RMB36.9 billion for the fourth quarter of 2021 primarily due to increased
+content costs, including those associated with eSports events held in the quarter.
+Cost of revenues. Cost of revenues increased by 8% to RMB86.4 billion for the fourth quarter of 2021 on a quarter-on-
+quarter basis, reflecting increased investment in Business Services, content costs, and transaction costs of FinTech services,
+partly offset by decreased channel and distribution costs. As a percentage of revenues, cost of revenues increased to 60%
+for the fourth quarter of 2021 from 56% for the third quarter of 2021, reflecting costs growing faster than revenues in certain
+businesses and seasonality.
+00
+2021
+2021
+31 December
+2020
+29%
+Adjusted EBITDA margin (b)
+183,314
+194,798
+46,533
+49,257
+42,267
+Adjusted EBITDA (a)
+170,680
+173,173
+42,872
+42,683
+36,568
+EBITDA (a)
+(RMB in millions, unless specified)
+2020
+2021
+31 December
+31 December
+35%
+2020
+42,683
+109,723
+Net (gains)/
+losses from
+Adjustments
+Unaudited three months ended 31 December 2021
+The following tables set forth the reconciliations of the Group's non-IFRS financial measures for the fourth quarter of 2021
+and 2020, the third quarter of 2021, and the years ended 31 December 2021 and 2020 to the nearest measures prepared in
+accordance with IFRS:
+The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain
+impact of M&A transactions. In addition, non-IFRS adjustments include relevant non-IFRS adjustments for the Group's major
+associates based on available published financials of the relevant major associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS financial
+measures (in terms of operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders
+of the Company, basic EPS and diluted EPS) have been presented in this annual report. These unaudited non-IFRS financial
+measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared
+in accordance with IFRS. In addition, these non-IFRS financial measures may be defined differently from similar terms used by
+other companies.
+NON-IFRS FINANCIAL MEASURES
+Management Discussion and Analysis
+Amortisation
+22 Tencent Holdings Limited
+183,314
+194,798
+46,533
+49,257
+42,267
+Adjusted EBITDA
+12,634
+21,625
+00
+Impairment
+As Share-based
+reported compensation
+investee
+companies
+15,217
+1,316
+(100,349)
+5,664
+109,723
+Operating profit
+(RMB in millions, unless specified)
+(c)
+(b)
+Non-IFRS
+effects
+Others
+CPP
+(reversals)
+assets
+Income tax
+SSV&
+provisions/
+of intangible
+3,661
+(RMB in millions, unless specified)
+6,574
+Equity-settled share-based compensation
+investment properties
+Depreciation of property, plant and equipment and
+(57,131)
+(149,467)
+(32,936)
+(22,984)
+(86,199)
+Other gains, net
+5,466
+(6,957)
+(1,708)
+(1,703)
+(1,703)
+Interest income
+184,237
+271,620
+63,713
+53,137
+(6,650)
+5,374
+4,939
+21,517
+170,680
+173,173
+42,872
+36,568
+EBITDA
+29,073
+31,504
+7,828
+7,730
+7,905
+and land use rights
+Amortisation of intangible assets
+3,773
+4,649
+1,036
+1,129
+1,376
+Depreciation of right-of-use assets
+17,685
+5,699
+(e)
+(reversals)
+604
+7,723
+(69,348)
+17,089
+160,125
+Profit for the year
+149,404
+11,422
+3,299
+(63,299)
+12,684
+13,745
+Operating profit
+(RMB in millions, unless specified)
+(c)
+Non-IFRS
+effects
+(reversals)
+assets
+Income tax
+provisions/
+184,237
+(1,290)
+126,983
+Profit attributable
+(145,590)
+(148,077)
+(20,243)
+(26,146)
+Management Discussion and Analysis
+As at 31 December 2021, the Group had net debt of RMB20.2 billion, compared to net debt of RMB26.1 billion as at 30
+September 2021. The sequential improvement was mainly due to free cash flow generation and on-market divestitures of
+certain listed securities, partly offset by our strategic investments in other companies.
+For the fourth quarter of 2021, the Group had free cash flow of RMB33.5 billion. This was a result of net cash flow generated
+from operating activities of RMB51.3 billion, offset by payments for capital expenditures of RMB7.5 billion, payments for media
+content of RMB8.8 billion, and payments for lease liabilities of RMB1.5 billion.
+As at 31 December 2021, bank balances and cash held at banks of the Group were mainly denominated in RMB. The Group
+considers that any reasonable changes in foreign exchange rates of currencies against major functional currencies would not
+result in a significant change in the Group's results, as the net carrying amounts of financial assets and liabilities denominated
+in a currency other than the respective subsidiaries' functional currencies are considered to be not significant.
+As at 31 December 2021, the Group's total debts comprised borrowings and notes payable. Particulars of the Group's
+borrowings and notes payable are set out in Note 36 and Note 37 to the consolidated financial statements respectively.
+The Group has floating rate debts, linked to USD LIBOR, including borrowings and senior notes, whose cash flows are hedged
+by using interest rate swaps. The effects of the interest rate swaps on the Group's financial position and performance are set
+out in Note 3.1 to the consolidated financial statements.
+The Group assesses its creditworthiness based on its business and financial risk profile and monitors its capital by regularly
+reviewing its debts to adjusted EBITDA ratio, being the measure of the Group's ability to pay off all of its debts which in
+turn reflects the Group's financial health and liquidity position. Details are set out in Note 3.2 to the consolidated financial
+statements.
+The Group had no material contingent liabilities outstanding as at 31 December 2021.
+Annual Report 2021
+29
+(920)
+10,673
+6,387
+(69,473)
+16,228
+159,847
+to equity holders
+investee of intangible
+companies
+(167,551)
+As Share-based
+reported compensation
+Amortisation
+to equity holders
+Profit attributable
+127,919
+(3,291)
+1,568
+674
+25,541
+12,272
+(167,471)
+224,822
+30,816
+Profit for the year
+159,539
+976
+674
+25,028
+4,651
+(165,632)
+22,222
+271,620
+227,810
+30,070
+(166,661)
+10,848
+Net (gains)/
+losses from
+Adjustments
+Year ended 31 December 2020
+23%
+28%
+12.698
+12.992
+41%
+Net margin
+48%
+Operating margin
+23.164
+- diluted
+23.597
+- basic
+EPS (RMB per share)
+123,788
+(3,066)
+1,567
+674
+25,534
+Impairment
+Operating profit
+(155,939)
+281,286
+Mainly including donations and expenses incurred for the Group's SSV & CPP initiatives (excluding share-based compensation
+expenses)
+(f)
+Mainly including expenses incurred for regulatory fines in the Mainland of China and certain litigation settlements
+(g)
+Income tax effects of non-IFRS adjustments
+INVESTMENTS HELD
+As at 31 December 2021, our investment portfolio amounted to approximately RMB878,653 million (31 December 2020:
+RMB690,886 million) as recorded in the consolidated statement of financial position under various categories including:
+investments in associates and joint ventures which are accounted for by using equity method; and
+financial assets at fair value through profit or loss and through other comprehensive income (including assets held for
+distribution).
+(e)
+Changes in respective items in the consolidated statement of financial position have been disclosed in the notes to the
+consolidated financial statements in this annual report.
+The fair value of our shareholdings³ in listed investee companies (excluding subsidiaries) amounted to RMB982,835 million as
+at 31 December 2021.
+3 Including those held via special purpose vehicles, on an attributable basis.
+00
+26
+Tencent Holdings Limited
+Management Discussion and Analysis
+As at 31 December 2021, we held approximately 529 million shares in JD.com, a company operating an eCommerce platform
+in China, representing approximately 17% of its total outstanding shares. The fair value of this investment was approximately
+RMB118.5 billion, which accounted for approximately 7% of the Group's total assets as at 31 December 2021. This investment
+was initially accounted for as investment in an associate and was then transferred to and accounted for as financial assets at
+fair value through other comprehensive income on 23 December 2021, following the resignation of the Group's representative
+on the board of JD.com, Mr Lau Chi Ping Martin, as a director of JD.com ("Board Representative's Resignation"). The cost
+of our investment in JD.com was approximately RMB20.9 billion. During the year ended 31 December 2021, the Group did
+not receive any dividends from JD.com, and there were deemed disposal gains of approximately RMB78.0 billion arising
+from the Board Representative's Resignation and unrealised gains of approximately RMB6.2 billion arising from changes in
+fair value under equity. The Group does not have nor does it exercise any managerial influence on JD.com after the Board
+Representative's Resignation and regards the investment in JD.com as a passive investment. Except JD.com, there was no
+other individual investment with a carrying value of 5% or more of the Group's total assets as at 31 December 2021.
+On 23 December 2021, the Board resolved to declare the Distribution in Specie. The JD.com Shares to be distributed under
+the Distribution in Specie were presented as “Assets held for distribution" in the consolidated statement of financial position
+of the Group as at 31 December 2021. The share certificates of the JD.com Shares to be distributed are dispatched to the
+qualifying shareholders in March 2022. Immediately following the completion of the Distribution in Specie, the Company's
+beneficial ownership would be reduced to approximately 2.3% in JD.com (based on the total number of issued shares of
+JD.com as at 31 December 2021). Please refer to the announcements of the Company dated 23 December 2021 and 25
+March 2022 for further details in relation to the Distribution in Specie. Notwithstanding the Distribution in Specie, the Group
+and JD.com will continue to maintain their business relationship in the ordinary course of business.
+Save as disclosed herein, there were no material changes in our significant investment portfolio that need to be disclosed
+under paragraph 32 of Appendix 16 to the Listing Rules.
+We manage our investment portfolio with a primary objective to strengthen our leading position in core businesses and
+complement our "Connection" strategy in various industries, particularly in social and digital content, 020 and smart retail
+sectors. We also invest in transportation, FinTech, cloud and other sectors.
+Impairment provisions/(reversals) for associates, joint ventures, goodwill and other intangible assets arising from acquisitions
+(d)
+Amortisation of intangible assets resulting from acquisitions
+- basic
+16.844
+- diluted
+16.523
+Operating margin
+38%
+Net margin
+33%
+12.934
+12.689
+31%
+26%
+Annual Report 2021
+25
+Management Discussion and Analysis
+Note:
+(a)
+(b)
+Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives
+Including net (gains)/losses on deemed disposals/disposals of investee companies, fair value changes arising from investee
+companies, and other expenses in relation to equity transactions of investee companies
+(c)
+Annual Report 2021
+289,482
+27
+Return from our investment portfolio amounted to RMB120,305 million for the year ended 31 December 2021, with an
+increase of 123% compared to last year. Details of our return from investment portfolio are as follows:
+We continue to closely monitor the performance of our investment portfolio and strategically make investments, M&A, and
+explore opportunities in monetising some of the existing investments if appropriate opportunities in the market arise.
+LIQUIDITY AND FINANCIAL RESOURCES
+Our cash and debt positions as at 31 December 2021 and 30 September 2021 were as follows:
+Cash and cash equivalents
+Term deposits and others
+Borrowings
+Notes payable
+Net debt
+00
+28
+(3,299)
+Tencent Holdings Limited
+31 December
+Unaudited
+30 September
+2021
+2021
+(RMB in millions)
+167,966
+170,873
+113,320
+118,609
+Audited
+(4,651)
+3,672
+(16,444)
+Income of Principal Investment
+(Classified by nature of income)
+2021
+2020
+RMB'Million
+RMB'Million
+Dividend income
+660
+1,765
+Net gains on disposals and deemed disposals of investee companies
+118,051
+24,390
+Net fair value gains
+47,717
+38,909
+Impairment provision for investee companies, goodwill and other
+intangible assets from acquisitions
+Share of (loss)/profit of associates and joint ventures, net
+Amortisation of intangible assets resulting from acquisitions
+(25,028)
+(11,422)
+Management Discussion and Analysis
+(RMB in millions, unless specified)
+=
+(e)
+1,149
+(26,569)
+6,652
+53,137
+Operating profit
+(RMB in millions, unless specified)
+B
+(d)
+(b)
+6,389
+(a)
+effects
+CPP
+assets
+companies
+compensation
+reported
+Income tax
+SSV&
+provisions/
+Non-IFRS
+Profit for the period
+40,075
+10,242
+EPS (RMB per share)
+31,751
+(572)
+70
+70
+6,452
+2,719
+(26,491)
+10,063
+39,510
+to equity holders
+Profit attributable
+32,518
+(633)
+70
+40,828
+70
+772
+6,452
+3,093
+(26,781)
+of intangible
+- basic
+investee
+As
+604
+15,573
+3,010
+(97,804)
+7,776
+94,958
+to equity holders
+Profit attributable
+25,758
+1,567
+(866)
+604
+15,573
+3,340
+(98,046)
+7,880
+95,705
+Profit for the period
+33,151
+976
+1,568
+(804)
+24,880
+EPS (RMB per share)
+Impairment
+Amortisation
+losses from
+Net (gains)/
+Adjustments
+Unaudited three months ended 30 September 2021
+Management Discussion and Analysis
+23
+Annual Report 2021
+18%
+23%
+2.547
+2.609
+66%
+Net margin
+76%
+Operating margin
+9.788
+- diluted
+9.957
+- basic
+Share-based
+4.143
+- diluted
+4.074
+Year ended 31 December 2021
+Management Discussion and Analysis
+Tencent Holdings Limited
+24
+26%
+28%
+3.413
+3.494
+44%
+Adjustments
+Net margin
+Operating margin
+6.112
+- diluted
+6.240
+- basic
+EPS (RMB per share)
+33,207
+(235)
+4,407
+48%
+Net (gains)/
+losses from
+Amortisation
+(d)
+(c)
+(b)
+(a)
+Non-IFRS
+effects
+Others
+CPP
+(reversals)
+assets
+companies
+compensation
+reported
+Income tax
+SSV&
+provisions/
+of intangible
+investee
+Share-based
+As
+Impairment
+1,926
+(36,928)
+4,735
+59,302
+reported compensation
+Income tax
+provisions/
+of intangible
+investee
+Share-based
+As
+Impairment
+Amortisation
+losses from
+Net (gains)/
+Adjustments
+Unaudited three months ended 31 December 2020
+23%
+29%
+3.269
+3.329
+28%
+Net margin
+37%
+Operating margin
+companies
+Management Discussion and Analysis
+(a)
+assets
+(c)
+to equity holders
+Profit attributable
+34,454
+(329)
+4,407
+2,260
+(36,149)
+4,896
+59,369
+Profit for the period
+38,084
+4,394
+885
+(34,652)
+3,744
+63,713
+Operating profit
+(RMB in millions, unless specified)
+Non-IFRS
+effects
+(reversals)
+(d)
+(b)
+EPS (RMB per share)
+122,742
+11
+RMB bank borrowings
+USD bank borrowings
+HKD bank borrowings
+112,929
+31 December 2021
+31 December 2020
+Amount
+(Million)
+Interest rate
+(per annum)
+The aggregate principal amounts of short-term bank borrowings and applicable interest rates are as follows:
+Amount
+(Million)
+(per annum)
+RMB13,540
+2.45% 5.10%
+RMB4,179
+USD1,400
+HKD171
+3.55% 5.22%
+LIBOR + 0.45% - 0.50%
+HIBOR+ 0.90% - 3.90%
+Interest rate
+(b)
+142,399
+1
+JPY1,234
+0.00% 2.50%
+The zero interest rate of JPY borrowings was due to the special interest exemption for COVID-19 by Tokyo Metropolitan
+Government.
+The long-term bank borrowings are repayable as follows:
+Within 1 year
+Between 1 and 2 years
+Between 2 and 5 years
+Over 5 years
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+5,463
+7,733
+129,197
+784
+4,409
+107,735
+6
+Annual Report 2021
+293
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+(per annum)
+USD notes payable
+USD1,250
+USD notes payable
+USD21,700
+1.375% ~
+LIBOR + 0.605% ~
+0.910%
+4.700%
+USD1,250
+LIBOR + 0.605%
+~
+0.910%
+USD17,550
+1.375% 4.700%
+The Group had entered into certain interest rate swap contracts to hedge its exposure arising from its senior notes carried
+at floating rates. The Group's outstanding interest rate swap contracts as at 31 December 2021 are detailed in Note 27
+and Note 39.
+00
+294
+Interest rate
+JPY bank borrowings
+Amount
+(Million)
+(Million)
+36 BORROWINGS (continued)
+The Group had entered into certain interest rate swap contracts to hedge its exposure arising from its long-term bank
+borrowings carried at floating rates. The Group's outstanding interest rate swap contracts as at 31 December 2021 are
+detailed in Note 27 and Note 39.
+As at 31 December 2021, the carrying amounts of borrowings approximated their fair values.
+37 NOTES PAYABLE
+Included in non-current liabilities:
+Non-current portion of long-term USD notes payable
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+145,590
+122,057
+The aggregate principal amounts of notes payable and applicable interest rates are as follows:
+31 December 2021
+31 December 2020
+Amount
+Interest rate
+(per annum)
+Tencent Holdings Limited
+0.52% 1.00%
+5.70%
+LIBOR + 0.70% ~ 1.27%
+(1,337)
+Other liabilities
+(740)
+300
+47
+4
+Included in current liabilities:
+Total identifiable net assets
+RMB bank borrowings, unsecured (Note (b))
+Current portion of long-term USD bank borrowings, unsecured (Note (a))
+Current portion of long-term RMB bank borrowings, unsecured (Note (a))
+Current portion of long-term EUR bank borrowings, unsecured (Note (a))
+Current portion of long-term EUR bank borrowings, secured (Note (a))
+Current portion of long-term JPY bank borrowings, unsecured (Note (a))
+Current portion of long-term JPY bank borrowings, secured (Note (a))
+00
+292
+Tencent Holdings Limited
+136,936
+112,145
+13,340
+RMB bank borrowings, secured (Note (b))
+USD bank borrowings, unsecured (Note (b))
+HKD bank borrowings, secured (Note (b))
+Goodwill
+11,656
+10,978
+299
+Annual Report 2021
+The related transaction costs of these business combinations are not material to the Group's consolidated financial
+statements.
+The revenue and the results contributed by these acquired subsidiaries for the period since respective acquisition
+date were insignificant to the Group. The Group's revenue and results for the year would not be materially different
+if these acquisitions have occurred on 1 January 2021.
+During the year ended 31 December 2021, the Group also acquired certain insignificant subsidiaries. The
+aggregate considerations for these acquisitions were approximately RMB10,854 million, fair value of net assets
+acquired (including identifiable intangible assets), non-controlling interests and goodwill recognised were
+approximately RMB3,862 million, RMB1,289 million and RMB8,281 million, respectively.
+(b) Other business combinations
+The related transaction costs of the transaction are not material to the Group's consolidated financial information.
+The Group's revenue for the year ended 31 December 2021 would be increased by not more than 5% and results for the year
+ended 31 December 2021 would not be materially different should the transaction have occurred on 1 January 2021.
+For the year ended 31 December 2021
+Note:
+(a) Privatisation of Sogou (continued)
+42 BUSINESS COMBINATIONS (continued)
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+298
+00
+22,634
+4,079
+200
+100
+9,135
+Amount
+Interest rate
+Amount
+(Million)
+(per annum)
+(Million)
+Interest rate
+(per annum)
+USD bank borrowings
+USD22,045
+USD bank borrowings
+USD60
+EUR bank borrowings
+EUR152
+RMB bank borrowings
+RMB300
+LIBOR + 0.80% ~ 1.27%
+1.41%
+0.52% 1.00%
+5.70%
+USD17,075
+31 December 2020
+EUR151
+RMB300
+31 December 2021
+(a)
+144
+4,061
+783
+300
+1,083
+2
+1
+16
+1
+19,003
+14,242
+155,939
+126,387
+36 BORROWINGS (continued)
+Note:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+The aggregate principal amounts of long-term bank borrowings and applicable interest rates are as follows:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+37 NOTES PAYABLE (continued)
+8,253
+109,470
+94,030
+As at 31 December
+2021
+2020
+RMB'Million
+2,746
+RMB'Million
+28,713
+25,541
+Selling and marketing expense accruals
+7,668
+7,015
+General and administrative expenses accruals
+3,371
+Staff costs and welfare accruals
+665
+1,329
+2,196
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+40 ACCOUNTS PAYABLE
+Accounts payable and their ageing analysis, based on invoice date, are as follows:
+0-30 days
+31 - 60 days
+61 - 90 days
+Over 90 days
+41 OTHER PAYABLES AND ACCRUALS
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+102,396
+82,916
+2,999
+2,750
+Purchase consideration payables for investee companies
+2,179
+2,548
+On 23 September 2021, the Group completed the privatisation of Sogou, an existing listed associate (NYSE: SOGO;
+with equity interests held of approximately 39%) of the Group, at a cash consideration of approximately USD2,135
+million (equivalent to approximately RMB13,812 million) for all of the remaining interest ("Privatisation"). As a
+result of the Privatisation, Sogou became a wholly-owned subsidiary of the Group. The existing equity interest (of
+approximately 39%) held under investment in an associate was re-measured to fair value and resulted in step up
+gain of approximately RMB3,807 million (Note 7(a)(iii)).
+Goodwill of approximately RMB10,978 million was recognised as a result of the transaction. It was mainly
+attributable to the operating synergies and economies of scale expected to be derived from combining the
+operations. None of the goodwill is expected to be deductible for income tax purpose.
+The following table summarises the purchase consideration, fair value of assets acquired and liabilities assumed as
+at the acquisition date of Sogou.
+RMB'Million
+Total consideration:
+Cash consideration
+13,812
+Fair value of the previously held interests
+8,822
+22,634
+Recognised amounts of identifiable assets acquired and liabilities assumed:
+Intangible assets
+7,500
+Cash and cash equivalents and term deposits
+4,325
+Other assets
+3,780
+(a) Privatisation of Sogou
+296 Tencent Holdings Limited
+42 BUSINESS COMBINATIONS
+Notes to the Consolidated Financial Statements
+Interests payable
+1,279
+1,119
+Purchase of land use rights and construction related costs
+845
+844
+Prepayments received from customers and others
+649
+894
+Others (Note)
+15,878
+13,597
+60,582
+54,308
+Note:
+Others primarily consist of deposits from third parties, reserve for platform services, sundry payables and other accruals.
+Annual Report 2021 297
+For the year ended 31 December 2021
+00
+It represented the Group's outstanding interest rate swap contracts measured at fair value amounting to RMB358 million (31
+December 2020: RMB1,937 million). The aggregate notional principal amounts of the outstanding interest rate swap contracts
+were USD2,825 million (equivalent to approximately RMB18,011 million) (31 December 2020: USD15,058 million (equivalent to
+approximately RMB98,252 million)).
+It mainly comprised redemption liability arising from put option arrangements with non-controlling shareholders of acquired
+subsidiaries of approximately RMB6,664 million (31 December 2020: RMB9,512 million).
+38 LONG-TERM PAYABLES
+Payables relating to media contents and running royalty fee for online games
+Cash-settled share-based compensation payables (Note 35(d))
+Purchase consideration payables for investee companies
+Others
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+7,049
+7,290
+615
+1,018
+133
+104
+2,169
+As at 31 December 2021, the fair value of the notes payable amounted to RMB150,998 million (31 December 2020:
+RMB132,037 million). The respective fair values were assessed based on the active market prices of these notes at the
+reporting dates or by making reference to similar instruments traded in the observable market.
+1,498
+In April 2021, the Company issued four tranches of senior notes under the Programme with an aggregate principal
+amount of USD4.15 billion from 10 years to 40 years, with interest rates ranging from 2.88% to 3.94%.
+All of these notes payable issued by the Group were unsecured.
+Other payables and accruals
+The notes payable are repayable as follows:
+Between 1 and 2 years
+Between 2 and 5 years
+More than 5 years
+As at 31 December
+2021
+RMB'Million
+2020
+RMB'Million
+9,554
+29,883
+30,572
+106,153
+91,485
+145,590
+122,057
+In April 2021, the Company updated the Global Medium Term Note Programme (the "Programme”) to include, among
+other things, the Company's recent corporate and financial information.
+12
+9,966
+Annual Report 2021
+64
+2,802
+5,309
+9,466
+14,821
+Included in:
+Non-current liabilities
+Current liabilities
+Note:
+5,912
+9,254
+3,554
+5,567
+9,466
+14,821
+(a)
+(b)
+39
+9,910
+1,937
+Interest rate swap (Note (b))
+Others
+295
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+39 OTHER FINANCIAL LIABILITIES
+Measured at amortised cost:
+Redemption liability (Note (a))
+As at 31 December
+2021
+RMB'Million
+2020
+RMB'Million
+6,664
+9,512
+Measured at fair value:
+Contingent consideration
+2,405
+3,308
+358
+Deferred income tax liabilities
+(1,872)
+2020
+As a result of the Distribution in Specie (Note 15(b)), pursuant to the scheme rules of the 2013 Share Award
+Scheme and the 2019 Share Award Scheme, adjustments had been made to the number of shares subject to
+share awards which remained unvested as at the Ex-dividend Date. Please refer to the announcement of the
+Company dated 14 March 2022 for details.
+During the year ended 31 December 2021, 40,500 awarded shares were granted to four independent non-
+executive directors of the Company (2020: 59,500 awarded shares were granted to five independent non-executive
+directors of the Company).
+30,172
+17,515
+121,314,396
+(32,749,222) (27,351,216)
+(3,866,143)
+(5,586,066)
+37,196,540
+77,054,748
+76,615,755
+82,594,936
+2021
+Number of awarded shares
+Vested but not transferred as at the end of the year
+At end of the year
+Vested and transferred
+Lapsed/forfeited
+Granted
+At beginning of the year
+Movements in the number of awarded shares for the years ended 31 December 2021 and 2020 are as follows:
+The Company has adopted three share award schemes (the "Share Award Schemes") as of 31 December 2021,
+which are administered by an independent trustee appointed by the Group. The vesting period of the awarded
+shares is determined by the Board.
+(b) Share award schemes
+35 SHARE-BASED PAYMENTS (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+-
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date. The expected dividends during the vesting period have been taken into account when
+assessing the fair value of these awarded shares.
+The weighted average fair value of awarded shares granted during the year ended 31 December 2021 was
+HKD569.60 per share (equivalent to approximately RMB476.25 per share) (2020: HKD481.61 per share
+(equivalent to approximately RMB431.90 per share)).
+82,594,936
+290
+1,204
+110,629
+136,874
+Non-current portion of long-term USD bank borrowings, unsecured (Note (a))
+Non-current portion of long-term EUR bank borrowings, unsecured (Note (a))
+Non-current portion of long-term EUR bank borrowings, secured (Note (a))
+Non-current portion of long-term RMB bank borrowings, unsecured (Note (a))
+Non-current portion of long-term JPY bank borrowings, unsecured (Note (a))
+Non-current portion of long-term JPY bank borrowings, secured (Note (a))
+Included in non-current liabilities:
+RMB'Million
+RMB'Million
+2020
+00
+As at 31 December
+36 BORROWINGS
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the "Expected Retention Rate”) in order to determine
+the amount of share-based compensation expenses charged to the consolidated income statement. As at 31
+December 2021, the Expected Retention Rate of the Group's wholly-owned subsidiaries was assessed to be not
+lower than 89% (31 December 2020: not lower than 91%).
+(e) Expected retention rate of grantees
+35 SHARE-BASED PAYMENTS (continued)
+For the year ended 31 December 2021
+2021
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+35 SHARE-BASED PAYMENTS (continued)
+(b) Share award schemes (continued)
+The outstanding awarded shares as of 31 December 2021 were divided into one to five tranches on an equal basis
+as at their grant dates. The first tranche can be exercised immediately or after a specified period ranging from one
+month to five years from the grant date, and the remaining tranches will become exercisable in each subsequent
+year.
+Tencent Holdings Limited
+For aligning the interests of key employees with the Group, the Group established several employees' investment
+plans in the form of limited liability partnerships (the "EIS”) among which the six EISs approved/established in
+2014, 2015, 2016, 2017 and 2021 are in effect as at 31 December 2021. According to the term of the EISS,
+the Board may, at its absolute discretion, invite any qualifying participants of the Group, excluding any director
+of the Company, to participate in the EISS by subscribing for the partnership interest at cash consideration. The
+participating employees are entitled to the economic benefits generated by the EISS, if any, after a specified vesting
+period under the respective EISS, ranging from four to seven years. Wholly-owned subsidiaries of the Company
+acting as general partner of these EISS administer and in essence, control the EISs. These EISs are therefore
+consolidated by the Company as structured entities.
+The related share-based compensation expenses incurred for the years ended 31 December 2021 and 2020 were
+insignificant to the Group.
+(d) Share options and share award schemes adopted by subsidiaries
+Certain subsidiaries of the Group operate their own share-based compensation plans (share option and/or share
+award schemes). Their exercise prices of the share options, as well as the vesting periods of the share options and
+awarded shares are determined by the respective board of directors of these subsidiaries at their sole discretion
+and in accordance with the relevant rules. The share options or restricted shares of the subsidiaries granted are
+normally vested by several tranches. Participants of some subsidiaries have the right to request the Group to
+repurchase their vested equity interests of the respective subsidiaries ("Repurchase Transaction"). The Group has
+discretion to settle the Repurchase Transaction either by using equity instruments of the Company or by cash. For
+the Repurchase Transaction which the Group has settlement options, the directors of the Company are currently of
+the view that some of them would be settled by equity instruments of the Company. As a result, they are accounted
+for using the equity-settled share-based payment method. For some of them settled in cash, they are accounted
+for using cash-settled share-based payment method.
+Annual Report 2021 291
+(c) Employee investment schemes
+Cash flows
+(15,552)
+(83,327)
+(10,534)
+(104,257)
+(22,695)
+Net debt as at 1 January 2020
+132,991
+(20,243)
+(145,590)
+(136,936)
+(19,003)
+25,811
+72,270
+23,938
+Notes to the Consolidated Financial Statements
+(16,107)
+113,320
+12,715
+Other non-cash movements (Note)
+9,546
+9,277
+76
+9,105
+7,792
+(2,214)
+(6,004)
+Exchange impacts
+5,259
+(47,948)
+10,460
+619
+167,966
+20,598
+6,998
+117
+Accounts payable
+(1,271)
+13,033
+Other payables and accruals
+(1,184)
+2,828
+Other tax liabilities
+(305)
+886
+Deferred revenue
+Cash generated from operations
+2,293
+18,184
+203,712
+214,441
+00
+(70)
+5,511
+(5,576)
+As at 31 December
+Net (debt)/cash
+This section sets out an analysis of net (debt)/cash and the movements in net (debt)/cash for each of the years
+presented.
+Net debt as at 31 December 2021
+(c) Net (debt)/cash reconciliation
+(b) Major non-cash transactions
+43 CONSOLIDATED CASH FLOW STATEMENT (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+300
+Major non-cash transaction during the year ended 31 December 2021 was the dividend declared to be distributed
+in specie of JD.com Shares (Note 15(b)).
+427
+286
+(59)
+The future aggregate minimum payments under non-cancellable bandwidth, online game licensing and media
+contents agreements are as follows:
+Tencent Holdings Limited
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+Not later than one year
+15,481
+11,443
+Later than one year and not later than five
+years
+11,392
+9,847
+Later than five years
+6,113
+4,199
+As at 31 December 2021, trade payables and other payables to related parties were RMB2,257 million and
+RMB172 million, respectively (31 December 2020: RMB3,719 million and RMB333 million, respectively).
+As at 31 December 2021, trade receivables and other receivables from related parties were RMB12,589 million
+and RMB161 million, respectively (31 December 2020: RMB9,840 million and RMB67 million, respectively).
+(b) Year end balances with related parties
+The Group has commercial arrangements with certain associates to purchase online game licenses and related
+services, film and television content and related services, FinTech and Business Services and others. During the
+year ended 31 December 2021, the amounts relating to these contents and services received from associates were
+RMB8,278 million, RMB7,040 million, RMB4,335 million and RMB1,430 million, respectively (2020: RMB8,266
+million, RMB5,285million, RMB3,058 million and RMB1,489 million, respectively).
+The Group has commercial arrangements with certain associates and joint ventures to provide Online Advertising
+services, FinTech and Business Services, and other services. During the year ended 31 December 2021, revenue
+recognised in connection with these services provided to associates and joint ventures of RMB12,085 million,
+RMB38,745 million and RMB3,599 million were recorded in the consolidated income statement, respectively (2020:
+RMB11,554 million, RMB25,885 million and RMB2,629 million respectively).
+(a) Significant transactions with related parties
+(b) Other commitments
+45 RELATED PARTY TRANSACTIONS (continued)
+Notes to the Consolidated Financial Statements
+Annual Report 2021 303
+Except as disclosed in Note 13(a) (Senior management's emoluments), Note 13(b) (Five highest paid individuals), Note
+14 (Benefits and interests of directors), Note 26 (Loans to investees and investees' shareholders) and Note 35 (Share-
+based payments) to the consolidated financial statements, other significant transactions carried out between the Group
+and its related parties during the years are presented as followings. The related party transactions were carried out in the
+normal course of business and at terms negotiated between the Group and the respective related parties.
+45 RELATED PARTY TRANSACTIONS
+25,489
+32,986
+For the year ended 31 December 2021
+(2)
+25,588
+21,656
+11,810
+Net cash as at 31 December 2020
+152,798
+106,709
+(14,242)
+(112,145)
+(122,057)
+11,063
+Note:
+It mainly resulted from the reclassification from non-current to current and assets/liabilities acquired from business combinations.
+00
+302 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+44 COMMITMENTS
+(a) Capital commitments
+Capital commitments as at 31 December 2021 and 2020 are analysed as follows:
+12,798
+391
+(17,782)
+3,541
+3,337
+RMB'Million
+16,421
+RMB'Million
+2021
+As at 31 December
+Capital investment in investees
+Purchase of other property, plant and equipment
+Construction/purchase of buildings and purchase of land use rights
+Contracted:
+2020
+Prepayments, deposits and other receivables
+(6,957)
+1,297
+RMB'Million
+and others
+RMB'Million
+due within
+1 year
+Borrowings
+due after
+Notes payable
+Notes payable
+due within
+due after
+1 year
+1 year
+1 year
+Total
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+(41,184)
+(27,060)
+(33,346)
+616
+349
+18,257
+equivalents
+Cash flows
+(122,057)
+(112,145)
+(14,242)
+106,709
+152,798
+Net cash as at 1 January 2021
+11,063
+Exchange impacts
+deposits
+Borrowings
+2021
+2020
+RMB'Million
+RMB'Million
+Cash and cash equivalents
+167,966
+152,798
+Term deposits and others
+113,320
+106,709
+Borrowings - repayable within one year
+(19,003)
+(14,242)
+Borrowings repayable after one year
+(136,936)
+(112,145)
+Notes payable - repayable within one year
+Term
+Cash and
+(c) Net (debt)/cash reconciliation (continued)
+43 CONSOLIDATED CASH FLOW STATEMENT (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+cash
+301
+11,063
+(20,243)
+Net (debt)/cash
+(122,057)
+(145,590)
+Notes payable - repayable after one year
+Annual Report 2021
+(95)
+(3,089)
+199
+Interest income
+(6,650)
+During the year ended 31 December 2021, the Group had undertaken transactions relating to the provision of
+various services such as FinTech services, business services and online advertising to certain associates and joint
+ventures, which mainly engaged in various Internet businesses such as eCommerce, 020 platforms, FinTech
+services under, among others, certain business co-operation arrangements. As at 31 December 2021, contract
+liabilities relating to support to be offered to certain associates and joint ventures were RMB3,262 million (31
+December 2020: RMB5,469 million).
+Interest and related expenses
+7,918
+7,449
+Equity-settled share-based compensation expenses
+21,625
+12,634
+Share of loss/(profit) of associates and joint ventures, net
+16,444
+(3,672)
+Impairment provision for investments in associates, investments in
+joint ventures and others
+16,315
+6,642
+Net fair value gains on FVPL and other financial instruments
+Inventories
+(7,530)
+(4,026)
+Accounts receivable
+Changes in working capital:
+438
+(120)
+(804)
+4,872
+8,704
+property, plant and equipment
+Net impairment of intangible assets, land use rights, right-of-use assets and
+(38,909)
+(47,717)
+Exchange (gains)/losses, net
+(871)
+(35)
+29,316
+3,044
+3,597
+2,880
+Other non-cash movements (Note)
+7,133
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+43 CONSOLIDATED CASH FLOW STATEMENT
+(a) Reconciliation of net profit to cash inflow from operating activities:
+Profit for the year
+Adjustments for:
+2021
+2020
+RMB'Million
+RMB'Million
+227,810
+160,125
+31,504
+Amortisation of intangible assets and land use rights
+21,458
+26,166
+Depreciation of property, plant and equipment, investment properties and
+right-of-use assets
+(1,765)
+Net gains on disposals of intangible assets and property, plant and equipment
+(660)
+(118,051)
+19,897
+20,252
+Dividend income
+Net gains on disposals and deemed disposals of investee companies
+Income tax expense
+(24,390)
+Other than the transactions and balances disclosed above or elsewhere in the consolidated financial statements, the
+Group had no other material transactions with related parties during the years ended 31 December 2021 and 2020, and
+no other material balances with related parties as at 31 December 2021 and 2020.
+Contracted:
+For the year ended 31 December 2021
+5,380
+(558)
+At 31 December 2021
+506
+3,708
+At 1 January 2020
+Profit for the year
+Dividends
+Gain from changes in fair value of assets held for distribution
+Currency translation differences
+Currency translation differences
+47 SUBSEQUENT EVENTS
+2,729
+171
+10,405
+(10,449)
+(1,285)
+2,685
+(1,114)
+At 31 December 2020
+(115,134)
+112,955
+Dividends
+Total equity and liabilities
+267,087
+138,680
+333,788
+184,632
+00
+306
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2021
+46 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)
+(b) Reserve movement of the Company
+Retained
+earnings
+RMB'Million
+Other
+reserves
+RMB'Million
+At 1 January 2021
+2,685
+(1,114)
+Profit for the year
+Disposal of Equity Interests of Sea Limited
+Total liabilities
+On 4 January 2022, the Group has entered into a transaction to divest an aggregate of 14,492,751 Class A ordinary
+shares of Sea Limited ("Sea"; NYSE: SE), an existing associate of the Group, and to convert its all supervoting Class B
+ordinary shares to Class A ordinary shares (collectively, the "Transaction"). Upon the completion of the Transaction, the
+Group's equity interest in Sea was reduced from 21.3% to 18.7% with its voting power reduced to less than 10%. In
+connection with the Transaction, the Group is subject to a lockup period of six months for further disposal of shares of
+Sea. The Transaction has been completed as of the date of this annual report.
+307
+wholly foreign
+owned enterprise
+of information technology services
+in the PRC
+Shenzhen Shiji Kaixuan Technology
+Company Limited
+Established in the PRC,
+limited liability company
+RMB11,000,000
+100%
+Provision of Internet advertisement
+Development of softwares and provision
+(Note (a))
+Tencent Cyber (Tianjin) Company
+Limited
+Established in the PRC,
+USD90,000,000
+100%
+Development of softwares and provision
+wholly foreign
+of information technology services
+owned enterprise
+services in the PRC
+100%
+USD2,000,000
+Established in the PRC,
+Notes to the Consolidated Financial Statements
+48 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+The following is a list of principal subsidiaries of the Company as at 31 December 2021:
+Particulars of
+Name
+Place of establishment and
+nature of legal entity
+issued/paid-in
+Proportion of
+equity interest held
+capital
+by the Group (%) Principal activities and place of operation
+Tencent Computer
+Established in the PRC,
+limited liability company
+RMB65,000,000
+100%
+Provision of value-added services and
+(Note (a))
+Internet advertisement services
+in the PRC
+Tencent Technology
+Annual Report 2021
+in the PRC
+21,561
+102,451
+157,675
+Current assets
+Amounts due from subsidiaries
+49,927
+26,565
+Prepayments, deposits and other receivables
+10
+312
+181,284
+Cash and cash equivalents
+80
+Assets held for distribution
+102,451
+152,504
+26,957
+Total assets
+333,788
+184,632
+116
+Contribution to Share Scheme Trust
+Investments in associates
+Investments in subsidiaries
+For the year ended 31 December 2021
+46 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+(a) Financial position of the Company
+ASSETS
+Non-current assets
+Intangible assets
+As at 31 December
+2021
+RMB'Million
+2020
+RMB'Million
+35
+37
+180,881
+157,481
+359
+76
+9
+81
+Annual Report 2021
+126,445
+305
+For the year ended 31 December 2021
+45,952
+LIABILITIES
+Non-current liabilities
+Notes payable
+Other financial liabilities
+Current liabilities
+140,528
+114
+66,701
+116,883
+236
+117,119
+Amounts due to subsidiaries
+22,796
+20,481
+Other payables and accruals
+1,198
+1,080
+Dividends payable for distribution in specie
+140,642
+Total equity
+2,685
+506
+46 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)
+(a) Financial position of the Company (continued)
+EQUITY
+Share capital
+As at 31 December
+2021
+2020
+RMB'Million
+RMB'Million
+Share premium
+67,330
+48,793
+Shares held for share award schemes
+(4,843)
+(4,412)
+Other reserves (b)
+3,708
+(1,114)
+Retained earnings (b)
+Notes to the Consolidated Financial Statements
+Tencent Asset Management Limited
+Proportion of
+equity interest held
+USD100
+limited liability company
+online games in the United States
+United States,
+Development and operation of
+99.88%
+USD1,308
+Established in the
+Riot Games, Inc.
+advertisement in the PRC
+Design and production of
+100%
+RMB5,000,000
+Established in the PRC,
+limited liability company
+Company Limited
+Beijing Tencent Culture Media
+integration services in the PRC
+Provision of information system
+100%
+(Note (a))
+limited liability company
+Established in the PRC, RMB1,042,500,000
+Tencent Cloud Computing (Beijing)
+Company Limited
+of information technology services
+in the PRC
+owned enterprise
+wholly foreign
+Development of softwares and provision
+100%
+USD30,000,000
+China Literature Limited
+Established in the PRC,
+Established in the
+57.18%*
+309
+00
+Annual Report 2021
+Established in the British
+Virgin Islands,
+limited liability company
+on an outstanding basis
+advertisement in the PRC
+Design and production of
+100%
+RMB5,000,000
+Established in the PRC,
+limited liability company
+Shenzhen Tencent Culture Media
+Company Limited
+mobile games in Finland
+Development and operation of
+81.76%
+EUR2,500
+Established in Finland,
+limited liability company
+Supercell Oy
+limited liability company
+entertainment services in the PRC
+Cayman Islands,
+Provision of online music
+50.18%*
+USD280,030
+Established in the
+TME (Note (b))
+limited liability company
+Cayman Islands,
+USD102,203
+Tencent Technology (Wuhan)
+Company Limited
+Provision of online literature services
+in the PRC
+Development of softwares and provision
+RMB10,000,000
+in the PRC
+(Note (a))
+Provision of value-added services
+100%
+RMB1,216,500,000
+Established in the PRC,
+limited liability company
+Established in the PRC,
+limited liability company
+Established in the PRC,
+wholly foreign
+owned enterprise
+Tencent Cyber (Shenzhen)
+Company Limited
+Beijing Starsinhand Technology
+Company Limited
+Beijing BIZCOM Technology
+Company Limited
+in the PRC
+Provision of value-added services
+RMB10,290,000
+Established in the PRC,
+limited liability company
+Nanjing Wang Dian Technology
+Company Limited
+services in the PRC
+owned enterprise
+provision of information technology
+wholly foreign
+Development and sale of softwares and
+100%
+USD1,000,000
+of information technology services
+in the PRC
+100%
+Established in the PRC,
+Asset management in Hong Kong
+Tencent Technology (Beijing)
+Company Limited
+100%
+(Note (a))
+Provision of value-added services
+100%
+(Note (a))
+USD30,000,000
+Established in the PRC,
+wholly foreign
+owned enterprise
+USD220,000,000
+Tencent Technology (Chengdu)
+Company Limited
+in the PRC
+in the PRC
+of information technology services
+wholly foreign
+owned enterprise
+Development of softwares and provision
+100%
+Established in the PRC,
+Tencent Technology (Shanghai)
+Company Limited
+by the Group (%) Principal activities and place of operation
+304
+issued/paid-in
+capital
+USD5,000,000
+Place of establishment and
+nature of legal entity
+100%
+Name
+Particulars of
+48 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+For the year ended 31 December 2021
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+100%
+308
+Development of softwares in the PRC
+00
+"Auditor"
+the audit committee of the Company
+"Audit Committee"
+the annual general meeting of the Company to be held on 18 May 2022 or any
+adjournment thereof
+"AI"
+artificial intelligence
+"Articles of Association"
+25 November 2019, being the date on which the Company adopted the 2019
+Share Award Scheme
+"Adoption Date III"
+13 November 2013, being the date on which the Company adopted the 2013
+Share Award Scheme
+"Awarded Share(s)"
+13 December 2007, being the date on which the Company adopted the 2007
+Share Award Scheme
+the second amended and restated articles of association of the Company adopted
+by special resolution passed on 13 May 2020
+PricewaterhouseCoopers, the auditor of the Company
+the Hong Kong Special Administrative Region, the PRC
+Annual Report 2021
+"IA"
+"HUYA"
+"Adoption Date II"
+"laas"
+Hainan Tencent Network Information Technology Company Limited
+Hong Kong InterBank Offered Rate
+the share(s) of the Company awarded under the Share Award Schemes
+the lawful currency of Hong Kong
+is incorporated in the Cayman Islands with limited liability and the shares of which
+are listed on the New York Stock Exchange
+internal audit department of the Company
+Definition
+Term
+Definition
+311
+HUYA Inc. (NYSE: HUYA), a non wholly-owned subsidiary of the Company which
+"Adoption Date I"
+(f)
+the share award scheme adopted by the Company on Adoption Date III, as
+amended from time to time
+(a)
+(b)
+(c)
+(d)
+(e)
+As described in Note 1, the Company does not have legal ownership in equity of these structured entities or their subsidiaries.
+Nevertheless, under certain contractual agreements entered into with the registered owners of these structured entities, the
+Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing their
+financial and operating policies, appointing or removing the majority of the members of their controlling authorities, and casting
+the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards
+of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled
+structured entities of the Company.
+In September 2020, TME issued two tranches of senior notes with an aggregate principal amount of USD800 million due in 5
+years to 10 years, with interest rate ranging from 1.375% to 2.000%. As at 31 December 2021, the principal amount and net
+book balance of its notes payable were USD800 million and USD794 million (equivalent to RMB5,101 million and RMB5,062
+million), respectively.
+The directors of the Company considered that the non wholly-owned subsidiaries with non-controlling interests are not significant
+to the Group, therefore, no summarised financial information of these non wholly-owned subsidiaries is presented separately.
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary's
+undertakings held directly by the parent company does not differ from its proportion of ordinary shares held. The parent company
+does not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+Significant restrictions
+As at 31 December 2021, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to
+RMB152,662 million were held in the Mainland of China and they are subject to local exchange control and other financial and
+treasury regulations. The local exchange control, and other financial and treasury regulations provide for restrictions, on payment
+of dividends, share repurchase and offshore investments, other than through normal activities.
+Consolidation of structured entities
+As mentioned in Note (a) above and Note 35(c), the Company has consolidated the operating entities within the Group without
+any legal interests and the EISS out of which wholly-owned subsidiaries of the Company act as general partner. In addition,
+due to the implementation of the share award schemes of the Group mentioned in Note 35(b), the Company has also set up a
+structured entity ("Share Scheme Trust"), and its particulars are as follows:
+Structured entity
+“Hong Kong”
+Share Scheme Trust
+Note:
+"2022 AGM"
+48 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+Notes to the Consolidated Financial Statements
+"2019 Share Award Scheme"
+the share award scheme adopted by the Company on Adoption Date II, as
+amended from time to time
+the share award scheme adopted by the Company on Adoption Date I, as
+amended
+Definition
+"2013 Share Award Scheme"
+"2007 Share Award Scheme"
+Term
+In this annual report, unless the context otherwise requires, the following expressions shall have the following meanings:
+Definition
+Tencent Holdings Limited
+310
+00
+During the year ended 31 December 2021, the Company contributed approximately RMB2,827 million (2020: RMB1,865
+million) to the Share Scheme Trust for financing its acquisition of the Company's shares.
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+International Accounting Standards
+For the year ended 31 December 2021
+"HKD"
+the corporate governance code as set out in Appendix 14 to the Listing Rules
+"Hainan Network"
+the corporate governance committee of the Company
+"COSO Framework"
+"CRM"
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+Customer Relationship Management
+"Cyber Shenzhen"
+the website of the Company at www.tencent.com
+Tencent Cyber (Shenzhen) Company Limited
+"DAU"
+0
+Tencent Cyber (Tianjin) Company Limited
+daily active user accounts
+312 Tencent Holdings Limited
+Term
+"Cyber Tianjin"
+Tencent Holdings Limited, a limited liability company organised and existing
+under the laws of the Cayman Islands and the Shares of which are listed on the
+Stock Exchange
+Chongqing Tencent Information Technology Company Limited
+China Literature Limited, a non wholly-owned subsidiary of the Company which is
+incorporated in the Cayman Islands with limited liability and the shares of which
+are listed on the Stock Exchange
+Administering and holding the Company's shares acquired for share award schemes
+which are set up for the benefits of eligible persons of the Schemes
+"Beijing BIZCOM"
+"Beijing Starsinhand"
+"Bitauto"
+Beijing BIZCOM Technology Company Limited
+Beijing Starsinhand Technology Company Limited
+"Board"
+"CG Code"
+"China Literature"
+"Chongqing Tencent Information"
+"Company"
+"Company Website"
+"Corporate Governance Committee"
+Bitauto Holdings Limited, a company incorporated in the Cayman Islands with
+limited liability, which became a non wholly-owned subsidiary of the Company
+following completion of its privatisation in November 2020
+the board of directors of the Company
+Definition
+"HIBOR"
+Definition
+the distribution of a special interim dividend by the Company in the form of a
+distribution in specie of the JD.com Shares held by the Group to the shareholders
+whose names appeared on the register of members of the Company on 25
+January 2022 in proportion to their then respective shareholdings in the Company
+on the basis of 1 Class A ordinary share of JD.com for every 21 Shares held by
+the shareholders
+gross merchandise value
+Annual Report 2021
+313
+Definition
+Term
+Definition
+"GMV"
+"Grant Date'
+"Guangzhou Tencent Technology"
+in relation to any Awarded Share, the date on which the Awarded Share is, was or
+is to be granted
+the Company and its subsidiaries
+Guangzhou Tencent Technology Company Limited
+"Guian New Area Tencent Cyber"
+Guian New Area Tencent Cyber Company Limited
+"Group"
+Follow-on Public Offering
+financial technology
+20 January 2022, being the date of commencement of dealing in the Shares on
+an ex-entitlement basis following the declaration of interim dividend by way of the
+Distribution in Specie as announced by the Company on 23 December 2021
+"DnF"
+Dungeon and Fighter
+"Domestic Games"
+for the purpose of preparing financial and operating information, Domestic Games
+refers to our games business in the PRC, excluding the Hong Kong Special
+Administrative Region, the Macao Special Administrative Region and Taiwan
+"EBITDA"
+"Eligible Person(s)"
+"EPS"
+"ESG Reporting Guide"
+"Ex-dividend Date"
+"FinTech"
+"FPO"
+earnings before interest, tax, depreciation and amortisation
+any person(s) eligible to participate in the respective Share Award Schemes
+earnings per share
+the environmental, social and governance reporting guide as set out in Appendix 27
+to the Listing Rules
+"Distribution in Specie"
+Principal activities
+"Share Award Schemes"
+319
+"PRC" or "China"
+"Post-IPO Option Scheme IV"
+"Post-IPO Option Scheme III"
+"Post-IPO Option Scheme II"
+"Post-IPO Option Scheme I"
+"PC"
+"PBOC"
+Platform-as-a-Service
+"PaaS"
+online-to-offline, or offline-to-online
+the nomination committee of the Company
+"020"
+"Nomination Committee"
+NASDAQ Global Select Market
+"NASDAQ"
+the Model Code for Securities Transactions by Directors of Listed Issuers set out
+in Appendix 10 to the Listing Rules
+MIH TC Holdings Limited
+"PRC CIT"
+"Model Code"
+People's Bank of China
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+"RMB"
+"
+"Remuneration Committee'
+"Reference Date"
+"R&D"
+Term
+316 Tencent Holdings Limited
+00
+PlayerUnknown's Battlegrounds
+"PUBG"
+"Pre-IPO Option Scheme"
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+PRC corporate income tax as defined in the "Corporate Income Tax Law of the
+People's Republic of China"
+the People's Republic of China
+the Post-IPO Share Option Scheme adopted by the Company on 17 May 2017
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+personal computer
+"Minor(s)"
+"MIH TC"
+Definition
+"IP"
+the investment committee of the Company
+"Investment Committee"
+for the purpose of preparing financial and operating information, International
+Games refers to our games business other than our Domestic Games business
+"International Games"
+Definition
+Definition
+Term
+Tencent Holdings Limited
+314
+00
+Instant Messaging
+"IM"
+International Financial Reporting Standards
+risk management and internal control department of the Company
+"IFRS"
+"IC"
+"IPO"
+"JD.com"
+"JD.com Shares'
+"JPY"
+Term
+Definition
+315
+Annual Report 2021
+monthly active user accounts
+"MAU"
+mergers and acquisitions
+the Rules Governing the Listing of Securities on the Stock Exchange
+Definition
+"M&A"
+London InterBank Offered Rate
+the lawful currency of Japan
+the approximately 457 million Class A ordinary shares in the share capital of
+JD.com with a par value of USD0.00002 each, held by the Group conferring a
+holder of a Class A ordinary share to one vote per share on any resolution tabled
+at JD.com's general meeting and which are to be distributed pursuant to the
+Distribution in Specie
+JD.com, Inc., a company controlled through weighted voting rights and
+incorporated in the Cayman Islands with limited liability, whose American
+depositary shares are listed on NASDAQ (stock symbol: JD, ISIN Code:
+US47215P1066) and whose Class A ordinary shares are listed on the Stock
+Exchange (stock code: 9618)
+initial public offering
+"
+intellectual property
+"LIBOR"
+"Listing Rules"
+Definition
+research and development
+in respect to a Selected Participant, the date of final approval by the Board of the
+total number of shares of the Company to be awarded to the relevant Selected
+Participant on a single occasion pursuant to the 2007 Share Award Scheme
+"Tencent Shanghai"
+Shenzhen Tencent Enterprise Management Limited
+"Tencent Enterprise Management"
+Shenzhen Tencent Computer Systems Company Limited
+Definition
+"Tencent Computer"
+Term
+318 Tencent Holdings Limited
+00
+Tencent Technology (Chengdu) Company Limited
+"Tencent Chengdu❞
+Tencent Technology (Beijing) Company Limited
+"Tencent Beijing"
+the co-operation committee established under the TCS CFC
+"TCS Co-operation Committee”
+the co-operation framework contract dated 28 February 2004 entered into
+between Tencent Technology and Tencent Computer
+Supercell Oy, a private company incorporated in Finland
+Tencent Technology (Shanghai) Company Limited
+"Tencent Technology"
+Tencent Technology (Shenzhen) Company Limited
+"Tencent Wuhan"
+Annual Report 2021
+the United States of America
+"United States"
+Schemes
+an independent trustee appointed by the Company for managing the Share Award
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2019 Share Award Scheme
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2013 Share Award Scheme
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2007 Share Award Scheme
+The Stock Exchange of Hong Kong Limited
+Product/Service provided to business customers
+Definition
+"Trustee"
+"Trust Deed III"
+"Trust Deed II"
+"Trust Deed I"
+"ToB"
+"TME"
+Tencent Technology (Wuhan) Company Limited
+Tencent Music Entertainment Group (NYSE: TME), a non wholly-owned subsidiary
+of the Company which is incorporated in the Cayman Islands with limited liability
+and the shares of which are listed on the New York Stock Exchange
+Infrastructure-as-a-Service
+Sustainable Social Value and Common Prosperity Programme
+small and medium enterprises
+Annual Report 2021
+with effect from 15 May 2014, each existing issued and unissued share of
+HKD0.0001 each in the share capital of the Company was subdivided into five
+subdivided shares of HKD0.00002 each, after passing of an ordinary resolution at
+the annual general meeting of the Company held on 14 May 2014 and granting
+by the Stock Exchange of the listing of, and permission to deal in, the subdivided
+shares
+"Share Subdivision'
+the 2007 Share Award Scheme, the 2013 Share Award Scheme and the 2019
+Share Award Scheme
+time)
+ordinary share(s) of HKD0.00002 each in the share capital of the Company (or
+of such other nominal amount as shall result from a sub-division, consolidation,
+reclassification or reconstruction of the share capital of the Company from time to
+Shanghai Tencent Information Technology Company Limited
+"Share(s)"
+"Shanghai Tencent Information"
+the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as
+amended, supplemented or otherwise modified from time to time
+"SFO"
+any Eligible Person(s) selected by the Board to participate in the respective Share
+Award Schemes
+Software-as-a-Service
+"Selected Participant(s)"
+"SaaS"
+the lawful currency of the PRC
+the remuneration committee of the Company
+317
+Definition
+Term
+Definition
+the co-operation committee established under the SKT CFC
+the co-operation framework contract dated 28 February 2004 entered into
+between Cyber Tianjin and Shiji Kaixuan
+Shenzhen Shiji Kaixuan Technology Company Limited
+"TCS CFC"
+"Supercell"
+"Stock Exchange"
+"SSV & CPP"
+“Sogou”
+Sogou Inc., a company incorporated in the Cayman Islands with limited liability,
+which became a wholly-owned subsidiary of the Company following completion of
+its privatisation in September 2021
+"SMES"
+"SKT CFC"
+"Shiji Kaixuan"
+Shenzhen Tencent Tianyou Technology Company Limited
+"Shenzhen Tencent Tianyou"
+Shenzhen Tencent Network Information Technology Company Limited
+"Shenzhen Tencent Network"
+Shenzhen Tencent Information Technology Company Limited
+"Shenzhen Tencent Information"
+"SKT Co-operation Committee”
+players who are aged under 18
+"IAS"
+Term
+Weixin Official Account for Investor Relations Tencent IR
+852-25201148
+Facsimile
+Telephone : 852-21795122
+Wanchai, Hong Kong
+No. 1 Queen's Road East
+29/F., Three Pacific Place
+Tencent Holdings Limited Hong Kong Office
+: 86-755-86013399
+Facsimile
+Telephone: 86-755-86013388
+Zipcode : 518054
+Tencent Binhai Towers, No. 33 Haitian 2nd Road
+Nanshan District, Shenzhen, the PRC
+Tencent Group Head Office
+Definition
+Tencent 腾讯
+Website: www.tencent.com
+"USD"
+Definition
+the lawful currency of the United States
+"Wang Dian"
+"WFOES"
+"VAS"
+Nanjing Wang Dian Technology Company Limited
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Shenzhen Tencent
+Information, Tencent Chengdu, Chongqing Tencent Information, Shanghai
+Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network,
+Guangzhou Tencent Technology, Shenzhen Tencent Network, Guian New Area
+Tencent Cyber, Cyber Shenzhen and Wuhan Tencent Information
+"Wuhan Tencent Information"
+Wuhan Tencent Information Technology Company Limited
+00
+320 Tencent Holdings Limited
+value-added services
+21 Mar 2017 to 20 Mar 2023 (Note 3)
+174.86
+577,141
+185,220
+762,361
+6 Jul 2016
+158.10
+296,451
+375,000
+5,590,000
+21 Mar 2016
+10 Jul 2016 to 9 Jul 2022 (Note 3)
+148.90
+6 Jul 2017 to 5 Jul 2023 (Note 3)
+108,369
+5,215,000
+24 Mar 2017
+1,109,375
+115,715
+6,144,941
+10 Jul 2017
+10 Jul 2018 to 9 Jul 2024 (Note 2)
+272.36
+4,469
+4,469
+10 Jul 2017
+942,365
+24 Mar 2018 to 23 Mar 2024 (Note 3)
+19,050,875
+404,820
+20,160,250
+24 Mar 2017
+24 Mar 2018 to 23 Mar 2024 (Note 1)
+225.44
+826,650
+225.44
+10 Jul 2015
+116.40
+149.80
+2021
+the year
+the year
+the year
+2021
+Date of grant
+Exercise
+price
+31 December
+during
+during
+1 January
+As at
+forfeited
+Exercised
+Granted
+during
+2 Apr 2016 to 1 Apr 2022 (Note 3)
+Exercise period
+HKD
+180,000
+35,000
+215,000
+2 Apr 2015
+12 Dec 2016 to 11 Dec 2021 (Note 4)
+- 1,407,612
+40,350
+(Note 15)
+40,350
+10 Jul 2015 to 9 Jul 2021 (Note 3)
+124.30
+10,938
+309,050
+319,988
+10 Jul 2014
+(Note 16)
+12 Dec 2014
+39,243
+13,486
+272.36
+Date of grant
+Exercise
+31 December
+during
+during
+during
+1 January
+As at
+forfeited
+Exercised
+Granted
+As at
+Lapsed/
+Number of share options
+Directors' Report
+2021
+the year
+the year
+the year
+22 Jun 2019 to 21 Jun 2025 (Note 2)
+403.16
+--- 70,525
+70,525
+22 Jun 2018
+22 Jun 2019 to 21 Jun 2025 (Note 1)
+403.16
+35
+13,055
+22 Jun 2018
+(Note 16)
+(Note 15)
+HKD
+Exercise period
+price
+2021
+13,055
+Annual Report 2021
+24 May 2019 to 23 May 2025 (Note 2)
+407.00
+132,050 444.20
+12,000
+144,050
+16 Jan 2018
+23 Nov 2018 to 22 Nov 2024 (Note 2)
+419.60
+71,190
+16 Jan 2019 to 15 Jan 2025 (Note 2)
+71,190
+10 Jul 2019 to 9 Jul 2024 (Note 4)
+272.36
+As at
+4,960
+18,446
+10 Jul 2017
+10 Jul 2018 to 9 Jul 2024 (Note 3)
+23 Nov 2017
+4,698,086
+9 Apr 2018
+75,840
+26,390
+26,390
+24 May 2018
+9 Apr 2019 to 8 Apr 2025 (Note 3)
+410.00
+16,619,759
+11,367
+1,948,915
+9 Apr 2018
+410.00
+- 191,555
+191,555
+9 Apr 2018
+9 Apr 2019 to 8 Apr 2025 (Note 1)
+410.00
+1,873,075
+9 Apr 2019 to 8 Apr 2025 (Note 2)
+Lapsed/
+the Ex-dividend Date. Please refer to the announcement of the Company dated 14 March 2022 for details.
+Details of movements of share options granted to employees of the Group (apart from director(s) of the Company) during the
+year ended 31 December 2021 are as follows:
+2,002,589,555
+443.40
+516.00
+4,249,200
+596,186,676
+412.60
+478.20
+1,332,600
+Total:
+August
+September
+paid
+HKD
+HKD
+HKD
+consideration
+Lowest
+price paid
+5,581,800
+2,598,776,231
+Save as disclosed above and in Note 33 to the consolidated financial statements, neither the Company nor any of its
+subsidiaries has purchased, sold or redeemed any of the Company's listed securities during the year ended 31 December
+2021.
+ISSUANCE OF DEBT SECURITIES
+The American depositary shares of HUYA were listed on the New York Stock Exchange on 11 May 2018 and the net proceeds
+raised by HUYA during its IPO were approximately USD190 million. The net proceeds raised by HUYA in its FPO launched in
+April 2019 were approximately USD314 million.
+HUYA
+As at 31 December 2021, China Literature had fully utilised all net proceeds from its IPO.
+The shares of China Literature were listed on the Stock Exchange on 8 November 2017 and the net proceeds raised by China
+Literature during its IPO were approximately HKD7,235 million (equivalent to approximately RMB6,145 million).
+China Literature
+As at 31 December 2021, TME had used all net proceeds from its IPO in the manner set out in its IPO prospectus for content
+acquisition, strategic investments, and other operating and investment purposes.
+The American depositary shares of TME were listed on the New York Stock Exchange on 12 December 2018 and the net
+proceeds raised by TME during its IPO were approximately USD509 million.
+Highest
+price paid
+TME
+USE OF PROCEEDS FROM IPO AND FPO OF NON WHOLLY-OWNED SUBSIDIARIES
+Directors' Report
+Tencent Holdings Limited
+32
+00
+Details of the issuance of debt securities are set out in Note 37 to the consolidated financial statements.
+In April 2021, the Company issued four tranches of senior notes with an aggregate principal amount of USD4.15 billion under
+the Global Medium Term Note Programme for the Company's general corporate purposes.
+The use of proceeds from the IPO and FPO of TME, China Literature and HUYA, our non wholly-owned subsidiaries, are set
+out below:
+purchased
+Month of purchase in 2021
+No. of Shares
+PROPERTY, PLANT AND EQUIPMENT
+Directors' Report
+Tencent Holdings Limited
+30
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 174 to 177, Note 33, Note 34 and Note 46 to the consolidated financial statements
+respectively.
+As at 31 December 2021, the Company had distributable reserves amounting to RMB66,701 million (2020: RMB45,952
+million).
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends, the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+Details of the movements in property, plant and equipment of the Group during the year are set out in Note 16 to the
+consolidated financial statements.
+RESERVES
+The Board has recommended the payment of a final dividend of HKD1.60 per share for the year ended 31 December 2021.
+The dividend is expected to be payable on 6 June 2022 to the shareholders whose names appear on the register of members
+of the Company on 25 May 2022. The total final dividend proposed for the year is HKD1.60 per share.
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 170 of this
+annual report.
+RESULTS AND APPROPRIATIONS
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations is set out in Note 5 to the consolidated financial statements.
+The principal activity of the Company is investment holding. The activities of the principal subsidiaries are set out in Note 48 to
+the consolidated financial statements.
+PRINCIPAL ACTIVITIES
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended
+31 December 2021.
+On 23 December 2021, the Board resolved to declare a special interim dividend in the form of a distribution in specie of
+approximately 457 million Class A ordinary shares of JD.com indirectly held by the Company to the shareholders whose names
+appeared on the register of members of the Company on 25 January 2022 in proportion to their then respective shareholdings
+in the Company on the basis of 1 Class A ordinary share of JD.com for every 21 Shares held by the shareholders, being
+rounded down to the nearest whole number of Class A ordinary shares of JD.com.
+As at 31 December 2021, HUYA had used all net proceeds from its IPO and USD29.6 million of the net proceeds from its FPO
+for investing in overseas expansion and for general corporate purposes.
+BUSINESS REVIEW AND DIVIDEND
+SHARE CAPITAL
+Aggregate
+Purchase consideration per Share
+During the year ended 31 December 2021, the Company repurchased 5,581,800 Shares on the Stock Exchange for an
+aggregate consideration of approximately HKD2,598.8 million before expenses. The repurchased Shares were subsequently
+cancelled. The repurchase was effected by the Board for the enhancement of shareholder value in the long term. Details of the
+Shares repurchased are as follows:
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+FINANCIAL SUMMARY
+The donation made by the Group in the year was RMB2,050 million.
+A fair review of the business of the Group, comprising a discussion and analysis of the Group's performance during the
+year, an indication of likely future development in the business of the Group and the proposed dividend for the year
+ended 31 December 2021 are set out in the "Chairman's Statement" on pages 4 to 8 of this annual report. Particulars of
+important events affecting the Group that have occurred since the end of the financial year 2021 are set out in Note 47 to
+the consolidated financial statements. An analysis using financial key performance indicators is set out in the "Management
+Discussion and Analysis" on pages 9 to 29 of this annual report. Discussions on the Group's environmental policies and
+performance, and an account of the Group's key relationships with its stakeholders are set out in the “Environmental, Social
+and Governance Report" on pages 110 to 159 of this annual report. Details regarding the Group's compliance with the
+relevant laws and regulations which have a significant impact on the Group are also set out in the "Environmental, Social and
+Governance Report" on pages 110 to 159 and the "Corporate Governance Report" on pages 77 to 109 as well as on page
+74 of this annual report. A description of the principal risks and uncertainties facing the Group is set out in the "Corporate
+Governance Report" on pages 77 to 109 of this annual report. All such discussions form part of this annual report.
+DONATION
+31
+Annual Report 2021
+Particulars of the Group's borrowings and notes payable are set out in Note 36 and Note 37 to the consolidated financial
+statements respectively.
+BORROWINGS AND NOTES PAYABLE
+Particulars of the Company's principal subsidiaries as at 31 December 2021 are set out in Note 48 to the consolidated
+financial statements.
+SUBSIDIARIES
+Details of the movements in the share capital of the Company during the year are set out in Note 33 to the consolidated
+financial statements.
+Directors' Report
+The remaining balance of the net proceeds was placed with banks. HUYA will apply the remaining net proceeds in the manner
+as set out in its FPO prospectus.
+SHARE OPTION SCHEMES
+The Company has adopted five share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the
+Post-IPO Option Scheme II, the Post-IPO Option Scheme III and the Post-IPO Option Scheme IV. The Pre-IPO Option Scheme,
+the Post-IPO Option Scheme I, the Post-IPO Option Scheme II and the Post-IPO Option Scheme III expired on 31 December
+2011, 23 March 2014, 16 May 2017 and 13 May 2019 respectively. In respect of the Post-IPO Option Scheme IV, the Board
+may, at its discretion, grant options to any qualifying participants to subscribe for shares in the Company, subject to the terms
+and conditions stipulated therein.
+618.00
+3,374,630
+3,374,630
+(Note 2)
+30 March 2021
+19 March 2027 (Note 1)
+20 March 2021 to
+359.60
+30 March 2022 to
+4,399,815
+20 March 2020
+3 April 2026 (Note 1)
+4 April 2020 to
+376.00
+-- 3,506,580
+3,506,580
+4 April 2019
+4,399,815
+8 April 2025 (Note 1)
+29 March 2028 (Note 1)
+20,122,195
+Directors' Report
+Tencent Holdings Limited
+34
+00
+6 Jul 2018
+As a result of the Distribution in Specie, pursuant to the scheme rules of the Post-IPO Option Scheme II and the Post-IPO Option
+Scheme IV, adjustments had been made to the exercise price of the share options as shown above which remained outstanding as at
+4.
+Total:
+No options granted to the director were exercised, cancelled or lapsed during the year.
+The closing price immediately before the date on which the options were granted on 30 March 2021 was HKD612 per Share, which
+was adjusted to HKD594.008 per Share on the Ex-dividend Date. Out of these 3,374,630 options, 843,657 options which would be
+exercisable during the period between 30 March 2022 and 29 March 2028 were voluntarily waived by Mr Lau in February 2022.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 1 year after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+2.
+1.
+Note:
+23,496,825
+3,374,630
+3.
+Number of share options
+9 April 2019 to
+- 3,215,800
+the year
+the year
+Exercise
+during 31 December
+As at
+Exercised
+Granted
+during
+2021
+1 January
+2021
+Name of director
+As at
+Number of share options
+As at 31 December 2021, there were a total of 23,496,825 outstanding share options granted to a director of the Company,
+details of which are as follows:
+Directors' Report
+33
+Annual Report 2021
+Date of grant
+410.00
+price
+HKD
+3,215,800
+9 April 2018
+23 March 2024 (Note 1)
+24 March 2018 to
+225.44
+5,250,000
+5,250,000
+Exercise period
+24 March 2017
+21 March 2017 to
+158.10
+- 3,750,000
+3,750,000
+21 March 2016
+Lau Chi Ping Martin
+(Note 4)
+20 March 2023 (Note 1)
+4,093,568
+8,050
+108,973
+Directors' Report
+37
+Annual Report 2021
+15 Feb 2022 to 29 Mar 2028 (Note 8 and Note 11)
+618.00
+3,049
+3,049
+30 Mar 2021
+15 Feb 2022 to 29 Mar 2028 (Note 10 and Note 11)
+618.00
+4,333
+4,333
+30 Mar 2021
+8 Feb 2022 to 29 Mar 2028 (Note 8 and Note 11)
+618.00
+Number of share options
+Lapsed/
+As at
+Granted
+(Note 15)
+Exercise period
+price
+2021
+the year
+the year
+the year
+100,335
+2021
+31 December
+during
+during
+during
+As at
+forfeited
+Exercised
+Exercise
+100,335
+30 Mar 2021
+8 Feb 2022 to 29 Mar 2028 (Note 9 and Note 11)
+15 Oct 2021 to 22 Nov 2027 (Note 10)
+586.00
+8,855
+8,855
+23 Nov 2020
+15 Oct 2021 to 22 Nov 2027 (Note 9)
+586.00
+23 Nov 2020
+108,708
+110,280
+23 Nov 2020
+15 Aug 2021 to 20 Aug 2027 (Note 8)
+518.00
+4,964
+4,964
+21 Aug 2020
+1,572
+HKD
+16,825
+586.00
+618.00
+1,062,910
+15,745
+1,078,655
+30 Mar 2021
+15 Dec 2021 to 22 Dec 2027 (Note 10)
+575.80
+16,825
+105,207
+23 Dec 2020
+15 Dec 2021 to 22 Dec 2027 (Note 9)
+575.80
+14,028
+14,028
+23 Dec 2020
+15 Nov 2021 to 22 Nov 2027 (Note 8)
+105,207
+15 Aug 2021 to 20 Aug 2027 (Note 10)
+(Note 16)
+1 January
+9.
+8.
+Subject to the satisfaction of certain conditions, the first 25% of the total options shall be vested and can be exercised on the dates as
+specified in the relevant grant letters, and each 25% of the total options will be vested and become exercisable in each subsequent
+year.
+For options granted with exercisable date determined based on the grant date of options, 100% of the total options shall be vested and
+can be exercised 5 years after the grant date.
+7.
+6.
+Directors' Report
+Tencent Holdings Limited
+38
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 3 years after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 2 years after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 1 year after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+shall be vested and can be exercised 1 year after the grant date, and each 33.33% (one-third) of the total options will be vested and
+become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 50% of the total options shall
+be vested and can be exercised 1 year after the grant date, and the remaining 50% of the total options will be vested and become
+exercisable in the subsequent year.
+5.
+10.
+The first 25% of the total options shall be vested and can be exercised on the dates as specified in the relevant grant letters, and each
+25% of the total options will be vested and become exercisable in each subsequent year.
+The first 50% of the total options shall be vested and can be exercised on the dates as specified in the relevant grant letters, and the
+remaining 50% of the total options will be vested and become exercisable in the subsequent year.
+The first 33.33% (one-third) of the total options shall be vested and can be exercised on the dates as specified in the relevant grant
+letters, and each 33.33% (one-third) of the total options will be vested and become exercisable in each subsequent year.
+39
+Annual Report 2021
+No options granted to the employees of the Group were cancelled during the year.
+17.
+As a result of the Distribution in Specie, pursuant to the scheme rules of the Post-IPO Option Scheme II and the Post-IPO Option
+Scheme IV, adjustments had been made to the exercise price of the share options as shown above which remained outstanding as at
+the Ex-dividend Date. Please refer to the announcement of the Company dated 14 March 2022 for details.
+The weighted average closing price immediately before the date on which the options were exercised was HKD555.17 per Share, which
+was adjusted to HKD538.852 per Share on the Ex-dividend Date.
+The closing price immediately before the date on which the options were granted on 16 November 2021 was HKD491.8 per Share,
+which was adjusted to HKD477.342 per Share on the Ex-dividend Date.
+4.
+The closing price immediately before the date on which the options were granted on 14 July 2021 was HKD555.5 per Share, which was
+adjusted to HKD539.169 per Share on the Ex-dividend Date.
+The closing price immediately before the date on which the options were granted on 30 March 2021 was HKD612 per Share, which
+was adjusted to HKD594.008 per Share on the Ex-dividend Date.
+16.
+15.
+14.
+13.
+12.
+11.
+The closing price immediately before the date on which the options were granted on 10 June 2021 was HKD603 per Share, which was
+adjusted to HKD585.272 per Share on the Ex-dividend Date.
+3.
+2.
+1.
+14 Jul 2021
+15 May 2022 to 9 Jun 2028 (Note 10 and Note 12)
+606.30
+-- 151,607
+151,607
+10 Jun 2021
+5 Jul 2021 to 9 Jun 2028 (Note 8 and Note 12)
+8,004,431
+606.30
+11,778
+10 Jun 2021
+30 Mar 2022 to 29 Mar 2028 (Note 8 and Note 11)
+618.00
+3,867,841
+3,867,841
+30 Mar 2021
+-- 11,778
+Date of grant
+53,147
+556.50
+Note:
+93,338,573
+357,421
+85,119,689 13,410,620 4,834,315
+Total:
+15 Oct 2022 to 15 Nov 2028 (Note 10 and Note 14)
+502.50
+7,951,284
+15,694
+16 Nov 2021
+15 Sep 2022 to 15 Nov 2028 (Note 10 and Note 14)
+502.50
+- 172,897
+172,897
+16 Nov 2021
+5 Jul 2022 to 13 Jul 2028 (Note 8 and Note 13)
+15,694
+518.00
+10,535
+10,535
+12,005
+8 Jul 2019
+8 Jul 2020 to 7 Jul 2026 (Note 3)
+359.04
+1,740,226
+58,317
+153,813
+1,952,356
+8 Jul 2019
+8 Jul 2020 to 7 Jul 2026 (Note 1)
+359.04
+-665 ..
+665
+8 Jul 2019
+4 Apr 2024 to 3 Apr 2026 (Note 6)
+12,005
+359.04
+8 Jul 2021 to 7 Jul 2026 (Note 4)
+23 Aug 2019
+15 Aug 2020 to 22 Aug 2026 (Note 7)
+334.20
+213,990
+213,990
+23 Aug 2019
+15 Aug 2020 to 22 Aug 2026 (Note 8)
+334.20
+376.00
+43,585
+67,795
+23 Aug 2019
+15 Aug 2020 to 22 Aug 2026 (Note 10)
+334.20
+9,870
+9,870
+19,740
+24,210
+- 17,500,000
+17,500,000
+4 Apr 2019
+24 Aug 2018
+6 Jul 2021 to 5 Jul 2025 (Note 5)
+386.60
+14,246
+Directors' Report
+6,299
+34,230
+17,780
+6 Jul 2018
+386.60
+6,050
+2,000
+6 Jul 2018
+6 Jul 2019 to 5 Jul 2025 (Note 3)
+386.60
+3,381,317
+6 Jul 2020 to 5 Jul 2025 (Note 4)
+2 Dec 2019
+17,780
+24 Aug 2019 to 23 Aug 2025 (Note 2)
+4 Apr 2020 to 3 Apr 2026 (Note 3)
+376.00
+2,283,120
+2,283,120
+4 Apr 2019
+4 Apr 2020 to 3 Apr 2026 (Note 1)
+376.00
+354.00
+193,866
+288,972
+4 Apr 2019
+6 Jul 2019 to 23 Aug 2025 (Note 8)
+354.00
+- 2,660
+2,660
+24 Aug 2018
+95,106
+35,164
+17,500
+17,664
+- 49,840
+49,840
+22 May 2020
+20 Mar 2021 to 19 Mar 2027 (Note 8)
+359.60
+2,560,491
+24,329
+429.52
+2,584,820
+21 Jan 2021 to 19 Mar 2027 (Note 9)
+359.60
+295,053
+4,629
+90,848
+390,530
+20 Mar 2020
+20 Mar 2020
+(Note 16)
+15 May 2021 to 21 May 2027 (Note 10)
+1,428,182
+21 Aug 2020
+15 Jul 2021 to 20 Aug 2027 (Note 9)
+518.00
+24,465
+24,465
+21 Aug 2020
+5 Jul 2022 to 9 Jul 2027 (Note 8)
+10 Jul 2020
+546.50
+3,507
+10 Jul 2020
+5 Jul 2021 to 9 Jul 2027 (Note 8)
+546.50
+1,360,471
+51,172
+16,539
+3,507
+603,278
+HKD
+Exercise period
+Number of share options
+Tencent Holdings Limited
+36
+00
+15 Jan 2021 to 7 Jan 2027 (Note 10)
+382.00
+26,250
+Directors' Report
+26,250
+15 Dec 2020 to 7 Jan 2027 (Note 10)
+382.00
+111,510
+111,510
+8 Jan 2020
+15 Nov 2020 to 1 Dec 2026 (Note 10)
+335.84
+8 Jan 2020
+(Note 15)
+Lapsed/
+Granted
+price
+2021
+the year
+the year
+the year
+2021
+Date of grant
+As at
+Exercise
+during
+during
+during
+1 January
+As at
+forfeited
+Exercised
+31 December
+13,685
+16,631,126
+A total of 25,470,141 shares may be granted under the China Literature Plan, representing
+2.5% of the issued share capital as at the date of the adoption of the China Literature Plan
+(the "Scheme Limit") and 2.5% of the issued share capital as at the date of this annual
+report, respectively, unless otherwise permitted by the Listing Rules or China Literature
+obtaining the approval of its shareholders to refresh the Scheme Limit.
+9,000
+9,000
+1 Jul 2018
+Till 9 Aug 2027 (Note 2)
+2.55
+100,315
+477,187
+577,502
+9 Aug 2017
+Till 9 Aug 2027 (Note 2)
+2.55
+159,000
+47,238
+206,238
+9 Aug 2017
+USD
+(Note 1)
+Exercise period
+price
+2021
+the year
+the year
+the year
+2021
+Date of grant
+Exercise
+during 31 December
+during
+As at
+2.55
+Till 1 Jul 2028 (Note 2)
+Total:
+792,740
+44
+00
+The maximum number of Shares in respect
+of which options may be granted under
+the Post-IPO Option Scheme IV shall be
+379,099,339 Shares, 4% of the relevant.
+class of securities of the Company in
+issue as at 17 May 2017. The maximum
+number of Shares which may be issued
+upon exercise of all outstanding options
+granted and yet to be exercised under the
+Post-IPO Option Scheme IV and any other
+share option schemes, including the Pre-
+IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II
+and the Post-IPO Option Scheme III, must
+not in aggregate exceed 30% of the issued
+shares of the Company from time to time
+(Note 2).
+of the Company from time to time (Note 1).
+The maximum number of Shares in respect
+of which options may be granted under
+the Post-IPO Option Scheme II shall be
+444,518,270 Shares (after the effect of the
+Share Subdivision), 5% of the relevant class
+of securities of the Company in issue as at
+16 May 2007. The maximum number of
+Shares which may be issued upon exercise
+of all outstanding options granted and yet
+to be exercised under the Post-IPO Option
+Scheme II and any other share option
+schemes, including the Pre-IPO Option
+Scheme, the Post-IPO Option Scheme I,
+the Post-IPO Option Scheme III and the
+Post-IPO Option Scheme IV, must not in
+aggregate exceed 30% of the issued shares
+Maximum number
+of Shares
+3.
+Any employee (whether full time or
+part time), executive or officer, director
+(including executive, non-executive and
+independent non-executive directors) of
+any member of the Group or any invested
+entity, and any consultant, adviser or agent
+of any member of the Board, who have
+contributed or will contribute to the growth
+and development of the Group or any
+invested entity
+Any employee (whether full time or
+part time), executive or officer, director
+(including executive, non-executive and
+independent non-executive directors) of
+any member of the Group or any invested
+entity, which is any entity in which the
+Group holds an equity interest, and any
+consultant, adviser or agent of any member
+of the Board, who have contributed or will
+contribute to the growth and development
+of the Group or any invested entity
+To recognise the contribution that certain individuals have made to the Group, to attract
+the best available personnel and to promote the success of the Group's business
+Post-IPO Option Scheme IV
+Post-IPO Option Scheme II
+Qualifying participants
+2.
+forfeited
+Purposes
+Details
+SUMMARY OF THE SHARE OPTION SCHEMES
+Directors' Report
+43
+Annual Report 2021
+No options granted to the employees of HUYA were cancelled during the year.
+3.
+All outstanding options were granted before HUYA became our subsidiary, and became vested and exercisable prior to or upon HUYA
+becoming our subsidiary.
+The weighted average closing price immediately before the date on which the options were exercised was USD12.98 per share.
+2.
+1.
+Note:
+259,315
+533,425
+1.
+Exercised
+Granted
+during
+1 January
+Employees
+5,075,000
+5,075,000
+Sub-total:
+82.85
+82.85
+2,175,000
+2,175,000
+12 Jul 2021
+Hou Xiaonan
+2,900,000
+2,900,000
+12 Jul 2021
+Cheng Wu
+Directors
+12 Jul 2021
+Exercise period
+(Note 3)
+2021
+Exercise
+during 31 December
+the year
+the year
+2021
+Date of grant
+Name of director
+during
+1 January
+As at
+Exercised
+Granted
+As at
+price
+HKD
+Tencent Holdings Limited
+949,914
+5 Nov 2021
+As at
+Lapsed/
+Number of share options
+Details of movements of share options granted to employees of HUYA under the share option schemes adopted by HUYA, a
+subsidiary of the Company, during the year ended 31 December 2021 are as follows:
+No options granted to directors and employees of China Literature were exercised, cancelled or lapsed during the year.
+5.
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the average daily closing price
+volatility of the shares of the comparative companies within an observation period which was commensurate with the maturity of the share options.
+The fair value of the options as at the respective grant date was determined using the binomial model which is to be expensed over the
+relevant vesting period. The weighted average fair value of options granted during the year ended 31 December 2021 was HKD20.26
+per share. Other than the exercise price mentioned above, significant assumptions (which are subject to subjectivity and uncertainty)
+used to estimate the fair value of the options include risk-free rate (1.6%), dividend yield (nil) and expected volatility* (25%).
+The closing price immediately before the date on which the options were granted on 12 July 2021 and 5 November 2021, was
+HKD80.65 per share and HKD53.25 per share, respectively.
+The first 25% of the total options shall be vested and can be exercised 1 year after the grant date, and each 25% of the total options will
+be vested and become exercisable in each subsequent year.
+The first 25% of the total options shall be vested and can be exercised after the grant date, and each 25% of the total options will be
+vested and become exercisable in each subsequent year.
+4.
+3.
+2.
+949,914
+1.
+Directors' Report
+Tencent Holdings Limited
+42
+00
+7,811,453
+7,811,453
+Total:
+2,736,453
+2,736,453
+Sub-total:
+12 Jul 2022 to 12 Jul 2032 (Note 2)
+5 Nov 2022 to 5 Nov 2032 (Note 2)
+82.85
+53.14
+1,786,539
+1,786,539
+Note:
+Number of share options
+Details
+Maximum entitlement
+of each participant
+No option may be granted to any eligible participant which, if exercised in full, would result
+in the total number of shares issued and to be issued upon exercise of the options already
+granted or to be granted to such eligible participant under the China Literature Plan (including
+exercised, cancelled and outstanding options) in the 12-month period up to and including the
+grant date of such new grant exceeding 1% in aggregate of the issued share capital of China
+Literature as at the grant date of such new grant. Any grant of further options above this limit
+shall be subject to the requirements provided under the Listing Rules.
+The maximum number of shares which may be issued upon exercise of all outstanding
+options granted and yet to be exercised under the China Literature Plan and any other
+options granted and yet to be exercised under any other option scheme shall not exceed
+30% of the issued share capital of China Literature from time to time.
+China Literature may seek the approval of its shareholders in general meeting to grant
+options which will result in the number of shares in respect of all the options granted
+under the China Literature Plan and all the options granted under any other option scheme
+exceeding 10% of the issued share capital of China Literature, provided that such options
+are granted only to participants specifically identified by China Literature before the approval
+of shareholders is sought.
+Remaining life of
+the scheme
+8.
+Subscription price
+7.
+Acceptance of offer
+6.
+Vesting schedule and
+exercise period
+of each eligible
+participant
+Maximum entitlement
+(continued)
+Scheme Limit and
+maximum number
+of shares which
+may be issued
+5.
+4.
+Scheme Limit,
+refreshment of
+3.
+Directors' Report
+47
+Annual Report 2021
+China Literature may seek the approval of its shareholders in general meeting to refresh the
+Scheme Limit such that the total number of shares which may be issued upon exercise of all
+options that may be granted under the China Literature Plan and any other option scheme/
+plan involving the issue or grant of options over shares or other securities by China Literature
+under the limit as refreshed shall not exceed 10% of the issued share capital of China
+Literature as at the date of approval of the refreshed limit.
+(i) any employee (whether full time or part time), executives or officers, directors (including
+executive, non-executive and independent non-executive directors) of any member of the
+China Literature Group; and (ii) any individual or entity that is (as applicable) either (a) a
+business partner of ("Business Partner") of (1) any member of the China Literature Group or
+(2) any entity in which any member of the China Literature Group holds an equity interest,
+and shall, for the purpose of the China Literature Plan, exclude any members of the China
+Literature Group ("Invested Entity"), (b) a consultant, adviser or agent of any member of
+the China Literature Group, any Invested Entity or any Business Partner or (c) an employee
+(whether full time or part time), executives or officers, directors (including executive,
+non-executive and independent non-executive directors) of any Invested Entity or any
+Business Partner who, in the sole opinion of the board of directors of China Literature, have
+contributed or will contribute to the growth and development of the China Literature Group
+or any Invested Entity.
+The purpose of the China Literature Plan is to (i) provide incentives and rewards to the
+directors, employees, advisors, consultants and business partners of China Literature and its
+subsidiaries (the “China Literature Group") for their contributions to, and continuing efforts
+to promote the interest of, China Literature; (ii) recognise the contributions that the eligible
+participants have made to China Literature with an opportunity to acquire a proprietary
+interest in China Literature; (iii) encourage and retain such individuals for the continual
+operation and development of the China Literature Group; (iv) provide additional incentives
+for them to achieve performance goals; (v) attract suitable personnel for further development
+of the China Literature Group; (vi) motivate the participants to maximise the value of China
+Literature for the benefits of both the eligible participants and China Literature, with a view
+to achieving the objectives of increasing the value of the China Literature Group and aligning
+the interests of the eligible participants directly to the shareholders of China Literature
+through ownership of shares of China Literature.
+refreshment of
+Scheme Limit and
+maximum number
+of shares which
+may be issued
+Scheme Limit,
+Eligible Participants
+3.
+2.
+The board of directors of China Literature or the chairman of China Literature (as the case
+may be) may specify the exercise period and the vesting schedule of the options in the grant
+letter. Unless the options have been withdrawn and cancelled or been forfeited in whole or
+in part, the grantee may exercise his rights under the China Literature Plan according to the
+vesting schedule set out in the relevant grant letter. The option must be exercised no more
+than 10 years from the grant date. There is no minimum period for which an option must be
+held before it can be exercised.
+An amount of RMB1.00 must be paid by the grantee to China Literature upon acceptance of
+options within 3 days after such acceptance or other time as prescribed by China Literature,
+and such remittance shall not be refundable and shall not be deemed to be a part payment
+of the subscription price.
+The subscription price shall be a price determined by the board of directors of China
+Literature or the chairman of China Literature (as the case may be) and notified to grantee
+and will be the highest of: (a) the closing price of a share as stated in the Stock Exchange's
+daily quotations sheet on the grant date of the relevant options, which must be a business
+day; (b) an amount equivalent to the average closing price of a share as stated in the Stock
+Exchange's daily quotation sheets for the 5 business days immediately preceding the grant
+date of the relevant options; and (c) the nominal value per share on the grant date.
+The China Literature Plan is valid and effective for a period of ten years commencing on
+24 May 2021, unless the China Literature Plan is otherwise terminated earlier.
+49
+Annual Report 2021
+2% of the issued shares of the
+Company as at the Adoption
+Date III (i.e. 191,047,317
+Shares (after the effect of the
+Distribution in Specie))
+3% of the issued shares of the
+Company as at the Adoption
+Date II (i.e. 278,937,260
+Shares (after the effect of the
+Share Subdivision and the
+Distribution in Specie))
+2% of the issued shares of the
+Company as at the Adoption
+Date (i.e. 178,776,160
+Shares (after the effect of the
+Share Subdivision))
+It shall be valid and effective
+unless and until being
+terminated on the earlier of:
+(i) the 15th anniversary date
+of the Adoption Date III; and
+(ii) such date of early
+termination as determined by
+the Board provided that such
+termination does not affect
+any subsisting rights of any
+Selected Participant.
+It shall be valid and effective
+unless and until being
+terminated on the earlier of:
+(i) the 15th anniversary date
+of the Adoption Date II; and
+(ii) such date of early
+termination as determined by
+the Board provided that such
+termination does not affect
+any subsisting rights of any
+Selected Participant.
+It shall be valid and effective
+for a period of 15 years from
+the Adoption Date I.
+To recognise the contributions and to attract, motivate and retain eligible participants (including
+any director) of the Group
+2019 Share Award Scheme
+2013 Share Award Scheme
+2007 Share Award Scheme
+Maximum number of
+Shares that can be
+awarded
+3.
+Purpose
+Duration and Termination
+Purpose
+1.
+The Company adopted the following three Share Award Schemes with major terms and details set out below:
+SHARE AWARD SCHEMES
+Details of the valuation of share options of the Company during the year are set out in Note 35 to the consolidated financial
+statements.
+VALUATION OF SHARE OPTIONS
+Details of the movements in the share options of the Company during the year are set out in Note 35 to the consolidated
+financial statements.
+MOVEMENTS IN THE SHARE OPTIONS
+Directors' Report
+Tencent Holdings Limited
+48
+00
+The total number of options available for grant under the China Literature Plan is 17,658,688, which represents approximately 1.73% of the
+issued shares of China Literature as at the date of this annual report.
+Note:
+2.
+1.
+A summary of the share option plan of China Literature, which took effect on 24 May 2021 (the “China Literature Plan"), is set
+out below:
+Directors' Report
+45
+Annual Report 2021
+The total number of Shares available for issue under the Post-IPO Option Scheme IV is 289,802,600, which represents approximately
+3.01% of the issued shares of the Company as at the date of this annual report.
+The Post-IPO Option Scheme II expired on 16 May 2017 and no further options will be granted under the scheme.
+2.
+1.
+Note:
+It shall be valid and effective for a period of
+ten years commencing on 17 May 2017.
+average closing price of the securities
+as stated in the Stock Exchange's daily
+quotations sheets for the five business days
+immediately preceding the date of grant;
+and (iii) the nominal value of the Share.
+The exercise price must be at least the
+higher of: (i) the closing price of the
+securities as stated in the Stock Exchange's
+daily quotations sheet on the date of grant,
+which must be a business day; (ii) the
+Options granted must be accepted within
+28 days of the date of grant, upon payment
+of HKD1 per grant.
+the scheme
+It expired on 16 May 2017.
+Remaining life of
+Directors' Report
+8.
+Options granted must be accepted within
+28 days of the date of grant, upon payment
+of HKD1 per grant.
+Exercise price
+7.
+Acceptance of offer
+6.
+The option period is determined by the
+Board provided that it is not later than
+the last day of the 7-year period after the
+date of grant of the options. There is no
+minimum period for which an option must
+be held before it can be exercised.
+1% of the issued shares of the Company
+from time to time within any 12-month
+period up to the date of the latest grant
+Post-IPO Option Scheme IV
+The option period is determined by the
+Board provided that it is not later than
+the last day of the 7-year period after the
+date of grant of the options. There is no
+minimum period for which an option must
+be held before it can be exercised.
+1% of the issued shares of the Company
+from time to time within any 12-month
+period up to the date of the latest grant
+Post-IPO Option Scheme II
+Directors' Report
+Option period
+5.
+The exercise price must be at least the
+higher of: (i) the closing price of the
+securities as stated in the Stock Exchange's
+daily quotations sheet on the date of grant,
+which must be a business day; (ii) the
+average closing price of the securities
+as stated in the Stock Exchange's daily
+quotations sheets for the five business days
+immediately preceding the date of grant;
+and (iii) the nominal value of the Share.
+4.
+A summary of the share option plan of TME, which was approved by the Company's shareholders on 17 May 2017 (the "TME
+Plan"), is set out below:
+Purpose
+Tencent Holdings Limited
+46
+00
+The total number of options available for grant under the TME Plan is 33,295,600, which represents approximately 1.01% and 2.11% of the
+total issued shares and the total Class A ordinary shares of TME as at the date of this annual report, respectively.
+Note:
+No options shall be granted after 17 May 2027, being the tenth anniversary of the effective
+date, unless the TME Plan is otherwise terminated earlier.
+Exercise price shall be at least the higher of (i) the nominal value of a TME share; (ii) the
+fair market value of a TME share of such option on the date of grant; and (iii) the average
+fair market value of a TME share of such option for the five business days immediately
+preceding the date of grant.
+Options granted must generally be accepted within 28 days of the date of grant as specified
+in the award agreement. Grantees are not required to pay any premium for the acceptance
+of options.
+The term of each option shall be fixed by the compensation committee of the board of
+directors of TME or such other committee as may be designated by the board of directors
+of TME but shall not exceed 10 years from the date of grant of such option. There is no
+minimum period for which an option must be held before it can be exercised.
+1% of the total outstanding shares of TME in issue from time to time within any 12-month
+period up to the date of the latest grant unless TME obtains the approval of the Company's
+shareholders.
+The maximum number of Class A ordinary shares of TME available for issuance (as
+refreshed by the Company's shareholders at the extraordinary general meeting held on
+15 May 2019) upon exercise of options which may be granted under the TME Plan is
+97,951,238, which represents 3.0% of the total issued shares of TME and 6.2% of the total
+Class A ordinary shares of TME as at the date of this annual report, respectively.
+Holders of options and other types of awards granted by a company acquired by TME
+or with which TME combines with are eligible for grants of substitute awards under the
+TME Plan to the extent permitted under applicable regulations of any stock exchange
+on which TME is listed.
+Any employee of TME or any other individual who provides services to TME or any of
+its affiliates as determined by the compensation committee of the board of directors of
+TME or such other committee as may be designated by the board of directors of TME
+shall be eligible to receive an award under the TME Plan.
+b)
+1.
+a)
+Remaining life of
+the scheme
+8.
+Exercise price
+7.
+Acceptance of offer
+6.
+Option period
+5.
+Maximum entitlement
+of each participant
+Maximum number
+of shares
+4.
+3.
+Eligible participants
+2.
+The purpose of the TME Plan is to motivate and reward its employees and other individuals
+who are expected to contribute significantly to the success of TME and its subsidiaries to
+perform at the highest level and to further the best interests of TME and its shareholders.
+Details of movements of share options granted to directors and employees of China Literature under the share option plan
+adopted by China Literature, a subsidiary of the Company, during the year ended 31 December 2021 are as follows:
+12 Jul 2021 to 12 Jul 2031 (Note 1)
+12 Jul 2021 to 12 Jul 2031 (Note 1)
+The expected volatility was estimated based on the historical volatility of the share prices of similar United States public companies for a period
+equal to the expected life preceding the grant date.
+31 Mar 2018 to 15 Jun 2027 (Note 2)
+2.32
+1,430,058
+940,806
+2,370,864
+16 Jun 2017
+5 Jul 2017 to 15 Jun 2027 (Note 2)
+2.32
+3,662
+364,230
+367,892
+16 Jun 2017
+30 Jun 2017 to 29 Jun 2026 (Note 1)
+0.27
+1,540,774
+1,522,590
+3,063,364
+30 Jun 2016
+30 Jun 2017 to 29 Jun 2026 (Note 1)
+0.000076
+81,638
+81,638
+30 Jun 2016
+31 Mar 2017 to 30 Mar 2026 (Note 1)
+0.27
+72,634
+26,304
+31 Aug 2017
+2,748,802
+1,444,538
+32,822
+40
+00
+12 Jul 2020 to 16 Oct 2028 (Note 3)
+7.14
+30,000 2,763,500
+52,500
+2,846,000
+17 Oct 2018
+12 Jul 2019 to 16 Oct 2028 (Note 2)
+7.14
+125,000 1,696,500
+1,821,500
+17 Oct 2018
+98,938
+16 Apr 2019 to 15 Apr 2028 (Note 2)
+325,000
+325,000
+No options granted to employees and certain external consultants of TME were cancelled during the year.
+16 Apr 2018
+20 Dec 2018 to 19 Dec 2027 (Note 2)
+2.32
+2,836,672
+1,137,084
+3,973,756
+20 Dec 2017
+31 Aug 2018 to 30 Aug 2027 (Note 1)
+0.27
+1,271,442
+4.04
+31 Mar 2016
+1 Mar 2017 to 28 Feb 2026 (Note 1)
+0.27
+460,220
+1 Mar 2015
+Employees
+USD
+(Note 6)
+(Note 8)
+Exercise period
+price
+2021
+the year
+the year
+the year
+2021
+167,476
+Date of grant
+during 31 December
+during
+during
+1 January
+As at
+forfeited
+Exercised
+Granted
+As at
+Lapsed/
+Number of share options
+Details of movements of share options granted to employees and certain external consultants of TME under the share option
+schemes adopted by TME, a subsidiary of the Company, during the year ended 31 December 2021 are as follows:
+Directors' Report
+Exercise
+40
+292,744
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+50,745
+57,144
+107,889
+1 Mar 2016
+31 Dec 2016 to 30 Dec 2025 (Note 1)
+0.27
+196,016
+403,642
+599,658
+31 Dec 2015
+1 Oct 2016 to 30 Sep 2025 (Note 1)
+0.27
+63,760
+0.000076
+61,340
+1 Oct 2015
+30 Mar 2016 to 29 Mar 2025 (Note 1)
+0.27
+403,284
+297,598
+700,882
+30 Mar 2015
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+0.27
+179,020
+238,390
+417,410
+1 Mar 2015
+125,100
+Tencent Holdings Limited
+650,000
+541,488 27,591,917
+86,000
+278,801
+1 Mar 2015
+(Note 7)
+consultants
+External
+Number of share options
+7,216,862
+26,806,285 8,543,982
+Sub-total:
+15 Dec 2022 to 14 Dec 2031 (Note 4 and Note 5)
+3.32
+307,792
+307,792
+15 Dec 2021
+15 Sep 2022 to 14 Sep 2031 (Note 4 and Note 5)
+4.24
+15 May 2022 to 14 May 2031 (Note 2 and Note 5)
+15 Jul 2021
+148,130
+148,130
+6.37
+15 Jul 2022 to 14 May 2031 (Note 4 and Note 5)
+192,801
+30 Jul 2021
+6,327,742
+5.29
+30 Jul 2022 to 29 Jul 2031 (Note 2 and Note 5)
+15 Sep 2021
+254,952
+254,952
+243,126
+0.000076
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+1 Mar 2015
+Directors' Report
+3.
+4.
+5.
+6.
+7.
+41
+8.
+The first 25% of the total options shall be vested and can be exercised 2 years after the commencement date as specified in the
+relevant grant letters, and each 25% of the total options will be vested and become exercisable in each subsequent year.
+The first 33.33% (one-third) of the total options shall be vested and can be exercised 1 year after the commencement date as
+specified in the relevant grant letters, and each 33.33% (one-third) of the total options will be vested and become exercisable in each
+subsequent year.
+The closing price immediately before the date on which the options were granted on 15 May 2021, 15 July 2021, 30 July 2021,
+15 September 2021 and 15 December 2021, was USD7.61 per share, USD6.36 per share, USD5.32 per share, USD4.03 per share
+and USD3.19 per share, respectively.
+The weighted average closing price immediately before the date on which the options were exercised by employees of TME was
+USD10.26 per share.
+The weighted average closing price immediately before the date on which the options were exercised by certain external consultants of
+TME was USD9.96 per share.
+The fair value of the options as at the respective grant date was determined using the "Enhanced FAS 123" binomial model which is to
+be expensed over the relevant vesting period. The weighted average fair value of options granted during the year ended 31 December
+2021 was USD2.65 per share. Other than the exercise price mentioned above, significant assumptions (which are subject to subjectivity
+and uncertainty) used to estimate the fair value of the options include risk-free rate (1.22% -1.63%), dividend yield (nil) and expected
+volatility* (43.5% - 50%).
+9.
+7.61
+Annual Report 2021
+The first 25% of the total options shall be vested and can be exercised 1 year after the commencement dates as specified in the
+relevant grant letters, and each 12.5% of the total options will be vested and become exercisable in each subsequent six months.
+50,000
+50,000
+0.27
+1 Mar 2016 to 28 Feb 2025 (Note 1)
+Sub-total:
+328,801
+Subject to the satisfaction of certain conditions, the first 25% of the total options shall be vested and can be exercised on the dates as
+specified in the relevant grant letters, and each 25% of the total options will be vested and become exercisable in each subsequent
+year.
+136,000
+Total:
+27,135,086 8,543,982 7,352,862
+541,488 27,784,718
+Note:
+1.
+2.
+192,801
+1,262,240
+6,570,868
+15 May 2021
+14 Jun 2019
+Employees
+(Note 6)
+(Note 8)
+USD
+price
+2021
+the year
+the year
+the year
+2021
+Date of grant
+Exercise
+1,262,240
+during 31 December
+during
+during
+1 January
+As at
+forfeited
+Exercised
+Granted
+As at
+Lapsed/
+Directors' Report
+1,637,002
+15,384
+Exercise period
+7.05
+15 Dec 2021 to 14 Dec 2030 (Note 4)
+9.53
+169,080
+169,080
+15 Dec 2020
+15 Oct 2021 to 14 Oct 2030 (Note 4)
+1,621,618
+71,930
+71,930
+15 Oct 2020
+15 Aug 2021 to 14 Aug 2030 (Note 4)
+7.56
+7.17
+81,198
+208,790
+15 Aug 2020
+12 Jun 2021 to 11 Jun 2030 (Note 2)
+6.20
+4,093,832
+110,540
+4,285,570
+12 Jun 2020
+14 Jun 2020 to 13 Jun 2029 (Note 2)
+208,790
+52
+Tencent Holdings Limited
+2007 Share Award Scheme
+2019 Share Award Scheme
+Directors' Report
+2013 Share Award Scheme
+00
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2019 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish
+its quarterly, interim or
+annual results announcement
+for any such period, and
+ending on the date of such
+announcement; or (iv) in
+any other circumstances
+where dealings by Selected
+Participant (including
+directors) are prohibited
+under the Listing Rules, the
+SFO or any other applicable
+law or regulation or where
+the requisite approval from
+any applicable regulatory
+authorities has not been
+granted.
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2013 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+The vesting of the Awarded
+Shares is subject to the
+Selected Participant remaining
+at all times after the Grant
+Date and on the date of
+vesting, an Eligible Person,
+subject to the rules of the
+2013 Share Award Scheme.
+Awarded Shares and the
+related income derived
+therefrom are subject to a
+vesting scale to be determined
+by the Board at the date of
+grant of the award. Vesting of
+the Shares will be conditional
+on the Selected Participant
+satisfying all vesting conditions
+specified by the Board at the
+time of making the award
+until and on each of the
+relevant vesting dates and his/
+her execution of the relevant
+documents to effect the
+transfer from the Trustee.
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish
+its quarterly, interim or
+annual results announcement
+for any such period, and
+ending on the date of such
+announcement; or (iv) in
+any other circumstances
+where dealings by Selected
+Participant (including
+directors) are prohibited
+under the Listing Rules, the
+SFO or any other applicable
+law or regulation or where
+the requisite approval from
+any applicable regulatory
+authorities has not been
+granted.
+2019 Share Award Scheme
+2013 Share Award Scheme
+The vesting of the Awarded
+Shares is subject to the
+Selected Participant remaining
+at all times after the Grant
+Date and on the date of
+vesting, an Eligible Person,
+subject to the rules of the
+2019 Share Award Scheme.
+during
+8.
+Granted
+during
+2007 Share Award Scheme
+Voting Rights
+The Trustee shall not exercise
+any voting rights in respect of
+any Shares held pursuant to
+the Trust Deed I (including
+but not limited to the Awarded
+Shares and any bonus Shares
+and scrip Shares derived
+therefrom).
+The Trustee shall not exercise
+any voting rights in respect
+of any Shares held pursuant
+to the Trust Deed II or as
+nominee.
+The Trustee shall not exercise
+any voting rights in respect
+of any Shares held pursuant
+to the Trust Deed III or as
+nominee.
+The Company shall comply with the relevant Listing Rules when granting the Awarded Shares. If awards are made to the
+directors or substantial shareholders of the Group, such awards shall constitute connected transaction under Chapter 14A of
+the Listing Rules and the Company shall comply with the relevant requirements under the Listing Rules.
+During the year, a total of 4,723,407 and 72,331,341 Awarded Shares were granted under the 2013 Share Award Scheme
+and the 2019 Share Award Scheme respectively, out of which 40,500 Awarded Shares were granted to the independent non-
+executive directors of the Company under the 2019 Share Award Scheme. Details of the movements in the Share Award
+Schemes during the year are set out in Note 35 to the consolidated financial statements.
+During the year, a total of 20,047,558 Shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II and the Post-IPO Option Scheme IV, and pursuant to the Share Award Schemes.
+Annual Report 2021
+53
+Directors' Report
+As at 31 December 2021, there were a total of 105,992 outstanding Awarded Shares granted to the directors of the Company,
+details of which are as follows:
+Number of Awarded Shares
+As at
+1 January
+As at
+Vesting and Lapse
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+Restrictions (continued)
+4.
+Directors' Report
+2007 Share Award Scheme
+2013 Share Award Scheme
+2019 Share Award Scheme
+Maximum entitlement of
+each participant
+1% of the issued shares of the
+Company as at the Adoption
+Date I (i.e. 89,388,080
+Shares (after the effect of the
+Share Subdivision))
+1% of the issued shares of the
+Company as at the Adoption
+Date II (i.e. 92,979,085
+Shares (after the effect of the
+Share Subdivision and the
+Distribution in Specie))
+1% of the issued shares of the
+Company as at the Adoption
+Date III (i.e. 95,523,658
+Shares (after the effect of the
+Distribution in Specie))
+5.
+Operation
+50
+50
+The Board shall select
+the Eligible Person(s) and
+determine the number of
+Shares to be awarded.
+The Board shall, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources into an account or
+to the Trustee to be held on
+trust for the relevant Selected
+Participant for the purchase
+and/or subscription of the
+Awarded Shares as soon as
+practicable after the Reference
+Date.
+00
+The Board may at any time
+at its discretion, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources or any subsidiary's
+resources into an account
+for the purchase and/or
+subscription of the Awarded
+Shares after the Grant Date.
+31 December
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+6.
+Directors' Report
+51
+Annual Report 2021
+No award may be made by
+the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there
+is inside information which
+must be disclosed under Part
+XIVA of the SFO, until such
+inside information has been
+published on the websites of
+the Stock Exchange and the
+Company; (ii) after any inside
+information in relation to the
+securities of the Company has
+occurred or has become the
+subject of a decision, until
+such inside information has
+been published; (iii) within
+the period commencing 60
+days (in the case of yearly
+results), or 30 days (in the
+case of results for half-year,
+quarterly or other interim
+period) immediately preceding
+the earlier of (1) the date of
+a meeting of the Board (as
+such date is first notified to
+the Stock Exchange) for the
+approval of the Company's
+results for any year, half-year,
+quarterly or other interim
+period (whether or
+is inside information which
+must be disclosed under Part
+XIVA of the SFO, until such
+inside information has been
+published on the websites of
+the Stock Exchange and the
+Company; (ii) after any inside
+information in relation to the
+securities of the Company has
+occurred or has become the
+subject of a decision, until
+such inside information has
+been published; (iii) within
+the period commencing 60
+days (in the case of yearly
+results), or 30 days (in the
+case of results for half-year,
+quarterly or other interim
+period) immediately preceding
+the earlier of (1) the date of
+a meeting of the Board (as
+such date is first notified to
+the Stock Exchange) for the
+approval of the Company's
+results for any year, half-year,
+quarterly or other interim
+period (whether or
+No award may be made by
+the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there
+7.
+No award shall be made by
+the Board and no instructions
+to acquire Shares and allot
+new Shares shall be given
+by the Board or the Trustee
+under the 2007 Share Award
+Scheme where any director is
+in possession of unpublished
+price-sensitive information
+in relation to the Group or
+where dealings by directors
+are prohibited under any code
+or requirement of the Listing
+Rules and all applicable laws
+from time to time.
+Directors' Report
+2013 Share Award Scheme
+2007 Share Award Scheme
+Restrictions
+6.
+Tencent Holdings Limited
+The Board may at any time
+at its discretion, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources or any subsidiary's
+resources into an account
+for the purchase and/or
+subscription of the Awarded
+Shares after the Grant Date.
+2019 Share Award Scheme
+Name of director
+Vested
+2021
+Total:
+30 March 2025
+7,000 30 March 2022 to
+20 March 2024
+20 March 2021 to
+4,500
+1,500
+23 August 2023
+23 August 2020 to
+2,992
+10,488
+1,496
+30 March 2021
+6,000
+20 March 2020
+Note:
+4,488
+23 August 2019
+Ke Yang
+33,750
+12,500
+12,500
+7,000
+33,750
+7,000
+14,492
+lain Ferguson Bruce (retired with effect from 20 May 2021)
+Ke Yang
+Yang Siu Shun
+Li Dong Sheng
+Independent Non-Executive Directors
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+Non-Executive Directors
+Lau Chi Ping Martin
+Ma Huateng (Chairman)
+2,996
+Executive Directors
+DIRECTORS AND SENIOR MANAGEMENT
+Directors' Report
+55
+Annual Report 2021
+As a result of the Distribution of Specie, pursuant to the scheme rules of the 2013 Share Award Scheme and the 2019 Share Award Scheme,
+adjustments had been made to the number of Shares subject to share awards which remained unvested as at the Ex-dividend Date. Please
+refer to the announcement of the Company dated 14 March 2022 for details.
+105,992
+40,621
+40,500
+106,113
+Grand Total:
+The directors and senior management of the Company during the year and up to the date of this annual report were:
+Total:
+30 March 2025
+30 March 2022 to
+Yang Siu Shun
+(Note)
+Vesting period
+2021
+the year
+the year
+2021
+Date of grant
+Name of director
+31 December
+24 March 2017
+during
+Vested
+Granted
+during
+Number of Awarded Shares
+1 January
+As at
+Directors' Report
+Tencent Holdings Limited
+54
+00
+19,250
+As at
+2,500
+Date of grant
+2,500
+12,500
+12,500
+30 March 2021
+20 March 2024
+20 March 2021 to
+11,250
+3,750
+15,000
+20 March 2020
+4 April 2023
+4 April 2020 to
+7,500
+3,750
+11,250
+4 April 2019
+9 April 2022
+9 April 2019 to
+2,500
+2,500
+5,000
+9 April 2018
+24 March 2021
+24 March 2018 to
+In accordance with Article 87 of the Articles of Association, Mr Li Dong Sheng and Mr lan Charles Stone will retire at the 2022
+AGM and, being eligible, will offer themselves for re-election.
+The Company has received from each independent non-executive director an annual confirmation of his/her independence
+pursuant to Rule 3.13 of the Listing Rules and the Board considers them independent.
+lan Charles Stone
+56
+20 March 2021 to
+20 March 2024
+30 March 2021
+14,000
+14,000
+30 March 2022 to
+30 March 2025
+Total:
+41,250
+14,000
+12,750
+16,750
+Li Dong Sheng
+24 March 2017
+2,500
+2,500
+-
+24 March 2018 to
+00
+9 April 2018
+3,250
+1,625
+38,500
+4,250
+17,000
+20 March 2020
+the year
+the year
+2021
+Vesting period
+(Note)
+lan Charles Stone
+24 March 2017
+5,000
+5,000
+24 March 2018 to
+24 March 2021
+9 April 2018
+6,500
+3,250
+3,250
+9 April 2019 to
+9 April 2022
+4 April 2019
+12,750
+4,250
+8,500
+4 April 2020 to
+4 April 2023
+1,625
+9 April 2019 to
+24 March 2021
+4 April 2019
+9 April 2022
+Yang Siu Shun, age 66, has been an independent non-executive director since July 2016. Mr Yang is currently serving as a
+Member of the 13th National Committee of the Chinese People's Political Consultative Conference, a Justice of the Peace in
+Hong Kong, a Steward of the Hong Kong Jockey Club, and an independent non-executive director of Industrial and Commercial
+Bank of China Limited which is publicly listed on the Stock Exchange and the Shanghai Stock Exchange. Mr Yang retired from
+PricewaterhouseCoopers ("PwC") on 30 June 2015. Before his retirement, he served as the Chairman and Senior Partner of
+PwC Hong Kong, the Executive Chairman and Senior Partner of PwC China and Hong Kong, one of the five members of the
+Global Network Leadership Team of PwC and the PwC Asia Pacific Chairman. Mr Yang served as a Board Member and the
+Audit Committee Chairman of The Hang Seng University of Hong Kong (formerly known as Hang Seng Management College),
+up to 30 September 2018 and the Deputy Chairman of the Council of Hong Kong Metropolitan University ("HKMU") (formerly
+known as The Open University of Hong Kong), up to 19 June 2019. Mr Yang also served as a Member of the Exchange Fund
+Advisory Committee of the Hong Kong Monetary Authority, up to 31 August 2021. Mr Yang graduated from the London School
+of Economics and Political Science in 1978 and was awarded the degree of Honorary Doctor of Social Sciences by HKMU in
+2019. Mr Yang is a Fellow Member of the Institute of Chartered Accountants in England and Wales, the Hong Kong Institute of
+Certified Public Accountants and the Chartered Institute of Management Accountants.
+Directors' Report
+Tencent Holdings Limited
+58
+00
+lan Charles Stone, age 71, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 32 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong (China), the Mainland of China, South East Asia and the Middle
+East and has more than 51 years of experience in the telecom and mobile industries. Mr Stone is also an independent director
+of Summit Healthcare Acquisition Corp. that is listed on NASDAQ. Mr Stone is a fellow member of The Hong Kong Institute of
+Directors.
+Li Dong Sheng, age 64, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Technology Group Corporation that is listed on the Shenzhen Stock Exchange, and the strategic
+development consultant of TCL Electronics Holdings Limited that is listed on the Stock Exchange, both of which produce
+consumer electronic products. Mr Li graduated from South China University of Technology in 1982 with a Bachelor degree
+in radio technology and has more than 27 years of experience in the information technology field. Mr Li was a non-executive
+director of Fantasia Holdings Group Co., Limited, a leading property developer and property related service provider in China
+that is listed on the Stock Exchange, up to 29 May 2020, and was the Chairman and an executive director of TCL Electronics
+Holdings Limited, up to 9 August 2021.
+Annual Report 2021
+Charles St Leger Searle, age 58, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, and was a director of VK Company Limited (formerly known as Mail.ru Group Limited) that is listed on the London Stock
+Exchange and the Moscow Exchange until his resignation on 4 March 2022. Mr Searle was a director of MakeMyTrip Limited
+that is listed on NASDAQ, up to 30 August 2019. Prior to joining the Naspers Group, he held positions at Cable & Wireless plc
+and at Deloitte & Touche in London and Sydney. Mr Searle is a graduate of the University of Cape Town and a member of the
+Institute of Chartered Accountants in Australia and New Zealand. Mr Searle has more than 28 years of international experience
+in the telecommunications and Internet industries. Mr Searle also serves as a director of certain subsidiaries of the Company.
+57
+Annual Report 2021
+Jacobus Petrus (Koos) Bekker, age 69, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers,
+which is listed on the Johannesburg Stock Exchange and London Stock Exchange. He serves on the boards of other companies
+within the group and associates, as well as other bodies. In April 2015, he became non-executive chair. On 14 August 2019,
+he was appointed as non-executive chair of Prosus N.V., which is listed on Euronext Amsterdam and on the Johannesburg
+Stock Exchange. Academic qualifications include BA Hons and honorary doctorate in commerce (Stellenbosch University),
+LLB (University of the Witwatersrand) and MBA (Columbia University, New York).
+Lau Chi Ping Martin, age 48, is an executive director and President of the Company. Mr Lau joined the Company in 2005 as
+the Chief Strategy and Investment Officer and was responsible for corporate strategies, investments, mergers and acquisitions
+and investor relations. In 2006, Mr Lau was promoted to President of the Company to manage the day-to-day operation of
+the Company. In 2007, he was appointed as an executive director of the Company. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at McKinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. Mr Lau is currently a non-executive director of Kingsoft Corporation Limited, an Internet based
+software developer, distributor and software service provider, and Meituan, a leading eCommerce platform for services in
+China, both of these companies are publicly listed on the Stock Exchange. Mr Lau is also a director of Vipshop Holdings
+Limited, an online discount retailer company, TME, an online music entertainment platform in China, and DiDi Global Inc.,
+a leading mobility technology platform in China, all of these companies are listed on the New York Stock Exchange. Mr Lau was
+a director of Leju Holdings Limited, an online-to-offline real estate services provider in China that is listed on the New York
+Stock Exchange, up to 18 August 2020, and JD.com, an online direct sales company in China that is listed on NASDAQ and
+the Stock Exchange, up to 23 December 2021. Mr Lau also serves as a director/corporate representative of certain subsidiaries
+of the Company.
+Ma Huateng, age 50, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma is a deputy to the 13th National People's Congress. Mr Ma has
+a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen University and
+more than 28 years of experience in the telecommunications and Internet industries. He is a director of Advance Data Services
+Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the Company.
+BIOGRAPHICAL DETAILS AND OTHER INFORMATION OF DIRECTORS
+Directors' Report
+Tencent Holdings Limited
+Directors' Report
+59
+Ke Yang, age 66, has been an independent non-executive director since August 2019. Professor Ke is currently the Director
+of Laboratory of Genetics of Peking University Cancer Hospital and an international member of the United States National
+Academy of Medicine. Professor Ke is also Vice-president of the Peking University Alumni Association, President of the Peking
+University Health Science Center Alumni Association, Vice-president of China Medical Women's Association, President of the
+Health Professional Education Committee of the Chinese Association of Higher Education, Vice-chairperson of the Steering
+Committee of Clinical Medicine of the Committee of Academic Degrees of the State Council, and Vice-president of Cancer
+Foundation of China. Professor Ke's research focus is on the upper gastrointestinal tumors, including the cloning of gastric
+cancer related genes and the functional study of such genes. Together with her team, she has also established the population
+cohort in esophageal cancer high incidence regions in China, studied the etiology of esophageal cancer, and evaluated the
+effects and economic efficacy of early screening of the disease. She has published more than 100 papers and had registered
+patents and been granted awards at national and provincial levels for technological and educational achievements. Professor
+Ke was a member of the 11th and 12th National Committee of the Chinese People's Political Consultative Conference, an
+executive Vice-president of Peking University and of the Peking University Health Science Center (formerly known as Beijing
+Medical College), a member of the Committee of Academic Degrees of the State Council, a member of the Healthcare Reform
+Advisory Committee of the State Council, the Chairperson of the Working Committee for Graduate Medical and Pharmaceutical
+Education of the Office of Academic Degrees of the State Council, and Vice-president of the 24th and 25th Chinese Medical
+Association. Professor Ke graduated from the Peking University Health Science Center in 1982. From 1985 to 1988, Professor
+Ke worked at the National Cancer Institute of the National Institutes of Health of the United States as a postdoctoral fellow.
+Professor Ke is currently an independent non-executive director of Keymed Biosciences Inc. which is publicly listed on the
+Stock Exchange.
+20 March 2020
+4,250
+4 April 2020 to
+4 April 2023
+8,375
+8,500
+2,125
+6,375
+20 March 2021 to
+20 March 2024
+2,125
+7,000
+30 March 2021
+30 March 2022 to
+30 March 2025
+Total:
+20,625
+7,000
+7,000
+6,375
+Directors' Report
+DIRECTORS' SERVICE CONTRACTS
+Each of Mr Ma Huateng and Mr Lau Chi Ping Martin has entered into a service contract with the Company for a term of three
+years from 1 January 2022 to 31 December 2024. The term of their service contracts can be renewed upon expiry and the
+Company may terminate their service contracts by three months' written notice.
+None of the directors who are proposed for re-election at the 2022 AGM has a service contract with the Company which is not
+determinable by the Company within one year without payment of compensation, other than statutory compensation.
+DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS
+Tencent Holdings Limited
+62
+00
+Save as disclosed in this annual report, no transaction, arrangement or contract of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+Lin Ching-Hua, age 49, Senior Vice President, joined the Company in 2013 and has been responsible for the exploration
+and development of the Company's Advertising and Smart Retail businesses. He also oversees strategic development of
+the Company and drives the Group's strategic upgrade and business collaboration. In 2020, Mr Lin was promoted to Senior
+Vice President. Prior to joining the Company, Mr Lin was a partner at McKinsey & Company and the managing partner of
+its Taiwan office. Mr Lin received a Bachelor of Sociology degree from National Taiwan University and a Master of Business
+Administration degree from Harvard University. Mr Lin currently serves as a director or officer of certain subsidiaries of the
+Company.
+David A M Wallerstein, age 47, Chief exploration Officer and Senior Executive Vice President, joined the Company in 2001. He
+drives the Company's active participation in emerging technologies, business areas, and ideas, with a passion for contributing
+to a more resilient planet. Prior to joining the Company, Mr Wallerstein worked for Naspers in China. Mr Wallerstein received a
+Bachelor's degree from University of Washington and a Master's degree from UC Berkeley. Mr Wallerstein currently serves as a
+director of a subsidiary of the Company.
+Ma Xiaoyi, age 48, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company since
+November 2008. Prior to joining the Company, Mr Ma served as the General Manager of the games division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as the General Manager in Shanghai EasyService Technology
+Development Ltd. Mr Ma graduated from Shanghai Jiaotong University in 1997, and received an EMBA degree from Fudan
+University in 2008. Mr Ma currently serves as a director of certain subsidiaries of the Company.
+PERMITTED INDEMNITY PROVISION
+Xi Dan, age 46, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 26 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director or officer of certain subsidiaries of the Company.
+Guo Kaitian, age 49, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of legal affairs, administration, infrastructure, procurement, public strategy, information security
+and corporate social responsibility. Mr Guo received a Bachelor of Law degree from Zhongnan University of Economics and
+Law in 1996. Mr Guo currently serves as a director of a subsidiary of the Company.
+John Shek Hon Lo, age 53, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and was appointed
+as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo worked at PricewaterhouseCoopers. He is a Fellow
+of the CPA Australia, a Fellow of the Hong Kong Institute of Certified Public Accountants, a Fellow of the Chartered Institute of
+Management Accountants and a Member of the Association of Chartered Certified Accountants. Mr Lo received a Bachelor of
+Business degree in Accounting from Curtin University and an EMBA degree from Kellogg Graduate School of Management,
+Northwestern University and The Hong Kong University of Science and Technology. Mr Lo currently serves as a director of a
+subsidiary of the Company.
+Directors' Report
+61
+Annual Report 2021
+Yeung Kwok On, age 60, Senior Management Adviser, joined the Company in 2008. He supports and facilitates organisational
+innovation and leadership development within the Company and its key strategic partners. Mr Yeung also serves as Dean of
+TencentX, a corporate learning platform that has approximately 500 entrepreneur alumni. Prior to joining the Company, Mr
+Yeung, as a professor, had taught at University of Michigan and China Europe International Business School and also served
+as Chief HR Officer of Acer Group from 1998 to 2002. Mr Yeung received a Bachelor's and a Master's degree from The
+University of Hong Kong and a Doctoral degree from University of Michigan.
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+0.0004%
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進口
+GT)(the “Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009, which provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via
+wholly-owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors
+from gaining control over or participating in domestic online game operators through indirect ways such as establishing other
+joint venture companies or entering into contractual or technical arrangements with the Chinese licence holders.
+However, the Circular 13 does not provide any interpretation of the term "foreign investors" or make a distinction between
+foreign online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether
+the State General Administration of Press, Publication, Radio, Film and Television will deem the Group's structure and
+operations to be in violation of these provisions.
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the Company indirectly operates the value-added telecommunication service business,
+online and mobile games, online advertising and other Internet and wireless portals in the PRC through OPCOS that hold the
+necessary licences for the existing lines of businesses.
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+It is uncertain whether any new PRC laws, rules or regulations relating to Structure Contracts will be adopted or if adopted,
+what they would provide. On 15 March 2019, the Standing Committee of National People's Congress promulgated Law of
+Foreign Investment which became effective on 1 January 2020 (the "2019 Law of Foreign Investment"). While the 2019 Law of
+Foreign Investment does not define Structure Contracts as a form of foreign investment explicitly, the Company cannot assure
+that future laws and regulations will not provide for Structure Contracts as a form of foreign investment. Therefore, there can be
+no assurance that the Company's control over OPCOs through Structure Contracts will not be deemed as foreign investment in
+the future. If the Structure Contracts were to be deemed as a method of foreign investment under any future laws, regulations
+and rules, and if any of the Company's business operations were to fall under the "negative list" for foreign investment, the
+Company would need to take further actions in order to comply with these laws, regulations and rules, which may materially
+and adversely affect its current corporate structure, business, financial condition and results of operations.
+Annual Report 2021
+2021
+67
+Particulars of the OPCOS
+Set out below is the registered owners and business activities of the OPCOS which had entered into transactions with the Group
+during the year ended 31 December 2021:
+Registered owners
+Name of the operating companies
+as at 31 December 2021
+Business activities
+Directors' Report
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+Directors' Report
+Tencent Holdings Limited
+Shiji Kaixuan
+Personal
+54.29%
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests
+or short positions in any shares, underlying shares or debentures of the Company and its associated corporations as at
+31 December 2021.
+Annual Report 2021
+65
+Directors' Report
+CONNECTED TRANSACTIONS
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+The reasons for using Structure Contracts
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services
+in China. As foreign-invested enterprises, the WFOEs do not have licences to provide Internet content or information services
+and other telecommunications value-added services. Accordingly, the value-added telecommunications business of the
+Group has been conducted through Tencent Computer, Shiji Kaixuan, Wang Dian, Beijing BIZCOM, Beijing Starsinhand and
+Shenzhen Tencent Tianyou (Wang Dian, Beijing BIZCOM, Beijing Starsinhand and Shenzhen Tencent Tianyou are referred
+herein as the "New OPCOS", and together with Tencent Computer and Shiji Kaixuan, the "OPCOS") by themselves or through
+their subsidiaries under the Structure Contracts (as defined in the section "Our History and Structure - Structure Contracts"
+of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group is able to recognise and receive
+the economic benefit of the business and operations of the OPCOs. The Structure Contracts are also designed to provide the
+Company with effective control over and (to the extent permitted by PRC law) the right to acquire the equity interests in and/or
+assets of the OPCOS.
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed "Our History and Structure"
+and "Structure Contracts" in the IPO prospectus. During the year ended 31 December 2021, there was no material change
+in the Structure Contracts and/or the circumstances under which they were adopted, and none of the Structure Contracts has
+been unwound as none of the restrictions that led to the adoption of Structure Contracts has been removed.
+00
+99
+66
+Tencent Computer
+54.29%
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+Tencent Holdings Limited
+Directors' Report
+The Company's independent non-executive directors had also confirmed that no dividends or other distributions had been
+made by the OPCOS to the holders of their equity interests and the terms of any new Structure Contracts entered into, renewed
+and/or cloned during the relevant financial period are fair and reasonable so far as the Group was concerned and in the
+interests of the Company's shareholders as a whole. To this extent, similar Structure Contracts were entered into relating to the
+New OPCOS.
+The Auditor had carried out procedures on the transactions conducted pursuant to the Structure Contracts and had provided
+a letter to the Board confirming that such transactions had been approved by the Board and had been entered into, in all
+material respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus
+Cash of the OPCOS as at 31 December 2021 to the WFOES and that no dividends or other distributions had been made by the
+OPCOS to the holders of their equity interests.
+Transactions carried out during the year ended 31 December 2021, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+1.
+68
+2.
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and to provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established the
+SKT Co-operation Committee according to this agreement. During the year, no services were transacted under such
+arrangements, save as disclosed elsewhere in this section.
+3.
+Pursuant to the amended and restated IP transfer agreement dated 28 February 2004 entered into between Tencent
+Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its principal present and
+future IP rights, free from encumbrances (except for licences granted in the ordinary course of Tencent Computer's
+business) in consideration of Tencent Technology's undertaking to provide certain technology and information services
+to Tencent Computer. During the year, no IP transfer was transacted under such arrangements, save as disclosed
+elsewhere in this section.
+Annual Report 2021
+Lu Shan, age 47, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company
+in 2000 and had served as the General Manager for the IM Product Division, Vice President for the Platform Research and
+Development System and Senior Vice President for the Operations Platform System. Since March 2008, Mr Lu has been
+in charge of management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge
+of management of the Technology and Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming
+Network Systems Limited. Mr Lu received a Bachelor of Science degree in Computer Science and Technology from University
+of Science and Technology of China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of
+the Company.
+69
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent
+Technology and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and to provide services
+to Tencent Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates
+as consideration. The parties also established the TCS Co-operation Committee according to this agreement. During
+the year, revenue sharing amounting to approximately RMB132,913 million, RMB2,746 million, RMB17,476 million,
+RMB47,796 million, RMB17,883 million, RMB1,738 million, RMB2,857 million, RMB2,635 million, RMB2,931 million,
+RMB239 million, RMB1,058 million, RMB107 million, RMB1,042 million and RMB402 million were paid or payable
+by Tencent Computer to Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu, Tencent Shanghai,
+Tencent Wuhan, Chongqing Tencent Information, Shenzhen Tencent Information, Hainan Network, Guangzhou Tencent
+Technology, Shenzhen Tencent Network, Guian New Area Tencent Cyber, Cyber Shenzhen and Wuhan Tencent
+Information respectively.
+00
+The Company's independent non-executive directors had reviewed the Structure Contracts and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure Contracts
+and, had been operated so as to transfer by the date of this annual report the Surplus Cash (as defined in the section "Our
+History and Structure - Structure Contracts" of the IPO prospectus of the Company) of each of the OPCOS as at 31 December
+2021 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology (Shenzhen) Company Limited in
+the IPO prospectus of the Company), Tencent Beijing, Shenzhen Tencent Information, Tencent Chengdu, Chongqing Tencent
+Information, Shanghai Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network, Guangzhou Tencent
+Technology, Shenzhen Tencent Network, Guian New Area Tencent Cyber, Cyber Shenzhen and Wuhan Tencent Information.
+Review of the transactions carried out under the Structure Contracts during the financial year
+Wang Dian
+Beijing BIZCOM
+Beijing Starsinhand
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+Tencent Computer
+Provision of Internet advertisement services
+in the PRC
+Provision of value-added services in the PRC
+Provision of value-added services in the PRC
+Shiji Kaixuan
+Provision of value-added services in the PRC
+Tencent Enterprise Management
+Provision of value-added services in the PRC
+Shenzhen Tencent Tianyou*
+Ultimate registered owners being Mr Ma Huateng and Mr Xu Chenye, both being founders, and a management team member, each
+ultimately interested in 60%, 35% and 5% respectively of Tencent Enterprise Management.
+The above OPCOs are significant to the Group as they hold relevant licences to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB264 billion for the year ended 31 December 2021 and
+approximately RMB46 billion as at 31 December 2021 respectively.
+Provision of value-added services and
+Internet advertisement services in the PRC
+(registered capital)
+RMB35,285,705
+Personal
+(Note 2)
+Li Dong Sheng
+Personal*
+36,375
+0.0004%
+(Note 3)
+0.58%
+lan Charles Stone
+76,000
+0.003%
+240,000
+316,000
+(Note 4)
+Yang Siu Shun
+Personal*
+Family*
+56,064,651
+8.38%
+804,859,700
+Annual Report 2021
+63
+Directors' Report
+DIRECTORS' INTERESTS IN SECURITIES
+As at 31 December 2021, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+(A) Long position in the shares and underlying shares of the Company
+Name of director
+Nature of interest
+Ma Huateng
+Corporate (Note 1)
+Lau Chi Ping Martin
+Personal*
+Number of shares/
+underlying shares held
+Approximate %
+of shareholding
+(Note 7)
+Personal*
+38,974
+(Note 5)
+Ke Yang
+6.
+The interest comprises 4,492 Shares and 14,492 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme. Details of the Awarded Shares granted to this director are set
+out above under "Share Award Schemes".
+7.
+As at 31 December 2021, the total number of issued shares of the Company was 9,608,378,469.
+*
+Interests of beneficial owner
+Interests of spouse or child under 18 as beneficial owner
+(B) Long position in the shares of associated corporations of the Company
+Name of director
+Ma Huateng
+Name of associated
+corporation
+Nature of interest
+Number of shares and
+class of shares held
+Approximate %
+of shareholding
+Tencent Computer
+The interest comprises 5,224 Shares and 33,750 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme. Details of the Awarded Shares granted to this director are set
+out above under "Share Award Schemes".
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+5.
+4.
+Personal*
+18,984
+0.0002%
+(Note 6)
+00
+64
+Tencent Holdings Limited
+Note:
+Directors' Report
+1.
+Advance Data Services Limited, a British Virgin Islands company wholly-owned by Mr Ma Huateng, holds 709,859,700 Shares
+directly and 95,000,000 Shares indirectly through its wholly-owned subsidiary, Ma Huateng Global Foundation.
+2.
+3.
+The interest comprises 32,567,826 Shares and 23,496,825 underlying Shares in respect of the share options granted pursuant
+to the Post-IPO Option Scheme II and the Post-IPO Option Scheme IV. Details of the share options granted to this director are set
+out above under "Share Option Schemes".
+The interest comprises 17,125 Shares and 19,250 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme. Details of the Awarded Shares granted to this director are set
+out above under "Share Award Schemes".
+The interest comprises 277,500 Shares and 38,500 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme. Details of the Awarded Shares granted to this director are set
+out above under "Share Award Schemes".
+Tong Tao Sang, age 48, Senior Executive Vice President, President of Cloud and Smart Industries Group, is leading the
+Industrial Internet strategy and the enterprise businesses for Tencent. Mr Tong manages the security labs, the multi-media
+lab, and Youtu Al lab, and he is one of the co-chairs of Tencent's technology council. Mr Tong joined the Company as a
+technical architect in 2005, and had previously led QQ, Qzone, QQshow, and their advertising and value-added services. Mr
+Tong received a Bachelor of Science degree in Computer Engineering from University of Michigan, Ann Arbor and a Master of
+Science degree in Electrical Engineering from Stanford University. Mr Tong currently serves as a director of certain subsidiaries
+of the Company.
+RMB5,971,427
+(registered capital)
+Tencent Holdings Limited
+Directors' Report
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Xu Chenye, age 50, Chief Information Officer, oversees the strategic planning and development for the website properties and
+communities, and customer relations of the Company. Mr Xu is one of the core founders and has been employed by the Group
+since 1999. Prior to that, Mr Xu had experiences in software system design, network administration as well as marketing and
+sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu received a Bachelor of
+Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree in Computer Science
+from Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of the Company.
+Ren Yuxin, age 46, Chief Operating Officer and President of Platform & Content Group and Interactive Entertainment Group,
+joined the Company in 2000 and had served as the General Manager for the Value-Added Services Development Division and
+General Manager for the Interactive Entertainment Business Division. Since September 2005, Mr Ren has been responsible for
+the research and development, operations, marketing and sales of gaming products for the Interactive Entertainment Business.
+Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of the overall operation of the
+Platform & Content Group and the Interactive Entertainment Group. Prior to joining the Company, Mr Ren worked at Huawei
+Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from University of
+Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International Business School
+(CEIBS) in 2008.
+Directors' Report
+James Gordon Mitchell, age 48, Chief Strategy Officer and Senior Executive Vice President, joined the Company in 2011. He is
+responsible for various functions, including the Company's strategic planning and implementation, investor relations, mergers
+and acquisitions and investment activities. Prior to joining the Company, Mr Mitchell had worked in investment banking for 16
+years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading the bank's Communications,
+Media and Entertainment research team, which analysed Internet, entertainment and media companies globally. Mr Mitchell
+received a degree from Oxford University and holds a Chartered Financial Analyst Certification. Mr Mitchell currently serves as
+a director of certain subsidiaries of the Company.
+00
+60
+Zhang Xiaolong, age 52, Senior Executive Vice President and President of Weixin Group, joined the Company in March
+2005 and had served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail
+service provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has
+been appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail.
+He is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted
+to Senior Executive Vice President in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received a Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+CORPORATE GOVERNANCE PRACTICES
+Hong Kong, 23 March 2022
+00
+76
+Tencent Holdings Limited
+Corporate Governance Report
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board
+believes that throughout the year ended 31 December 2021, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions A.2.1 (now rearranged as C.2.1) regarding the segregation
+of the roles of the chairman and chief executive and A.4.2 (now rearranged as B.2.2) regarding the retirement and re-election
+of directors. The reasons for the deviations are further explained in the sub-sections headed “Chairman and Chief Executive
+Officer" and "Appointments, Re-election and Removal" below.
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategy and monitors management's
+execution of such strategy.
+BOARD OF DIRECTORS
+Responsibilities
+Ma Huateng
+Chairman
+The Board has defined the business and governance issues for which it needs to be responsible, and these matters are
+reviewed periodically to ensure that the Company maintains effective and up-to-date corporate governance practices. In this
+regard, the Board:
+•
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans;
+approves the annual business plan and budget proposed by management;
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes
+when appropriate.
+On behalf of the Board
+For the purpose of determining the shareholders' entitlement to attend and vote at the 2022 AGM, the register of
+members of the Company will be closed from Friday, 13 May 2022 to Wednesday, 18 May 2022, both days inclusive,
+during which period no transfer of Shares will be registered. In order to be entitled to attend and vote at the 2022 AGM,
+all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company's
+branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell
+Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Thursday, 12 May
+2022.
+AUDITOR
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+PRE-EMPTIVE RIGHTS
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of the Cayman Islands, which would
+oblige the Company to offer new shares on a pro rata basis to existing shareholders of the Company.
+EMPLOYEE AND REMUNERATION POLICIES
+As at 31 December 2021, the Group had 112,771 employees (2020: 85,858). The number of employees employed by the
+Group varies from time to time depending on needs and employees are remunerated based on industry practice.
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-
+house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according
+to the assessment of individual performance.
+The total remuneration cost incurred by the Group for the year ended 31 December 2021 was RMB95,523 million (2020:
+RMB69,638 million).
+SUFFICIENCY OF PUBLIC FLOAT
+As at the date of this annual report, based on information that is publicly available to the Company and within the knowledge
+of its directors, the directors confirm that the Company has maintained during the year the amount of public float as required
+under the Listing Rules.
+Annual Report 2021
+75
+Directors' Report
+CLOSURE OF REGISTER OF MEMBERS
+(A) Entitlement to Attend and Vote at the 2022 AGM
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual business plan and budget;
+(B) Entitlement to the Proposed Final Dividend
+For the purpose of determining the shareholders' entitlement to the proposed final dividend, the register of members of
+the Company will be closed from Tuesday, 24 May 2022 to Wednesday, 25 May 2022, both days inclusive, during which
+period no transfer of Shares will be registered. In order to qualify for the proposed final dividend, all duly completed
+transfer forms accompanied by the relevant share certificates must be lodged with the Company's branch share registrar,
+Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's
+Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Monday, 23 May 2022.
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2022 AGM.
+Annual Report 2021
+approves the Company's financial statements and interim and annual reports;
+Corporate Governance Report
+exercises oversight of the Company's financial reporting system;
+reviews the work done by the Company's management with respect to risk management and internal control systems;
+oversees the risks undertaken by the Company including determining the level of risk the Company expects to and is
+able to take; and
+oversees the Group's anti-money laundering and sanctions compliance system.
+Corporate Governance Committee
+reviews the Company's corporate governance and makes recommendations to the Board;
+reviews and monitors the Company's policies and practices on its compliance with legal and regulatory requirements;
+reviews the Company's financial information;
+develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors;
+reviews and monitors the evaluation and management of issues related to the Company's Environmental, Social and
+Governance ("ESG") matters;
+reviews and monitors the progress made against ESG-related goals and targets;
+reviews the Company's compliance with the CG Code and disclosure in the Corporate Governance Report and the ESG
+Report;
+reviews the Company's ESG strategy and makes recommendations to the Board; and
+reviews and monitors the training and continuous professional development of the directors and senior management
+team.
+Annual Report 2021
+79
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders;
+handles the relationship with the Company's external auditor;
+•
+Audit Committee
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned;
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+determines the Group's communication policy;
+determines directors' selection, orientation and evaluation;
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders;
+establishes Board committees with clear terms of reference and responsibilities as appropriate;
+defines levels of delegation in respect of specific matters, with required authority to Board committees and management;
+monitors non-financial aspects pertaining to the businesses of the Group;
+considers and, if appropriate, declares the payment of dividends to shareholders; and
+regularly evaluates its own performance and effectiveness.
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once
+every two weeks or as frequently as necessary to formulate policies and make recommendations to the Board. The senior
+management team administers, enforces, interprets and supervises compliance with the internal rules and operational
+procedures of the Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate
+amendments to such rules and procedures. The senior management team reports to the Board on a regular basis and
+communicates with the Board whenever required.
+To better serve the long-term interests of our stakeholders, the Board delegates certain matters requiring particular time,
+attention and expertise to its committees. The Board has determined that these matters are better dealt with by the committees
+as they require independent oversight and specialist input. As such, the Board has established five committees to assist the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. Each of the committees has its terms of reference which clearly specifies its powers and authorities. All committees
+report back to the Board and make recommendations to the Board if necessary.
+00
+78
+Tencent Holdings Limited
+Corporate Governance Report
+The Company's governance structure of these committees can be summarised as follows:
+77
+Directors' Report
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors with a
+thorough understanding of the Group's management and how such management oversees and manages different businesses
+of the Group. Our belief is that investors will realise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will lead to public trust and will ultimately create shareholder value
+for the Group.
+74
+11.
+Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and one of the
+WFOES, the parties shall cooperate in the provision of communications services. For each agreement, the WFOES shall
+allow the New OPCOs to use its and its affiliates' assets and provide services to the New OPCOs. The New OPCOS shall
+transfer all of its Surplus Cash to the WFOES and its affiliates as consideration. Co-operation committees have also been
+established according to these agreements. During the year, (i) revenue sharing amounting to approximately RMBO.569
+million, RMBO.969 million and RMB24 million was paid or payable by Wang Dian to Tencent Technology, Cyber Tianjin
+and Tencent Beijing respectively; (ii) revenue sharing amounting to approximately RMBO.559 million and RMB5 million
+was paid or payable by Beijing BIZCOM to Tencent Technology and Cyber Tianjin respectively; (iii) revenue sharing
+amounting to approximately RMB0.463 million and RMBO.177 million was paid or payable by Beijing Starsinhand to
+Cyber Tianjin and Tencent Beijing respectively; (iv) revenue sharing amounting to approximately RMB83 million, RMB1
+million and RMB7 million was paid or payable by Shenzhen Tencent Tianyou to Tencent Technology, Tencent Shanghai,
+and Hainan Network respectively.
+Annual Report 2021
+71
+Directors' Report
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOs, decide to implement enforceable remedy
+(including mandatorily requiring OPCOs to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Co-operation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WFOES and OPCOS, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WFOEs and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as "High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+For details of the risks associated with the Structure Contracts, please refer to the section headed “Risk factors - Risks relating
+to our structure" in the IPO prospectus.
+Other connected transactions
+The Group entered into certain transactions with “related parties" as defined under applicable accounting standards during
+the financial year ended 31 December 2021 which were disclosed in Note 13(a) (Senior management's emoluments), Note
+13(b) (Five highest paid individuals), Note 14 (Benefits and interests of directors), Note 26 (Loans to investees and investees'
+shareholders), Note 35 (Share-based payments) and Note 45 (Related party transactions) to the consolidated financial
+statements. Save as the related parties transactions involving payment of remuneration to certain directors of the Group which
+constitute continuing connected transactions fully exempt from the connected transaction requirements under Rule 14A.76(1)
+or Rule 14A.95 of the Listing Rules, no related parties transactions disclosed in the consolidated financial statements
+constitutes a connected transaction as defined under Chapter 14A of the Listing Rules.
+72
+Tencent Holdings Limited
+Directors' Report
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in the
+PRC, a number of agreements have been entered into between members of the Group whereby the Company and the WFOES
+derive substantially all their revenues from transactions with the OPCOs. The recognition of revenues outlined in these intra-
+group contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and adverse
+impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the tax
+treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimise the risks of adjustment
+in tax treatment.
+As at 31 December 2021, the following persons, other than the directors or chief executive of the Company, had interests or
+short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
+provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under
+section 336 of the SFO, or who was, directly or indirectly, interested in 5% or more of the shares of the Company:
+10.
+9.
+Directors' Report
+4.
+Pursuant to the IP transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and Shiji Kaixuan,
+Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future IP rights, free from encumbrance (except
+for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of Cyber Tianjin's undertaking
+to provide certain technology and information services to Shiji Kaixuan. During the year, no IP transfer was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+5.
+Tencent Holdings Limited
+6.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no domain name licence
+was transacted under such arrangements, save as disclosed elsewhere in this section.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+7.
+8.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+00
+70
+70
+Tencent Holdings Limited
+Directors' Report
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Long/ short position in the shares of the Company
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no domain name
+licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+Long/ short position
+3.
+As at 31 December 2021, the total number of issued shares of the Company was 9,608,378,469.
+Save as disclosed above, the Company had not been notified of any other persons (other than the directors or chief executive
+of the Company) who, as at 31 December 2021, had interests or short positions in the shares and underlying shares of the
+Company as recorded in the register required to be kept under section 336 of the SFO.
+Annual Report 2021
+73
+Directors' Report
+MANAGEMENT CONTRACTS
+Advance Data Services Limited holds 709,859,700 Shares directly and 95,000,000 Shares indirectly through its wholly-owned
+subsidiary, Ma Huateng Global Foundation. As Advance Data Services Limited is wholly-owned by Mr Ma Huateng, Mr Ma has an
+interest in these shares as disclosed under the section of "Directors' Interests in Securities".
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company were entered into or existed during the year.
+For the year ended 31 December 2021, the five largest customers of the Group accounted for approximately 7.15% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 3.05% of the Group's
+total revenues. In addition, for the year ended 31 December 2021, the five largest suppliers of the Group accounted for
+approximately 17.19% of the Group's total purchases while the largest supplier of the Group accounted for approximately 5.67%
+of the Group's total purchases.
+None of the directors, their close associates or any shareholder (which to the knowledge of the directors owns more than 5% of
+the number of issued shares of the Company) had an interest in any of the major customers or suppliers noted above.
+AUDIT COMMITTEE
+The Audit Committee, together with the Auditor, has reviewed the Group's audited consolidated financial statements for the
+year ended 31 December 2021. The Audit Committee has also reviewed the accounting principles and practices adopted by
+the Group and discussed auditing, risk management, internal control and financial reporting matters.
+The Group is committed to minimising the impact on the environment from our business activities and the details of such
+efforts are set out in the section headed "Environment" in the "Environmental, Social and Governance Report" in this annual
+report. As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+00
+Name of shareholder
+MAJOR CUSTOMERS AND SUPPLIERS
+2.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+1.
+MIH TC is controlled by Naspers Limited and held through its non wholly-owned subsidiary, Prosus N.V., which in turn holds MIH TC
+through MIH Internet Holdings B.V. MIH TC and MIH Internet Holdings B.V. are both wholly-owned subsidiaries of Prosus N.V. As such,
+Naspers Limited, Prosus N.V., MIH Internet Holdings B.V. and MIH TC are deemed to be interested in the same block of 2,769,333,600
+Shares under Part XV of the SFO.
+Number of
+shares/ underlying
+shares held
+of shareholding
+(Note 3)
+MIH TC
+Long position
+Advance Data Services
+Limited
+Approximate %
+Corporate (Note 1)
+Corporate (Note 2)
+Note:
+Long position
+8.38%
+Nature of
+interest/ capacity
+28.82%
+2,769,333,600
+804,859,700
+reviewing the 2020 annual report, including the Corporate Governance Report, the ESG Report, the Directors' Report
+and the financial statements, as well as the related results announcement;
+At the Board meetings, the Board discussed a wide range of matters, including the Group's overall strategies, financial and
+operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary, in
+consultation with the Chairman and the senior management team, prepares the agenda for each meeting and all directors are
+given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all applicable
+rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the Board meeting
+to each of the directors at least 14 days in advance of each regular Board meeting. The company secretary also sends the
+agenda, board papers and relevant information relating to the Group to each of the directors at least 3 days in advance of each
+regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial performance and
+latest developments. If any director raises any queries, steps will be taken to respond to such queries as promptly and fully
+as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director, such director
+will declare his/her interest and will abstain from voting on such matters. The directors may approach the Company's senior
+management team when necessary. The directors may also seek independent professional advice at the Company's expense
+in appropriate circumstances.
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final version of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+THE COMMITTEES
+As described above, the Board has established five committees, each of which has been delegated responsibilities and reports
+back to the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and
+Remuneration Committee. The roles and functions of these committees are set out in their respective terms of reference. The
+terms of reference of each of these committees will be revised from time to time to ensure that they continue to meet the needs
+of the Company and to ensure compliance with the CG Code. The terms of reference of the Audit Committee, the Nomination
+Committee and the Remuneration Committee are available on the Company Website and the Stock Exchange's website.
+00
+Tencent Holdings Limited
+Corporate Governance Report
+reviewing the 2021 interim report and interim results announcement;
+The Audit Committee comprises only non-executive directors. Its members are Mr Yang Siu Shun, Mr lan Charles Stone (both
+are independent non-executive directors) and Mr Charles St Leger Searle (non-executive director). Mr Yang Siu Shun, who
+chairs the Audit Committee, and Mr Charles St Leger Searle have appropriate professional qualifications and experiences in
+financial matters.
+The Audit Committee meets not less than four times a year; the Audit Committee met eight times in 2021. Individual
+attendance of each Audit Committee member is set out on page 85. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Head of IA and the Head of IC, and the external auditor at the
+invitation of the Audit Committee.
+The Audit Committee's major work during the year 2021 includes the following:
+Corporate Governance Report
+86
+Audit Committee
+1
+Annual Report 2021
+0/0
+reviewing the 2021 first and third quarters results announcements;
+1/1
+1/1
+Ke Yang¹
+5/5
+85
+2/2
+0/1
+Mr Li Dong Sheng and Professor Ke Yang were not able to attend the 2021 AGM and the extraordinary general meeting of the Company
+held on 20 May 2021 (the "2021 EGM") due to other prior business commitments.
+2
+Mr lain Ferguson Bruce retired as an independent non-executive director and ceased to be a member of the Audit Committee,
+Corporate Governance Committee and Nomination Committee with effect from the conclusion of the 2021 AGM.
+3
+Mr Yang Siu Shun has been appointed as a member of the Nomination Committee with effect from the conclusion of the 2021 AGM.
+0/1
+reviewing the status of compliance with the CG Code, the Listing Rules and relevant laws by the Group;
+considering the Company's environmental targets;
+•
+00
+88
+Tencent Holdings Limited
+Corporate Governance Report
+Investment Committee
+The Investment Committee comprises a majority of executive directors. Its members are Mr Lau Chi Ping Martin,
+Mr Ma Huateng and Mr Charles St Leger Searle. The Investment Committee is chaired by Mr Lau Chi Ping Martin.
+updating the terms of reference to specify the additional oversight role of the Corporate Governance Committee on the
+Company's ESG matters and making recommendations to the Board.
+In 2021, the Investment Committee had considered and passed various resolutions on its decisions on the Group's acquisitions
+and disposals.
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr lan Charles Stone, Mr Yang Siu Shun (appointed as a member of the Nomination Committee with effect
+from the conclusion of the 2021 AGM) (all three are independent non-executive directors) and Mr Charles St Leger Searle
+(non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+The Nomination Committee met once in 2021. Individual attendance of each Nomination Committee member is set out on
+page 85.
+1/1
+Annual Report 2021
+89
+During 2021, the Nomination Committee reviewed board composition and director succession, the board diversity policy
+and the board nomination policy, and also considered and made recommendations to the Board on the re-appointment of
+the retiring directors at the 2021 AGM. The board diversity policy was revised and adopted in March 2022. The Nomination
+Committee has also assessed the independence of the independent non-executive directors and considers all of them to be
+independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing Rules in the context of the
+length of service of each independent non-executive director, and the perspectives, skills and experience that such director
+can bring to the Board. The Company recognises the benefits of having a diverse Board, and views diversity at Board level as a
+business imperative that will help the Company achieve its strategic objectives and maintain a competitive advantage. As such,
+the Board has set measurable objectives for the implementation of the board diversity policy to ensure that the Board has the
+appropriate balance of skills, experience and diversity of perspectives that are required to support the execution of its business
+strategy and maintain the effectiveness of the Board. The Nomination Committee is satisfied that the board diversity policy
+and the board nomination policy are successfully implemented with reference to the measurable objectives. The Nomination
+Committee will continue to conduct periodic review and monitor the implementation of the board diversity policy and the board
+nomination policy to ensure their continued effectiveness.
+Nomination Committee
+reviewing the dividend policy of the Company;
+discussing the arrangements made for directors and senior management team to attend training sessions for continuous
+professional development; and
+reviewing the Company's compliance with the CG Code and disclosure in the Corporate Governance Report;
+in relation to the external auditor, reviewing their plans, reports and management letter, fees, involvement in non-audit
+services, and their terms of engagement;
+reviewing the plans (including those for 2021), resources and work of the Company's internal auditors;
+reviewing the adequacy of resources, qualifications and training of the Group's finance department; and
+reviewing the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group.
+PricewaterhouseCoopers ("PwC") is the Company's external auditor. The Audit Committee annually reviews the relationship of
+the Company with PwC. Having also reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied with this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2022 AGM.
+Annual Report 2021
+reviewing the Company's compliance with the ESG Reporting Guide and disclosure in the ESG Report;
+87
+Corporate Governance Committee
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr lan Charles Stone, Mr Yang Siu Shun and Professor Ke Yang (all of them are independent
+non-executive directors). The Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+The Corporate Governance Committee met twice in 2021. Individual attendance of each Corporate Governance Committee
+member is set out on page 85.
+The Corporate Governance Committee's major work during the year 2021 and up to the date of this annual report includes the
+following:
+reviewing the Company's policies and practices on corporate governance and ESG;
+reviewing legal and regulatory compliance, including the insider dealing policy, the disclosure of inside information policy
+and the shareholders communication policy. The insider dealing policy and the shareholders communication policy were
+revised and adopted in March 2022;
+Corporate Governance Report
+1/1
+training has been and will continue to be provided to the directors on a timely basis, including briefing the directors on
+any updates to the Listing Rules and relevant laws;
+1/1
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and
+compliance with the CG Code.
+A high level of corporate governance and integrity cannot be maintained only with the Board's efforts. Each of the Group's
+employees plays a role in contributing to such cause. A code of conduct which emphasises integrity and respect is distributed
+by the Company to all employees and it forms part of the employment agreement with each of the employees.
+Corporate Governance Report
+81
+Annual Report 2021
+Mr lain Ferguson Bruce retired as an independent non-executive director and ceased to be a member of the Audit Committee,
+Corporate Governance Committee and Nomination Committee with effect from the conclusion of the annual general meeting of the
+Company held on 20 May 2021 (the "2021 AGM").
+2
+Attended training/seminar/ conference arranged by the Company or other external parties or read relevant materials.
+1
+V
+V
+V
+V
+√
+•
+V
+•
+4/4
+The Board values the importance of professional judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in a professional, constructive and informed manner, and actively participate in Board and committee
+meetings and bring professional judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also take the lead where potential
+conflicts of interests arise and exercise their professional judgment and utilise their expertise to scrutinise the Company's
+performance in achieving agreed corporate goals, and monitor performance reporting.
+In order to take advantage of the skills, experiences and diversity of perspectives of the directors and in order to ensure that the
+directors give sufficient time and attention to the Group's affairs, we request each of the directors to disclose to the Company,
+on a quarterly basis, the number and the nature of offices held in public companies or organisations and other significant
+commitments. The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that
+the number of independent non-executive directors must represent at least one-third of the Board. The Board believes that
+the balance between the executive directors and the non-executive directors is reasonable and adequate to provide sufficient
+checks and balances that safeguard the interests of the shareholders and the Group.
+A list of directors and their respective biographies which include their positions held at the Company and certain subsidiaries
+are set out on pages 56 to 59 of this annual report. There is no relationship (including financial, business, family or other
+material/relevant relationship(s)) among members of the Board.
+As at the date of this annual report, the Board is comprised of eight directors, with two executive directors, two non-executive
+directors and four independent non-executive directors. During the year ended 31 December 2021 and up to the date of
+this annual report, there is no change to the composition of the Board except that Mr lain Ferguson Bruce has retired as an
+independent non-executive director with effect from the conclusion of the 2021 AGM.
+Composition
+The Board is therefore of the view that there is an adequate balance of power and that appropriate safeguards are in place.
+Nevertheless, the Board will continue to regularly monitor and review the Company's current structure and make necessary
+changes when appropriate.
+Corporate Governance Report
+Tencent Holdings Limited
+82
+00
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as
+well as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to
+time to make presentations and answer the Board's enquiries. In addition, directors are encouraged to participate actively in
+all Board and committee meetings of which they are members, and the Chairman ensures that all issues raised are properly
+briefed at the Board meetings, and he works with the senior management team to provide adequate, accurate, clear, complete
+and reliable information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is
+available for discussion for all items at the Board meetings. During the year ended 31 December 2021, the Chairman held a
+meeting with the independent non-executive directors without the presence of other directors as required by the Listing Rules.
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be technically sophisticated and sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the roles of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision A.2.1
+(now rearranged as C.2.1) of the CG Code, which provides that the roles of chairman and chief executive should be separate
+and should not be performed by the same individual, and that the division of responsibilities between the chairman and chief
+executive should be clearly established and set out in writing.
+Chairman and Chief Executive Officer
+informal updates from time to time and structured monthly updates on the Company's performance, position and
+prospects are provided to the directors.
+review of the shareholders communication policy has been and will be conducted on a regular basis;
+Further, in compliance with Rule 3.10 of the Listing Rules, one of our independent non-executive directors has the appropriate
+professional qualifications of accounting or related financial management expertise, and provide valuable advice from time
+to time to the Board. The Company has also received from each independent non-executive director a confirmation annually
+of their independence and the Nomination Committee has conducted an annual review and considers that all independent
+non-executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing
+Rules in the context of the length of service of each independent non-executive director.
+V
+Participated in
+continuous
+professional
+The major work of these committees during the year 2021 is set out on pages 87 to 94.
+ensures that no director or any of his associates is involved in deciding his own remuneration.
+ensures that these remuneration proposals are aligned to corporate goals and objectives; and
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team;
+Remuneration Committee
+reviews and monitors the implementation of the board diversity policy and the board nomination policy of the Company.
+assesses the independence of independent non-executive directors and the perspectives, skills and experience that such
+director can bring to the Board; and
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders;
+identifies suitable and qualified individuals and makes recommendations to the Board as to new Board members, by
+taking into account the individual's experience, knowledge, skills, gender and background, as well as the Listing Rules
+requirements;
+reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy;
+Nomination Committee
+ensures compliance with the Listing Rules and any other relevant laws and regulations on any mergers, acquisitions and
+disposals.
+identifies, considers and makes recommendations on mergers, acquisitions and disposals; and
+Investment Committee
+Corporate Governance Report
+All directors have full and timely access to all relevant information as well as the advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring that Board procedures and all applicable rules and regulations
+are followed. All directors may also obtain independent professional advice at the Company's expense for carrying out their
+functions.
+development¹
+00
+60
+Ke Yang
+Yang Siu Shun
+lan Charles Stone
+lain Ferguson Bruce²
+Li Dong Sheng
+Independent non-executive directors
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+Lau Chi Ping Martin
+Ma Huateng
+Executive directors
+Name of director
+We believe education and training are important for maintaining an effective Board. New directors undergo an orientation
+programme designed to provide a thorough understanding of the Group's operations and businesses, and also receive a
+handbook outlining their responsibilities under the Listing Rules and applicable laws. Existing directors are provided with
+tailored training programmes covering topics such as best practices in corporate governance, legal and regulatory trends
+and, given the nature of our business, emerging technologies and products. Directors also regularly meet with the senior
+management team to understand the Group's businesses, governance policies and regulatory environment. During the year
+ended 31 December 2021, the Company arranged training on topics relating to corporate governance, legal and regulatory
+updates and product trends which are relevant to the Group's businesses. The table below summarises the participation of
+each of the directors in continuous professional development during the year ended 31 December 2021:
+Corporate Governance Report
+Tencent Holdings Limited
+80
+Annual Report 2021
+Non-executive directors
+Corporate Governance Report
+1/1
+==
+1/1
+1/1
+1/1
+==
+1/1
+2/2
+8/8
+Li Dong Sheng¹
+5/5
+4/4
+5/5
+Jacobus Petrus (Koos) Bekker
+Non-executive directors
+1/1
+1/1
+1/1
+1/1
+1/1
+Charles St Leger Searle
+5/5
+lain Ferguson Bruce²
+2/2
+83
+H
+1/1
+1/1
+1/1
+0/1
+0/1
+4/4
+1/1
+ཌཌ-S
+2/2
+8/8
+2/2
+8/8
+1/1
+4/4
+€ 80 000
+5/5
+Yang Siu Shun³
+5/5
+lan Charles Stone
+5/5
+5/5
+Independent non-executive directors
+Ma Huateng
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Lau Chi Ping Martin
+The Board is the core of the Group's success, and with the appropriate composition of the Board, we can benefit from the right
+set of skills, experience and diversity of perspectives to take the Company forward. Therefore, it is essential for the Company to
+maintain a formal, considered and transparent procedure for the appointment of new directors to the Board. It is our corporate
+governance practice and in accordance with the Articles of Association that all directors (except for the Chairman) should be
+subject to re-election at regular intervals and the resignation and removal of any director should be explained with reasons.
+At the 2021 AGM, Mr lain Ferguson Bruce retired with effect from the conclusion of the 2021 AGM and Mr Yang Siu Shun
+retired and was re-elected.
+Code provision A.4.2 (now rearranged as B.2.2) of the CG Code provides that every director, including those appointed for a
+specific term, should be subject to retirement by rotation at least once every three years.
+The Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by rotation
+nor taken into account in determining the number of directors to retire in each year. Therefore, this is a deviation from code
+provision A.4.2 (now rearranged as B.2.2) of the CG Code. The Chairman is one of the founders of the Group and he plays
+a key role in the growth and development of the Group and his continuing presence in the Board is vital to the sustainable
+development of the Group. Given the importance of the Chairman's role in the development of the Group, the Board considers
+that the deviation from code provision A.4.2 (now rearranged as B.2.2) of the CG Code has no material impact on the operation
+of the Group as a whole.
+As the re-election of Mr Li Dong Sheng, who was re-elected in 2018, was not considered at the 2021 AGM, there is a deviation
+from code provision A.4.2 (now rearranged as B.2.2) of the CG Code. Notwithstanding Mr Li Dong Sheng was not subject to
+retirement by rotation at the 2021 AGM, his biography and details of his emoluments are set out in the Directors' Report and
+Note 14 to the consolidated financial statements respectively for shareholders' information. The Nomination Committee has
+assessed and confirmed the independence of Mr Li Dong Sheng in 2021. Considering that the re-election of Mr Li Dong Sheng
+will be considered at the 2022 AGM, the Board believes that such deviation does not have a material impact on the operation
+of the Company as a whole.
+00
+the company secretary who is an employee of the Company attends training in compliance with the Listing Rules
+requirements; and
+84
+Tencent Holdings Limited
+Corporate Governance Report
+Board Activity
+The Board met five times in 2021. The attendance of each director at Board meetings, committee meetings, the annual
+general meeting and the extraordinary general meeting, whether in person or by means of electronic communication, is
+detailed in the table below:
+Corporate
+Audit
+Appointments, Re-election and Removal
+Executive directors
+Name of director
+Board
+Committee
+Annual Extraordinary
+Governance Nomination Remuneration General
+Committee Committee Committee Meeting
+General
+Meeting
+200,323
+60,699
+143,241*
+102,130
+116,670
+equity holders of the Company
+Total comprehensive income attributable to
+107,182
+59,564
+Non-IFRS operating profit (Restated for prior years)
+108,052*
+277,834
+200,390
+110,827*
+191,886
+Non-current assets
+Assets
+2023
+RMB'Million
+2022
+RMB'Million
+2021
+RMB'Million
+RMB'Million
+2020
+2019
+RMB'Million
+As at 31 December
+CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
+157,688
+115,649
+123,788
+122,742
+94,351
+equity holders of the Company
+Non-IFRS profit attributable to
+143,203*
+152,729*
+115,216
+119,901
+609,015
+Gross profit
+167,533
+221,532
+Profit before income tax
+245,944
+554,552
+238,746
+Operating profit (Restated for prior years)
+Current assets
+160,125
+96,501*
+126,197*
+124,656*
+293,109
+560,118
+109,400
+180,022
+Total comprehensive income for the year
+160,074
+188,243
+224,822
+159,847
+93,310
+Profit attributable to equity holders of the Company
+118,048
+188,709
+227,810
+95,888
+Profit for the year
+161,324
+210,225
+248,062
+281,173
+Total assets
+351,408
+1,015,778
+317,647
+1,578,131
+1,612,364
+1,333,425
+953,986
+703,565
+482,064
+1,577,246
+Quarter-
+on-quarter
+change
+555,382
+465,162
+Total equity and liabilities
+Total liabilities
+352,157
+434,204
+735,671
+403,098
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+3
+on-year 30 September
+change
+2023
+2022
+2023
+31 December
+31 December
+As at
+Annual Report 2023
+As at
+OPERATING INFORMATION
+The Group's non-IFRS profit attributable to equity holders of the Company for the year ended 31 December 2023 was
+RMB157,688 million, an increase of 36% compared with the results for the previous year. Non-IFRS basic and diluted EPS for
+the year ended 31 December 2023 were RMB16.678 and RMB16.320, respectively.
+The Group's audited profit attributable to equity holders of the Company for the year ended 31 December 2023 was
+RMB115,216 million, a decrease of 39% compared with the results for the previous year. Basic and diluted EPS for the year
+ended 31 December 2023 were RMB12.186 and RMB11.887, respectively.
+RESULTS
+I am pleased to present our annual report for the year ended 31 December 2023 to the shareholders.
+Chairman's Statement
+As at
+269,079
+240,156
+Current liabilities
+806,299
+703,984
+432,706
+Equity attributable to equity holders of the Company
+Equity and liabilities
+1,577,246
+721,391
+1,578,131
+1,333,425
+953,986
+518,446
+1,058,800
+1,012,142
+565,989
+1,127,552
+484,812
+1,612,364
+808,591
+Non-controlling interests
+56,118
+361,067
+332,573
+286,303
+225,006
+Non-current liabilities
+873,681
+782,860
+876,693
+778,043
+488,824
+Total equity
+65,090
+61,469
+70,394
+74,059
+700,018
+253,968
+377,289
+Yang Siu Shun (Chairman)
+RMB'Million
+129 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
+128 CONSOLIDATED INCOME STATEMENT
+119 INDEPENDENT AUDITOR'S REPORT
+85 CORPORATE GOVERNANCE REPORT
+26 DIRECTORS' REPORT
+MANAGEMENT DISCUSSION AND ANALYSIS
+130 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
+7
+4
+FINANCIAL SUMMARY
+3
+CORPORATE INFORMATION
+2
+CONTENTS
+CHAIRMAN'S STATEMENT
+133 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+137 CONSOLIDATED STATEMENT OF CASH FLOWS
+139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
+Yang Siu Shun
+lan Charles Stone
+Li Dong Sheng
+Independent Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Non-Executive Directors
+with effect from 17 May 2023)
+(ceased to be a director
+Lau Chi Ping Martin
+Ma Huateng (Chairman)
+Executive Directors
+DIRECTORS
+Corporate Information
+00
+273 DEFINITION
+Annual Report
+Ke Yang
+智慧溝通 靈感無限
+smart communication inspires
+58,374
+33%
+Others
+(790)
+(15%)
+(284)
+40%
+(4%)
+293,109
+48%
+238,746
+43%
+Annual Report 2023
+9
+Total gross profit
+80,636
+FinTech and Business Services
+42%
+RMB Counter Stock Code:80700
+HKD Counter Stock Code: 700
+於開曼群島註冊成立的有限公司
+騰訊控股有限公司
+Incorporated in the Cayman Islands with limited liability
+Tencent Holdings Limited
+Tencent 腾讯
+161,919
+54%
+145,647
+51%
+Online Advertising
+51,344
+51%
+35,009
+2023
+Revenues
+Zhang Xiulan
+(in millions, unless specified)
+COMPANY WEBSITE
+183 Queen's Road East
+Wan Chai, Hong Kong
+Shops 1712-1716, 17th Floor
+Hopewell Centre
+Services Limited
+Computershare Hong Kong Investor
+HONG KONG BRANCH SHARE
+REGISTRAR AND TRANSFER
+OFFICE
+www.tencent.com
+Grand Cayman, KY1-1100
+Cayman Islands
+P.O. Box 1586
+Gardenia Court
+Suntera (Cayman) Limited
+Suite 3204, Unit 2A
+Block 3, Building D
+CAYMAN ISLANDS PRINCIPAL
+SHARE REGISTRAR AND
+TRANSFER OFFICE
+Hong Kong
+Wanchai
+No. 1 Queen's Road East
+Camana Bay
+STOCK CODES
+HKD counter
+RMB counter
+700
+2023
+2022
+Restated*
+RMB'Million
+RMB'Million
+Restated*
+2021
+2020
+Restated*
+RMB'Million
+RMB'Million
+2019
+Restated*
+Year ended 31 December
+CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+Financial Summary
+Tencent Holdings Limited
+2
+00
+80700
+29/F., Three Pacific Place
+AUDIT COMMITTEE
+IN HONG KONG
+Nanshan District
+Shenzhen, 518054
+The PRC
+Li Dong Sheng
+Ma Huateng (Chairman)
+NOMINATION COMMITTEE
+Charles St Leger Searle
+Ma Huateng
+Lau Chi Ping Martin (Chairman)
+lan Charles Stone
+Yang Siu Shun
+INVESTMENT COMMITTEE
+Ke Yang
+Yang Siu Shun
+lan Charles Stone
+Charles St Leger Searle (Chairman)
+CORPORATE GOVERNANCE
+COMMITTEE
+lan Charles Stone
+Charles St Leger Searle
+Zhang Xiulan
+Charles St Leger Searle
+REMUNERATION COMMITTEE
+lan Charles Stone (Chairman)
+Li Dong Sheng
+No. 33 Haitian 2nd Road
+Tencent Binhai Towers
+TENCENT GROUP HEAD OFFICE
+Grand Cayman KY1-1111
+Cayman Islands
+Hutchins Drive, P.O. Box 2681
+Cricket Square
+REGISTERED OFFICE
+The Hongkong and Shanghai Banking
+Corporation Limited
+Bank of China Limited
+PRINCIPAL BANKERS
+and Registered Public Interest
+Entity Auditor
+Certified Public Accountants
+PricewaterhouseCoopers
+AUDITOR
+Jacobus Petrus (Koos) Bekker
+PRINCIPAL PLACE OF BUSINESS
+Combined MAU of Weixin and WeChat
+795,271
+1,313
+188,709
+Attributable to:
+Equity holders of the Company
+Non-controlling interests
+Non-IFRS operating profit
+Non-IFRS profit attributable to equity holders of the Company
+115,216
+188,243
+2,832
+466
+118,048
+118,048
+191,886
+143,203*
+157,688
+115,649
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+Annual Report 2023
+7
+Management Discussion and Analysis
+Revenues. Revenues increased by 10% year-on-year to RMB609.0 billion for the year ended 31 December 2023. The
+following table sets forth our revenues by line of business for the years ended 31 December 2023 and 2022:
+Amount
+188,709
+Year ended 31 December
+(21,516)
+Profit for the year
+(103,525)
+(106,696)
+4,701
+8,006*
+160,074
+110,827*
+Net gains/(losses) from investments and others
+(6,090)
+116,287*
+Interest income
+(43,276)
+13,808
+Finance costs
+(12,268)
+(9,352)
+Share of profit/(loss) of associates and joint ventures, net
+5,800
+(16,129)
+Profit before income tax
+161,324
+210,225
+Income tax expense
+8,592*
+2023
+2022
+% of total
+554,552
+100%
+00
+Revenues from VAS increased by 4% year-on-year to RMB298.4 billion for the year ended 31 December 2023.
+International Games revenues increased by 14% to RMB53.2 billion, or by 8% excluding the effect of currency
+fluctuations, benefitting from the robust performance of VALORANT, contributions from recently launched games
+Goddess of Victory: NIKKE and Triple Match 3D, and a recovery in PUBG Mobile in the second half of the year.
+Domestic Games revenues increased by 2% to RMB126.7 billion, on contributions from our recently released
+VALORANT and Lost Ark, and robust growth in emerging titles such as Arena Breakout and Fight of the Golden Spatula,
+partly offset by a weak contribution from Peacekeeper Elite. Social Networks revenues grew by 1% year-on-year to
+RMB118.5 billion, due to revenue growth from music subscriptions and Mini Games platform service fees, partially
+offset by revenue declines from music-related and games-related live streaming services.
+Revenues from Online Advertising increased by 23% year-on-year to RMB101.5 billion for the year ended
+31 December 2023. This growth was driven by new inventories in Video Accounts and Weixin Search, plus the ongoing
+upgrade of our advertising platform. We saw increased advertising spending with us by all major advertiser categories
+except automotive, with notable step-ups in spending by consumer goods, Internet services and healthcare categories.
+00
+8
+Tencent Holdings Limited
+Management Discussion and Analysis
+Revenues from FinTech and Business Services rose by 15% year-on-year to RMB203.8 billion for the year ended
+31 December 2023. FinTech Services achieved double-digit growth, driven by increased payment activities and higher
+revenue from wealth management services. Business Services revenues also increased at a double-digit rate, driven
+by the introduction of eCommerce technology service fees in Video Accounts, alongside moderate growth for cloud
+services.
+100%
+Cost of revenues. Cost of revenues were RMB315.9 billion for the year ended 31 December 2023, largely stable year-on-year.
+Transaction costs, and channel and distribution costs, increased, while bandwidth and server costs, along with content costs,
+decreased.
+Amount
+Year ended 31 December
+2023
+2022
+Gross
+margin
+Gross
+Amount
+margin
+(RMB in millions, unless specified)
+VAS
+Gross profit. Gross profit rose by 23% year-on-year to RMB293.1 billion for the year ended 31 December 2023, and gross
+margin increased to 48% from 43% in the previous year. This margin improvement was primarily driven by a shift in revenue
+mix towards high-quality revenue streams, particularly Video Accounts advertising, eCommerce technology service fees, and
+Mini Games platform service fees, and away from lower-margin revenue streams, such as music-related and games-related
+live streaming services. The following table sets forth our gross profit and gross margin by line of business for the years ended
+31 December 2023 and 2022:
+609,015
+Total revenues
+1%
+% of total
+revenues
+Amount
+revenues
+(RMB in millions, unless specified)
+VAS
+298,375
+49%
+287,565
+52%
+Online Advertising
+101,482
+17%
+82,729
+15%
+FinTech and Business Services
+Others
+203,763
+33%
+177,064
+32%
+5,395
+1%
+7,194
+(29,229)
+1,343
+(34,211)
+(315,806)
+Hong Kong, 20 March 2024
+Chairman
+Ma Huateng
+Our commitment to the principle of "Value for Users, Tech for Good" remains unwavering. We will continue to create value for
+our shareholders and the community, and do our utmost in fostering innovations, addressing societal needs and contributing
+to a sustainable future for all.
+On behalf of the Board, I would like to express our profound gratitude to our entire staff and management team for their
+exceptional commitment and contributions that have resulted in our resilient and sustainable performance amid ongoing
+challenges. I would also like to extend our sincere appreciation to our shareholders and stakeholders for their continuous
+support and confidence in the Company.
+APPRECIATION
+The Board has recommended the payment of a final dividend of HKD3.40 per Share (2022: HKD2.40 per Share) for the year
+ended 31 December 2023, subject to the approval of the shareholders at the 2024 AGM. Such proposed dividend is expected
+to be payable on 31 May 2024 to the shareholders whose names appear on the register of members of the Company on
+22 May 2024.
+00
+DIVIDEND
+We made progress in our decarbonisation journey by applying our fourth-generation data centre technology to reduce
+emissions and increasing the adoption of renewable energy.
+•
+Our New Cornerstone Investigator Program has supported 104 scientists, contributing to the development of basic
+science research.
+Our digital philanthropy platform helped raise a record RMB3.8 billion in public donations during the 99 Giving Day
+campaign, up 15% year-on-year.
+•
+Harnessing our technology and platform, we continue to create social value for our users, partners and the society at large.
+Below are some highlights of our environmental, social and governance initiatives for 2023:
+Chairman's Statement
+In August 2023, we joined the United Nations Global Compact ("UNGC"), demonstrating our commitment to integrating
+UNGC's principles into our strategy, culture and day-to-day operations, and supporting UNGC's Sustainable Development
+Goals.
+5
+6
+Management Discussion and Analysis
+(315,906)
+554,552
+609,015
+(RMB in millions)
+2022
+Restated*
+2023
+Year ended 31 December
+Tencent Holdings Limited
+Operating profit
+General and administrative expenses
+Selling and marketing expenses
+Gross profit
+Cost of revenues
+Revenues
+The following table sets forth the comparative figures for the years ended 31 December 2023 and 2022:
+YEAR ENDED 31 DECEMBER 2023 COMPARED TO YEAR ENDED 31 DECEMBER 2022
+Other gains/(losses), net
+Annual Report 2023
+Subject to shareholders' approval at the 2024 AGM
+3
+BUSINESS REVIEW AND OUTLOOK
+1%
+245
+6%
+234
+248
+Fee-based VAS registered subscriptions
+In 2023, we achieved breakthroughs in a number of products and services, as Video Accounts' total user time spent more
+than doubled, enhancements to our advertising Al model significantly improved our targeting performance, and international
+contribution to our games revenue reached a record 30%. These developments drove high-quality revenue streams which
+fuelled our gross profit growth of 23%, and supported our plan to step up capital returns to shareholders. Tencent Hunyuan
+developed into a top-tier foundation model with superior performance in numerical reasoning, logical inference, and
+multi-turn conversations. In addition, we actively sought to leverage our technology and platform to create value for society through
+initiatives such as our digital philanthropy platform, one of the largest of its kind in the world, whose 99 Giving Day event raised
+a record RMB3.8 billion in public donations.
+-0.7%
+-3%
+572
+554
+Mobile device MAU of QQ
+0.5%
+1,336
+2%
+558
+Below are some highlights from our key products and services for 2023:
+Video Accounts' total user time spent more than doubled, driven by DAU and time spent per user, benefitting from
+enhanced recommendation algorithms. We provided more monetisation support for Video Accounts creators, such as
+facilitating merchandise sales through live streaming, and matching creators with brands for marketing campaigns.
+00
+The average number of subscriptions as of the last day of each month during 4Q2023
+2
+As at 31 December 2023
+1
+We returned substantial capital to shareholders in 2023 through payment of cash dividend, share repurchases, and settlement
+of distribution in specie. We have proposed to increase our annual dividend in respect of the year ended 31 December 2023
+by 42%, to HKD3.40 per share³ (equivalent to approximately HKD32 billion), and we intend to at least double the size of our
+share repurchases, from approximately HKD49 billion in 2023 to over HKD100 billion in 2024.
+We launched our proprietary foundation model, Tencent Hunyuan, and scaled it up to trillion parameter scale, utilising a
+Mixture of Experts architecture.
+•
+WeCom and Tencent Meeting deployed generative Al-powered functionalities and increased their monetisation.
+We strengthened our payment compliance capabilities, enhanced Mini Program-based transaction tools and upgraded
+cross-border payment experience.
+We upgraded our Al-powered advertising technology platform, which significantly enhanced our targeting accuracy and
+thus advertising revenue.
+The number of Tencent mobile and PC "major hit games" in China surpassing average quarterly DAU of 5 million
+for mobile or 2 million for PC, and generating over RMB4 billion annual gross receipts (thresholds which we view as
+indicative of a major and enduring hit), increased from 6 in 2022 to 8 in 2023.
+Tencent Video and TME extended their leadership in the long-form video and music streaming industries, with 117 million¹
+video subscriptions and 107 million² music subscriptions.
+QQ Channels enhanced interest-based user interactions across categories such as games, lifestyle and knowledge-based
+content.
+Mini Games' gross receipts increased over 50%, with Mini Games representing the leading casual game platform in
+China.
+Chairman's Statement
+Tencent Holdings Limited
+4
+293,109
+238,746
+Year-
+2/2
+8/8
+5/5
+Yang Siu Shun
+1/1
+1/1
+4/4
+1/1
+1/1
+4/4
+2/2
+བུབུ
+2/2
+8/8
+5/5
+lan Charles Stone
+1/1
+4/5
+Li Dong Sheng
+Independent non-executive directors
+1/1
+1/1
+1/1
+1/1
+1/1
+the expected contribution that the candidate would add to the Board and to ensure the
+Board has a balance of skills, experience and diversity of perspectives appropriate to the
+requirements of the Company's business;
+(d)
+potential or actual conflicts of interest of the candidate or the re-elected director;
+(c)
+the independence of the independent non-executive directors and the independence
+criteria set out in Rule 3.13 of the Listing Rules;
+(b)
+(a) the Company's prevailing board diversity policy and the requirements under the Listing
+Rules;
+In the determination of the suitability of a candidate, the Nomination Committee will consider
+a range of factors, including but not limited to the following selection criteria, before making
+recommendations to the Board:
+98
+1/1
+00
+A high level of corporate governance and integrity cannot be maintained only with the Board's efforts. Each of the Group's
+employees plays a role in contributing to such cause. A code of conduct which emphasises integrity and respect is distributed
+by the Company to all employees and it forms part of the employment agreement with each of the employees.
+Corporate Governance Report
+Zhang Xiulan
+1/1
+Annual Report 2023
+1/1
+2/2
+5/5
+Ke Yang
+In addition, the Board has adopted various practices to bring the Group to a high level of corporate governance and
+compliance with the CG Code.
+1/1
+2/2
+1/1
+Annual Extraordinary
+General
+Governance Nomination Remuneration
+Audit
+Corporate
+Name of director
+The Board met five times in 2023. The attendance of each director at Board meetings, committee meetings, the annual
+general meeting and the extraordinary general meeting, whether in person or by means of electronic communication, is
+detailed in the table below:
+Board Activity
+As the re-election of Mr Charles St Leger Searle and Professor Ke Yang, who were re-elected in 2020, were not considered
+at the 2023 AGM, there is a deviation from code provision B.2.2 of the CG Code. Notwithstanding that Mr Charles St Leger
+Searle and Professor Ke Yang were not subject to retirement by rotation at the 2023 AGM, their biographies and details
+of their emoluments are set out in the Directors' Report and Note 16 to the consolidated financial statements respectively
+for shareholders' information. Considering that the re-election of Mr Charles St Leger Searle and Professor Ke Yang will be
+considered at the 2024 AGM, the Board believes that such deviation does not have a material impact on the operation of the
+Company as a whole.
+The Chairman, in accordance with the Articles of Association, whilst holding such office is not subject to retirement by rotation
+nor taken into account in determining the number of directors to retire in each year. Therefore, this is a deviation from code
+provision B.2.2 of the CG Code. The Chairman is one of the founders of the Group and he plays a key role in the growth and
+development of the Group and his continuing presence in the Board is vital to the sustainable development of the Group. Given
+the importance of the Chairman's role in the development of the Group, the Board considers that the deviation from code
+provision B.2.2 of the CG Code has no material impact on the operation of the Group as a whole.
+General
+Corporate Governance Report
+92
+00
+Code provision B.2.2 of the CG Code provides that every director, including those appointed for a specific term, should be
+subject to retirement by rotation at least once every three years.
+The Board is the core of the Group's success, and with the appropriate composition of the Board, we can benefit from the right
+set of skills, experience and diversity of perspectives to take the Company forward. Therefore, it is essential for the Company to
+maintain a formal, considered and transparent procedure for the appointment of new directors to the Board. It is our corporate
+governance practice and in accordance with the Articles of Association that all directors (except for the Chairman) should be
+subject to re-election at regular intervals and the resignation and removal of any director should be explained with reasons. At
+the 2023 AGM, Mr Lau Chi Ping Martin and Mr Jacobus Petrus (Koos) Bekker retired and Mr Jacobus Petrus (Koos) Bekker
+was re-elected whilst Mr Lau Chi Ping Martin did not offer himself for re-election. Professor Zhang Xiulan was re-elected at the
+2023 AGM pursuant to Article 86(3) of the Articles of Association.
+Appointments, Re-election and Removal
+As part of our corporate governance practice to provide transparency to the investor community and in compliance with the
+Listing Rules and the CG Code, independent non-executive directors are identified as such in all corporate communications
+containing the names of the directors. In addition, an updated list of directors identifying the independent non-executive
+directors and the roles and functions of the directors is maintained on the Company Website and the Stock Exchange's
+website.
+Further, in compliance with Rule 3.10 of the Listing Rules, one of our independent non-executive directors has the appropriate
+professional qualifications in accounting or related financial management expertise, and provides valuable advice from time to
+time to the Board. The Company has also received from each independent non-executive director a confirmation annually of
+their independence and the Nomination Committee has conducted an annual review and considers that all independent non-
+executive directors are independent, taking into account of the independence guidelines set out in Rule 3.13 of the Listing
+Rules in the context of the length of service of each independent non-executive director.
+The Board values the importance of professional judgment and advice provided by non-executive directors to safeguard the
+interests of the shareholders. The non-executive directors contribute diversified qualifications and experience to the Group by
+expressing their views in a professional, constructive and informed manner, and actively participate in Board and committee
+meetings and bring professional judgment and advice on issues relating to the Group's strategies, policies, performance,
+accountability, resources, key appointments, standards of conduct, conflicts of interests and management process, with
+the shareholders' interests being the utmost important factor. The non-executive directors also take the lead where potential
+conflicts of interests arise and exercise their professional judgment and utilise their expertise to scrutinise the Company's
+performance in achieving agreed corporate goals, and monitor performance reporting.
+Corporate Governance Report
+Tencent Holdings Limited
+Board
+Committee
+Committee Committee Committee
+1/1
+4/4
+22
+8/8
+5/5
+Charles St Leger Searle
+5/5
+Jacobus Petrus (Koos) Bekker
+5/5
+1/1
+1/1
+1/1
+1/1
+1/1
+2/2
+Lau Chi Ping Martin*
+5/5
+Ma Huateng
+Executive directors
+Meeting
+Meeting
+(e)
+(f)
+Non-executive directors
+the candidate or the re-elected director's ability to commit and devote sufficient time and
+attention to the Company's affairs; and
+reviewing the dividend policy of the Company;
+•
+in relation to the external auditor, reviewing their plans, reports and management letter, fees, involvement in non-audit
+services, and their terms of engagement;
+reviewing the plans (including those for 2023), resources and work of the Company's internal auditors;
+reviewing the adequacy of resources, qualifications and training of the Group's finance department; and
+reviewing the effectiveness of the Company's financial reporting system, the system of internal controls in operation, risk
+management system and associated procedures within the Group.
+PricewaterhouseCoopers ("PwC") is the Company's external auditor. The Audit Committee annually reviews the relationship
+of the Company with PwC. Having reviewed the effectiveness of the external audit process as well as the independence and
+objectivity of PwC, the Audit Committee is satisfied with this relationship. As such, the Audit Committee has recommended
+their re-appointment at the 2024 AGM.
+Annual Report 2023
+95
+reviewing the status of compliance with the CG Code, the Listing Rules and relevant laws by the Group;
+Corporate Governance Report
+The Corporate Governance Committee comprises only non-executive directors. Its members are Mr Charles St Leger Searle
+(non-executive director), Mr Ian Charles Stone, Mr Yang Siu Shun, Professor Ke Yang and Professor Zhang Xiulan (all of them
+are independent non-executive directors). The Corporate Governance Committee is chaired by Mr Charles St Leger Searle.
+The Corporate Governance Committee met twice in 2023. Individual attendance of each Corporate Governance Committee
+member is set out on page 93.
+The Corporate Governance Committee's major work during the year 2023 and up to the date of this annual report includes the
+following:
+reviewing the Company's policies and practices on corporate governance and ESG;
+reviewing legal and regulatory compliance, including the insider dealing policy, the disclosure of inside information policy
+and the shareholders communication policy. The insider dealing policy was revised and adopted in March 2023 and
+March 2024 respectively;
+reviewing the Company's compliance with the CG Code and disclosure in the Corporate Governance Report;
+reviewing the Company's compliance with the ESG Reporting Guide and disclosure in the ESG Report;
+considering the Company's environmental targets; and
+00
+Corporate Governance Committee
+reviewing the 2023 first and third quarters results announcements;
+reviewing the 2023 interim report and interim results announcement;
+reviewing the 2022 annual report, including the Corporate Governance Report, the ESG Report, the Directors' Report
+and the financial statements, as well as the related results announcement;
+the candidate or the re-elected director's reputation for integrity, accomplishment and
+experience in the relevant sectors;
+1/1
+1/1
+*
+Mr Lau Chi Ping Martin ceased to be an executive director with effect from the conclusion of the 2023 AGM.
+Annual Report 2023
+93
+Corporate Governance Report
+At the Board meetings, the Board discussed a wide range of matters, including the Group's overall strategies, financial and
+operational performances, approved the annual, interim and quarterly results of the Group, the appointment of directors,
+business prospects, regulatory compliance and corporate governance, and other significant matters. The company secretary, in
+consultation with the Chairman and the senior management team, prepares the agenda for each meeting and all directors are
+given the opportunity to include matters for discussion in the agenda. The company secretary also ensures that all applicable
+rules and regulations in relation to the Board meetings are followed. The company secretary sends notice of the Board meeting
+to each of the directors at least 14 days in advance of each regular Board meeting. The company secretary also sends the
+agenda, board papers and relevant information relating to the Group to each of the directors at least 3 days in advance of each
+regular Board meeting and committee meeting, and keeps the directors updated on the Group's financial performance and
+latest developments. If any director raises any queries, steps will be taken to respond to such queries as promptly and fully
+as possible. If there is potential or actual conflict of interests involving a substantial shareholder or a director, such director
+will declare his/her interest and will abstain from voting on such matters. The directors may approach the Company's senior
+management team when necessary. The directors may also seek independent professional advice at the Company's expense
+in appropriate circumstances.
+The company secretary ensures that there is a good and timely flow of information to the Board. The company secretary
+is responsible for taking minutes of all Board and committee meetings and ensuring that sufficient details of the matters
+considered and decisions reached have been recorded. Draft and final versions of the minutes of meetings are sent to the
+directors for comments and records respectively within a reasonable time after each meeting, and final minutes with the
+relevant board papers and related materials are kept by the company secretary and are available for review and inspection by
+the directors at any time.
+THE COMMITTEES
+As described above, the Board has established five committees, each of which has been delegated responsibilities and reports
+back to the Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and
+Remuneration Committee. The roles and functions of these committees are set out in their respective terms of reference. The
+terms of reference of each of these committees will be revised from time to time to ensure that they continue to meet the needs
+of the Company and to ensure compliance with the CG Code. The terms of reference of the Audit Committee, the Nomination
+Committee and the Remuneration Committee are available on the Company Website under the section headed "Investors -
+Environment, Social and Governance - Governance - Board Committees" and on the Stock Exchange's website.
+00
+94
+Tencent Holdings Limited
+Corporate Governance Report
+Audit Committee
+The Audit Committee comprises only non-executive directors. Its members are Mr Yang Siu Shun, Mr lan Charles Stone (both
+are independent non-executive directors) and Mr Charles St Leger Searle (non-executive director). Mr Yang Siu Shun, who
+chairs the Audit Committee, and Mr Charles St Leger Searle have appropriate professional qualifications and experiences in
+financial matters.
+The Audit Committee should meet not less than four times a year and the Audit Committee met eight times in 2023. Individual
+attendance of each Audit Committee member is set out on page 93. In addition to the members of the Audit Committee,
+meetings were attended by the Chief Financial Officer, the Financial Controller, the Treasurer, the Head of IA and the Head of
+IC, and the external auditor at the invitation of the Audit Committee.
+The Audit Committee's major work during the year 2023 includes the following:
+•
+discussing the arrangements made for directors and senior management team to attend training sessions for continuous
+professional development.
+96 Tencent Holdings Limited
+91
+Investment Committee
+Mr Ma Huateng serves as the Chairman and Chief Executive Officer of the Company. This is at variance with code provision
+C.2.1 of the CG Code, which provides that the roles of chairman and chief executive should be separate and should not be
+performed by the same individual, and that the division of responsibilities between the chairman and chief executive should be
+clearly established and set out in writing.
+Chairman and Chief Executive Officer
+informal updates from time to time and structured monthly updates on the Company's performance, position and
+prospects are provided to the directors.
+the company secretary who is an employee of the Company attends training in compliance with the Listing Rules
+requirements; and
+training has been and will continue to be provided to the directors on a timely basis, including briefing the directors on
+any updates to the Listing Rules and relevant laws;
+review of the shareholders communication policy has been and will be conducted on a regular basis;
+•
+To stay abreast of the high level of corporate governance and maintain transparency of our corporate governance practices, we
+have continued to adopt and foster the following corporate governance practices:
+Annual Report 2023 99
+The Nomination Committee will report annually on the Board's composition and make
+appropriate disclosures regarding the board diversity policy in the Corporate Governance Report
+of the Company's annual reports.
+Monitoring, Reporting
+and Review
+The Nomination Committee will assess the eligibility of a candidate to become a director of the
+Company taking into account factors, including without limitation his/her reputation, character,
+knowledge and experience, and make recommendations for the Board's consideration and
+approval.
+Where a retiring director, being eligible, offers himself/herself for re-election, the Nomination
+Committee will review the overall contribution to the Company of the retiring director and will
+also determine whether the retiring director continues to meet the selection criteria set out in the
+board nomination policy.
+The Nomination Committee will have a meeting at least once a year, and candidates, if any, will
+be identified for consideration. Nomination from the human resources department, external
+agencies, Board referrals, or shareholders, if appropriate, will be considered.
+Nomination Procedure by
+Nomination Committee
+Corporate Governance Report
+Tencent Holdings Limited
+The Nomination Committee has the discretion to nominate any person as it considers
+appropriate.
+other relevant factors which will be considered by the Nomination Committee on a case-by-
+case basis.
+(g)
+Corporate Governance Report
+In view of the ever-changing business environment in which our Group operates, the Chairman and Chief Executive Officer
+must be technically sophisticated and sensitive to fast and rapid market changes, including changes in users' preferences,
+in order to promote the different businesses of the Group. The Board thus considers that a segregation of the roles of the
+Chairman and Chief Executive Officer may create unnecessary costs for the daily operation of the Group.
+00
+The Board will consider and approve the appointment, if appropriate, based upon the
+recommendation of the Nomination Committee.
+90
+In 2023, the Investment Committee had considered and passed various resolutions on its decisions on the Group's acquisitions
+and disposals.
+The Investment Committee comprises executive director, non-executive director and the President of the Company. Its
+members are Mr Lau Chi Ping Martin, Mr Ma Huateng and Mr Charles St Leger Searle (non-executive director). The
+Investment Committee is chaired by Mr Lau Chi Ping Martin, the President of the Company.
+00
+Nomination Committee
+The Nomination Committee comprises a majority of independent non-executive directors. Its members are Mr Ma Huateng,
+Mr Li Dong Sheng, Mr Ian Charles Stone, Mr Yang Siu Shun (all three are independent non-executive directors) and
+Mr Charles St Leger Searle (non-executive director). The Nomination Committee is chaired by Mr Ma Huateng.
+The Nomination Committee met once in 2023. Individual attendance of each Nomination Committee member is set out on
+page 93.
+Annual Report 2023
+97
+Corporate Governance Report
+A summary of the board nomination policy and related nomination procedures is set out as follows:
+During 2023, the Nomination Committee reviewed board composition and director succession, the board diversity policy
+and the board nomination policy, and also considered and made recommendations to the Board on the re-appointment of
+the retiring directors at the 2023 AGM. The Nomination Committee has also assessed the independence of the independent
+non-executive directors and considers all of them to be independent, taking into account of the independence guidelines
+set out in Rule 3.13 of the Listing Rules in the context of the length of service of each independent non-executive director,
+and the perspectives, skills and experience that such director can bring to the Board. The Company recognises the benefits
+of having a diverse Board, and views diversity at Board level as a business imperative that will help the Company achieve
+its strategic objectives and maintain a competitive advantage. As such, the Board has set measurable objectives for the
+implementation of the board diversity policy to ensure that the Board has the appropriate balance of skills, experience and
+diversity of perspectives that are required to support the execution of its business strategy and maintain the effectiveness of the
+Board. The Nomination Committee is satisfied that the board diversity policy and the board nomination policy are successfully
+implemented with reference to the measurable objectives. The Nomination Committee will continue to conduct periodic
+review and monitor the implementation of the board diversity policy and the board nomination policy to ensure their continued
+effectiveness.
+The board nomination policy aims to set out the approach to enable the Nomination Committee
+to nominate a director to the Board.
+Director Selection Criteria
+In order to take advantage of the skills, experiences and diversity of perspectives of the directors and in order to ensure that
+the directors give sufficient time and attention to the Group's affairs, we request each director to disclose to the Company,
+on a quarterly basis, the number and the nature of offices held in public companies or organisations and other significant
+commitments. The Board's composition is in compliance with the requirement under Rule 3.10A of the Listing Rules that
+the number of independent non-executive directors must represent at least one-third of the Board. The Board believes that
+the balance between the executive director and the non-executive directors is reasonable and adequate to provide sufficient
+checks and balances that safeguard the interests of the shareholders and the Group.
+A list of directors and their respective biographies which include their positions held at the Company and certain subsidiaries
+are set out on pages 64 to 67 of this annual report. There is no relationship (including financial, business, family or other
+material/relevant relationship(s)) among members of the Board.
+Tencent Holdings Limited
+As at the date of this annual report, the Board is comprised of eight directors, with the executive director, two non-executive
+directors and five independent non-executive directors. During the year ended 31 December 2023 and up to the date of
+this annual report, there is no change to the composition of the Board except that Mr Lau Chi Ping Martin ceased to be an
+executive director with effect from the conclusion of the 2023 AGM.
+Composition
+The Board is therefore of the view that there is an adequate balance of power and that appropriate safeguards are in place.
+Nevertheless, the Board will continue to regularly monitor and review the Company's current structure and make necessary
+changes when appropriate.
+Purpose and Objectives
+Besides, all major decisions have been made in consultation with members of the Board and appropriate committees, as
+well as the senior management team. Chief officers and senior executives are invited to attend Board meetings from time to
+time to make presentations and answer the Board's enquiries. In addition, directors are encouraged to participate actively in
+all Board and committee meetings of which they are members, and the Chairman ensures that all issues raised are properly
+briefed at the Board meetings, and he works with the senior management team to provide adequate, accurate, clear, complete
+and reliable information to members of the Board in a timely manner. Further, the Chairman ensures that adequate time is
+available for discussion for all items at the Board meetings. During the year ended 31 December 2023, the Chairman held a
+meeting with the independent non-executive directors without the presence of other directors as required by the Listing Rules.
+Corporate Governance Report
+Information security risk
+As an Internet and technology company, the Company has a diverse portfolio of businesses and products with
+increasingly complicated business models, and an extensive network of users and business partners, which draws
+attention from the public and media to the Company's brand. The Company needs to fully consider possible crisis
+that may occur in its domestic and international business operations, and actively responds to them to avoid further
+deepening of issues or escalation of crisis. The Company also needs to timely disclose comprehensive and accurate
+information to the public. Otherwise, it may damage the Company's reputation, brand and image, and may adversely
+affect the business and prospects of the Company.
+Crisis management, public relations and reputational risk
+The Company strongly believes that the security of user data and privacy is the key prerequisite for delivering secured
+and high-quality products and user experience. The Company strictly complies with local relevant laws and regulations,
+continuously invests resources in strengthening information security management. The Company classifies user and
+client data as the Company's most sensitive information. It has also established and will continue to enhance the
+policies and management measures to ensure the security of such information and data. The management measures
+of the Company include but are not limited to establishing effective information management systems with the use of
+encryption, data access restrictions and controls, establishment of rigorous approval processes, and the strict control of
+data transmission and storage. In addition, the Company has established a specialised team to conduct independent
+regular reviews over the management of the business groups' sensitive information and data, and provide training
+on information security to raise employees' awareness of information security. The Company has obtained multiple
+well-acknowledged certifications in relation to information security to safeguard the information security of users and
+customers. The Company upholds the mission and vision of “Value for Users, Tech for Good" and constantly improves
+the infrastructure of its network and data security.
+Corporate Governance Report
+108
+Tencent Holdings Limited
+00
+All countries and jurisdictions continue to heighten the regulatory enforcement over cyber security and personal data
+protection. The security of personal user and corporate client data is the top priority of the Company. The Company
+continues to pay attention to the laws and policies relating to user privacy and data security in various jurisdictions and is
+fully aware that any loss or theft of such information could have a significant negative impact on the affected users and
+clients, which could expose the Company to significant legal liability and significant reputational risk.
+The Company treasures its brand and reputation. In adherence to the principles of openness and transparency, the
+Company communicates to the public comprehensive and accurate information in a timely manner. In response to
+crisis, the Company has established a corresponding response mechanism, to follow up on the development of crisis,
+conduct risk assessment, and make prompt decisions, to reduce the impact of the crisis on the Company. The Company
+has also set up a public relations department and professional teams to establish and continuously enhance its public
+relations, brand and reputation management mechanism, to provide training and guidance related to public relations
+management, to continuously improve its response capabilities, and to reduce the possibility of crisis. The public
+relations team maintains close contact with the Company's management and business teams, pays close attention to
+and gathers public opinions, analyses relevant information in a timely manner and reports to management to enable
+management to respond promptly and effectively in accordance with the Company's policies and procedures and
+disclose comprehensive and accurate information to the public in a timely manner and to continuously protect the
+Company's reputation.
+5.
+Annual Report 2023 109
+Corporate Governance Report
+The Company has established a risk management system (including the "Three Lines Model" as detailed above) which sets
+out the roles and responsibilities of each relevant party in the system as well as the relevant risk management policies and
+processes. Each business group of the Company, on a regular basis, identifies and assesses any risks that may negatively
+impact the achievement of its objectives, and formulates appropriate response measures. The Company also provides risk
+management and internal control training for staff on a regular basis.
+The Company is committed to continuously improving its risk management system, including its structure, process, and
+culture. By enhancing the Company's risk management capabilities, it ensures the healthy and sustainable development of the
+Company's business.
+Risk Management
+In addition, the Company incorporates the evaluation results of the risk management and internal control practices of business
+groups and functional departments into the performance review process.
+The Company provides regular risk management and internal control training to all employees through various channels
+such as on-site and online courses, comic series, and online interactive columns. The training covers topics such as risk
+management system, key risk analysis and internal control activities. Risk management training is included in the mandatory
+courses for new employees to increase the overall employees' risk awareness.
+The Company is committed to establishing and improving the internal control environment, to strengthening employees' risk
+management awareness, and to continuously enhancing its risk management capabilities.
+Risk Culture Building
+The Board and management always prioritise the maintenance and establishment of the Company's risk management and
+internal control systems. In 2023, the Company has consistently improved the risk management and internal control systems,
+and has also continuously increased the awareness of risk management among employees. The Internal Control Department
+continues to delve into the front-line of the business and provide active monitoring supports during business operations
+over risk management and internal controls. IC strengthens its digital capabilities to further assist the business groups in
+identifying and managing the risks more comprehensively and timely, driving healthy business development. The Internal
+Audit Department continues to carry out independent audits over various key businesses and management areas. IA improves
+its digital audit capabilities to effectively identify risks and provide effective and timely independent evaluations. The Anti-
+fraud Investigation Department further advocates the value of integrity among the employees, increases the expectation on
+management standards, and applies digital methods to proactively and timely follow up and investigate the alleged fraudulent
+activities. The connection and interaction among the three lines have been further enhanced to provide more effective support
+to the Company's development.
+Tencent Holdings Limited
+104
+00
+The Company has taken practical steps to devote substantial resources in various areas to ensure the Company's
+compliance with regulatory requirements. The Company has set up both domestic and international dedicated
+departments and specialist teams, engaged external professional consultants, communicated with relevant regulatory
+authorities in a timely manner, kept abreast of the changes to relevant laws and regulations, adjusted strategies
+accordingly, taken appropriate actions or measures, improved internal training and the understanding of the laws
+and regulations, and enhanced the corresponding management system and policies to ensure that the Company is in
+compliance with such applicable laws and regulations.
+Annual Report 2023
+As the Company continuously expands its businesses domestically and globally, the Company must abide by and comply
+with the relevant applicable laws and regulations in different countries and jurisdictions, including but not limited to
+laws and regulations relating to privacy and data protection, anti-trust, anti-unfair competition, consumer protection, IP,
+labour protection, and continue to pay attention to changes in industry laws and regulations, including but not limited
+to telecommunications and Internet, gaming, Internet finance, foreign investment, international trade, etc. In addition,
+changes in international circumstances may affect the development of global policies and regulations and impact the
+development of various industries across different regions.
+The Audit Committee, on behalf of the Board, assesses and determines the nature and level of the risks that the
+Company is willing to take in order to achieve its business objectives and formulates appropriate response strategies
+which include designating responsible departments for handling each significant risk. The Audit Committee provides
+guidance to the Company's management to implement effective risk management system with support from the IC.
+Regulatory and compliance risk
+Risk Management Process
+Being an Internet and technology company with a wide variety of rapidly changing businesses, the Company has adopted the
+following dynamic risk management process in response to the ever-changing risk landscape:
+•
+Business and functional departments of each business group identify, assess and respond to risks in the course of
+operation in a bottom-up and systematic manner;
+Through collecting, consolidating and analysing the Company's businesses, the IC builds a list of significant risks at both
+the corporate and business level, and ensures that appropriate risk response strategies and control measures have been
+taken for such risks. These significant risks as well as the corresponding risk responses and control measures will be
+reviewed by management and subsequently by the Audit Committee before reporting to the Board;
+The IC analyses and evaluates the responses to significant risks from time to time, and reports to the Audit Committee at
+least once a year; and
+The Three Lines Model of the risk management and internal control systems are designed to manage rather than eliminate the
+risk of failing to implement the business strategy of the Company, and can only provide reasonable but not absolute assurance
+against material misstatement or loss.
+Significant Risks of the Company
+The complexity of the Company's business continues to increase, and the external environment continues to evolve.
+Management faces a wide range of risks, including but not limited to ESG risk. Through risk management analysis and
+evaluation, management considers that the ten significant risks disclosed in the financial year 2022 still exist, among which the
+"Market competition and innovation risk" and "Business continuity risk" have increased to a certain extent while the other risks
+remain at a similar risk level as last year.
+On behalf of the Board, the Audit Committee supervises the overall risk management of the Company and assesses, the
+risk acceptable level, risk rating and the response strategies of the Company's risks. The Audit Committee considers that
+management has taken appropriate measures to address and manage the significant risks that they are responsible for at a
+level acceptable to the Board.
+00
+106
+4.
+Tencent Holdings Limited
+Below is a summary of the significant risks of the Company along with the applicable response strategies. The Company's risk
+profile may change, and the list below is not intended to be exhaustive.
+1.
+Market competition and innovation risk
+The Internet and technology industries are highly competitive with rapid product updates and replacements, and the
+development of Al-related technologies is progressing rapidly. The development of technologies brings evolutional
+changes to the existing business models and brings in more new players into the market. The existing market
+competition landscape may face major changes. Therefore, how to promote innovative and sustainable social values
+through innovation in technology, product and business model is one of the key challenges of the Company.
+The Company attaches great importance to innovation and stays on top of the developments of the industry and user
+needs, keeps up with the technological development through innovation in frontier technology, and constantly improves
+the Company's products and services. It also explores the application scenarios of emerging technologies and brings
+additional values and experiences to its users and business partners. By attracting and cultivating key talents and
+increasing investment in scientific research, the Company continuously improves its technology and innovation abilities,
+which integrate with "Hunyuan" model and other innovative technologies, and brings more cutting-edge technological
+benefits to the Company's business and products. The Company also continuously optimises its resource allocation,
+enhances its core products and business, strengthens its product development and technical capabilities, explores
+innovative business models, develops products that meet the expectations of both domestic and international markets,
+continuously improves user experience, promotes sustainable and high quality development of its businesses and
+increases its market competitiveness. The Company collaborates with its partners to jointly innovate, enhance service
+capabilities, and support the ecosystem in order to achieve product service growth and continuous iterative innovation,
+and create value for users and the society.
+2.
+Macroeconomic risk
+The Company's revenue generated from certain businesses is closely related to the macro-economic circumstances
+and the overall consumption economy. As the Company continues to expand its international businesses, factors such
+as the ever-changing international circumstances, the difference in the speed of economic development across regions,
+and emergency events may reduce individual users' purchasing power and their willingness to consume, impacting the
+operation and profits of our corporate clients, and thereby leading to a reduction in the resources they invest in business
+development and market expansion, which may in turn adversely affect certain revenue streams of the Company. In
+addition, the uncertainty of international situation may lead to changes in trading and investment policies and markets,
+and negatively impact the Company's operations and collaborations with its business partners, and in turn affect and
+weaken the Company's competitiveness and growth potential.
+Annual Report 2023 107
+Corporate Governance Report
+Based on the changes in macroeconomic environment, the Company adjusts its business development strategy in a
+scientific, flexible, and reasonable manner to address the risks posed by the macroeconomic risks, and continuously
+seeks opportunities for business growth. The Company attaches great importance to product innovation, upholds the
+business philosophy of focusing on user value, continuously improves user experience, and builds long-term and stable
+relationships with its existing customers to achieve sustainable business growth. Meanwhile, the Company will continue
+to uphold its mission and vision of “Value for Users, Tech for Good" to provide innovative product solutions and digital
+services to assist its clients and business partners in further enhancing their competitiveness and productivity to achieve
+sustainable growth, and to also create value for its customers and business partners, and fulfill its social responsibility.
+3.
+Corporate Governance Report
+The IA and the Anti-fraud Investigation Department have direct reporting lines to the Audit Committee.
+All the options or awards involving new Shares granted to Employee Participants during the year ended 31 December 2023
+were without performance targets. In view that (i) the grantees are employees of the Group who would contribute directly to
+the overall business performance, sustainable development and/or good corporate governance of the Group; (ii) the grant was
+a recognition for the grantees' past contributions to the Group; and (iii) the options or awards were subject to certain vesting
+conditions and terms of the 2023 Share Option Scheme and the 2023 Share Award Scheme, which already cover situations
+where the options or awards would lapse in the event that the grantees cease to be employees of the Group, the Remuneration
+Committee was of the view that the grant of options or awards to Employee Participants without performance targets is market
+competitive and aligns with the purposes of the 2023 Share Option Scheme and the 2023 Share Award Scheme.
+The IA holds a high degree of independence and is responsible for providing independent evaluation and verification on the
+effectiveness of the Company's risk management and internal control systems, and monitoring the management's improvement
+and enhancement on risk management and internal controls.
+Corporate Governance Report
+101
+Annual Report 2023
+The Remuneration Committee has the delegated responsibility to determine the remuneration packages of each member of
+the senior management team and make recommendations to the Board on the remuneration package of each director.
+The Remuneration Committee met four times in 2023. Individual attendance of each Remuneration Committee member is set
+out on page 93.
+The Remuneration Committee comprises only non-executive directors. Its members are Mr Ian Charles Stone, Mr Li Dong
+Sheng (both are independent non-executive directors) and Mr Jacobus Petrus (Koos) Bekker (non-executive director). The
+Remuneration Committee is chaired by Mr lan Charles Stone.
+Remuneration Committee
+The Nomination Committee will report annually on the Board's composition and make
+appropriate disclosures regarding the board diversity policy in the Corporate Governance Report
+of the Company's annual reports. It will also monitor the implementation of the board diversity
+policy.
+The Board had reviewed the implementation and effectiveness of the above mechanisms during
+the year 2023.
+Monitoring, Reporting
+and Review
+The Company will ensure that there are channels (in addition to independent non-executive
+directors) where independent views are available, including but not limited to availability of
+access by directors of the Company to external independent professional advice to assist their
+performance of duties.
+In considering whether an independent non-executive director should be proposed for
+re-election, the Nomination Committee and the Board will assess and evaluate the independent
+non-executive director's contribution to the Board during the term, in particular, whether the
+independent non-executive director is able to bring independent views to the Board.
+The Remuneration Committee's major work during the year 2023 includes the following:
+In assessing whether a potential candidate is qualified to become an independent non-executive
+director of the Company, the Nomination Committee and the Board will consider, among others,
+whether the candidate is able to devote sufficient time on performing his/her duties as an
+independent non-executive director of the Company, and the background and qualification of the
+candidate, in order to assess whether such candidate is able to bring independent views to the
+Board.
+Corporate Governance Report
+100
+00
+The Nomination Committee will ensure that the Board has the appropriate balance of skills,
+experience and diversity of perspectives that are required to support the execution of its business
+strategy and in order for the Board to be effective.
+As at 31 December 2023, our workforce (inclusive of permanent employees and other employees
+who are engaged in direct employment relationships with the Company only) consisted of 40,469
+male employees and 16,311 female employees, representing approximately 71.3% and 28.7%
+of the total workforce, respectively. As at 31 December 2023, female members accounted for
+approximately 7.9% of senior management team, and approximately 24.8% of the managerial
+positions of the Company were held by female employees. In March 2023, the Company released
+"Our Commitment to Diversity, Equity and Inclusion", declaring its plan to integrate diversity,
+equity and inclusion ("DEI") into its workplace culture and daily operations, and gradually
+achieve the DEI goals. The Company regularly reviews the DEI implementation progress and
+will continue to enhance diversity in different levels of workforce. For further details regarding
+the gender diversity of our workforce (including the gender ratio), please refer to the sections
+headed "Implement Diversity, Equity, and Inclusion" and "ESG Key Performance Tables" in the
+Environmental, Social and Governance Report 2023.
+The Company recognises the benefits of having a diverse Board, and views diversity at Board
+level as a business imperative that will help the Company achieve its strategic objectives and
+maintain a competitive advantage. A truly diverse Board will be achieved through a number of
+factors, including but not limited to differences in skills, knowledge, experience and background.
+Board appointments will be made on the basis of merit and fairness, with due regard to the
+benefits of diversity on the Board. The Nomination Committee will continue to have primary
+responsibility for identifying suitably qualified candidates to become members of the Board and,
+in carrying out this responsibility, will give adequate consideration to the board diversity policy. In
+forming its perspective on diversity, the Nomination Committee will also take into account factors
+based on the Company's business model and specific needs from time to time, including without
+limitation, skills, knowledge, experience, gender and background. The Nomination Committee
+and the Board would ensure that appropriate balance of gender diversity is achieved with
+reference to the expectation of shareholders as well as international and local recommended best
+practices. Following the appointment of one female director in 2022, the female representation
+of the Board was increased to above 20%. The Board has achieved gender diversity and targets
+to reach 30% female representation of the Board by 2030.
+The board diversity policy aims to set out the approach to enable the Nomination Committee to
+achieve diversity on the Board.
+Measurable Objectives
+Policy Statement
+Purpose and Objectives
+A summary of the board diversity policy is set out as follows:
+Corporate Governance Report
+Independent Views
+The Company has formulated policies and established management systems to enhance and support the Company's
+compliance with anti-corruption laws and regulations. The Anti-fraud Investigation Department is responsible for receiving
+whistleblower reports through various channels and following up and investigating alleged fraudulent activities. It also assists
+management in promoting the value of integrity and the “Tencent Sunshine Code of Conduct” (the “Sunshine Code”) to all
+employees of the Company.
+reviewing and recommending to the Board in respect of the remuneration policies and structure of the Company by
+benchmarking peer companies with a similar scale to ensure that the Company's remuneration packages are competitive
+to recruit the best talents in the industry and to retain key staff;
+assessing performance and, reviewing and approving adjustments to the remuneration packages for the members of the
+senior management team;
+Our Third Line is comprised of the IA and the Anti-fraud Investigation Department.
+The Third Line - Independent Assurance
+Our Second Line is mainly the IC. They are responsible for formulating policies related to the risk management and internal
+control of the Company and for planning and implementing the establishment of integrated risk control systems. To ensure the
+effective implementation of such systems, they also assist and supervise the first line in the establishment and improvement of
+risk management and internal control systems.
+The Second Line - Risk Management
+Our First Line is mainly comprised of business and functional departments of each business group of the Company who are
+responsible for the day-to-day operation and management. They are responsible for designing and implementing controls to
+address the risks.
+The First Line - Operation and Management
+Under the supervision and guidance of the Board, the Company has adopted a risk management and internal control
+structure, referred to as the "Three Lines Model”, to ensure the effectiveness of its risk management and internal control
+systems.
+The Board is responsible for overseeing risks that the Company faces, determining the risk appetite of the Company, and
+proactively considering, analysing and formulating strategies to manage the Company's significant risks to acceptable levels.
+The risks mentioned above also include, but are not limited to, significant risks relating to the environment, social and
+governance aspects of the Company.
+Corporate Governance Report
+Annual Report 2023 103
+The Board acknowledges that it is its responsibility to ensure that the Company has established and maintained adequate and
+effective risk management and internal control systems. The Board delegates its responsibility to the Audit Committee to review
+the practices of management with respect to risk management and internal control on a quarterly basis, including the design,
+implementation and monitoring of risk management and internal control systems. The Audit Committee also reviews the
+effectiveness of risk management and internal control systems on an annual basis. The members of the Audit Committee have
+extensive experience and knowledge in financial management and risk management. They also receive updates on the latest
+risk management requirements and best practices from the internal teams and would discuss in the quarterly Audit Committee
+meetings if necessary.
+In respect of risk management organisational structure establishment, risk management process implementation, and risk
+culture enhancement, the Company has been continuously improving its risk management and internal control system and
+enhancing risk management capabilities to ensure the healthy and sustainable development of the Company.
+reviewing and recommending to the Board on the remuneration packages for the directors;
+Adequate and effective risk management and internal control systems are key to safeguarding the achievement of the
+Company's strategic objectives. Risk management and internal control systems shall ensure the Company's effective business
+operation, the truthfulness and accuracy of financial reporting, as well as the compliance with applicable laws, regulations and
+policies.
+ACCOUNTS, RISK MANAGEMENT AND INTERNAL CONTROL
+In respect of non-executive directors, the Remuneration Committee has reviewed the fees payable to them taking into account
+the particular nature of their duties, relevant guidance available and the requirements of the Listing Rules.
+In conducting its work in relation to the remuneration of directors and senior management team, the Remuneration Committee
+ensured that no individual or any of his/her associates was involved in determining his/her own remuneration. It also ensured
+that remuneration awards were determined by reference to the performance of the individual and the Company and were
+aligned with the market practice and conditions, the Company's goals and strategies. The remuneration awards are designed
+to attract, retain and motivate high performing individuals, and reflect the specifics of individual roles. For further details of
+emoluments of the senior management by band, please refer to Note 15 to the consolidated financial statements.
+Corporate Governance Report
+Tencent Holdings Limited
+102
+00
+reviewing and recommending to the Board on the adoption of and amendments to the share incentive schemes of
+certain subsidiaries of the Company.
+reviewing and approving (a) the grant of options under the Post-IPO Option Scheme IV and the 2023 Share Option
+Scheme, and the grants of share awards under the 2013 Share Award Scheme, the 2019 Share Award Scheme and
+the 2023 Share Award Scheme, respectively; (b) the adjustment to the exercise prices of the outstanding share options
+under the Post-IPO Option Scheme II and the Post-IPO Option Scheme IV as a result of the distribution in specie of
+Meituan Shares; and (c) the adjustment to the number of unvested restricted shares under the 2013 Share Award
+Scheme and the 2019 Share Award Scheme as a result of the distribution in specie of Meituan Shares; and
+reviewing and endorsing the amendments to the 2013 Share Award Scheme and the 2019 Share Award Scheme;
+reviewing and endorsing the adoption of the 2023 Share Option Scheme and the 2023 Share Award Scheme;
+reviewing and approving compensation awards granted to senior management team, recognising their contributions to
+the Company and providing incentives for future performances;
+As part of the Board's responsibilities, the Board ensures that the assessment over the Group's performance and prospects
+are comprehensively and clearly presented. The directors acknowledge that it is their ultimate responsibilities to prepare
+the accounts which give a true and fair view of the financial position of the Group on a going-concern basis and other
+announcements and financial disclosures. To assist the Board in discharging its responsibilities, management provides updates
+to the Board from time to time, including the Group's detailed business and financial position information, in order to facilitate
+the directors to perform a comprehensive, understandable and clear assessment of the performance, position and prospects
+of the Group. Management also provides all necessary and relevant information to the Board, giving the directors sufficient
+explanation and information they need, to discharge their responsibilities and make an informed assessment of financial and
+other information put before them for approval. The Auditor's statement in respect of their reporting responsibilities is set out in
+the "Independent Auditor's Report" of this annual report.
+Tencent Holdings Limited
+105
+Corporate Governance Report
+In recent years, fraudulent activities have occurred frequently in the Internet and technology industry and therefore
+integrity has been an important concern. As the business continues to develop, and the form and complexity continues
+to evolve, it is inevitable that the Company faces a higher level of fraud risk. For example, fraudulent activities caused
+by collusion between suppliers/business partners and employees can have a negative impact on the reputation and
+financial position of the Company.
+The Company has adopted the Model Code. The Company has also adopted an insider dealing policy to govern and regulate
+securities transactions by employees who are likely to be in possession of inside information relating to the Company, the terms
+of which are no less exacting than those of the Model Code. The Company has made specific enquiries with the directors and
+the directors have confirmed they have complied with the Model Code throughout 2023.
+Model Code for Securities Transactions by Directors of Listed Issuers
+Corporate Governance Report
+117
+Annual Report 2023
+There has not been any change in the Company's memorandum and articles of association during the year ended
+31 December 2023.
+Significant Change in the Constitutional Documents
+The Company is required to disclose certain information pursuant to the Listing Rules and the CG Code. Set out below is the
+information which has not been covered above.
+DISCLOSURE OF OTHER INFORMATION
+Under the current dividend policy of the Company, dividends may be declared out of the distributable earnings or reserves of
+the Company. While the dividend payout ratio is not pre-determined, in proposing or declaring any dividend payout, the Board
+shall take into account the Group's earnings performance, general financial position, debt covenants, future working capital
+requirements and investment needs, and other factors that the Board considers relevant and appropriate.
+The Company endeavours to maintain sufficient working capital to develop and operate the business of the Group and to
+provide sustainable returns to the shareholders of the Company.
+DIVIDEND POLICY
+Apart from participating in the Company's general meetings, shareholders and other stakeholders may at any time contact
+or send enquiries and concerns to us via the Company Website, or by addressing them to the Investor Relations teams,
+and sending them by post to the Investor Relations teams, Tencent Holdings Limited, at 29/F., Three Pacific Place, No. 1
+Queen's Road East, Wanchai, Hong Kong, or by email to ir@tencent.com. Shareholders may also contact the Company's Hong
+Kong branch share registrar, Computershare Hong Kong Investor Services Limited, if they have any enquiries about their
+shareholdings and entitlements to dividends.
+In order to ensure that shareholders' interests and rights are adequately protected, a separate resolution will be proposed for
+each substantially separate issue at the general meetings, and all resolutions will be voted by poll pursuant to the Articles of
+Association and the Listing Rules. To ensure that the shareholders are familiar with the detailed procedures for conducting a
+poll, detailed procedures for conducting a poll are explained at the commencement of the general meetings, and all questions
+from shareholders on the voting procedures will be answered before the poll voting starts. An external scrutineer will be
+appointed to monitor and count the votes cast by poll. Poll results will be posted on the Company Website and the Stock
+Exchange's website after each general meeting.
+Corporate Governance Report
+116 Tencent Holdings Limited
+00
+Pursuant to the Articles of Association, any one or more shareholder(s) of the Company holding at the date of deposit of the
+requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of
+the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require an
+extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition.
+Such requests must be sent to the Board or the company secretary at the Company's registered office at Cricket Square,
+Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands, or by email to cosec@tencent.com, and such
+meeting shall be held within two months after the deposit of such requisition. If a shareholder wishes to propose a person for
+election as a director at a general meeting, he/she should provide a written requisition to the Board or the company secretary
+to call an extraordinary meeting following the procedures set forth above, or lodge a written notice to nominate a person at
+the Company's Hong Kong principal place of business at 29/F., Three Pacific Place, No. 1 Queen's Road East, Wanchai,
+Hong Kong, or the Company's branch share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong. Detailed procedures for shareholders to propose
+a person for election as a director are available on the Company Website under the section headed "Investors - Environment,
+Social and Governance - Governance - Shareholders".
+The Company's general meetings provide a transparent and open platform for the Company's shareholders to communicate
+with the Board and the senior management team. The Chairman, other members of the Board and relevant members of the
+senior management team, under normal circumstances, attend to answer questions raised and discuss matters in relation
+to the Company in an open manner. All directors attended the 2023 AGM and the extraordinary general meeting held on
+17 May 2023 ("2023 EGM"), with a view to understanding the views of the Company's shareholders. The company secretary
+provided the minutes of the 2023 AGM and the 2023 EGM to all directors to have a thorough understanding of the views of
+the Company's shareholders. The Company's external auditor will also attend the annual general meeting to answer questions
+relating to the conduct of the audit, the auditor's report and auditor independence.
+The Company also encourages shareholders' active participation in annual general meetings and other general meetings.
+Notices to shareholders for annual general meetings are sent to shareholders at least 21 clear days before the meetings and
+at least 14 clear days for all other general meetings to allow sufficient time for their consideration of the proposed resolutions.
+The Company's shareholders communication policy also requires appropriate arrangements to be put in place for the annual
+general meetings to encourage and facilitate shareholders' participation, and the process of the meetings is monitored and
+reviewed on a regular basis to ensure that shareholders' needs are best served.
+The dividend policy of the Company is also set out in the "Corporate Governance Report" on page 117 of this annual report
+and the historical information of dividend payout is available on the Company Website under the section headed "Investors -
+Equity & Bond Information - Interactive Share Price Chart & Dividend History".
+Corporate Governance Report
+Annual Report 2023 115
+Appointment Terms of Non-Executive Directors
+Each non-executive director, whether independent or not, is appointed for a term of one year and is subject to retirement
+by rotation at least once every three years. A director appointed to fill a casual vacancy or as an addition to the Board will be
+subject to re-election by shareholders at the first general meeting after his/her appointment.
+Directors and Officers Liability Insurance
+The Company has arranged appropriate directors and officers liability insurance in respect of legal action against the directors
+and officers.
+Annual Report 2023 119
+In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group
+as at 31 December 2023, and of its consolidated financial performance and its consolidated cash flows for the year then
+ended in accordance with IFRS Accounting Standards and have been properly prepared in compliance with the disclosure
+requirements of the Hong Kong Companies Ordinance.
+Our opinion
+the notes to the consolidated financial statements, comprising material accounting policy information and other
+explanatory information.
+•
+the consolidated statement of cash flows for the year then ended; and
+the consolidated statement of changes in equity for the year then ended;
+the consolidated statement of comprehensive income for the year then ended;
+•
+• the consolidated income statement for the year then ended;
+the consolidated statement of financial position as at 31 December 2023;
+To enable shareholders and other stakeholders to exercise their rights in an informed manner based on a good understanding
+of the Group's operations, businesses and financial information, the Company adopted the shareholders communication
+policy which aims to ensure that shareholders and other stakeholders at large are provided with ready, equal, regular and
+timely access to material information about the Group. The policy also sets out a number of ways to ensure effective and
+efficient communication with shareholders and other stakeholders is achieved, including but not limited to our quarterly results
+announcements, webcasts, responses to shareholders' enquiries, corporate communications (in both English and Chinese, to
+facilitate shareholders' understanding), posting of relevant information on the Company Website, shareholders' meetings and
+investment market communications. For shareholders to communicate their views on various matters affecting the Company
+and the Company to solicit and understand the views of shareholders and other stakeholders, the Company adopts a number
+of mechanisms, including encouraging shareholders to participate in general meetings or to appoint proxies to attend and
+vote at the meetings for and on their behalf if they are unable to attend the meetings and making appropriate arrangements
+for the annual general meetings to encourage and facilitate shareholders' participation. To facilitate communication between
+the Company, shareholders and the investor community, investor and analyst briefings, one-on-one meetings, domestic and
+international roadshows, media interviews and specialist industry forums are organised on a regular basis and are attended by
+our directors and designated spokespersons. In addition, the Company Website has been adopted as the designated hub for
+publication of the Company's announcements, press releases and other corporate communications including the shareholders
+communication policy and the investor calendar which highlights important dates for shareholders' information. During
+the year 2023, the Corporate Governance Committee reviewed the implementation and effectiveness of the shareholders
+communication policy, including the multiple communication channels for shareholders in place and the steps taken to handle
+shareholders' enquiries, and considered that the shareholders communication policy has been properly implemented and
+effective.
+•
+What we have audited
+OPINION
+TO THE SHAREHOLDERS OF TENCENT HOLDINGS LIMITED
+(incorporated in the Cayman Islands with limited liability)
+Independent Auditor's Report
+Tencent Holdings Limited
+00
+Under the framework, if an employee is aware of any project, transaction, information or situation which he/she thinks could
+potentially be inside information, he/she should contact the Head of Compliance and Transactions Department, the general
+counsel and the company secretary as soon as possible. Legal analysis and consultations with the Company's directors and
+senior executives will be made so as to identify whether any such information constitutes inside information and is required to
+be disclosed to the public pursuant to the SFO. The framework and its effectiveness are subject to review on a regular basis
+according to established procedures.
+The Company has in place a framework for the handling and disclosure of inside information in compliance with the SFO. The
+framework sets out the procedures and internal controls for the handling and dissemination of inside information in a timely
+manner so as to allow all the shareholders and stakeholders to assess the latest position of the Group.
+Framework for Disclosure of Inside Information
+The statement of the external auditor of the Company about their reporting responsibilities for the financial statements is set
+out in the "Independent Auditor's Report" on pages 119 to 127. During the year ended 31 December 2023, the remuneration
+paid/payable to the Company's external auditor, PwC, was disclosed in Note 7 to the consolidated financial statements. The
+audit and audit-related services conducted by the external auditor mainly comprise of statutory audits and reviews for the
+Group and its certain subsidiaries. The non-audit services conducted by the external auditor mainly include tax advisory
+services for certain subsidiaries, due diligence services and other services such as ESG assurance service and services relating
+to risk management and internal control review. Please refer to Note 7 to the consolidated financial statements for a breakdown
+of the fees paid for the key non-audit services.
+External Auditor and Auditor's Remuneration
+The consolidated financial statements of Tencent Holdings Limited (the "Company") and its subsidiaries (the "Group"), which
+are set out on pages 128 to 272, comprise:
+SHAREHOLDERS
+118
+Based on theses reviews, the Board is of the view that throughout the year ended 31 December 2023, the risk management
+and internal control systems of the Company (including the Company's processes for financial reporting and Listing Rules
+compliance) are effective and adequate.
+111
+Annual Report 2023
+The Company has established an ESG team to comprehensively assess and manage ESG risks, enhance ESG
+performance, and make annual disclosures in accordance with compliance requirements and international standards.
+The Company has incorporated relevant ESG issues into its annual corporate risk assessment. The Board has authorised
+the Corporate Governance Committee to comprehensively supervise ESG performance and release annual reports.
+Please refer to the "Environmental, Social and Governance Report 2023" published by the Company for related details.
+There is a consensus among organisations of United Nations, international listing rules-setting organisations and
+regulators that ESG affairs are classified as regular disclosures for listed companies. As one of the important standards to
+evaluate the health of a company's development, ESG performance will affect how shareholders and other stakeholders
+determine the value of the Company.
+Social responsibility and environmental sustainability risk
+The Company continues to optimise its resource allocation, business strategy, organisational structure, human
+resources, management systems, business processes, and strengthen its product development, improve its own product
+competitiveness, so as to enhance the effectiveness of the collaboration with external stakeholders, and to ensure
+the sustainable and high quality development of ToB business. At the same time, through continuous technological
+innovation, the Company creates healthy ecosystem with business partners to enhance its ability to serve corporate
+clients and to promote the integrated development of digital and real economies for better social value.
+The Company continues to accumulate and solidify its experience in the ToB business, actively follow up and analyse
+the development trends and changes in customer needs of different industries in both the domestic and foreign markets.
+The Company has expanded its footprints in various industries including financial services, retail, healthcare, industry,
+transportation, education, etc. by leveraging technological innovations such as cloud computing and Al technologies
+to create the smart industry upgrade solutions, and to build a new, intelligent ecosystem that connects consumers and
+business enterprises.
+The Company has actively developed various ToB businesses related to Industrial Internet. With the rapid development
+of the ToB business, if the Company fails to adjust its business strategy to respond to changes in industry trends and
+market needs on a timely basis, to continuously enhance its organisational structure and suitability with professional
+talents, to improve its internal management system and processes for ToB businesses, to enhance its supply chain
+management capabilities, or to improve its collaboration mechanisms with various business partners, it may face more
+management challenges, and may affect the sustainable development of its ToB businesses and the realisation of the
+Company's strategic goals.
+Corporate Governance Report
+9.
+ToB business risk
+8.
+110 Tencent Holdings Limited
+The Company pays a lot of attention to investment risk and has established an Investment Committee under the Board.
+The Company also puts in place an investment evaluation and approval process, and sets up a dedicated professional
+team to advise on investment projects. Finance, legal and other relevant professional teams are responsible for managing
+relevant investment risks and following up with post-investment management, reviewing the operating, financial and
+risk management information of the investee companies on a regular basis, monitoring and analysing the performance
+of the investee companies, to ensure that they continue to meet the Company's investment strategies. The Company
+will continuously monitor the trend of the macroeconomic environment and the changes in the laws and regulations
+of various industries, conduct dynamic analysis and develop strategy for risk management to effectively manage the
+investment risks.
+The Company has a diversified investment portfolio. The complex and ever-changing international relations and
+heightened domestic and foreign regulatory policies have imposed higher requirements over the formulation of
+investment strategies, fund management, pre-investment evaluation and post-investment management. Failure to
+timely and effectively manage investment risks could hinder the realisation of investment strategies and lead to probable
+financial loss of the Company.
+M&A and investment management risk
+7.
+The Company continues to invest in its network infrastructure, to enhance its business recovery mechanism, to deepen
+its collaboration with operators to improve management capabilities, to strengthen the stability of its domestic and
+international product services and business operations, to safeguard network security and to provide consistent support
+to business development. The Company has also established dedicated teams and defined the responsibilities of
+different parties to develop contingency plans in relation to business continuity and perform regular drills. All business
+units also actively implement various emergency measures to ensure the smooth operation of business. In addition, the
+Company has established an independent team to perform regular checks on the effectiveness of relevant contingency
+plans, emergency measures and regular drills, and will actively follow up the remedial actions and improvement plans.
+The stability of servers and network infrastructure for products and platforms of the Company is of vital importance for
+the sustainable operation of the Company's business as well as the provision of high-quality user experience. Therefore,
+any material functional defect, interruption, breakdown, or other issues in IT system functions are likely to adversely
+impact the Company's businesses. In addition, the Company's operations may be affected by uncontrollable external
+factors such as operator's operational incidents, natural disasters, social security events, epidemic disease or energy
+supply. Relevant incidents may damage workplaces and equipment that are vital to the operations of the Company and
+its business partners, and threaten the health of their employees, which results in disruption of the Company's normal
+operation.
+Business continuity risk
+6.
+Corporate Governance Report
+In addition, the Board believes that the Company's accounting and financial reporting functions as well as the ESG
+performance and reporting functions have been performed by staff with the appropriate qualifications and experience and
+that such staff receives appropriate and sufficient training and development. Based on the report of the Audit Committee, the
+Board has reviewed and is satisfied that sufficient resources have been obtained for the Company's internal audit and financial
+reporting function and that its staff qualifications and experience, training programmes and budgets etc., are sufficient.
+Corporate Governance Report
+The Company upholds its vision and mission of “Value for Users, Tech for Good", and constantly reviews its products
+from the perspective of social responsibility and incorporated "Sustainable Innovations for Social Value" into its core
+strategy as part of its strategic upgrade in 2021. The Company actively commits to promoting social and environmental
+sustainability with the use of its core technology, products and services capabilities.
+00
+The Company empowers industrial upgrading with the use of digital technologies, continuously enhances its core
+capabilities such as cloud computing, Al, big data, cybersecurity, etc., to apply them in the areas of healthcare, rural
+revitalization and talent cultivation. The Company has been providing long-term support on technologies and scientific
+research by establishing the "Xplorer Prize" to encourage talented young scientists to study and conduct scientific
+research of cutting-edge technologies and fundamental sciences and the "New Cornerstone Science Foundation" to
+encourage outstanding scientists to focus on fundamental research and achieve original innovation from scratch.
+The review process comprises of, among other things, meetings with management of business groups, IA, IC, legal team, and
+the external auditor, reviewing the relevant work reports and information of key performance indicators, the management's self-
+assessment on internal control as detailed above and discussing the significant risks with senior management of the Company.
+The Company is committed to continuously improving the privacy protection system, building reasonable and effective
+data governance policies and processes, enhancing data and network security capabilities to comprehensively safeguard
+the security of network infrastructure and data assets, practicing the concept of responsible artificial intelligence
+development, establishing governance structures and implementing security technologies to address risks.
+The Audit Committee, on behalf of the Board, continuously reviews the risk management and internal control systems.
+Effectiveness of Risk Management and Internal Control
+Corporate Governance Report
+114 Tencent Holdings Limited
+00
+In addition, the IC supervises the establishment of the risk management and internal control systems set up by management,
+ensures that management has implemented appropriate measures to resolve material internal control defects and reports the
+general situation of risk management and internal control of the Company to the Audit Committee on a quarterly basis. The IA,
+serving as the independent third line, conducts objective evaluation on the effectiveness of the Company's risk management
+and internal control systems and reports the results to the Audit Committee.
+In order to further strengthen the accountability of the management team in the internal control systems of the Company
+and to assist in determining the effectiveness of such internal control systems, the management team of each business
+group conducts self-assessment and confirms the internal control status of the business group for which it is responsible.
+The IC assists management in preparing a self-assessment questionnaire according to the COSO Framework and guides
+the management of each business group to carry out the self-assessment. The IC is also responsible for collecting and
+summarising the results of self-assessment. The Chief Executive Officer of the Company reviews this summarised self-
+assessment of each business group, assesses the general effectiveness of the internal control systems of the Company and
+submits the written confirmation thereof on behalf of management to the Audit Committee and the Board.
+The Company's internal control systems clearly define the roles and responsibilities of each party as well as the authorisation
+and approvals required for the key actions of each party. Policies and procedures are in place for the key business processes.
+This information is clearly conveyed to employees in practice and emphasised the importance of the internal control systems.
+All employees must strictly follow the policies which cover, amongst other things, financial, legal and operational issues that set
+the control standards for the management of each business process.
+Management of the Company is responsible for the design, implementation and maintenance of the effectiveness of internal
+control systems. The Board and the Audit Committee are responsible for monitoring and overseeing the performance of
+management over the internal control systems to ensure its appropriateness and effectiveness.
+The Company has always valued the importance of the internal control systems and has implemented its internal control
+systems according to the COSO Framework.
+The Company has also engaged independent professional consulting firms to perform a review of the Group's internal control
+framework and an assessment of its internal audit quality to ensure their standards are in compliance with international best
+practices.
+Corporate Governance Report
+In respect of the digital safety and wellbeing, the Company has launched "Minors Mode" in multiple products, built
+protection systems for Minors in games and provided technology-related courses and training to create a safe and
+healthy digital environment and improve Internet literacy for Minors. Meanwhile, the Company has provided “Caring
+Mode" in multiple products for the elderly to help them better integrate into the digital world and continuously invested
+resources into SliverTech to help the elderly achieve a better quality of life using digital technology.
+Internal Control
+In the field of environmental protection, the Company has committed to achieving the goals of carbon neutrality, investing
+in biodiversity conservation and continuously paying attention to the environment and climate change. The Company has
+set a goal to achieve carbon neutrality in its own operations and supply chain by 2030 and has released a "Biodiversity
+Statement", committing to implementing specific actions to reduce dependence on nature and apply digital technology
+to ecological protection.
+00
+112
+In relation to the public welfare, as the first Internet and technology enterprise to establish a charity foundation in China,
+the Company self-develops and operates an online donation platform to assist charitable organisations in reaching users
+and use digital technology to improve the transparency, openness, and efficiency of the public welfare and charity area.
+Tencent Holdings Limited
+10. Fraud risk
+Corporate Governance Report
+The Company always adheres to the value of integrity, has zero tolerance for fraud, determines to fight against any
+fraudulent activities and implements measures of sunshine project in the Company. The Company has established
+effective internal control systems and is continuously improving them. These systems have been strengthened by
+systematic, transparent control measures and procedures with digital methods. To enhance and promote integrity, the
+Company continuously conducts various training for its employees, suppliers, and business partners. With regard to
+employees, the Company has established the Sunshine Code, continuously optimises the relevant requirements, and
+requires all employees to pass the annual examination on the Sunshine Code and strictly comply with the code during
+their employment and in the course of dealing with suppliers and business partners. For suppliers and business partners,
+the Company cooperates with them to create an ecosystem with integrity. The Company has signed an Anti-commercial
+Bribery Declaration with its suppliers and business partners to build a healthy and transparent environment for business.
+Furthermore, the Company has set up an Anti-fraud Investigation Department for years to receive whistleblowing
+reports from various channels, and to follow up and investigate alleged fraudulent cases in a timely manner. Once an
+employee is found and proven to be fraudulent, he/she will be dismissed immediately. The Company may also transfer
+the more serious cases to the judiciaries or initiate legal proceeding according to national laws and regulations. At
+the same time, the Company further raises the requirements for management in relevant policies. The management
+are required to actively play their roles in risk management to ensure the healthy and sustainable development of the
+business. Any supplier/business partner found to be involved in any fraudulent activities will be blacklisted and deprived
+of the opportunity to work with the Company permanently. The Company will announce to the public the criminal cases
+and serious abuse-of-power cases that were investigated and handled by the Company via the "Sunshine Tencent"
+WeChat official platform. This shows the Company's determination to fight against corruption and fraud, as well as its
+commitment towards creating a virtuous and honest atmosphere within the Company and the industry.
+Annual Report 2023 113
+RMB'Million
+188,709
+RMB'Million
+Other comprehensive income, net of tax:
+118,048
+Items that may be subsequently reclassified to profit or loss
+Share of other comprehensive income of associates and joint ventures
+Transfer of share of other comprehensive income to profit or loss
+upon disposal and deemed disposal of associates and joint ventures
+Transfer to profit or loss upon disposal of financial assets at fair
+value through other comprehensive income
+1,479
+(9)
+(129)
+13
+value through other comprehensive income
+Note
+Net gains/(losses) from changes in fair value of financial assets at fair
+(176)
+2022
+12.186
+For the year ended 31 December 2023
+Earnings per share for profit attributable to equity holders
+Currency translation differences
+of the Company (in RMB per share)
+- basic
+- diluted
+14(a)
+19.757
+14(b)
+11.887
+19.341
+The notes on pages 139 to 272 are an integral part of these consolidated financial statements.
+00
+128 Tencent Holdings Limited
+Profit for the year
+Consolidated Statement of Comprehensive Income
+Year ended 31 December
+2023
+Other fair value (losses)/gains, net
+59,564
+(52)
+(794)
+(10,866)
+(129,145)
+107,182
+102,130
+60,699
+(148,686)
+5,052
+107,182
+59,564
+Annual Report 2023
+129
+The Group recognises revenue from sales of online games virtual
+items to the users in respect of value-added services rendered
+on the Group's online platforms. Among them, revenues from
+sales of in-game permanent virtual items are recognised ratably
+over the respective estimates of the expected users' relationship
+periods of the applicable games.
+188,709
+(1,135)
+11,142
+(1,077)
+The notes on pages 139 to 272 are an integral part of these consolidated financial statements.
+(6,102)
+13,328
+18,732
+(3,581)
+5,457
+Items that will not be subsequently reclassified to profit or loss
+Share of other comprehensive income of associates and joint ventures
+Net losses from changes in fair value of assets held for distribution
+Net gains/(losses) from changes in fair value of financial assets at fair
+value through other comprehensive income
+Currency translation differences
+Total comprehensive income for the year
+Attributable to:
+Equity holders of the Company
+Non-controlling interests
+34
+34
+(561)
+(29,991)
+937
+59
+118,048
+We focused on this area due to the fact that management
+applied significant judgments in determining the expected
+users' relationship periods. These judgments include (i)
+historical users' consumption patterns, churn rates, game
+life-cycles, and qualitative factors such as reactivity on
+marketing activities and the Group's marketing strategy; and
+(ii) the identification of events that may trigger changes in the
+estimates of the expected users' relationship periods.
+2,832
+We also tested, on a sample basis, the arithmetical
+accuracy of the valuation computation.
+We tested, on a sample basis, valuation of Level 3 financial
+instruments as at 31 December 2023 by evaluating the
+underlying assumptions and inputs including risk-free
+rates, expected volatility and market information of recent
+transactions (such as recent fund raising transactions
+undertaken by the investees), as well as the underlying
+supporting documentation.
+We involved our internal valuation experts to assess the
+appropriateness of valuation methodology adopted and key
+assumptions used.
+In respect of the fair value measurement of Level 3 financial
+instruments, we assessed and tested the effectiveness of
+management controls in relation to the valuation process
+employed, which include the adoption of applicable
+valuation methodology and the related assumptions under
+different circumstances, and inspected the evidence of
+management's review.
+How our audit addressed the Key Audit Matter
+We focused on this area due to the high degree of judgment
+required in determining the respective fair values of Level 3
+financial instruments, which do not have open market quoted
+values, with respect to the adoption of applicable valuation
+methodology and the application of appropriate assumptions in
+the valuation.
+As at 31 December 2023, approximately RMB199,535 million
+of financial assets at fair value through profit or loss and
+approximately RMB22,671 million of financial assets at fair
+value through other comprehensive income were measured
+based on significant unobservable inputs and classified as
+"Level 3 financial instruments".
+Refer to Notes 4.3, 5(c), 26 and 27 to the consolidated
+financial statements.
+We found that the valuation methodology of Level 3
+financial instruments was acceptable and the assumptions
+made by management were supported by available
+evidence.
+Fair value measurement of Level 3 financial instruments,
+including financial assets at fair value through profit or loss
+and financial assets at fair value through other comprehensive
+income
+Independent Auditor's Report
+123
+Annual Report 2023
+We found that the valuation models were acceptable, and
+the key assumptions used by management were in line with
+our expectations and supported by available evidence.
+We independently tested, on a sample basis, the accuracy
+of mathematical calculations applied in the valuation
+models and the calculation of the applicable impairment
+charges.
+In respect of impairment assessments performed using the
+market approach, we assessed and evaluated, on a sample
+basis, the valuation assumptions adopted by management
+including the selection of comparable companies (i.e.,
+by making reference to the respective market segments,
+geographic areas, and revenue size, etc.), recent market
+transactions undertaken, liquidity discounts adopted for
+lack of marketability for unlisted investments, and share
+prices for listed investments, etc. We assessed these key
+assumptions adopted by management with the involvement
+of our internal valuation experts based on our industry
+knowledge and independent research performed by us.
+How our audit addressed the Key Audit Matter
+We focused on these areas due to the magnitude of the
+carrying amounts of these assets and the fact that significant
+judgments were applied by management.
+Key Audit Matter
+00
+124
+Tencent Holdings Limited
+Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal
+control.
+Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
+or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
+and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
+fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
+misrepresentations, or the override of internal control.
+•
+As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism
+throughout the audit. We also:
+Independent Auditor's Report
+125
+Annual Report 2023
+Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
+from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report
+our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to
+any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee
+that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can
+arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
+influence the economic decisions of users taken on the basis of these consolidated financial statements.
+AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
+Those charged with governance are responsible for overseeing the Group's financial reporting process.
+In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as
+a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
+unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
+The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true
+and fair view in accordance with IFRS Accounting Standards and the disclosure requirements of the Hong Kong Companies
+Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated
+financial statements that are free from material misstatement, whether due to fraud or error.
+RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
+FINANCIAL STATEMENTS
+If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
+required to report that fact. We have nothing to report in this regard.
+In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
+in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
+knowledge obtained in the audit, or otherwise appears to be materially misstated.
+Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
+assurance conclusion thereon.
+The directors of the Company are responsible for the other information. The other information comprises all of the information
+included in the annual report other than the consolidated financial statements and our auditor's report thereon.
+OTHER INFORMATION
+Independent Auditor's Report
+Impairment assessments of goodwill, investments in associates
+and joint ventures (continued)
+Key Audit Matter
+Independent Auditor's Report
+122 Tencent Holdings Limited
+We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including
+International Independence Standards) issued by the International Ethics Standards Board for Accountants ("IESBA Code"),
+and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code.
+KEY AUDIT MATTERS
+Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
+consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
+consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
+these matters.
+Key audit matters identified in our audit are summarised as follows:
+•
+Revenue recognition on provision of online games value-added services related to in-game permanent virtual items - the
+estimates of the expected users' relationship periods
+Impairment assessments of goodwill, investments in associates and joint ventures
+Fair value measurement of Level 3 financial instruments, including financial assets at fair value through profit or loss and
+financial assets at fair value through other comprehensive income
+00
+120
+Tencent Holdings Limited
+Independent Auditor's Report
+Key Audit Matter
+the
+Revenue recognition on provision of online games value-added
+services related to in-game permanent virtual items
+estimates of the expected users' relationship periods
+-
+Refer to Notes 2.22(a), 5(a) and 6(b) to the consolidated
+financial statements.
+466
+We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
+Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
+disclosures made by the directors.
+We conducted our audit in accordance with International Standards on Auditing ("ISAS"). Our responsibilities under those
+standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
+of our report.
+Independent Auditor's Report
+00
+In respect of the impairment assessments using discounted
+cash flows, we assessed and evaluated, on a sample
+basis, the key assumptions adopted including revenue
+growth rates, terminal growth rates, discount rates and
+other assumptions adopted by management by examining
+the approved financial/business forecast models, and
+comparing actual results for current year against the
+previous period's forecasts and the applicable industry/
+business data available to the Group from external sources.
+We assessed these key assumptions with the involvement
+of our internal valuation experts.
+We assessed, on a sample basis, the basis management
+adopted to ascertain and identify separate groups of cash
+generating units that contain the goodwill balances; the
+valuation models used in management's impairment
+assessments.
+We assessed and tested the effectiveness of controls
+in respect of (i) the annual impairment assessments of
+goodwill; and (ii) identification of impairment indicators of
+and performing impairment assessments on investments in
+associates and joint ventures, including the determination
+of appropriate valuation models and assumptions used in
+impairment provisions.
+How our audit addressed the Key Audit Matter
+Management adopted either the discounted cash flows or
+market approach as valuation models depending on the situation
+of the respective assessments. In assessing the value in use,
+significant management assumptions have to be applied in the
+determination of revenue growth rates, terminal growth rates,
+and discount rates when using discounted cash flows; while in
+assessing the fair value less costs of disposal, assumptions are
+applied in the selection of comparable companies, recent market
+transactions, liquidity discounts adopted for lack of marketability
+for unlisted investments, and share prices for listed investments
+when using market approach.
+Goodwill is subject to impairment assessments annually
+or more frequently when there is an impairment indicator.
+Investments in associates and joint ventures are subject to
+impairment assessment when there is an impairment indicator.
+In carrying out impairment assessments, significant judgments
+are required to estimate the recoverable amounts, being the
+higher of the fair value less costs of disposal and value in use.
+Impairment provisions of RMB5 million and RMB6,847 million
+had been recognised against the carrying amounts of goodwill
+and investments in associates, respectively, while impairment
+reversals of RMB752 million had been recognised for the
+carrying amounts of investments in joint ventures, during the
+year ended 31 December 2023.
+As at 31 December 2023, the Group had significant amounts
+of goodwill, investments in associates and joint ventures
+amounting to RMB126,220 million, RMB253,696 million and
+RMB7,969 million, respectively.
+Refer to Notes 2.8(a), 2.10, 5(b), 22, 23 and 24 to the
+consolidated financial statements.
+Impairment assessments of goodwill, investments in associates
+and joint ventures
+Key Audit Matter
+Independent Auditor's Report
+Annual Report 2023 121
+We found that the results of our procedures performed to
+be materially consistent with management's assessment.
+We assessed, on a sample basis, the expected users'
+relationship periods adopted by management by (i) testing
+the data integrity of historical users' consumption patterns
+and calculation of the churn rates; (ii) evaluating the
+consideration made by management in determining the
+underlying assumptions for expected users' relationship
+periods with reference to historical operating and marketing
+data of the relevant games; and (iii) assessing the accuracy
+of the management's historical estimation results by
+comparing the actual users' relationship periods for current
+year against the original estimation made in prior years.
+We assessed, on a sample basis, the data generated
+from the Group's information system supporting the
+management's estimates, including testing the information
+system logic for generation of the applicable reports, and
+checking the completeness and accuracy of underlying
+data utilised in development of the management's
+estimates.
+We assessed and tested the effectiveness of controls in
+respect of determination of expected users' relationship
+periods for recognition of revenue from sales of in-game
+permanent virtual items, including management's review
+and approval of (i) determination of the expected users'
+relationship periods of new games prior to their launches in
+the current year; (ii) periodic reassessment on the expected
+users' relationship periods of existing games; and (iii)
+changes in the estimates of the expected users' relationship
+periods on any indicators triggering such changes.
+How our audit addressed the Key Audit Matter
+BASIS FOR OPINION
+Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit
+evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
+on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
+to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such
+disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
+date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going
+Independence
+Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
+disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
+manner that achieves fair presentation.
+8,592
+13,808
+10
+Interest income
+116,287
+(6,090)
+9
+Net gains/(losses) from investments and others
+110,827
+160,074
+Operating profit
+8,006
+4,701
+8
+(106,696)
+(103,525)
+7
+(29,229)
+(34,211)
+Finance costs
+7
+11
+(9,352)
+188,243
+concern.
+115,216
+Non-controlling interests
+Equity holders of the Company
+Attributable to:
+188,709
+118,048
+Profit for the year
+(21,516)
+(43,276)
+Income tax expense
+210,225
+161,324
+Profit before income tax
+(16,129)
+5,800
+12
+Share of profit/(loss) of associates and joint ventures, net
+(12,268)
+238,746
+13(a)
+(315,806)
+Note
+2022
+Restated
+2023
+Year ended 31 December
+For the year ended 31 December 2023
+Consolidated Income Statement
+127
+Annual Report 2023
+Hong Kong, 20 March 2024
+Certified Public Accountants
+PricewaterhouseCoopers
+From the matters communicated with those charged with governance, we determine those matters that were of most
+significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
+matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the
+matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
+because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
+communication.
+We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
+regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
+bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
+We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
+audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
+Independent Auditor's Report
+126 Tencent Holdings Limited
+Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
+within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
+supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
+293,109
+00
+RMB'Million
+(Note 2.2)
+RMB'Million
+The engagement partner on the audit resulting in this independent auditor's report is Wilson W.Y. Chow.
+Value-added Services
+(315,906)
+19
+Other gains/(losses), net
+General and administrative expenses
+554,552
+Selling and marketing expenses
+Gross profit
+Cost of revenues
+609,015
+7,194
+177,064
+203,763
+82,729
+101,482
+287,565
+298,375
+FinTech and Business Services
+Others
+Online Advertising
+5,395
+Revenues
+617
+capacity as equity holders for the year
+Total transactions with equity holders in their
+(4,912)
+(1,868)
+Balance at 31 December 2022
+(144,188)
+(146,935)
+(7,790)
+(154,725)
+62,418
+(1,868)
+(4,226)
+3,416
+(489)
+(175)
+3,094
+727
+727
+(40,914)
+(1)
+121
+848
+Recognition of put option liabilities arising from
+business combinations
+(175)
+(175)
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+2,298
+617
+179
+(3,583)
+705,981
+RMB'Million
+61,469
+45(a)
+256,691
+173,760
+(34,729)
+(27,669)
+221,962
+RMB'Million
+146,091
+(12,267)
+14
+33
+(1)
+Purchase of property, plant and equipment, construction in progress
+and investment properties
+(7,633)
+2022
+Note
+2023
+782,860
+The notes on pages 139 to 272 are an integral part of these consolidated financial statements.
+00
+136
+Tencent Holdings Limited
+Cash flows from operating activities
+Cash generated from operations
+Income tax paid
+Net cash flows generated from operating activities
+Cash flows from investing activities
+Payments for business combinations, net of cash acquired
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2023
+Net inflow of cash in respect of disposals of investments in subsidiaries
+Year ended 31 December
+721,391
+100
+2,882
+(929)
+1,425
+22,057
+445
+22,502
+- shares withheld for share award schemes
+(2,882)
+20,632
+(2,882)
+-vesting of awarded shares
+(2,882)
+Tax benefit from share-based payments
+5
+5
+5
+(2.882)
+Profit appropriations to statutory reserves
+- value of employee services
+995
+Capital injections
+Proceeds from disposal of property, plant and equipment
+3
+3
+Employee share option schemes:
+-value of employee services
+Employee share award schemes:
+2,055
+995
+110
+2,165
+97
+2,262
+995
+-proceeds from shares issued
+1,082
+(1,082)
+Repurchase and cancellation of shares
+business combinations
+Acquisition of additional equity interests in
+non wholly-owned subsidiaries
+Dilution of interests in subsidiaries
+Disposal of subsidiaries
+Changes in put option liabilities in respect of
+Non-controlling interests arising from
+non-controlling interests
+908
+992
+992
+(5,199)
+(4,207)
+(929)
+908
+Dividends under distribution in specie
+Cash dividends
+(130,156)
+(28,010)
+Repurchase of shares (to be cancelled)
+(1,868)
+1 88
+(28,010)
+(28,010)
+(1,868)
+.
+(1,868)
+(12,950)
+(12,950)
+(1,610)
+(14,560)
+(130,156)
+(130,156)
+1,029
+(21,008)
+257
+Payments for repurchase of shares
+Purchase of/prepayments for intangible assets
+Payments for withholding individual income tax for share option schemes
+Payments for purchased/withheld of shares for share award schemes
+(242)
+(4,378)
+(2,882)
+Proceeds from issuance of additional equity of non wholly-owned subsidiaries
+Payments for acquisition of non-controlling interests in non wholly-owned
+subsidiaries
+196
+995
+8
+(4,746)
+Capital reductions of non-controlling interests in non wholly-owned subsidiaries
+(20)
+Dividends paid to the Company's shareholders
+(20,983)
+(12,952)
+(4,818)
+Dividends paid to non-controlling interests
+1,070
+Proceeds from issuance of ordinary shares as a result of exercise
+(9,889)
+(15,378)
+33,641
+22,535
+(34,116)
+(8,451)
+of share options
+(10,141)
+(5,969)
+(11,478)
+(9,342)
+(43,767)
+(29,307)
+Interest paid
+(6,652)
+(805)
+(2,165)
+Net cash flows used in financing activities
+GENERAL INFORMATION
+Tencent Holdings Limited (the "Company") was incorporated in the Cayman Islands with limited liability. The address of
+its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The
+shares of the Company have been listed on the Main Board of the Stock Exchange of Hong Kong Limited (the "Stock
+Exchange") since 16 June 2004.
+The Company is an investment holding company. The Company and its subsidiaries (collectively, the "Group") are
+principally engaged in the provision of Value-added Services ("VAS"), Online Advertising services and FinTech and
+Business Services.
+The operations of the Group were initially conducted through Shenzhen Tencent Computer Systems Company Limited
+("Tencent Computer"), a limited liability company established in the PRC by certain shareholders of the Company on 11
+November 1998. Tencent Computer is legally owned by the core founders of the Company who are PRC citizens (the
+"Registered Shareholders").
+The PRC regulations restrict foreign ownership of companies that provide value-added telecommunications services,
+which include activities and services operated by Tencent Computer. In order to enable the Company to own and control
+the business of the Group, the Company established a subsidiary, Tencent Technology (Shenzhen) Company Limited
+("Tencent Technology"), which is a wholly foreign owned enterprise incorporated in the PRC, on 24 February 2000.
+Under a series of contractual arrangements (collectively, “Structure Contracts") entered into among the Company,
+Tencent Technology, Tencent Computer and the Registered Shareholders, the Company is able to effectively control,
+recognise and receive substantially all the economic benefit of the business and operations of Tencent Computer. In
+summary, the Structure Contracts provide the Company through Tencent Technology with, among other things:
+1
+•
+the right to ensure that Tencent Technology owns the valuable assets of the business through the assignment to
+Tencent Technology of the principal present and future intellectual property rights of Tencent Computer; and
+.
+the right to control the management, financial and operating policies of Tencent Computer.
+As a result, Tencent Computer is accounted for as a controlled structured entity (see also Note 2.3(a) and Note 50) and
+the formation of the Group in 2000 was accounted for as a business combination between entities under common control
+under a method similar to the uniting of interests method for recording all assets and liabilities at predecessor carrying
+amounts. This approach was adopted because in management's belief it best reflected the substance of the formation.
+Annual Report 2023 139
+Transactions with equity holders
+the right to receive the cash received by Tencent Computer from its operations which is surplus to its requirements,
+having regard to its forecast working capital needs, capital expenditure, and other short-term anticipated
+expenditure through various commercial arrangements;
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+Net increase/(decrease) in cash and cash equivalents
+Cash and cash equivalents at beginning of the year
+Exchange gains on cash and cash equivalents
+Cash and cash equivalents at end of the year
+(82,573)
+(59,953)
+14,228
+(18,733)
+156,739
+167,966
+1,353
+7,506
+172,320
+156,739
+The notes on pages 139 to 272 are an integral part of these consolidated financial statements.
+00
+138
+7,701
+29,809
+RMB'Million
+2022
+(12,925)
+Proceeds from disposal of financial assets at fair value through other
+comprehensive income
+7,727
+8,048
+Payments for acquisition of financial assets at fair value through profit or loss
+(8,511)
+(45,614)
+Proceeds from disposal of financial assets at fair value through profit or loss
+49,324
+20,019
+Payments for acquisition/settlement of other financial instruments
+(3,616)
+(870)
+(41,181)
+comprehensive income
+Payments for acquisition of financial assets at fair value through other
+352
+(26,042)
+(27,645)
+Purchase of/prepayments for land use rights
+(357)
+(526)
+Payments for acquisition of investments in associates
+(5,625)
+(11,602)
+Proceeds from disposal of investments in associates
+3,938
+22,269
+Payments for acquisition of investments in joint ventures
+Proceeds from disposal of investments in joint ventures
+(25)
+(20)
+431
+Net (outflow)/inflow of acquisition/settlement of other financial assets
+(22,679)
+376
+(730)
+Payments for loans to investees and others
+Annual Report 2023
+137
+Consolidated Statement of Cash Flows
+For the year ended 31 December 2023
+Cash flows from financing activities
+Proceeds from short-term borrowings
+(104,871)
+Repayments of short-term borrowings
+Repayments of long-term borrowings
+Repayments of notes payable
+Principal elements of lease payments
+Year ended 31 December
+2023
+RMB'Million
+Proceeds from long-term borrowings
+(125,161)
+2,192
+8,506
+(544)
+(2,949)
+Loans repayments from investees and others
+1,199
+501
+Receipt from maturity of term deposits with initial terms of over three months
+163,713
+92,199
+Placement of term deposits with initial terms of over three months
+(244,419)
+(127,046)
+Interest received
+Dividends received
+Net cash flows used in investing activities
+10,349
+2,011
+344
+RMB'Million
+Consolidated Statement of Financial Position
+RMB'Million
+Other comprehensive income, net of tax:
+Profit for the year
+Comprehensive income
+Balance at 1 January 2023
+132 Tencent Holdings Limited
+Director
+Director
+Yang Siu Shun
+-share of other comprehensive income
+Ma Huateng
+The consolidated financial statements on pages 128 to 272 were approved by the Board on 20 March 2024 and were signed
+on its behalf:
+The notes on pages 139 to 272 are an integral part of these consolidated financial statements.
+1,578,131
+1,577,246
+Total equity and liabilities
+795,271
+703,565
+Total liabilities
+00
+of associates and joint ventures
+- losses from changes in fair value
+of assets held for distribution
+Total
+Non-controlling
+Retained
+Other
+for share
+Treasury
+Share
+Share
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2023
+Consolidated Statement of Changes in Equity
+other comprehensive income
+financial assets at fair value through
+- net gains from changes in fair value of
+joint ventures
+deemed disposal of associates and
+income to profit or loss upon disposal and
+-transfer of share of other comprehensive
+434,204
+352,157
+147,965
+17(b)
+41,537
+38
+Borrowings
+61,139
+76,595
+43
+Other payables and accruals
+92,381
+100,948
+42
+Accounts payable
+RMB'Million
+RMB'Million
+Note
+2022
+2023
+As at 31 December
+Current liabilities
+As at 31 December 2023
+11,580
+capital
+Notes payable
+14,161
+Dividends payable for distribution in specie
+82,216
+86,168
+6(c)(i)
+Deferred revenue
+6,354
+6,154
+Lease liabilities
+3,937
+4,558
+41
+Other financial liabilities
+4,698
+4,372
+Other tax liabilities
+13,488
+17,664
+Current income tax liabilities
+10,446
+39
+Consolidated Statement of Financial Position
+premium
+award schemes
+(45)
+(45)
+(17,891)
+17,846
+retained earnings, net of tax
+disposal of financial instruments to
+Transfer of losses on disposal and deemed
+107,182
+45
+5,052
+115,216
+(13,086)
+Total comprehensive income for the year
+(3,581)
+(66)
+(3,515)
+(3,515)
+- other fair value losses, net
+102,130
+Transfer of share of other comprehensive
+income to retained earnings upon disposal
+and deemed disposal of associates and
+Attributable to equity holders of the Company
+For the year ended 31 December 2023
+Consolidated Statement of Changes in Equity
+133
+Annual Report 2023
+(118)
+(118)
+(118)
+loss upon disposal and deemed disposal
+of associates and joint ventures to profit or
+Transfer of share of other changes in net assets
+4,680
+4,680
+4,680
+associates and joint ventures
+Share of other changes in net assets of
+(66)
+66
+joint ventures
+12,251
+771
+11,480
+11,480
+705,981
+(40,914)
+(4,226)
+(1,868)
+62,418
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+equity
+interests
+Total
+earnings
+reserves
+721,391
+shares
+61,469
+(701)
+-currency translation differences
+11,201
+1,551
+9,650
+9,650
+(9)
+(29,991)
+(9)
+(9)
+(29,991)
+(29,991)
+(737)
+(36)
+(701)
+118,048
+2,832
+115,216
+115,216
+701
+782,860
+Shares held
+131
+361,067
+28,336
+29,301
+31
+Term deposits
+29,882
+29,017
+30
+Deferred income tax assets
+1,058,800
+6,987
+29
+Other financial assets
+36,752
+28,439
+28
+Prepayments, deposits and other assets
+185,247
+213,951
+2,527
+1,012,142
+Current assets
+Inventories
+Term deposits
+27,963
+14,903
+26
+Financial assets at fair value through profit or loss
+1,278
+5,949
+29
+Other financial assets
+76,685
+88,411
+28
+Prepayments, deposits and other assets
+45,467
+46,606
+32
+Accounts receivable
+2,333
+456
+27
+Financial assets at fair value through other comprehensive income
+206,085
+211,145
+19
+53,978
+53,232
+18
+8 22 2
+21
+Construction in progress
+Right-of-use assets
+Land use rights
+Property, plant and equipment
+Non-current assets
+RMB'Million
+2022
+RMB'Million
+Note
+2023
+As at 31 December
+ASSETS
+As at 31 December 2023
+17,179
+31
+18,046
+20,464
+26
+Financial assets at fair value through profit or loss
+6,672
+7,969
+24
+Investments in joint ventures
+246,043
+253,696
+23
+Investments in associates
+559
+161,802
+177,727
+22
+570
+Intangible assets
+Investment properties
+9,229
+13,583
+22,524
+20
+Annual Report 2023
+185,983
+Restricted cash
+Notes payable
+163,668
+155,819
+38
+Borrowings
+Non-current liabilities
+LIABILITIES
+782,860
+39
+873,681
+65,090
+Total equity
+Non-controlling interests
+721,391
+808,591
+705,981
+813,911
+(40,914)
+61,469
+137,101
+148,669
+Long-term payables
+351,408
+3,503
+3,435
+6(c)(i)
+Deferred revenue
+18,424
+16,468
+Lease liabilities
+12,162
+17,635
+30
+Deferred income tax liabilities
+5,574
+8,781
+41
+Other financial liabilities
+9,067
+12,169
+40
+(33,219)
+36
+(4,226)
+(5,350)
+EQUITY
+Tencent Holdings Limited
+130
+00
+1,578,131
+1,577,246
+Total assets
+565,989
+518,446
+147,965
+34
+Assets held for distribution
+156,739
+172,320
+33
+Cash and cash equivalents
+2,783
+3,818
+33
+Consolidated Statement of Financial Position
+104,776
+As at 31 December 2023
+2023
+35
+Retained earnings
+Other reserves
+Shares held for share award schemes
+(1,868)
+(4,740)
+35
+62,418
+37,989
+35
+Treasury shares
+Share premium
+35
+Share capital
+Equity attributable to equity holders of the Company
+RMB'Million
+2022
+RMB'Million
+Note
+As at 31 December
+Share
+RMB'Million
+(1,349)
+386
+3,386
+1,449
+1,449
+(4,560)
+(3,111)
+3,386
+(1,349)
+12
+(101)
+(101)
+117
+117
+117
+1,361
+16
+non-controlling interests
+Disposal of subsidiaries
+(20,586)
+(20,586)
+(598)
+(21,184)
+32,169
+32,169
+Changes in put option liabilities in respect of
+32,169
+Dividends under distribution in specie
+Non-controlling interests arising from
+business combinations
+Acquisition of additional equity interests in
+non wholly-owned subsidiaries
+Dilution of interests in subsidiaries
+Cash dividends
+133
+Recognition of put option liabilities arising from
+business combinations
+(1,431)
+(20,878)
+37,989
+(4,740)
+(5,350)
+(33,219)
+(19,447)
+813,911
+65,090
+873,681
+00
+134
+Tencent Holdings Limited
+Balance at 1 January 2022
+808,591
+10,671
+(1,693)
+(1,124)
+(4,594)
+(4,594)
+(4,594)
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+(28)
+1,183
+95
+1,250
+(1,462)
+(212)
+Total transactions with equity holders in their
+capacity as equity holders for the year
+(24,429)
+(2,872)
+(4,740)
+Comprehensive income
+(4,740)
+Repurchase of shares (to be cancelled)
+RMB'Million
+RMB'Million
+RMB'Million
+equity
+interests
+Total
+RMB'Million
+earnings
+award schemes
+shares
+premium
+capital
+RMB'Million
+Total
+Non-controlling
+reserves
+Retained
+RMB'Million
+RMB'Million
+net of withholding individual income tax
+-proceeds from shares issued,
+1,824
+64
+1,760
+73 -
+RMB'Million
+1,687
+Employee share option schemes:
+121
+121
+Capital injections/(reductions)
+Transactions with equity holders
+RMB'Million
+-value of employee services
+Other
+for share
+Treasury
+2,071
+Tax benefit from share-based payments
+21
+21
+21
+Profit appropriations to statutory reserves
+(2,071)
+912
+(912)
+Repurchase and cancellation of shares
+(42,112)
+1,868
+(40,244)
+(40,244)
+20
+-vesting of awarded shares
+(4,378)
+(4,378)
+Share
+828
+88
+828
+828
+Employee share award schemes:
+-value of employee services
+17,267
+1,583
+18,850
+342
+19,192
+- shares purchased/withheld for share
+award schemes
+(4,378)
+(4,740)
+Profit for the year
+Balance at 31 December 2023
+- share of other comprehensive income
+7,838
+(7,978)
+(140)
+140
+(140)
+Transfer of share of other comprehensive
+retained earnings, net of tax
+income to retained earnings upon disposal
+joint ventures
+7
+(7)
+Share of other changes in net assets of
+associates and joint ventures
+7,009
+and deemed disposal of associates and
+disposal of financial instruments to
+Transfer of losses on disposal and deemed
+59,564
+-currency translation differences
+17,494
+17,494
+444
+17,938
+- other fair value gains, net
+5,345
+5,345
+112
+5,457
+Total comprehensive income for the year
+Other comprehensive income, net of tax:
+188,243
+60,699
+(1,135)
+7,009
+13
+7,009
+of associates and joint ventures to profit or
+premium
+shares
+award schemes
+reserves
+earnings
+Total
+capital
+interests
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+equity
+Total
+Non-controlling
+Retained
+loss upon disposal and deemed disposal
+(5,541)
+(5,541)
+(5,541)
+Annual Report 2023
+135
+Consolidated Statement of Changes in Equity
+For the year ended 31 December 2023
+Attributable to equity holders of the Company
+Shares held
+Share
+Share
+Treasury
+for share
+Other
+Transfer of share of other changes in net assets
+2
+(127,544)
+11
+premium
+capital
+Total
+Non-controlling
+11
+Retained
+Other
+for share
+Treasury
+Share
+Share
+70,394
+Shares held
+Attributable to equity holders of the Company
+For the year ended 31 December 2023
+806,299
+Consolidated Statement of Changes in Equity
+669,911
+(4,843)
+reserves
+earnings
+Total
+interests
+equity
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+67,330
+73,901
+award schemes
+of associates and joint ventures
+(6,102)
+deemed disposal of associates and
+joint ventures
+(129)
+(129)
+(129)
+- net losses from changes in fair value of
+financial assets at fair value through
+other comprehensive income
+(146,500)
+(146,500)
+(2,238)
+(148,738)
+-transfer to profit or loss upon disposal of
+financial assets at fair value through
+other comprehensive income
+income to profit or loss upon disposal and
+-transfer of share of other comprehensive
+shares
+(6,102)
+876,693
+2,337
+188,243
+188,243
+466
+2,337
+188,709
+2,416
+- net losses from changes in fair value
+of assets held for distribution
+(6,102)
+79
+from a Single Transaction
+Except for Amendments to IAS 12, the adoption of these new and amended standards does not have
+significant impact on the consolidated financial statements of the Group.
+Deferred Tax related to Assets and Liabilities arising
+International Tax Reform - Pillar Two Model Rules
+The Group has adopted the Amendments to IAS 12 "Deferred Tax related to Assets and Liabilities arising
+from a Single Transaction" on 1 January 2023, which resulted in the recognition of separate deferred income
+tax assets and separate deferred income tax liabilities for temporary differences arising on leases, both at
+initial recognition and subsequently. In accordance with the transitional provisions, the Group adopted the
+amendments for the first time by recognising deferred tax for all temporary differences related to leases at
+the beginning of the earliest comparative period presented. As a result, with the beginning of the earliest
+period presented being 1 January 2022, an adjustment of RMB3,070 million was recognised to the gross
+amounts of deferred income tax assets and deferred income tax liabilities simultaneously, and the resultant
+deferred income tax assets and deferred income tax liabilities met the set-off provisions and were presented
+on a net basis in the consolidated statement of financial position. Since the Group had considered the lease
+as a single transaction in which the assets and liabilities were integrally linked and recognised deferred
+tax on a net basis previously, there were nil impact on opening retained earnings upon the adoption of the
+amendments.
+In addition, Amendments to IAS 12 "International Tax Reform - Pillar Two Model Rules" were issued on 23
+May 2023 which are effective upon issuance and require retrospective application. The Group applied the
+temporary exception to deferred tax accounting for Pillar Two top-up taxes immediately upon the release of
+the amendments in May 2023, and provided new disclosures about its exposure to these taxes, the details of
+which are described in Note 13.
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+142
+1 January 2024
+Non-current Liabilities with Covenants
+Amendments to IAS 1
+1 January 2024
+Classification of Liabilities as Current or Non-current
+Amendments to IAS 1
+Lease Liability in a Sale and Leaseback
+Amendments to IFRS 16
+1 January 2024
+on or after
+periods beginning
+Effective for annual
+The following amendments to standards have not come into effect for the financial year beginning on
+1 January 2023 and have not been early adopted by the Group in preparing the consolidated financial
+statements. None of these is expected to have a significant effect on the consolidated financial statements of
+the Group.
+(c) Amendments to standards issued but not yet effective
+2.2 Changes in accounting policies (continued)
+For the year ended 31 December 2023
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+00
+Definition of Accounting Estimates
+The results and financial position of all the Group's entities (none of which has the currency of a hyper-
+inflationary economy) that have a functional currency different from the presentation currency of RMB are
+translated into the presentation currency as follows:
+Insurance Contracts
+Interest income
+116,287
+116,287
+Net gains/(losses) from investments and others
+110,827
+(124,879)
+235,706
+Operating profit
+8,006
+(116,287)
+124,293
+Other gains/(losses), net
+(29,229)
+(106,696)
+(106,696)
+8,592
+General and administrative expenses
+Selling and marketing expenses
+(8,592)
+8,592
+Interest income
+- 238,746
+238,746
+- (315,806)
+(315,806)
+554,552
+554,552
+Gross profit
+Cost of revenues
+Revenues
+Amendments to IAS 7
+and IFRS 7
+(29,229)
+Disclosure of Accounting Policies
+8,592
+(9,352)
+Amendments to IAS 12
+Amendments to IAS 12
+Amendments to IAS 8
+IFRS Practice Statement 2
+Amendments to IAS 1 and
+IFRS 17
+The following new standard and amendments to standards have been adopted by the Group for the first time
+for the financial year beginning on 1 January 2023:
+(b) New standard and amendments to standards adopted by the Group
+Changes in accounting policies (continued)
+2.2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Finance costs
+141
+188,709
+188,709
+(21,516)
+(21,516)
+210,225
+210,225
+(16,129)
+(16,129)
+Profit for the year
+Income tax expense
+Profit before income tax
+and joint ventures, net
+Share of profit/(loss) of associates
+(9,352)
+Annual Report 2023
+Supplier Finance Arrangements
+(i)
+Amendments to IAS 21
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+2.2 Changes in accounting policies (continued)
+(a) Changes in presentation of the consolidated income statement (continued)
+The following table shows the amounts of restatement relating to changes in the presentation of the
+consolidated income statement, i.e., "interest income" and "net gains/(losses) from investments and others"
+were presented below the operating profit:
+Year ended 31 December 2022
+As originally
+Consolidated income statement (extract)
+presented
+RMB'Million
+148 Tencent Holdings Limited
+00
+Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
+at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
+such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
+denominated in foreign currencies are recognised, except as disclosed in Note (c) below, in the consolidated
+income statement.
+Tencent Holdings Limited
+Transactions and balances
+Items included in the financial statements of each of the Group's entities are measured using the currency of
+the primary economic environment in which the entity operates (the "functional currency"). The functional
+currency of the Company and certain of its overseas subsidiaries is United States Dollars ("USD"). As the
+major operations of the Group are within the Mainland of China, the Group presents its consolidated financial
+statements in Renminbi ("RMB"), unless otherwise stated.
+Functional and presentation currency
+(a)
+2.5 Foreign currency translation
+When the Group ceases to continue equity accounting for an associate or joint venture because of a loss
+of significant influence or joint control, it measures any retained investment at fair value. A gain or loss
+is recognised at any difference between the fair value of any retained interest plus any proceeds from
+disposing of part of the interests in the associate or joint venture and the carrying amount of the investment
+at the date the equity method of accounting is discontinued. The amounts previously recognised in
+other comprehensive income and other changes in equity in respect of the associate or joint venture are
+reclassified to the consolidated income statement or transferred to another category of equity as specified/
+permitted by applicable IFRS Accounting Standards when the Group ceases to continue equity accounting
+for the associate or joint venture.
+Disposal of associates and joint ventures
+(e)
+The cost of associates/joint ventures acquired in stages, except for the change from an associate to a joint
+venture, is measured as the sum of the fair value of the interests previously held plus the fair value of any
+additional consideration transferred as of the date when they become associates/joint ventures.
+(d) Investments in associates/joint ventures achieved in stages
+2.4 Investments under equity accounting method (continued)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+(b)
+147
+140
+For the year ended 31 December 2023, certain items in the Group's consolidated income statement have
+been reclassified. Some items previously within “Other gains/(losses), net” are reclassified to "Net gains/
+(losses) from investments and others"; they include (i) impairment provisions for investments accounted
+for using the equity method; (ii) impairment provisions for goodwill and other intangible assets arising from
+business combinations; (iii) net gains on disposals and deemed disposals of investee companies; (iv) fair
+value changes and dividend income arising from investments; (v) donations and others. "Net gains/(losses)
+from investments and others" as well as "Interest income" are presented below "Operating profit". The
+management believes that such revised presentation of the consolidated income statement better reflects the
+results of the Group's day-to-day operations and the financial effects of income and gains/losses in relation
+to investing activities, which would facilitate users of the consolidated financial statements to have a better
+understanding of the financial performance of the Group. 2022 comparative figures have been restated to
+conform to the current year presentation.
+Annual Report 2023 149
+Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
+liabilities of the foreign operation and translated at the closing rate. Currency translation differences arising
+thereon are recognised in other comprehensive income.
+On consolidation, exchange differences arising from the translation of the net investment in foreign
+operations, and of borrowings and other financial instruments designated as hedges of such investments, are
+taken to other comprehensive income.
+All resulting currency translation differences are recognised as a separate component of other
+comprehensive income.
+(iii)
+Income and expenses for each income statement are translated at average exchange rates (unless
+this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
+transaction dates, in which case income and expenses are translated at the rate on the dates of the
+transactions); and
+(ii)
+Assets and liabilities for each statement of financial position presented are translated at the closing rate
+at the date of that statement of financial position;
+Restated
+RMB'Million
+Translation of foreign operations
+(c)
+Non-monetary items that are measured at fair value in foreign currency are translated using the exchange
+rates at the date when the fair value is determined. Translation differences on non-monetary assets and
+liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation
+differences on non-monetary financial assets and liabilities such as equity instruments held at fair value
+through profit or loss are recognised in the consolidated income statement as part of the fair value gain or
+loss and translation differences on non-monetary financial assets, such as equity instruments classified as
+FVOCI, are included in other comprehensive income.
+(b) Transactions and balances (continued)
+2.5 Foreign currency translation (continued)
+00
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+1 GENERAL INFORMATION (continued)
+Similar Structure Contracts were also executed for other PRC operating companies established by the Group similar to
+Tencent Computer subsequent to 2000. All these PRC operating companies are treated as controlled structured entities
+of the Company and their financial statements have also been consolidated by the Company. See details in Note 50.
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES
+The material accounting policies applied in the preparation of these consolidated financial statements are set out below.
+These policies have been consistently applied to all the years presented, unless otherwise stated.
+2.1 Basis of preparation
+The consolidated financial statements of the Group have been prepared in accordance with all applicable
+International Financial Reporting Standards issued by the International Accounting Standards Board ("IFRS
+Accounting Standards"). The consolidated financial statements have been prepared under the historical cost
+convention, as modified by the revaluation of financial assets at fair value through profit or loss ("FVPL"), financial
+assets at fair value through other comprehensive income ("FVOCI"), dividends payable for distribution in specie,
+certain other financial assets and liabilities, which are carried at fair value.
+The preparation of financial statements in conformity with IFRS Accounting Standards requires the use of certain
+critical accounting estimates. It also requires management to exercise its judgment in the process of applying
+the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where
+assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
+2.2 Changes in accounting policies
+(a) Changes in presentation of the consolidated income statement
+2
+1 January 2024
+Annual Report 2023
+Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated
+to the extent of the Group's interests in these entities. Unrealised losses are also eliminated unless the
+transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates
+and joint ventures have been changed where necessary to ensure consistency with the policies adopted by
+the Group.
+Business combinations (continued)
+(i)
+(a) Consolidation (continued)
+2.3 Subsidiaries (continued)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+Notes to the Consolidated Financial Statements
+2
+Tencent Holdings Limited
+144
+00
+Any contingent consideration to be transferred by the Group is recognised at fair value at the
+acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed
+to be an asset or liability are recognised in profit or loss. Contingent consideration that is classified as
+equity is not re-measured, and its subsequent settlement is accounted for within equity.
+If the business combination is achieved in stages, the acquisition date carrying amount of the Group's
+previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
+gains or losses arising from such re-measurement are recognised in profit or loss.
+Acquisition-related costs other than those incurred to issue equity interests are expensed as incurred.
+The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
+basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their
+holders to a proportionate share of the entity's net assets in the event of liquidation are measured at
+either fair value or the present ownership interests' proportionate share in the recognised amounts of
+the acquiree's identifiable net assets.
+For the year ended 31 December 2023
+The Group applies the acquisition method to account for business combinations. The consideration
+transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
+incurred to the former owners of the acquiree and the equity interests issued by the Group. The
+consideration transferred also includes the fair value of any asset or liability resulting from a contingent
+consideration arrangement, which is recognised under "Other financial assets" or "Other financial
+liabilities" in the consolidated financial statements. Identifiable assets acquired and liabilities and
+contingent consideration assumed in a business combination are measured initially at their fair values
+at the acquisition date.
+(a) Consolidation (continued)
+2.3 Subsidiaries (continued)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+143
+Annual Report 2023
+Intra-group transactions, balances and unrealised gains on transactions between group companies are
+eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
+of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform
+with the Group's accounting policies.
+Subsidiaries are all entities (including controlled structured entities as stated in Note 1 above) over which
+the Group has control. The Group controls an entity where the Group is exposed to, or has rights to, variable
+returns from its involvement with the entity and has the ability to affect those returns through its power over
+the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are
+deconsolidated from the date that control ceases.
+(a) Consolidation
+2.3 Subsidiaries
+1 January 2025
+Lack of Exchangeability
+(i) Business combinations
+An associate or a joint venture of the Group might issue shares to other investors which dilute the Group's
+interest. This is deemed as a partial disposal of the Group's interest in this entity. A dilution gain or loss
+arising on the deemed partial disposal is recognised in the consolidated income statement. If the ownership
+interest in an associate or a joint venture is reduced but significant influence or joint control is retained, only
+a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to
+consolidated income statement where appropriate.
+The excess of the total of consideration transferred, the amount of any non-controlling interest in
+the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over
+the fair value of the identifiable net assets acquired recorded as goodwill in "Intangible assets"
+in the consolidated financial statements. Goodwill is not amortised, but must instead subject to an
+impairment test at least annually (Notes 2.8 and 2.10). If the total of consideration transferred, non-
+controlling interest recognised and previously held interest measured is less than the fair value of the
+identifiable net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
+recognised directly in the consolidated income statement.
+Changes in ownership interests in subsidiaries without loss of control
+The Group determines at each reporting date whether there is any objective evidence that investments
+accounted for using the equity method, including investments in associates and joint ventures, are impaired.
+If this is the case, the Group calculates the amount of impairment as the difference between the recoverable
+amount of the investment and its carrying amount and recognises the amount in "Net gains/(losses) from
+investments and others" in the consolidated income statement.
+Under the equity method of accounting, the investments are initially recognised at cost and subsequently
+the Group's share of post-acquisition profit or loss of the investees is recognised in the consolidated income
+statement, the Group's share of post-acquisition movements in other comprehensive income of the investees
+is recognised in other comprehensive income. When the investees have a change in net assets (other than
+from a transaction with other investors) that does not affect profit or loss or other comprehensive income,
+the Group's share of other changes in net assets is recognised in consolidated statement of changes in
+equity. Dividends received or receivable from associates and joint ventures are recognised as a reduction in
+the carrying amount of the investment. Where the Group's share of losses in an associate or a joint venture
+equals or exceeds its interests in the entity, including any other unsecured long-term receivables, the Group
+does not recognise further losses, unless it has incurred legal or constructive obligations or made payments
+on behalf of the entity.
+(c) Equity accounting method
+2.4 Investments under equity accounting method (continued)
+For the year ended 31 December 2023
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+146
+00
+Joint ventures are joint arrangements whereby the parties that have joint control of the arrangement have
+rights to the net assets of the arrangement and are accounted for using the equity method of accounting.
+Joint ventures
+(b)
+(ii)
+Associates are all entities over which the Group has significant influence but not control or joint control,
+generally but not necessarily accompanying a shareholding of between 20% and 50% of the voting rights.
+Investments in associates are accounted for using the equity method of accounting. The Group's investments
+in associates include underlying goodwill identified on acquisition, net of any accumulated impairment loss.
+2.4 Investments under equity accounting method
+Impairment testing of the investments in subsidiaries is required upon receiving dividends from these
+investments if the dividends exceed the total comprehensive income of the subsidiaries in the period the
+dividends are declared or if the carrying amount of the investments in the separate financial statements
+exceeds the carrying amount in the consolidated financial statements of the investee's net assets including
+goodwill.
+Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable
+costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends
+received and receivable. In addition, the contribution to the Company's Share Scheme Trust (as defined
+in Note 50(f)) will be transferred to the "Shares held for share award schemes" under equity when the
+contribution is used for the acquisition of the Company's shares.
+(b) Separate financial statements
+2.3 Subsidiaries (continued)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+145
+Annual Report 2023
+When the Group ceases to have control, any retained interest in the former subsidiary is recognised
+at its fair value at the date when control is lost and is included in the calculation of the gain or loss on
+disposal of that subsidiary. The fair value is the initial carrying amount for the purposes of subsequently
+accounting for the retained interest as an associate, a joint venture or a financial asset. In addition, any
+amounts previously recognised in other comprehensive income in respect of that entity are accounted
+for as if the Group had directly disposed of the related assets or liabilities. It means that amounts
+previously recognised in other comprehensive income are reclassified to the consolidated income
+statement or transferred to another category of equity as specified/permitted by applicable IFRS
+Accounting Standards.
+(iii) Disposal of subsidiaries
+Transactions with non-controlling interests that do not result in a loss of control are accounted for
+as equity transactions - that is, as transactions with the owners of the subsidiary in their capacity
+as owners. The difference between the fair value of any consideration paid and the relevant share
+acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on
+disposals to non-controlling interests are also recorded in equity.
+(a) Associates
+Difference
+RMB'Million
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+General and specific finance costs directly attributable to the acquisition and construction of qualifying assets,
+which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are
+added to the cost of those assets, until such time that the assets are substantially ready for their intended use or
+sale. During the year ended 31 December 2023, finance cost capitalised was insignificant to the Group.
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2.6 Property, plant and equipment and construction in progress
+Tencent Holdings Limited
+152
+00
+Except for accounts receivable, at initial recognition, the Group measures a financial asset at its fair value
+plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly
+attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value
+through profit or loss are expensed in profit or loss.
+The classification depends on the Group's business model for managing the financial assets and the
+contractual terms of the cash flows.
+• those to be measured at amortised cost.
+those to be measured subsequently at fair value (either through other comprehensive income, or
+through profit or loss); and
+•
+The Group classifies its financial assets in the following measurement categories:
+(a) Classification and measurement
+2.11 Investments and other financial assets
+Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are
+tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might
+be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that
+the carrying amount may not be fully recoverable. An impairment loss is recognised for the amount by which the
+asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair
+value less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the
+lowest levels for which there are separately identifiable cash flows which are largely independent of the cash inflows
+from other assets or groups of assets (CGUs). Non-financial assets other than goodwill that suffered impairment
+are reviewed for possible reversal of the impairment at each reporting date.
+2.10 Impairment of non-financial assets
+When the Share Scheme Trust transfers the Company's shares to the awardees upon vesting, the related costs
+of the awarded shares vested are credited to "Shares held for share award schemes", with a corresponding
+adjustment made to "Share premium”.
+For the year ended 31 December 2023
+The consideration paid by the Share Scheme Trust (see Note 50(f)) for purchasing the Company's shares from
+the market, including any directly attributable incremental cost, is presented as “Shares held for share award
+schemes" and the amount is deducted from total equity.
+Notes to the Consolidated Financial Statements
+Annual Report 2023
+Borrowings and notes payable issued by the Group are recognised initially at fair value, net of transaction costs
+incurred. They are subsequently carried at amortised cost. Any difference between proceeds (net of transaction
+costs) and the redemption value is recognised in the consolidated income statement over their terms using the
+effective interest method.
+Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan facilities to the
+extent that it is probable that some or all of the facilities will be drawn down. In this case, the fee is deferred until
+the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be
+drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the term of the facility
+to which it relates.
+Borrowings and notes payable are classified as current liabilities unless the Group has an unconditional right to
+defer settlement of the liability for at least 12 months after the end of the reporting period.
+Notes to the Consolidated Financial Statements
+00
+158
+Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
+only when it is probable that future economic benefits associated with the items will flow to the Group and the cost
+of the items can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
+and maintenance are charged to the consolidated income statement during the reporting period in which they are
+incurred.
+2.19 Current and deferred income tax
+The income tax expense for the year comprises current and deferred income tax, which is recognised in the
+consolidated income statement, except to the extent that it relates to items recognised in other comprehensive
+income or directly in equity. In this case, the income tax is also recognised in other comprehensive income or in
+equity, respectively.
+The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
+the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable
+income. Management periodically evaluates positions taken in tax returns with respect to situations in which
+applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority
+will accept an uncertain tax treatment. When it is not probable, the Group measures its tax balances either based
+on the most likely amount or the expected value, depending on which method provides a better prediction of the
+resolution of the uncertainty.
+Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
+bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
+deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in
+a transaction other than a business combination that at the time of the transaction affects neither accounting nor
+taxable profit or loss and does not give rise to equal taxable and deductible temporary differences. Deferred income
+tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the
+reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred
+income tax liability is settled.
+Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
+available to utilise those temporary differences and tax losses.
+Deferred income tax liabilities are provided on temporary differences arising from investments in subsidiaries,
+associates and joint ventures, except for deferred income tax liability where the timing of the reversal of the
+temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse
+in the foreseeable future. Generally, the Group is unable to control the reversal of the temporary difference for
+associates and joint ventures. Only when there is an agreement in place that gives the Group the ability to control
+the reversal of the temporary difference in the foreseeable future, deferred income tax liability in relation to taxable
+temporary differences arising from the associates' and joint ventures' undistributed profit is not recognised.
+159
+2.9 Shares held for share award schemes
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+150
+00
+Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
+recognised in "Other gains/(losses), net" in the consolidated income statement.
+An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
+greater than its estimated recoverable amount (Note 2.10).
+Construction in progress represents office buildings and data centers under construction, which is stated at
+actual construction costs less any impairment loss. Construction in progress is transferred to property, plant and
+equipment when completed and ready for use.
+The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
+period.
+Leasehold improvements
+Motor vehicles
+Furniture and office equipment
+Shorter of their useful lives and the lease term
+5 years
+2-5 years
+2~10 years
+Computer and other operating equipment
+Buildings
+20-50 years
+Depreciation is calculated using the straight-line method to allocate their cost net of their residual values over their
+estimated useful lives, as follows:
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+151
+Annual Report 2023
+Other intangible assets are amortised over their estimated useful lives (generally one to ten years) using the
+straight-line method which reflects the pattern in which the intangible assets' future economic benefits are
+expected to be consumed.
+Other intangible assets mainly include trademarks, other copyrights, computer software and technology,
+non-compete agreements and customer relationships. They are initially recognised and measured at cost or
+estimated fair value as intangible assets acquired through business combinations.
+(c) Other intangible assets
+Media content mainly includes game licenses, long-form video and music content, and literature copyrights.
+They are initially recognised and measured at cost or estimated fair value as acquired through business
+combinations. Media content is amortised using a straight-line method or an accelerated method which
+reflects the estimated consumption patterns.
+2.18 Borrowings, notes payable and borrowing costs
+Media content
+Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
+circumstances indicate a potential impairment. The carrying amount of the CGU or group of CGUs including
+the allocated goodwill is compared to the recoverable amount, which is the higher of value in use and the
+fair value less costs of disposal. Any impairment is recognised immediately under "Net gains/(losses) from
+investments and others" and is not subsequently reversed.
+For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of
+the cash-generating units ("CGUS"), or groups of CGUs, that is expected to benefit from the synergies of the
+combination. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within
+the Group at which the goodwill is monitored for internal management purposes, and is not larger than an
+operating segment.
+Goodwill on acquisition of subsidiaries is recognised as described in Note 2.3(a) and included in "Intangible
+assets" in the consolidated financial statements.
+(a) Goodwill
+2.8 Intangible assets
+Land use rights are up-front payments to acquire long-term interest in land. These payments are stated at cost and
+charged to the consolidated income statement on a straight-line basis over the remaining period of the lease.
+2.7 Land use rights
+For the year ended 31 December 2023
+(b)
+The put option liabilities are non-current liabilities unless the put option first becomes exercisable within 12 months
+after the end of the reporting period.
+All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated
+impairment charges. Historical costs include expenditures that are directly attributable to the acquisition of the
+items.
+2.17 Put option arrangements on non-controlling interest
+For accounts receivable and contract assets, the Group applies the simplified approach prescribed by IFRS 9,
+which requires lifetime ECL to be recognised since initial recognition.
+Impairment on deposits and other receivables is measured as either 12-month ECL or lifetime ECL,
+depending on whether there has been a significant increase in credit risk since initial recognition. If a
+significant increase in credit risk of a deposit or other receivable has occurred since initial recognition, the
+impairment is measured as lifetime ECL.
+00
+154
+Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2.12 Derivative and hedging activities
+Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
+subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive
+and as financial liabilities when the fair value is negative, which are recognised under "Other financial assets'
+and "Other financial liabilities” in the consolidated financial statements, respectively. The method of recognising
+the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the
+nature of the item being hedged.
+The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of a
+recognised asset or liability or a highly probable forecast transaction (cash flow hedges). The Group documents
+at the inception of the hedging relationship the economic relationship between hedging instruments and hedged
+items including how the hedging instrument is expected to offset changes in cash flows of hedged items. The
+Group documents its risk management objective and strategy for undertaking various hedge transactions at the
+inception of each hedge relationship.
+A hedging relationship qualifies for hedge accounting if it meets all of the hedge effectiveness requirements under
+IFRS 9. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
+flow hedges is recognised through other comprehensive income within equity, while any ineffective portion is
+recognised immediately in profit or loss.
+Gains or losses relating to the effective portion of the change in intrinsic value of the options are recognised in the
+cash flow hedge reserve within equity. The changes in the time value of the options that relate to the hedged item
+("aligned time value") are recognised within other comprehensive income in the costs of hedging reserve within
+equity.
+Except as disclosed below, amounts accumulated in equity are accounted for, depending on the nature of the
+underlying hedged transaction, as follows:
+•
+Where the hedged item subsequently results in the recognition of a non-financial asset, the amounts
+accumulated in equity are removed from other reserves and included within the initial cost of the asset.
+These deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss.
+For any other cash flow hedges, the gain or loss relating to the effective portion of the derivatives is
+reclassified to profit or loss at the same time when the hedged cash flows affect profit or loss.
+For an option that hedges a time-period related hedged item, the aligned time value at the inception date is
+amortised on a straight-line basis over the period during which the hedged cash flows affect profit or loss.
+Annual Report 2023
+155
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+The Group assesses on a forward-looking basis the expected credit losses ("ECL") associated with its debt
+instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether
+there has been a significant increase in credit risk.
+2
+Impairment
+All other investments in equity instruments are classified as and measured at FVPL. Changes in the fair value
+of FVPL are recognised in "Net gains/(losses) from investments and others" in the consolidated income
+statement.
+For the year ended 31 December 2023
+2.11 Investments and other financial assets (continued)
+(a) Classification and measurement (continued)
+Financial assets with embedded derivatives are considered in their entirety when determining whether their
+cash flows are solely payments of principal and interest.
+Debt instruments
+Subsequent measurement of debt instruments depends on the Group's business model for managing the
+asset and the contractual cash flow characteristics of the asset. There are three categories into which the
+Group classifies its debt instruments:
+• Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash
+flows represent solely payments of principal and interest are classified as and measured at amortised
+cost. A gain or loss on a debt instrument measured at amortised cost which is not part of a hedging
+relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income
+from these financial assets is recognised using the effective interest method.
+•
+FVOCI: Financial assets that are held for collection of contractual cash flows and for selling the financial
+assets, where the assets' cash flows represent solely payments of principal and interest, are classified
+as and measured at FVOCI. Gains and losses on these financial assets are taken through other
+comprehensive income, except for the recognition of impairment losses or reversals, interest income
+and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset
+is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is
+reclassified from equity to profit or loss and recognised in "Net gains/(losses) from investments and
+others" in the consolidated income statement. Interest income from these financial assets is recognised
+using the effective interest method. Foreign exchange gains and losses are presented in "Finance
+costs" and impairment losses or reversals are presented in "Net gains/(losses) from investments and
+others".
+•
+FVPL: Financial assets that do not meet the criteria for amortised cost or FVOCI are classified as and
+measured at fair value through profit or loss. A gain or loss on a debt instrument measured at fair value
+through profit or loss which is not part of a hedging relationship is recognised in profit or loss and
+presented in “Net gains/(losses) from investments and others" for the period in which it arises.
+The Group reclassifies debt instruments when and only when its business model for managing those assets
+changes.
+Annual Report 2023
+153
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2.11 Investments and other financial assets (continued)
+(a) Classification and measurement (continued)
+Equity instruments
+The Group subsequently measures all equity investments at fair value. Upon initial recognition, the Group's
+management can elect to present fair value gains and losses on equity investments in other comprehensive
+income when they are in the scope of IFRS 9 and are not held for trading. The classification is determined
+on an instrument-by-instrument basis.
+Where the Group has made the irrevocable election to present fair value gains or losses on equity
+investments in other comprehensive income, there is no subsequent reclassification of fair value gains or
+losses to profit or loss following the derecognition of the investments. Dividends from such investments
+continue to be recognised in profit or loss as "Net gains/(losses) from investments and others" when the
+Group's right to receive payments is established. Equity instruments designated as FVOCI are not subject to
+impairment assessment.
+(b)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2.12 Derivative and hedging activities (continued)
+When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for
+hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remain
+in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the
+cumulative gain or loss and deferred costs of hedging included in equity are immediately reclassified to profit or
+loss.
+156
+Tencent Holdings Limited
+Put options on non-controlling interest of the Group are financial instruments granted by the Group which permit
+the holders to put back to the Group their shares in certain non wholly-owned subsidiaries of the Group for cash or
+other financial instruments when certain conditions are met. If the Group does not have the unconditional right to
+avoid delivering cash or other financial instruments under the put option, a financial liability is initially recognised
+under "Other financial liabilities” in the consolidated financial statements at the present value of the estimated
+future cash outflows on exercise under the put option. Subsequently, if the Group revises its estimates of payments,
+the Group will adjust the carrying amount of the financial liability to reflect actual and revised estimated cash
+outflows. The Group will recalculate the carrying amount based on the present value of revised estimated future
+cash outflows at the financial instrument's original effective interest rate and the adjustment will be recognised in
+the consolidated statement of changes in equity. In the event that the put option expires unexercised, the liability is
+derecognised with a corresponding adjustment to equity.
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2.14 Cash and cash equivalents
+Cash and cash equivalents mainly include cash on hand, deposits held at call with banks, and other short-term
+highly liquid investments with initial maturities of three months or less.
+The Group does not recognise cash amounts deposited with banks in the Mainland of China under users'
+entrustment (which are received under its payment business) in the consolidated statement of financial position as
+the Group holds these cash amounts as a custodian according to the relevant users' agreements.
+2.15 Repurchase of shares
+Save as disclosed in Note 2.9, where any group company purchases the Company's equity instruments, the
+consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to
+equity holders of the Company as treasury shares until the shares are cancelled or reissued. Where such shares
+are subsequently reissued, any consideration received (net of any directly attributable incremental transaction
+costs) is included in equity attributable to equity holders of the Company.
+2.16 Accounts payable
+Accounts payable are obligations to pay for services or goods that have been acquired in the ordinary course of
+business from suppliers. Accounts payable are presented as current liabilities unless payment is not due within 12
+months after the end of the reporting period.
+Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the
+effective interest method.
+157
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+00
+Accounts receivable are recognised initially at the amount of consideration that is unconditional unless they contain
+significant financing components, when they are recognised at fair value, and subsequently measured at amortised
+cost using the effective interest method, less provision for impairment that is subject to ECL model (Note 4.1(b)).
+Accounts receivable are amounts due from customers or agents for services performed or merchandise sold in the
+ordinary course of business. Accounts receivable are presented as current assets unless collection is not expected
+within 12 months after the end of the reporting period.
+2.13 Accounts receivable
+Following the IBOR benchmark reform, all the borrowings and notes payable the Group held which referenced
+to USD LIBOR, had been transitioned to SOFR/Term SOFR-referenced in July 2023. These amendments to the
+hedge documentation do not require the Group to discontinue its hedge relationships.
+The "phase 1" amendments provided temporary reliefs from applying specific hedge accounting requirements
+to hedging relationships directly affected by Inter Bank Offered Rate (“IBOR”) reform. The reliefs had the effect
+that IBOR reform should not generally cause hedge accounting to terminate prior to contracts being amended.
+However, any hedge ineffectiveness continued to be recorded in the income statement. Furthermore, the
+amendments set out triggers for when the reliefs would end, which included the uncertainty arising from interest
+rate benchmark reform no longer being present.
+The interest rate benchmark reform - phase 2 amendments address issues arising during interest rate benchmark
+reform, including specifying when the interest rate benchmark reform - phase 1 (“phase 1") amendments
+will cease to apply, when hedge designations and documentation should be updated, and when hedges of the
+alternative benchmark rate as the hedged risk are permitted.
+Hedge relationships
+Annual Report 2023
+For the year ended 31 December 2023
+2
+fixed payments (including in-substance fixed payments), less any lease incentives receivable;
+2.24 Leases (continued)
+Deferred income tax assets and liabilities are offset where: (i) there is a legally enforceable right to offset current
+tax assets against current tax liabilities; and (ii) the deferred income tax assets and liabilities relate to income taxes
+levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to
+settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously,
+in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or
+recovered.
+Deferred income tax assets are recognised on deductible temporary differences arising from investments in
+subsidiaries, associates and joint ventures only to the extent that it is probable the temporary difference will reverse
+in the foreseeable future and there is sufficient taxable profit available against which the temporary difference can
+be utilised.
+2.19 Current and deferred income tax (continued)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+To determine the incremental borrowing rate, the Group:
+The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
+determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used,
+being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of
+similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
+payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
+•
+the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
+•
+amounts expected to be payable by the lessee under residual value guarantees;
+.
+variable lease payments that are based on an index or a rate;
+•
+•
+Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include
+the net present value of the following lease payments:
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+Notes to the Consolidated Financial Statements
+A right-of-use asset is generally depreciated over the shorter of the asset's useful life and the lease term on a
+straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is
+depreciated over the underlying asset's useful life.
+where possible, uses recent third-party financing received by the individual lessee as a starting point,
+adjusted to reflect changes in financing conditions since third-party financing was received;
+Annual Report 2023 169
+The non-cash assets to be distributed are presented as "Assets held for distribution" in the consolidated statement
+of financial position.
+In respect of a dividend by way of distribution of non-cash assets, the liability to distribute the non-cash assets
+as a dividend is measured at the fair value of the assets to be distributed on the declaration date. At the end of
+the reporting period and at the date of settlement, the Group reviews and adjusts the carrying amount of the
+dividend liability, and any subsequent change in the fair value of the dividend liability is recognised in equity as
+an adjustment to the amount of the dividend distribution. Upon settlement, the difference between the carrying
+amount of the dividend liability which is also the fair value of the assets distributed, and the carrying amount of the
+assets distributed, if any, is recognised in profit or loss.
+Dividends distribution to the Company's shareholders is recognised as a liability in the Group's and the Company's
+financial statements in the period in which the dividend is approved by the Company's shareholders or Board
+where appropriate and no longer at the discretion of the Group.
+2.25 Dividends distribution
+Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss.
+Short-term leases are leases with a lease term of 12 months or less without a purchase option.
+Notes to the Consolidated Financial Statements
+restoration costs.
+any initial direct costs; and
+•
+any lease payments made at or before the commencement date less any lease incentives received;
+For the year ended 31 December 2023
+the amount of the initial measurement of lease liability;
+•
+Right-of-use assets are measured at cost comprising the following:
+2.24 Leases (continued)
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+168
+00
+Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over
+the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for
+each period.
+If a readily observable amortising loan rate is available to the individual lessee (through recent financing or market
+data) which has a similar payment profile to the lease, then the Group entity uses that rate as a starting point to
+determine the incremental borrowing rate.
+makes adjustments specific to the lease, e.g., term, country, currency and security.
+•
+uses a build-up approach that starts with a risk-free rate adjusted for credit risk for leases held by the lessee,
+which does not have recent third-party financing; and
+•
+167
+2
+The Group leases land (Note 2.7), various buildings, computer and other operating equipment and others.
+Rental contracts other than land are typically made for fixed periods of not longer than 10 years. Lease terms are
+negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements
+do not impose any covenants, but leased assets may not be used as security for borrowing purposes. A lease is
+recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for
+use by the Group. A right-of-use asset arising from land lease is presented as “Land use rights".
+(e) Share-based compensation benefits (continued)
+For grant of share options, the total amount to be expensed is determined by reference to the fair value of
+the options granted by using option-pricing model, “Enhanced FAS 123" binomial model (the "Binomial
+Model"), which includes the impact of market performance conditions (such as the Company's share price)
+but excludes the impact of service condition and non-market performance conditions. For grant of awarded
+shares, the total amount to be expensed is determined by reference to the market price of the Company's
+shares at the grant date. The Group also adopts valuation and actuarial techniques to assess the fair value of
+other equity instruments of the Group granted under the share-based compensation plans as appropriate.
+Non-market performance and service conditions are included in assumptions about the number of options
+and awarded shares that are expected to become vested.
+From the perspective of the Company, the grants of its equity instruments to employees of its subsidiaries are
+made in exchange for their services related to the subsidiaries. Accordingly, the share-based compensation
+expenses are treated as part of the "Investments in subsidiaries", or "Other receivables" if rechargeable, in
+the Company's statement of financial position.
+At each reporting period end, the Group revises the estimates of the number of options and awarded shares
+that are expected to ultimately vest. It recognises the impact of the revision to original estimates, if any, in the
+consolidated income statement of the Group, with a corresponding adjustment to equity.
+When the options are exercised, the proceeds received net of any directly attributable transaction costs are
+credited to share capital (nominal value) and share premium. When the vested equity instruments are later
+forfeited prior to expiry date, the amount previously recognised in share premium may be transferred to
+retained earnings.
+If the Group repurchases vested equity instruments, the payments made to the employees and other
+qualifying participants are accounted for as a deduction from equity, except to the extent that the payment
+exceeds the fair value of the equity instruments repurchased, measured at the repurchase date. Any such
+excess is recognised as an expense.
+00
+162
+Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+2.20 Employee benefits (continued)
+For the year ended 31 December 2023
+2.20 Employee benefits (continued)
+(e) Share-based compensation benefits (continued)
+If the terms of an equity-settled share-based award are modified, an additional expense is recognised for
+any modification that increases the total fair value of the share-based payment arrangement, or is otherwise
+beneficial to the employees and other qualifying participants, as measured at the date of modification.
+Modifications of an equity-settled share-based award in a manner that is not beneficial to employees are not
+taken into account when determining the expenses to be recognised.
+If a grant of equity instruments is cancelled or settled during the vesting period (other than a grant cancelled
+by forfeiture when the vesting conditions are not satisfied), the Group accounts for the cancellation or
+settlement as an acceleration of vesting, and therefore recognises immediately the amount that otherwise
+would have been recognised for services received over the remainder of the vesting period.
+Cash-settled share-based payment transactions are those arrangements where the terms provide the Group
+to settle the transaction in cash. For cash-settled share-based payments, a liability equal to the portion of the
+services received is recognised at the current fair value determined at the end of the reporting period until
+the date of settlement, with any changes in fair value recognised in profit or loss.
+2.21 Provisions
+Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;
+it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably
+estimated. Provisions are not recognised for future operating losses.
+Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
+determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an
+outflow with respect to any one item included in the same class of obligations may be small.
+Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
+using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
+specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
+Annual Report 2023
+163
+Annual Report 2023
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+2.20 Employee benefits
+(a) Employee leave entitlements
+Employee entitlements to annual leave are recognised when they are accrued to employees. A provision is
+made for the estimated liability for annual leave as a result of services rendered by employees up to the end
+of the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time
+of leave.
+(b)
+Pension obligations
+The Group participates in various defined contribution retirement benefit plans which are available to
+all relevant employees. These plans are generally funded through payments to schemes established by
+governments or trustee-administered funds. A defined contribution plan is a pension plan under which the
+Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund, and the Group
+has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets
+to pay all employees the benefits relating to employee services in the current and prior years. The Group's
+contributions to the defined contribution plans are expensed as incurred and not reduced by contributions
+forfeited by those employees who leave the plans prior to vesting fully in the contributions.
+00
+160
+Tencent Holdings Limited
+2
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+(c) Long-term employee benefit obligations
+In addition to participating in the defined contribution plans as described above, the Group also provides
+commercial health insurance benefits to certain eligible employees till their resignation or retirement. These
+obligations are classified as non-current liabilities unless it is expected to be settled wholly within 12 months
+after the end of the reporting period.
+These long-term employee benefit obligations are measured as the present value of expected future
+payments to be made in respect of services provided by employees up to the end of the reporting period
+using the projected unit credit method. Expected future payments are discounted using market yields at the
+end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely
+as possible, the estimated future cash outflows. For currencies for which there is no deep market in such
+high-quality corporate bonds, the market yields on government bonds denominated in that currency were
+applied. Re-measurements as a result of experience adjustments and changes in actuarial assumptions are
+recognised in profit or loss.
+(d)
+Long-term service awards
+The Group recognises a liability and an expense for long-term service awards where cash is paid to retired
+employees qualified for certain criteria as one-off retirement bonus and it is considered as a defined benefit
+plan. The method of accounting is similar to those used for long-term employee benefits as described above,
+except that re-measurement gains and losses arising from experience adjustments and changes in actuarial
+assumptions are recognised in other comprehensive income in the period in which they occur.
+(e)
+Share-based compensation benefits
+The Group operates a number of share-based compensation plans (including share option schemes and
+share award schemes), under which the Group receives services from employees and other qualifying
+participants as consideration for equity instruments (including share options and awarded shares) of
+the Group. The fair value of the employee services and other qualifying participants' services received in
+exchange for the grant of equity instruments of the Group is recognised as an expense over the vesting
+period, i.e., the period over which all of the specified vesting conditions are to be satisfied and credited to
+equity.
+Annual Report 2023
+161
+Notes to the Consolidated Financial Statements
+2.20 Employee benefits (continued)
+2 SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+Notes to the Consolidated Financial Statements
+The Group generates revenues primarily from provision of VAS, Online Advertising services, FinTech and Business
+Services, and other online related services in the PRC. Revenue is recognised when the control of the goods
+or services is transferred to a customer. Depending on the terms of the contract and the laws that apply to the
+contract, control of the goods and services may be transferred over time or at a point in time.
+2.22 Revenue recognition
+(d)
+FinTech and Business Services revenues mainly comprise revenues derived from provision of FinTech and
+cloud services.
+FinTech service revenues mainly include commissions from payment, wealth management and other
+FinTech services, which are generally determined as a percentage based on the value of transaction amount
+or retention amount. Revenue related to such commissions is recognised upon a point in time when the
+Group satisfies its performance obligations by rendering services.
+Cloud services are mainly charged on either a subscription or consumption basis. For cloud service contracts
+billed based on a fixed amount for a specified service period, revenue is recognised over the subscribed
+period when the services are delivered to customers. For cloud service provided on a consumption basis,
+revenue is recognised based on the customer utilisation of the resources. When a cloud-based service
+includes multiple performance obligations, the Group allocates the transaction price to each performance
+obligation on a relative stand-alone selling price basis, which is determined based on the prices charged to
+or expected to recover from customers.
+Other revenues
+The Group's other revenues are primarily derived from investments in, production of and distribution of,
+films and television programmes for third parties, copyrights licensing, merchandise sales and various other
+activities. The Group recognises other revenues when the respective services are rendered, or when the
+control of the products is transferred to customers.
+(e)
+Principal agent consideration
+The Group reports the revenue on a gross or net basis depending on whether the Group is acting as a
+principal or an agent in a transaction. The Group is a principal if it controls the specified product or service
+before that product or service is transferred to a customer or it has a right to direct others to provide the
+product or service to the customer on the Group's behalf. Indicators that the Group is a principal include but
+are not limited to: the Group (i) is the primary obligor in the arrangement; (ii) has latitude in establishing the
+selling price; (iii) has discretion in supplier selection; (iv) changes the product or performs part of the service;
+and (v) has involvement in the determination of product or service specifications.
+00
+166
+(c)
+Tencent Holdings Limited
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+2.22 Revenue recognition (continued)
+(f)
+Deferred revenue, contract liabilities and contract costs
+For the year ended 31 December 2023
+The Group's deferred revenue includes contract liabilities and refundable advance payments in certain
+businesses. A contract liability is the Group's obligation to transfer goods or services to a customer for which
+the Group has received consideration (or an amount of consideration is due) from the customer. The Group's
+contract liabilities mainly comprise unamortised virtual items, prepaid subscription fees, prepaid tokens or
+cards, Internet traffic and other support to be offered to certain investee companies in the future periods
+measured at their fair value on the inception dates, and customer loyalty incentives (Note 6(c)), which are
+presented as "Deferred revenue” in the consolidated statement of financial position.
+Contract costs include incremental costs of obtaining a contract and costs to fulfil a contract with the
+customers. The contract costs are amortised using a method which is consistent with the pattern of
+recognition of the respective revenues. The Group has applied the practical expedient to recognise the
+contract cost relating to obtaining a contract as an expense when incurred, if otherwise the amortisation
+period is one year or less.
+2.23 Government grants/subsidies
+Grants/subsidies from the government are recognised at their fair values where there is a reasonable assurance
+that the grants/subsidies will be received and the Group will comply with all attached conditions.
+Under these circumstances, the grants/subsidies are recognised as income or deducted in reporting the associated
+costs and expenses which the grants/subsidies are intended to compensate.
+2.24 Leases
+Notes to the Consolidated Financial Statements
+2.22 Revenue recognition (continued)
+FinTech and Business Services
+2
+(a)
+VAS
+Revenues from VAS primarily include revenues from the provision of online games and social networks
+services. Online games revenues are mainly derived from sales of in-game virtual items, and social networks
+revenues are mainly derived from sales of virtual items such as VAS subscriptions across various online
+platforms, and games revenues attributable to social networks business. The Group offers virtual items to
+users on the Group's online platforms. The VAS fees are paid directly by end users mainly via online payment
+channels.
+Revenue from VAS is recognised when the Group satisfies its performance obligations by rendering services.
+Given that there is an explicit or implicit obligation of the Group to maintain the virtual items operated on the
+Group's platforms and allow users to gain access to them, revenue is recognised over the estimated lifespans
+of the respective virtual items. Revenues from sales of limited life virtual items are recognised based on the
+consumption or the stipulated period of validity of the relevant virtual items ratably. Revenues from sales of
+in-game permanent virtual items are recognised ratably over the respective estimates of the expected users'
+relationship periods of the applicable games determined by the management.
+Where the contracts include multiple performance obligations, the Group allocates the transaction price to
+each performance obligation on a relative stand-alone selling price basis, which is determined based on the
+prices charged to or expected to recover from customers.
+In respect of the Group's VAS directly delivered to the Group's customers and paid through various third-
+party platforms, these third-party platforms collect the relevant service fees (the “Online Service Fees") on
+behalf of the Group and they are entitled to a pre-determined percentage of platform provider fees (as part
+of "Channel and distribution costs"). Such Channel and distribution costs are withheld and deducted from
+the gross Online Service Fees collected by these platforms from the users, with the net amounts remitted
+to the Group. The Group recognises the Online Service Fees as revenue on a gross or net basis depending
+on whether the Group is acting as a principal or an agent in these transactions based on the assessment
+according to the criteria stated in (e) below.
+00
+164
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+(a)
+2.22 Revenue recognition (continued)
+The Group also opens its online platforms to third-party game/application developers under certain co-
+operation agreements, under which the Group pays to the third-party game/application developers a pre-
+determined percentage of the fees paid by and collected from the users of the Group's online platforms
+for the virtual items sold. The Group recognises the related revenue on a gross or net basis depending on
+whether the Group is acting as a principal or an agent in the transaction.
+For the year ended 31 December 2023
+165
+Annual Report 2023
+Revenue from display-based advertising is recognised on number of display/impression basis or depending
+on the contractual measures. Revenue from performance-based advertising is recognised when relevant
+specific performance measures are fulfilled. Where the contracts include multiple performance obligations,
+the Group allocates the transaction price to each performance obligation on a relative stand-alone selling
+price basis, which is determined based on the prices charged to or expected to recover from customers.
+VAS (continued)
+Online Advertising revenues mainly comprise revenues derived from media advertisements and from social
+and other advertisements, depending on the placement of advertising properties and inventories.
+Advertising contracts are signed to establish the prices and advertising services to be provided based on
+different arrangements, including display-based advertising that is display of advertisements for an agreed
+period of time, and performance-based advertising that is based on actual performance measurement.
+(b)
+The Group adopts different revenue recognition methods based on its specific responsibilities/obligations in
+different VAS offerings.
+Online Advertising
+4
+For the year ended 31 December 2023
+3.6 Dividend income
+Notes to the Consolidated Financial Statements
+FINANCIAL RISK MANAGEMENT
+171
+Annual Report 2023
+Dividends received from FVPL and FVOCI are recognised in "Net gains/(losses) from investments and others" in
+the consolidated income statement when the right to receive payment is established. This applies even if they
+are paid out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of an
+investment. In this case, the dividend is recognised in other comprehensive income if it relates to an investment
+measured at FVOCI.
+Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial
+asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets
+the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss
+allowance). Interest income is presented as “Interest income" where it is mainly earned from financial assets that
+are held for cash management purposes.
+Annual Report 2023
+Financial assets and liabilities are offset, and the net amount is reported in the consolidated statement of financial
+position only when there is a legally enforceable right to offset the recognised amounts and there is an intention
+to settle on a net basis, or realise the assets and settle the liabilities simultaneously. The legally enforceable right
+must not be contingent on future events and must be enforceable in the normal course of business and in certain
+circumstances, such as default, insolvency, bankruptcy or the termination of a contract.
+4.1 Financial risk factors
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+2
+SUMMARY OF MATERIAL ACCOUNTING POLICIES (continued)
+3
+2.26 Research and development expenses
+Research expenditure is recognised as an expense as incurred.
+Costs incurred on development projects (relating to the design and testing of new or improved products) are
+capitalised when capitalisation criteria are fulfilled and tests for impairment are performed annually. Other
+development expenditures that do not meet those criteria are recognised as expenses as incurred. Development
+costs previously recognised as expenses are not recognised as assets in subsequent periods.
+SUMMARY OF OTHER ACCOUNTING POLICIES
+3.1 Inventories
+Inventories, mainly consisting of merchandise for sale, are primarily accounted for using the weighted average cost
+method and are stated at the lower of cost and net realisable value.
+3.5 Interest income
+3.2 Investment properties
+Depreciation is calculated on the straight-line method to allocate their costs net of their residual values over their
+estimated useful lives of 20-50 years. Investment properties' residual values and useful lives are reviewed, and
+adjusted if appropriate, at the end of each reporting period.
+Investment properties' carrying amounts are written down immediately to their recoverable amounts if their carrying
+amounts are greater than their estimated recoverable amounts (Note 2.10).
+3.3 Share capital
+Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are
+shown in equity as a deduction from the proceeds.
+00
+170
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+3
+SUMMARY OF OTHER ACCOUNTING POLICIES (continued)
+For the year ended 31 December 2023
+3.4 Offsetting financial instruments
+Investment properties are held for long-term rental yields and are not occupied by the Group. Investment
+properties are carried at historical costs less accumulated depreciation and accumulated impairment charges.
+Historical costs include expenditures that are directly attributable to the acquisition of the items.
+The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price
+risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy seeks to
+minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out
+by the management of the Group.
+2,520
+969
+97,019
+2024/3/28~
+Market risk
+The Group entered into certain interest rate swap contracts to hedge its exposure arising from
+borrowings and senior notes carried at floating rates. Under these interest rate swap contracts, the
+Group agreed with the counterparties to exchange, at specified intervals, the difference between
+fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional
+amounts. These interest rate swap contracts had the economic effect of converting borrowings and
+senior notes from floating rates to fixed rates and were qualified for hedge accounting. Details of the
+Group's outstanding interest rate swap contracts as at 31 December 2023 are mainly disclosed in Note
+29.
+The Group regularly monitors its interest rate risk to identify if there are any undue exposures to
+significant interest rate movements and manages its cash flow interest rate risk by using interest rate
+swaps, whenever considered necessary.
+The Group's exposure to changes in interest rates is also attributable to its borrowings and notes
+payable, details of which have been disclosed in Notes 38 and 39, representing a substantial portion
+of the Group's debts. Borrowings and notes payable carried at floating rates expose the Group to cash
+flow interest-rate risk whereas those carried at fixed rates expose the Group to fair value interest-rate
+risk.
+(iii) Interest rate risk (continued)
+(a) Market risk (continued)
+4.1 Financial risk factors (continued)
+Annual Report 2023
+4 FINANCIAL RISK MANAGEMENT (continued)
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+174
+00
+If the interest rate of term deposits with initial terms of over three months had been 50 basis points
+higher/lower, the profit before income tax for the year ended 31 December 2023 would have been
+RMB1,076 million (2022: RMB666 million) higher/lower. If the interest rate of cash and cash
+equivalents had been 50 basis points higher/lower, the profit before income tax for the year ended 31
+December 2023 would have been RMB862 million (2022: RMB784 million) higher/lower.
+The Group's income and operating cash flows are substantially independent of changes in market
+interest rates and the Group has no significant interest-bearing assets except for loans to investees and
+investees' shareholders, term deposits with initial terms of over three months, restricted cash and cash
+and cash equivalents, details of which have been disclosed in Notes 28, 31 and 33.
+For the year ended 31 December 2023
+(iii) Interest rate risk
+175
+For the year ended 31 December 2023
+RMB'Million
+2022
+2023
+Maturity date
+Notional amount
+Carrying amount (non-current assets)
+Notes to the Consolidated Financial Statements
+Carrying amount (current assets)
+The effects of the interest rate swaps on the Group's financial position and performance are as follows:
+(iii) Interest rate risk (continued)
+(a) Market risk (continued)
+4.1 Financial risk factors (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+4
+Interest rate swaps
+RMB'Million
+Sensitivity analysis is performed by management to assess the exposure of the Group's financial
+results to equity price risk of FVPL and FVOCI at the end of each reporting period. If prices of the
+respective instruments held by the Group had been 5% (31 December 2022: 5%) higher/lower as at
+31 December 2023, profit for the year would have been approximately RMB10,888 million (2022:
+RMB11,028 million) higher/lower as a result of gains/losses on financial instruments classified as
+at FVPL, other comprehensive income would have been approximately RMB10,424 million (2022:
+RMB9,096 million) higher/lower as a result of gains/losses on financial instruments classified as at
+FVOCI.
+(ii) Price risk
+13,332
+RMB'Million
+RMB'Million
+Non-USD
+denominated
+denominated
+USD
+7,536
+Monetary liabilities, non-current
+Monetary assets, current
+As at 31 December 2022
+Foreign exchange risk (continued)
+(i)
+(a) Market risk (continued)
+4.1 Financial risk factors (continued)
+Monetary assets, non-current
+Monetary liabilities, current
+The Group is exposed to equity price risk mainly arising from investments held by the Group that
+are classified either as FVPL (Note 26) or FVOCI (Note 27). To manage its price risk arising from
+the investments, the Group diversifies its investment portfolio. The investments are made either for
+strategic purposes, or for the purpose of achieving investment yield and balancing the Group's liquidity
+level simultaneously. Each investment is managed by management on a case by case basis.
+3
+(9,242)
+(a) Market risk (continued)
+4.1 Financial risk factors (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+4
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+1,490
+Annual Report 2023 173
+During the year ended 31 December 2023, the Group reported net exchange losses of approximately
+RMB383 million (2022: net exchange gains of RMB633 million) within "Finance costs" in the
+consolidated income statement.
+4,760
+1,136
+(869)
+(2,957)
+(3,397)
+As at 31 December 2023, management considered that any reasonable changes in foreign exchange
+rates of the above currencies against the two major functional currencies would not result in a
+significant change in the Group's results, as the net carrying amounts of financial assets and liabilities
+denominated in a currency other than the respective subsidiaries' functional currencies are considered
+to be not significant. Accordingly, no sensitivity analysis is presented for foreign exchange risk.
+216
+6,752
+103,410
+2023/1/19~
+(i)
+significant changes in the expected performance and behavior of the counterparty, including changes
+in the payment status of the counterparty.
+actual or expected significant changes in the operating results of the counterparty; and
+•
+actual or expected significant adverse changes in business, financial economic conditions that are
+expected to cause a significant change to the counterparty's ability to meet its obligations;
+•
+Credit risk of cash and deposits
+external credit rating (as far as available);
+• internal credit rating;
+The Group considers the probability of default upon initial recognition of asset and whether there has been a
+significant increase in credit risk on an ongoing basis throughout each of the years. To assess whether there
+is a significant increase in credit risk, the Group compares risk of a default occurring on the assets as at
+year end with the risk of default as at the date of initial recognition. In particular, the following indicators are
+incorporated:
+The Group considers the credit risk characteristics of different financial instruments when determining if
+there is significant increase in credit risk. For financial instruments with or without significant increase in
+credit risk, lifetime or 12-month ECL are provided respectively.
+(b) Credit risk (continued)
+4.1 Financial risk factors (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+.
+4
+To manage this risk, the Group only makes transactions with state-owned banks and financial
+institutions in the PRC and reputable international banks and financial institutions outside of the PRC,
+which are of high credit quality. The ECL is close to zero.
+Credit risk of accounts receivable
+Impairment losses on accounts receivables are presented as net impairment losses within operating
+profit. Subsequent recoveries of amounts previously written off are credited against the same item.
+A default on accounts receivable occurs when the counterparty fails to make contractual payments
+within 90 days when they fall due. To measure the ECL, accounts receivable are grouped on the basis
+of shared credit risk characteristics, such as industry, with the objective of facilitating recognition of
+loss allowance on a timely basis. Accounts receivable are written off, in whole or in part, when the
+Group has exhausted all practical recovery efforts and has concluded that there is no reasonable
+expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst
+others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make
+contractual payments for a period of greater than 3 years past due.
+The expected loss rates are based on the payment profiles of revenue over 12 months before 31
+December 2023 and the corresponding historical credit losses experienced within this period or
+probability of a receivable progressing through successive stages of delinquency to write-off. The
+historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic
+factors affecting the ability of the customers to settle the receivables. The Group has identified the
+Gross Domestic Product ("GDP") to be the most relevant factor. Various economic scenarios are
+considered in generating the forward-looking adjustment.
+Credit risk of accounts receivable (continued)
+(ii)
+(b) Credit risk (continued)
+(ii)
+4.1 Financial risk factors (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+178
+00
+The Group applies the simplified approach to provide for ECL prescribed by IFRS 9, which permits the
+use of the lifetime expected loss provision for all accounts receivable. In view of the sound financial
+position and collection history of receivables due from these counterparties and insignificant risk of
+default, to measure the ECL, accounts receivable have been grouped based on shared credit risk
+characteristics and the days past due.
+4 FINANCIAL RISK MANAGEMENT (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Annual Report 2023 177
+Weighted average hedged rate for the year
+effectiveness since 1 January
+5,457
+(3,581)
+Change in value of hedged item used to determine hedge
+since 1 January
+0.59%
+Changes in fair value of outstanding hedging instruments
+5,457
+(3,581)
+1:1
+1:1
+2026/2/24
+2026/2/24
+Hedge ratio
+0.64%
+Swaps currently in place covered the majority of the floating-rate borrowings and notes payable
+principal outstanding.
+As at 31 December 2023 and 2022, management considered that any reasonable changes in the
+interest rates would not result in a significant change in the Group's results as the Group's exposure to
+cash flow interest-rate risk arising from its borrowings and notes payable carried at floating rates after
+considering the effect of hedging is considered to be insignificant.
+Stage 3: If the financial instrument is credit-impaired, the financial instrument is included in stage 3.
+Stage 2: If the credit risk has increased significantly since its initial recognition but not yet deemed to
+be credit-impaired, the financial instrument is included in stage 2.
+Stage 1: If the credit risk has not increased significantly since its initial recognition, the financial
+instrument is included in stage 1.
+For financial assets whose impairment losses are measured using ECL model, the Group assesses whether
+their credit risk has increased significantly since their initial recognition, and applies a three-stage impairment
+model to calculate their impairment allowance and recognise their ECL, as follows:
+Other receivables are mainly comprised of loan receivables related to financial services, interest receivables,
+loans to investees and investees' shareholders, lease deposits and other receivables. Management manages
+the loans by category, makes periodic assessments as well as individual assessments on the recoverability of
+other receivables based on historical settlement records and past experience.
+The majority of the balances of accounts receivable are due from online advertising customers and agents,
+FinTech and cloud customers, content production related customers and third party platform providers. To
+manage the credit risk arising from accounts receivable, the Group has policies in place to ensure that credit
+terms are made to counterparties with an appropriate credit history and the management performs ongoing
+credit evaluations of its counterparties. The credit periods granted to these customers are disclosed in Note
+32 and the credit quality of these customers is assessed, which takes into account their financial position,
+past experience and other factors. The Group has a large number of customers and there is no significant
+concentration of credit risk.
+The Group is exposed to credit risk in relation to its cash, deposits and restricted cash placed with banks and
+financial institutions, accounts receivable, other receivables, derivative financial instruments, as well as debt
+investments measured at amortised cost, at FVOCI and at FVPL. The carrying amount of each class of these
+financial assets represents the Group's maximum exposure to credit risk in relation to the corresponding
+class of financial assets.
+(b) Credit risk
+4.1 Financial risk factors (continued)
+4 FINANCIAL RISK MANAGEMENT (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+176
+00
+(a)
+For the year ended 31 December 2023
+4 FINANCIAL RISK MANAGEMENT (continued)
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+179
+The Group manages its foreign exchange risk by performing regular reviews of the Group's net foreign
+exchange exposures.
+The Group operates internationally and is exposed to foreign exchange risk arising from various
+currency exposures, primarily with respect to Hong Kong Dollars ("HKD"), USD and euro ("EUR").
+Foreign exchange risk arises when future commercial transactions or recognised assets and
+liabilities are denominated in a currency that is not the respective functional currency of the Group's
+subsidiaries. The functional currency of the Company and the majority of its overseas subsidiaries is
+USD whereas the functional currency of the subsidiaries which operate in the Mainland of China is
+RMB.
+Foreign exchange risk
+(i)
+As at 31 December 2023, the Group's major monetary assets and liabilities exposed to foreign
+exchange risk are listed below:
+USD
+Non-USD
+denominated
+RMB'Million
+As at 31 December 2023
+Monetary assets, current
+13,637
+9,184
+denominated
+RMB'Million
+4
+1,593
+Monetary liabilities, current
+(9,160)
+(3,985)
+Monetary liabilities, non-current
+(3,629)
+(534)
+852
+6,258
+Monetary assets, non-current
+172
+00
+210,340 Expected volatility
+33%-82%
+companies in
+187
+29%-83% Depends on rights and
+restrictions of shares
+held by the Group
+Risk-free rate
+0.04% 7.05% 0.04%-7.14%
+Annual Report 2023
+213,369
+FVPL and FVOCI
+Investments in unlisted
+Fair value
+RMB'Million
+2022
+2023
+2022
+2023
+to fair value
+Relationship of
+unobservable inputs
+Range of inputs
+as at 31 December
+Significant
+unobservable inputs
+as at 31 December
+Description
+Notes to the Consolidated Financial Statements
+RMB'Million
+For the year ended 31 December 2023
+The Group will continue to monitor the estimates of the expected users' relationship periods. The results may differ
+from prior periods, and any change in the estimates may result in the revenue being recognised on a different
+basis from that in prior periods.
+FINANCIAL RISK MANAGEMENT (continued)
+The fair value of share options granted to employees and other qualifying participants determined using the
+Binomial Model was approximately HKD2,183 million (equivalent to approximately RMB1,987 million) in 2023
+(2022: approximately HKD1,452 million (equivalent to approximately RMB1,211 million)).
+As mentioned in Note 2.20(e), the Group has granted share options to its employees and other qualifying
+participants. The directors have adopted the Binomial Model to determine the total fair value of the options
+granted, which is to be expensed over the respective vesting periods. Significant estimates and judgment on key
+parameters, such as risk-free rate, dividend yield and expected volatility, are required to be made by the directors
+based on historical experience and other relevant factors in applying the Binomial Model (Note 37). Changes in
+these estimates and judgments could materially affect the fair value of these options granted.
+(d) Share-based compensation arrangements
+The fair value assessment of FVPL and FVOCI that are measured at Level 3 fair value hierarchy requires significant
+estimates, which include risk-free rates, expected volatility, market information of recent transactions (such
+as recent fund raising transactions undertaken by the investees) and other assumptions. Changes in these
+assumptions and estimates could materially affect the respective fair value of these investments.
+(c) Fair value measurement of FVPL and FVOCI
+Judgment is required to identify any impairment indicators existing for any of the Group's goodwill and other non-
+financial assets, to determine appropriate impairment approaches, i.e., fair value less costs of disposal or value
+in use, for impairment review purposes, and to select key assumptions applied in the adopted valuation models,
+including discounted cash flows and market approach. Changing the assumptions selected by management
+in assessing impairment could materially affect the result of the impairment test and in turn affect the Group's
+financial condition and results of operations. If there is a significant adverse change in the key assumptions
+applied, it may be necessary to take additional impairment charge to the consolidated income statement.
+The Group tests at least annually whether goodwill has suffered any impairment. Goodwill and other non-financial
+assets, mainly including property, plant and equipment, construction in progress, other intangible assets,
+investment properties, land use rights, right-of-use assets as well as investments in associates and joint ventures
+are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
+not be fully recoverable. The recoverable amounts have been determined based on value-in-use calculations or fair
+value less costs of disposal. These calculations require the use of judgments and estimates.
+(b) Recoverability of non-financial assets
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+5
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+188
+00
+The quantitative information about the significant unobservable inputs used in Level 3 fair value measurements of
+investments in unlisted companies comprises:
+Significant judgments are required in determining the expected users' relationship periods, including but not
+limited to historical users' consumption patterns, churn rates, game life-cycles, and qualitative factors such
+as reactivity on marketing activities and the Group's marketing strategy. The Group has adopted a policy of
+reassessing the expected users' relationship periods on a regular basis whenever there is any indicator of change
+in the estimates of the expected users' relationship periods.
+As mentioned in Note 2.22(a), the end users purchase certain in-game permanent virtual items provided on
+the Group's online platforms and the relevant revenue is recognised ratably over the respective estimates of the
+expected users' relationship periods.
+(a) The estimates of the expected users' relationship periods related to in-game permanent virtual items
+provided on the Group's online platforms
+The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
+definition, seldom equal the related actual results. Estimates and judgments are continually evaluated and are based on
+historical experience and other factors, including expectations of future events that are believed to be reasonable under
+the circumstances.
+CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
+5
+For the fair value of contingent consideration payables related to business combinations, management considered
+that any reasonable changes in the growth rate of net profit or expected volatility would not result in a significant
+change in the Group's results for the years ended 31 December 2023 and 2022.
+For the fair value of the Group's investments in unlisted companies, the sensitivity analysis on equity price risk is
+performed by management, see Note 4.1(a)(ii) for details.
+4.3 Fair value estimation (continued)
+4
+The components of the Level 3 instruments mainly include investments in unlisted companies classified as FVPL or
+FVOCI, other financial assets, and other financial liabilities. Other financial liabilities included in Level 3 instruments
+mainly include contingent consideration payables related to certain business combinations. As these investments
+and instruments are not traded in an active market, the majority of their fair values have been determined using
+applicable valuation techniques including comparable companies approach, comparable transactions approach
+and option pricing approach. These valuation approaches require significant judgments, assumptions and inputs,
+including risk-free rates, expected volatility, and market information of recent transactions (such as recent fund-
+raising transactions undertaken by the investees) and other exposure, etc.
+(148)
+Valuation processes inputs and relationships to fair value (Level 3)
+363
+34
+comprehensive income
+2022
+Changes in fair value recognised in other
+Transfers (Note)
+(7,847)
+(17,202)
+753
+906
+(6,620)
+(2,911)
+(61)
+2
+14
+(1,238)
+40
+22,581
+18,770
+5,238
+(2,444)
+(3,298)
+193,608
+216,054
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Changes in fair value recognised in profit or loss*
+(1,508)
+(1,220)
+(579)
+4.3 Fair value estimation (continued)
+4 FINANCIAL RISK MANAGEMENT (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+186
+00
+During the years ended 31 December 2023 and 2022, transfers from Level 3 to Level 1 were mainly due to the successful Initial
+Public Offerings ("IPO"s) of certain existing investees.
+Note:
+2023
+(496)
+(3,564)
+189
+The Group has a team of personnel who performs valuation on these Level 3 instruments for financial reporting
+purposes. The team performs valuation, or necessary updates, at least once every quarter, which coincides
+with the Group's quarterly reporting dates. On an annual basis, the team adopts various valuation techniques to
+determine the fair value of the Group's Level 3 instruments. External valuation experts may also be involved and
+consulted when it is necessary.
+(3,678)
+recognised in profit or loss attributable
+*Includes unrealised losses
+(3,298)
+(2,977)
+216,054
+222,232
+Closing balance
+(162)
+(48)
+15,175
+3,757
+Currency translation differences
+(146)
+to balances held at the end of the
+reporting period
+The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
+assets and liabilities within the next financial year are addressed below:
+Annual Report 2023
+2023
+Non-derivatives:
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Over 5 years
+and 5 years
+and 2 years
+1 year
+Between 2
+Between 1
+Less than
+Notes payable
+At 31 December 2022
+4.1 Financial risk factors (continued)
+00
+FINANCIAL RISK MANAGEMENT (continued)
+4
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+181
+Annual Report 2023
+641,212
+157,667
+185,991
+73,665
+223,889
+8
+(c) Liquidity risk (continued)
+8
+15,614
+31,511
+Dividends payable for distribution
+125,040
+125,040
+and accruals
+Accounts payable, other payables
+10,183
+480
+3,901
+1,967
+3,835
+Other financial liabilities
+25,617
+4,296
+9,366
+18,737
+5,294
+Lease liabilities
+200,789
+4
+142,964
+38,953
+18,868
+Borrowings
+6,977
+423
+1,264
+5,290
+Long-term payables
+229,420
+163,558
+6,661
+Other financial liabilities
+Derivatives:
+144,283
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Over 5 years
+Between 2
+and 5 years
+Between 1
+and 2 years
+1 year
+Less than
+The table below analyses the Group's financial liabilities by relevant maturity groupings based on the
+remaining period since the end of the reporting period to the contractual maturity date (or the earliest date
+a financial liability may become payable in the absence of a fixed maturity date). The amounts disclosed in
+the table are the contractual undiscounted cash flows or the carrying amount of the financial assets to be
+delivered.
+The Group aims to maintain sufficient cash and cash equivalents, and readily marketable securities which
+are classified as FVPL. Due to the dynamic nature of the underlying businesses, the Group maintains
+flexibility in funding by maintaining adequate balances of such.
+(c) Liquidity risk
+4.1 Financial risk factors (continued)
+4 FINANCIAL RISK MANAGEMENT (continued)
+RMB'Million
+For the year ended 31 December 2023
+180 Tencent Holdings Limited
+00
+Details of the Group's loan receivables related to financial services are included in Note 28. As at 31
+December 2023, the majority of the gross carrying amount of loan receivables was classified in stage 1,
+and the amounts of loan receivables transferred from stage 1 to stage 2 or stage 3 were immaterial (31
+December 2022: immaterial). During the year ended 31 December 2023, the impairment loss resulting
+from loan receivables related to financial services was immaterial (2022: immaterial).
+The ECL is measured on either a 12-month or lifetime basis depending on whether a significant
+increase in credit risk has occurred since initial recognition. No significant changes to estimation
+techniques or assumptions were made during the reporting period.
+To manage credit risk arising from loan receivables related to financial services, standardised credit
+management procedures are performed. The Group measures credit risk using Probability of Default
+("PD"), Exposure at Default ("EAD") and Loss Given Default ("LGD"). This is consistent with the
+general approach used for the purpose of measuring ECL under IFRS 9. ECL is the product of the PD,
+EAD, and LGD.
+(iii) Credit risk of loan receivables related to financial services
+Credit risk (continued)
+(b)
+4.1 Financial risk factors (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+4
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+2022
+Notes to the Consolidated Financial Statements
+At 31 December 2023
+Non-derivatives:
+Notes payable
+144,283
+and accruals
+Accounts payable, other payables
+20,806
+8,360
+5,548
+2,375
+4,523
+Other financial liabilities
+24,844
+4,402
+8,516
+5,379
+6,547
+Lease liabilities
+224,310
+2
+19,138
+13,034
+40,529
+144,814
+217,515
+Long-term payables
+in specie
+6,330
+89
+9,446
+Borrowings
+49,390
+46,547
+128,371
+3,027
+147,965
+Total
+Derivatives:
+in specie (Note)
+Dividends payable for distribution
+(3,307)
+(3,298)
+(9)
+Other financial liabilities
+7,270
+211
+7,059
+Other financial assets
+147,965
+147,965
+Assets held for distribution
+185,247
+(147,965)
+22,838
+160,528
+FVOCI
+234,048
+193,005
+27,109
+13,934
+FVPL
+As at 31 December 2022
+(2,985)
+(2,977)
+(8)
+6,741
+26
+6,715
+1,881
+(147,965)
+00
+184
+147,965
+Financial liabilities
+Financial assets
+Disposals/settlements
+Business combinations
+Additions and others
+Opening balance
+During the year ended 31 December 2023, there was no transfer between Level 1 and 2 for recurring fair value
+measurements. Transfers in and out of Level 3 measurements are set out in the following table, which presents the
+changes of financial instruments in Level 3 for the years ended 31 December 2023 and 2022:
+4.3 Fair value estimation (continued)
+FINANCIAL RISK MANAGEMENT (continued)
+4
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Annual Report 2023 185
+The group did not change any valuation techniques in determining the Level 2 and Level 3 fair values.
+Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial
+The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows
+based on observable yield curves; and
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+4 FINANCIAL RISK MANAGEMENT (continued)
+4.3 Fair value estimation (continued)
+Note:
+For the year ended 31 December 2023
+213,951
+It represented the dividend liability resulting from distribution in specie which was measured at fair value of shares of Meituan to
+be distributed (Note 17(b)) as at 31 December 2022.
+The fair value of financial instruments that are not traded in an active market is determined by using valuation
+techniques. These valuation techniques maximise the use of observable market data where it is available and rely
+as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a
+financial instrument are observable, the instrument is included in Level 2.
+If one or more of the significant inputs are not based on observable market data, the instrument is included in
+Level 3.
+Specific valuation techniques used to value financial instruments mainly include:
+Dealer quotes for similar instruments;
+•
+.
+The fair value of financial instruments traded in active markets is determined with reference to quoted market
+prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly
+available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
+represent actual and regularly occurring market transactions on an arm's length basis. These instruments are
+included in Level 1.
+226,048
+instruments.
+14,233
+1,269
+151,262
+175,248
+197,356
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+Note:
+Total debts/Adjusted EBITDA ratio
+Adjusted EBITDA (Note)
+Total debts
+Notes payable (Note 39)
+Borrowings (Note 38)
+159,115
+The Group assesses its creditworthiness based on its business and financial risk profile and monitors its capital by
+regularly reviewing its total debts to adjusted earnings before interest, tax, depreciation and amortisation ("EBITDA”)
+(Note) ratio, being the measure of the Group's ability to pay off all of its debts which in turn reflects the Group's
+financial health and liquidity position. The total debts/Adjusted EBITDA ratio calculated by dividing the total debts
+by Adjusted EBITDA is as follows:
+The Group's objectives in managing capital are to safeguard the Group's ability to continue as a going concern
+and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other
+stakeholders and to maintain an optimal capital structure to enhance shareholders' value in the long term.
+4.2 Capital risk management
+4 FINANCIAL RISK MANAGEMENT (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+746,000
+168,761
+189,006
+70,241
+317,992
+9
+199,535
+22,671
+9
+Other financial liabilities
+Capital refers to equity and external debts (including borrowings and notes payable). In order to maintain or
+adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
+shareholders, issue new shares, repurchase the Company's shares or raise/repay debts.
+348,618
+182 Tencent Holdings Limited
+235,454
+Level 1
+Level 2
+RMB'Million
+RMB'Million
+Level 3
+RMB'Million
+Total
+Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
+(Level 3).
+RMB'Million
+FVOCI
+Other financial assets
+190,011
+334,363
+12,280
+Other financial liabilities
+FVPL
+•
+As at 31 December 2023
+1.48
+Annual Report 2023
+1.77
+183
+188,986
+Notes to the Consolidated Financial Statements
+Adjusted EBITDA represents operating profit less other gains/(losses), net, and adding back depreciation of property, plant and
+equipment, investment properties as well as right-of-use assets, amortisation of intangible assets and land use rights, and equity-
+settled share-based compensation expenses.
+For the year ended 31 December 2023
+4
+FINANCIAL RISK MANAGEMENT (continued)
+4.3 Fair value estimation
+The table below analyses the Group's financial instruments carried at fair value as at 31 December 2023 by level of
+the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a
+fair value hierarchy as follows:
+•
+Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
+Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
+directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
+42,681
+44,921
+51,668*
+Equity holders of the Company
+00
+16
+Tencent Holdings Limited
+Management Discussion and Analysis
+Revenues from VAS decreased by 9% to RMB69.1 billion. International Games revenues were RMB13.9 billion, up 5%
+quarter-on-quarter, mainly driven by revenue growth from PUBG Mobile and Clash of Clans. Domestic Games revenues
+were RMB27.0 billion, down 18% quarter-on-quarter, due to seasonally lower revenue accruals in the fourth quarter.
+Social Networks revenues decreased by 5% to RMB28.2 billion due to lower revenue accruals from app-based game
+virtual item sales.
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+Revenues. Revenues for the fourth quarter of 2023 remained broadly stable at RMB155.2 billion on a quarter-on-quarter
+basis.
+599
+36,781
+27,850
+825
+36,182
+27,025
+Non-IFRS profit attributable to equity holders of the Company
+Non-IFRS operating profit
+Attributable to:
+Revenues from Online Advertising increased by 16% to RMB29.8 billion, due to the ongoing upgrade of our advertising
+platform, which facilitated increased revenue for Video Accounts, our mobile ad network, and Weixin Moments,
+amongst other inventories.
+Non-controlling interests
+49,135
+Revenues from FinTech and Business Services increased by 4% to RMB54.4 billion, supported by seasonally higher
+cloud services revenues due to more project deployments toward the year end, alongside increased revenues from
+wealth management services and payment activities.
+Unaudited
+Three months ended
+30 September
+Gross profit. Gross profit was RMB77.6 billion for the fourth quarter of 2023, up 1% quarter-on-quarter. Gross margin
+increased to 50% from 49% in the third quarter of 2023.
+53,983
+EBITDA (a)
+36,781
+(RMB in millions, unless specified)
+2022
+2023
+2022
+2023
+2023
+31 December
+31 December
+31 December
+Year ended
+31 December
+OTHER FINANCIAL INFORMATION
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 25% to
+RMB27.0 billion for the fourth quarter of 2023 on a quarter-on-quarter basis. Non-IFRS profit attributable to equity holders of
+the Company decreased by 5% to RMB42.7 billion for the fourth quarter of 2023.
+Share of profit/(loss) of associates and joint ventures, net. We recorded share of profits of associates and joint ventures of
+RMB2.4 billion for the fourth quarter of 2023, compared to share of profits of RMB2.1 billion for the previous quarter. Non-IFRS
+share of profits of associates and joint ventures was RMB4.5 billion for the fourth quarter of 2023, compared to share of profits
+of RMB4.8 billion for the previous quarter.
+General and administrative expenses. General and administrative expenses increased by 3% to RMB27.2 billion for the fourth
+quarter of 2023 on a quarter-on-quarter basis.
+Management Discussion and Analysis
+17
+Annual Report 2023
+Selling and marketing expenses. Selling and marketing expenses grew by 39% to RMB11.0 billion for the fourth quarter
+of 2023 on a quarter-on-quarter basis, reflecting increased promotional and advertising efforts for games, including newly
+released and upcoming game releases.
+Gross profit for FinTech and Business Services increased by 12% to RMB23.9 billion, and gross margin improved
+to 44% from 41% in the third quarter of 2023, driven by seasonally higher cloud services revenues with margin
+improvement, as well as increased contributions from high-margin Video Accounts eCommerce technology service fees
+and other business services.
+Gross profit for Online Advertising rose by 26% to RMB16.9 billion, and gross margin rose to 57% from 52% in the third
+quarter of 2023. The improvement in gross margin was due to strong revenue growth driven by our advertising platform
+upgrade together with seasonally higher eCommerce activities, outpacing the growth in segment operating costs.
+Gross profit for VAS decreased by 12% to RMB37.1 billion, and gross margin decreased to 54% from 56% in the third quarter
+of 2023. The lower gross margin was due to a seasonally lower mix of high-margin games revenues.
+Cost of revenues. Cost of revenues were RMB77.6 billion for the fourth quarter of 2023, down 1% quarter-on-quarter.
+27,850
+(77,632)
+(11,008)
+154,625
+155,196
+Operating profit
+Other gains/(losses), net
+General and administrative expenses
+Selling and marketing expenses
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+2023
+Restated*
+2023
+30 September
+31 December
+Unaudited
+Three months ended
+The following table sets forth the comparative figures for the fourth quarter of 2023 and the third quarter of 2023:
+FOURTH QUARTER OF 2023 COMPARED TO THIRD QUARTER OF 2023
+Management Discussion and Analysis
+15
+Annual Report 2023
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 75% to
+RMB27.0 billion for the fourth quarter of 2023 on a year-on-year basis, primarily attributed to a RMB106.6 billion gain from
+the deemed disposal of Meituan in the same quarter of 2022. Non-IFRS profit attributable to equity holders of the Company
+increased by 44% to RMB42.7 billion for the fourth quarter of 2023.
+55,824
+Income tax expense. Income tax expense rose by 111% year-on-year to RMB9.7 billion for the fourth quarter of 2023,
+primarily driven by operating profit growth and increased provision for withholding tax.
+(78,102)
+77,564
+76,523
+(10,971)
+(9,658)
+Income tax expense
+47,789
+37,508
+Profit before income tax
+2,098
+2,463
+Share of profit/(loss) of associates and joint ventures, net
+(2,784)
+(3,543)
+Finance costs
+Profit for the period
+3,509*
+Interest income
+618*
+(6,730)
+Net gains/(losses) from investments and others
+44,348*
+41,401
+2,026*
+1,983
+(26,289)
+(27,175)
+(7,912)
+3,917
+44,002
+Adjustments:
+164,037
+30 September
+2023
+Restated*
+31 December
+31 December
+31 December
+2022
+2023
+Restated*
+2022
+Restated*
+(RMB in millions, unless specified)
+Operating profit
+41,401
+2023
+44,348*
+160,074
+110,827*
+Other (gains)/losses, net
+(1,983)
+(2,026)*
+(770)*
+(4,701)
+(8,006)*
+Depreciation of property, plant and equipment and
+investment properties
+5,117
+29,163*
+4,810
+31 December
+Unaudited
+Three months ended
+Share of profit/(loss) of associates and joint ventures, net. We recorded share of profits of associates and joint ventures of
+RMB2.4 billion for the fourth quarter of 2023, compared to share of losses of RMB1.6 billion for the same quarter of 2022.
+Non-IFRS share of profits of associates and joint ventures improved to RMB4.5 billion for the fourth quarter of 2023, from
+RMB3.1 billion for the same quarter last year. This improvement was driven by enhanced profitability at certain domestic
+associates, alongside a successful game release by an overseas game studio investee.
+36,431
+(14,832)
+54,740
+(14,832)
+Capital expenditures (d)
+7,524
+8,005
+5,651
+23,893
+18,014
+Year ended
+Note:
+EBITDA is calculated as operating profit minus other gains/(losses), net, and adding back depreciation of property, plant and
+equipment, investment properties as well as right-of-use assets, and amortisation of intangible assets and land use rights. Adjusted
+EBITDA is calculated as EBITDA plus equity-settled share-based compensation expenses.
+(b)
+Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.
+(c)
+Net cash/(debt) represents period end balance and is calculated as cash and cash equivalents, plus term deposits and others, minus
+borrowings and notes payable.
+(d)
+Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in
+progress, investment properties, land use rights and intangible assets (excluding long-form video and music content, game licences
+and other content).
+18
+Tencent Holdings Limited
+Management Discussion and Analysis
+The following table reconciles our operating profit to our EBITDA and Adjusted EBITDA for the periods presented:
+(a)
+214,381
+5,160
+21,724
+49,606
+235,454
+188,986
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+Annual Report 2023
+19
+9,985
+11,885
+2,826
+3,061
+3,015
+61,301
+Interest and related expenses
+39%
+34%
+40%
+38%
+Adjusted EBITDA margin (b)
+188,986
+235,454
+49,606
+61,301
+59,494
+Adjusted EBITDA (a)
+34%
+19,908
+59,494
+24,949
+Depreciation of right-of-use assets
+1,544
+1,550
+1,718
+6,397
+6,720
+Amortisation of intangible assets
+and land use rights
+7,904
+7,142
+8,731
+Adjusted EBITDA
+32,703
+EBITDA
+53,983
+55,824
+44,002
+214,381
+164,037
+Equity-settled share-based compensation
+5,511
+5,477
+5,604
+21,073
+32,772
+Finance costs. Finance costs decreased by 3% year-on-year to RMB3.5 billion for the fourth quarter of 2023, driven by
+reduced foreign exchange losses, partially offset by higher interest expenses.
+(27,175)
+Net gains/(losses) from investments and others. We recorded net losses from investments and others of RMB6.7 billion for the
+fourth quarter of 2023, primarily due to impairment provisions against certain investees.
+37,508
+Profit before income tax
+(1,692)
+2,463
+Share of profit/(loss) of associates and joint ventures, net
+(3,658)
+(3,543)
+Finance costs
+111,479
+2,582*
+Interest income
+85,084*
+(6,730)
+Net gains/(losses) from investments and others
+29,163*
+41,401
+770*
+1,983
+3,917
+Income tax expense
+Profit for the period
+Interest income. Interest income increased by 52% year-on-year to RMB3.9 billion for the fourth quarter of 2023, driven by
+growth in cash reserves and higher yields on term deposits.
+*
+29,711
+42,681
+36,424*
+49,135
+106,904
+27,850
+636
+825
+106,268
+27,025
+106,904
+27,850
+(4,575)
+(9,658)
+Non-IFRS profit attributable to equity holders of the Company
+Non-IFRS operating profit
+Non-controlling interests
+Equity holders of the Company
+(27,314)
+54,740
+(6,115)
+(10,971)
+11
+Annual Report 2023
+Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company decreased by 39%
+year-on-year to RMB115.2 billion for the year ended 31 December 2023. This decline was primarily due to a RMB106.6 billion
+gain from the deemed disposal of Meituan recognised in the fourth quarter of 2022. Non-IFRS profit attributable to equity
+holders of the Company increased by 36% to RMB157.7 billion for the year ended 31 December 2023.
+Income tax expense. Income tax expense increased by 101% year-on-year to RMB43.3 billion for the year ended
+31 December 2023, driven by operating profit growth, a higher provision for withholding tax, and deferred tax adjustments at
+an overseas subsidiary.
+Share of profit/(loss) of associates and joint ventures, net. We recorded share of profits of associates and joint ventures
+of RMB5.8 billion for 2023, versus share of losses of RMB16.1 billion for the previous year. Non-IFRS share of profits
+of associates and joint ventures increased to RMB13 billion for 2023 from RMB2.4 billion for the previous year. This
+improvement was attributable to enhanced profitability in certain associates, underpinned by their revenue growth and
+efficiency improvements, as well as a successful game release by an overseas game studio investee.
+Finance costs. Finance costs rose by 31% year-on-year to RMB12.3 billion for the year ended 31 December 2023. This
+increase was driven by higher interest expenses, as well as the recognition of foreign exchange losses this year, in contrast to
+gains in the previous year.
+Interest income. Interest income increased by 61% year-on-year to RMB13.8 billion for the year ended 31 December 2023,
+driven by increased cash reserves and improved yields on term deposits.
+Management Discussion and Analysis
+Tencent Holdings Limited
+10
+00
+Net gains/(losses) from investments and others. We recorded net losses from investments and others of RMB6.1 billion for the
+year ended 31 December 2023, primarily due to impairment provisions against certain investees, partially offset by net gains
+from disposals/deemed disposals of certain investees.
+General and administrative expenses. General and administrative expenses decreased by 3% year-on-year to RMB103.5 billion
+for the year ended 31 December 2023, primarily due to reduced staff costs, including share-based compensation expenses.
+As a percentage of revenues, general and administrative expenses decreased to 17% for 2023 from 19% for the previous year.
+Selling and marketing expenses. Selling and marketing expenses grew by 17% year-on-year to RMB34.2 billion for the year
+ended 31 December 2023, driven by increased promotional and advertising efforts in support of new content releases. As a
+percentage of revenues, selling and marketing expenses rose to 6% for the year ended 31 December 2023, from 5% for the
+year ended 31 December 2022.
+Gross profit for FinTech and Business Services rose by 38% year-on-year to RMB80.6 billion for the year ended
+31 December 2023, and gross margin rose to 40% from 33% last year. The higher gross margin was due to margin
+enhancement resulting from our cloud business restructuring, the introduction of high-margin revenues from Video
+Accounts eCommerce technology service fees, and increased monetisation from other business services, alongside
+growth of high-margin products within FinTech services.
+measures.
+Gross profit for Online Advertising increased by 47% year-on-year to RMB51.3 billion for the year ended 31 December 2023,
+and gross margin increased to 51% from 42% in the previous year. The increase in gross margin was primarily driven by
+the robust growth in high-quality revenue streams, notably from Video Accounts advertising, along with our cost control
+Gross profit for VAS increased by 11% year-on-year to RMB161.9 billion for the year ended 31 December 2023, and
+gross margin improved to 54% from 51% in the previous year. The improved gross margin was driven by a higher mix
+of high-margin games revenues and Mini Games platform service fees, and music subscriptions margin enhancement,
+together with decreased contributions from low-margin music-related and games-related live streaming revenues, and
+our cost efficiency improvement.
+Management Discussion and Analysis
+Management Discussion and Analysis
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+FOURTH QUARTER OF 2023 COMPARED TO FOURTH QUARTER OF 2022
+Unaudited
+Three months ended
+61,822
+77,564
+(83,132)
+(77,632)
+144,954
+155,196
+Operating profit
+Other gains/(losses), net
+General and administrative expenses
+Selling and marketing expenses
+Gross profit
+Cost of revenues
+Revenues
+(RMB in millions)
+Restated*
+2022
+2023
+31 December
+31 December
+The following table sets forth the comparative figures for the fourth quarter of 2023 and the fourth quarter of 2022:
+00
+Attributable to:
+Tencent Holdings Limited
+FinTech and Business Services
+44%
+10,912
+57%
+16,922
+Online Advertising
+50%
+35,073
+12
+54%
+VAS
+(RMB in millions, unless specified)
+margin
+Amount
+Gross
+Gross
+margin
+Amount
+31 December 2022
+37,090
+44%
+15,858
+34%
+General and administrative expenses. General and administrative expenses declined by 1% year-on-year to RMB27.2 billion
+for the fourth quarter of 2023.
+Selling and marketing expenses. Selling and marketing expenses grew by 79% to RMB11.0 billion for the fourth quarter of
+2023 on a year-on-year basis, primarily driven by increased promotional and advertising efforts in support of new content
+releases, against a low base in the same period last year. As a percentage of revenues, selling and marketing expenses rose to
+7%, up from 4% in the same period last year.
+Gross profit for FinTech and Business Services increased by 50% year-on-year to RMB23.9 billion for the fourth quarter
+of 2023. Gross margin increased to 44% from 34% in the same period last year. This was driven by margin improvement
+following cloud business restructuring, strong growth of high-quality revenues including Video Accounts eCommerce
+technology service fees, and growth of high-margin products within FinTech services. Our cost efficiency initiatives
+further contributed to the overall segment margin improvement.
+Management Discussion and Analysis
+Tencent Holdings Limited
+14
+00
+Gross profit for Online Advertising increased by 55% year-on-year to RMB16.9 billion for the fourth quarter of 2023.
+Gross margin increased to 57% from 44% in the same period last year, primarily driven by the robust growth of
+high-margin Video Accounts advertising revenue, as well as our efficiency efforts.
+Gross profit for VAS increased by 6% year-on-year to RMB37.1 billion for the fourth quarter of 2023. Gross margin
+increased to 54% from 50% in the same period last year, due to higher mix of high-margin Mini Games platform service
+fees, and reduced contributions from low-margin music-related and games-related live streaming revenues, alongside
+improved cost efficiency.
+43%
+61,822
+50%
+77,564
+Total gross profit
+(1%)
+(21)
+(16%)
+(308)
+Others
+31 December 2023
+Unaudited
+Three months ended
+23,860
+Cost of revenues. Cost of revenues for the fourth quarter of 2023 decreased by 7% year-on-year to RMB77.6 billion. A rise in
+transaction costs, and channel and distribution costs, was more than offset by a reduction in bandwidth and server costs, and
+content costs.
+Online Advertising
+49%
+70,417
+45%
+69,079
+VAS
+(RMB in millions, unless specified)
+revenues
+Amount
+revenues
+Amount
+% of total
+% of total
+31 December 2022
+31 December 2023
+Unaudited
+Three months ended
+Revenues. Revenues increased by 7% year-on-year to RMB155.2 billion for the fourth quarter of 2023. The following table
+sets forth our revenues by line of business for the fourth quarter of 2023 and the fourth quarter of 2022:
+Management Discussion and Analysis
+Gross profit. Gross profit for the fourth quarter of 2023 increased by 25% year-on-year to RMB77.6 billion, and gross margin
+increased to 50% from 43% in the same period last year. The primary drivers of the increased gross margin included the rapid
+growth of high-quality revenue streams, notably Video Accounts advertising, eCommerce technology service fees, and Mini
+Games platform service fees, and reduced contributions from lower-margin revenue streams, alongside our cost efficiency
+initiatives. The following table sets forth our gross profit and gross margin by line of business for the fourth quarter of 2023 and
+the fourth quarter of 2022:
+29,794
+19%
+Net cash/(debt) (c)
+17%
+24,660
+13
+Annual Report 2023
+Revenues from FinTech and Business Services increased by 15% year-on-year to RMB54.4 billion for the fourth quarter of
+2023. FinTech Services sustained double-digit year-on-year growth due to the growth in commercial payment activities,
+as well as the expansion of wealth management services and consumer loan services. Business Services achieved
+year-on-year growth of around 20%, mainly driven by increased eCommerce technology service fees within Video
+Accounts, alongside moderate revenue growth in cloud services.
+Revenues from Online Advertising were RMB29.8 billion for the fourth quarter of 2023, up 21% year-on-year, propelled
+by advertising demand for Video Accounts, as well as the ongoing upgrade of our advertising platform. All categories
+except for automotive saw a year-on-year increase in advertising spending with us, with particularly notable growth in
+Internet services, healthcare and consumer goods categories.
+Revenues from VAS decreased by 2% to RMB69.1 billion for the fourth quarter of 2023 on a year-on-year basis.
+International Games revenues increased by 1% to RMB13.9 billion, or declined by 1% when excluding currency
+fluctuations, reflecting Supercell repositioning some of its games. PUBG Mobile saw a strong upturn in revenue, while
+VALORANT maintained robust growth. Domestic Games revenues declined by 3% to RMB27.0 billion due to decreased
+contributions from Honour of Kings and Peacekeeper Elite, partially offset by contributions from our recently launched
+games, such as VALORANT and Lost Ark. Social Networks revenues decreased by 2% to RMB28.2 billion, due to lower
+revenues from music-related and games-related live streaming services, partially mitigated by revenue growth from
+music subscriptions and Mini Games platform service fees.
+100%
+144,954
+100%
+155,196
+Management Discussion and Analysis
+1%
+Total revenues
+54,379
+35%
+47,244
+FinTech and Business Services
+Others
+1,944
+1%
+2,633
+33%
+00
+(a) Description of segments and principal activities
+SEGMENT INFORMATION AND REVENUES
+6
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+190
+For the year ended 31 December 2023
+(e) Income taxes
+Consolidation is required only if control exists. The Group controls an investee when it has all the following: (i)
+power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii)
+the ability to use its power over the investee to affect the amount of the Group's returns. Power results from rights
+that can be straightforward through voting rights or complicated in contractual arrangements. Variable returns
+normally encompass financial benefits and risks, but in certain cases, they also include operational values specific
+to the Group. These three factors cannot be considered in isolation by the Group in its assessment of control over
+an investee. Where the factors of control are not apparent, significant judgment is applied in the assessment,
+which is based on an overall analysis of all of the relevant facts and circumstances.
+(f) Scope of consolidation
+The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
+worldwide provision for income taxes. Where the final tax outcome of these matters is different from the amounts
+that were initially recorded, such differences will impact current income tax and deferred income tax in the period
+in which such determination is made.
+The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end
+of vesting periods of the options and awarded shares (the “Expected Retention Rate") in order to determine the
+amount of share-based compensation expenses charged to the consolidated income statement. Where the final
+retention rate is different from the initial estimate, such differences will impact the share-based compensation
+expenses in subsequent periods. As at 31 December 2023, the Expected Retention Rate of the Group's wholly-
+owned subsidiaries was assessed to be not lower than approximately 89% (31 December 2022: not lower than
+89%).
+(d) Share-based compensation arrangements (continued)
+5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
+The Group is required to reassess whether it controls the investee if facts and circumstances indicate a change to
+one or more of the three factors of control.
+decision-makers.
+Annual Report 2023 191
+The Group has the following reportable segments for the years ended 31 December 2023 and 2022:
+VAS
+Online
+FinTech and
+Year ended 31 December 2023
+00
+The segment information provided to the chief operating decision-makers for the reportable segments for the years
+ended 31 December 2023 and 2022 is as follows:
+(a) Description of segments and principal activities (continued)
+6 SEGMENT INFORMATION AND REVENUES (continued)
+The chief operating decision-makers mainly include chief executive officer and president of the Company. They
+review the Group's internal reporting in order to assess performance, allocate resources, and determine the
+operating segments based on these reports.
+For the year ended 31 December 2023
+Other information, together with the segment information, provided to the chief operating decision-makers, is
+measured in a manner consistent with that applied in these consolidated financial statements. There was no
+segment assets or segment liabilities information provided to the chief operating decision-makers.
+There were no material inter-segment sales during the years ended 31 December 2023 and 2022. The revenues
+from external customers reported to the chief operating decision-makers are measured in a manner consistent with
+that applied in the consolidated income statement.
+The chief operating decision-makers assess the performance of the operating segments mainly based on segment
+revenue and gross profit of each operating segment. Revenues and cost of revenues are directly attributable to
+our operating segments, whereas other income and expenses, such as selling and marketing expenses, general
+and administrative expenses, interest income and finance costs (net), are managed centrally at group level due to
+the coherent nature of our businesses; therefore, they are not included in the measure of the operating segments'
+performance. Other gains/losses (net), net gains/(losses) from investments and others, share of profit/loss of
+associates and joint ventures (net) and income tax expense are not allocated to individual operating segment
+either.
+The "Others" business segment consists of the financials of investment in, production of and distribution of, films
+and television programmes for third parties, copyrights licensing, merchandise sales and various other activities.
+Others.
+FinTech and Business Services; and
+Online Advertising;
+VAS;
+Notes to the Consolidated Financial Statements
+Advertising
+Operating assets
+Others
+32,623
+67,306
+62,696
+111,182
+107,675
+124,282
+134,864
+RMB'Million
+32,695
+RMB'Million
+2023
+Content costs (excluding amortisation of intangible assets)
+Employee benefits expenses (Note (b) and Note 15)
+Transaction costs (Note (a))
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+EXPENSES BY NATURE
+7
+2022
+196 Tencent Holdings Limited
+Amortisation of intangible assets (Note (c) and Note 22)
+right-of-use assets
+57
+146
+155
+Note:
+- Other services
+- Due diligence service
+- Tax advisory
+- Non-audit services
+Depreciation of property, plant and equipment, investment properties and
+- Audit and audit-related services
+18,764
+22,836
+Promotion and advertising expenses
+30,719
+24,248
+Bandwidth and server custody fees (excluding depreciation of right-of-use assets)
+28,444
+26,305
+Auditor's remuneration
+32
+00
+66,541
+Note: (continued)
+(c) Assets and liabilities related to contracts with customers (continued)
+6 SEGMENT INFORMATION AND REVENUES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+195
+Annual Report 2023
+Contract liabilities mainly comprised unamortised virtual items, prepaid subscription fees, prepaid tokens or cards, Internet
+traffic and other support to be offered to certain investee companies in the future periods measured at their fair value on
+the inception dates, and customer loyalty incentives.
+(ii)
+70,894
+Contract liabilities
+(i)
+Note:
+182
+172
+6,082
+6,733
+FinTech and Business Services
+Others
+71,130
+As at 31 December 2023 and 2022, total capitalised contract costs to obtain or fulfil contracts with customers were
+immaterial.
+Revenue recognised in relation to contract liabilities
+2023
+66,988
+108
+155
+5,558
+5,334
+1,549
+1,802
+59,326
+The following table shows the extent of the revenue recognised in the current reporting period which relates to carried-
+forward contract liabilities:
+59,697
+FinTech and Business Services
+Online Advertising
+VAS
+at the beginning of the year:
+Revenue recognised that was included in the contract liabilities balance
+RMB'Million
+RMB'Million
+2022
+Others
+23
+18
+2
+Net fair value losses on other financial instruments (Note (c))
+Donations (Note (d))
+arising from acquisitions (Note 22)
+(1,849)
+752
+Impairment reversals/(provisions) for investments in joint ventures and others
+Impairment provisions for goodwill and other intangible assets
+(25,689)
+(6,847)
+Impairment provisions for investments in associates (Note 23(c))
+Dividend income
+(7,117)
+172,707
+4,283
+Net gains on disposals and deemed disposals of investee companies (Note (a))
+Net fair value losses on FVPL (Note (b))
+RMB'Million
+RMB'Million
+Restated
+2022
+2023
+(1,954)
+NET GAINS/(LOSSES) FROM INVESTMENTS AND OTHERS
+Others
+(17,265)
+199
+Annual Report 2023
+aggregate net losses of approximately RMB1,295 million on dilution of the Group's equity interests in certain associates
+due to new equity interests being issued by these associates (2022: net gains of approximately RMB2,793 million on
+dilution of the Group's equity interests in certain associates and a joint venture). These investee companies are principally
+engaged in eCommerce, manufacture and sales of electric vehicles, and other Internet-related businesses.
+aggregate net gains of approximately RMB4,004 million (2022: RMB151,000 million) on deemed disposals of investee
+companies of the Group; and
+aggregate net gains of approximately RMB1,574 million (2022: RMB18,914 million) on disposals and partial disposals of
+investee companies of the Group;
+The net disposal and deemed disposal gains of approximately RMB4,283 million recognised during the year ended 31 December
+2023 comprised the following:
+(a)
+Note:
+(95)
+116,287
+309
+342
+948
+546
+(5,124)
+(2,952)
+(633)
+(165)
+(6,090)
+9
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+During the year ended 31 December 2023, expenses incurred related to SSV & CPP (excluding share-based compensation
+expenses) were approximately RMB998 million (2022: RMB726 million).
+During the year ended 31 December 2023, amortisation of intangible assets included the amortisation of intangible assets arising
+from acquisitions of approximately RMB5,019 million (2022: RMB5,197 million).
+(d)
+Amortisation charges of intangible assets are mainly in respect of media content including long-form video and music content,
+game licenses, and other content. During the year ended 31 December 2023, amortisation of media content was approximately
+RMB30,088 million (2022: RMB28,893 million).
+(c)
+Note: (continued)
+7 EXPENSES BY NATURE (continued)
+For the year ended 31 December 2023
+During the year ended 31 December 2023, except as disclosed in Note 8(a), non-recurring compliance-related costs and
+expenses incurred for certain litigation settlements in total were approximately RMB18 million (2022: RMB205 million), of which
+approximately RMB1 million (2022: RMB20 million) were included in "Other gains/(losses), net".
+Notes to the Consolidated Financial Statements
+During the year ended 31 December 2023, employee benefits expenses included the share-based compensation expenses of
+approximately RMB22,782 million (2022: RMB26,248 million), which contained those incurred for employees related to SSV &
+CPP of approximately RMB63 million (2022: RMB73 million).
+No significant development expenses had been capitalised for the years ended 31 December 2023 and 2022.
+During the year ended 31 December 2023, the Group had incurred expenses for the purpose of research and development
+of approximately RMB64,078 million (2022: RMB61,401 million), which mainly comprised employee benefits expenses of
+approximately RMB52,416 million (2022: RMB50,000 million).
+(b)
+(a) Transaction costs primarily consist of bank handling fees, channel and distribution costs.
+9
+32
+5
+Annual Report 2023 197
+8
+OTHER GAINS/(LOSSES), NET
+Subsidies and tax rebates
+Tencent Holdings Limited
+198
+00
+In July 2023, Tenpay received a notice from the People's Bank of China regarding its decision to impose a fine amounted to
+approximately RMB2.99 billion for its past regulatory breaches in relation to the provision of payment services in the Mainland of
+China. The amount was paid in July 2023.
+8,006
+4,701
+(3,113)
+(2,589)
+(2,995)
+11,119
+10,285
+RMB'Million
+RMB'Million
+2022
+Restated
+2023
+(a)
+Note:
+Others
+Tenpay-related fine (Note (a))
+2,152
+Business
+Services
+1,335
+62,478
+19,320
+22,141
+50
+9,467
+6,477
+6,147
+Amortisation
+Depreciation
+8,422
+Cost of revenues
+(284)
+58,374
+35,009
+145,647
+Gross profit/(loss)
+554,552
+7,194
+177,064
+238,746
+82,729
+200
+29,511
+52,018
+58,236
+502,534
+550,779
+RMB'Million
+RMB'Million
+2022
+2023
+1,569
+- The Mainland of China
+- Others
+The Company is domiciled in the Cayman Islands while the Group mainly operates its businesses in the Mainland
+of China. During the years ended 31 December 2023 and 2022, breakdown of the total revenues by geographical
+location is as follows:
+(a) Description of segments and principal activities (continued)
+SEGMENT INFORMATION AND REVENUES (continued)
+6
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+192 Tencent Holdings Limited
+The reconciliation of gross profit to profit before income tax is shown in the consolidated income statement.
+Revenues
+609,015
+287,565
+RMB'Million
+Cost of revenues
+293,109
+(790)
+80,636
+51,344
+161,919
+Gross profit/(loss)
+609,015
+Depreciation
+5,395
+101,482
+298,375
+Segment revenues
+RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+Total
+203,763
+Segment revenues
+5,239
+8,713
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+Total
+Others
+Business
+Services
+Online
+Advertising
+VAS
+6,025
+FinTech and
+30,217
+1,930
+158
+8,661
+19,468
+Amortisation
+20,036
+59
+Year ended 31 December 2022
+554,552
+The Group also conducts operations in the North America, Europe and other regions, and holds investments
+(including investments in associates, investments in joint ventures, FVPL, FVOCI and assets held for distribution) in
+various territories. The geographical information on the total assets is as follows:
+- The Mainland of China
+- FinTech and Business Services
+10,709
+10,318
+Media advertising
+72,020
+91,164
+Social and others advertising
+82,729
+203,763
+101,482
+116,850
+118,515
+Social networks
+170,715
+179,860
+Games
+287,565
+298,375
+- Online Advertising
+- VAS
+177,064
+5,395
+62,890
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+VAS
+Contract liabilities:
+- Others
+The Group has recognised the following liabilities related to contracts with customers under "Deferred revenue":
+SEGMENT INFORMATION AND REVENUES (continued)
+6
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+194 Tencent Holdings Limited
+554,552
+609,015
+7,194
+(c) Assets and liabilities related to contracts with customers
+Revenue from contracts with customers
+RMB'Million
+RMB'Million
+- Asia excluding the Mainland of China and Hong Kong
+91,636
+110,106
+- North America
+560,835
+393,836
+The Mainland of China and Hong Kong
+275,755
+110,224
+324,947
+550,635
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+Investments
+- Others
+482,401
+105,891
+- Europe
+64,123
+2022
+2023
+00
+In the following table, revenue of the Group from contracts with customers is disaggregated by revenue source.
+The table also includes a reconciliation to the segment information (Note 6(a)).
+(b) Disaggregation of revenue from contracts with customers
+All the revenues derived from any single external customer were less than 10% of the Group's total revenues
+during the years ended 31 December 2023 and 2022.
+(a) Description of segments and principal activities (continued)
+6 SEGMENT INFORMATION AND REVENUES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+193
+Annual Report 2023
+As at 31 December 2023, the total non-current assets other than financial instruments and deferred income tax
+assets located in the Mainland of China and other regions amounted to RMB361,619 million (31 December 2022:
+RMB352,703 million) and RMB201,821 million (31 December 2022: RMB192,413 million), respectively.
+1,578,131
+1,577,246
+15,778
+23,375
+Others
+45,835
+Online Advertising
+(e)
+For the year ended 31 December 2023
+For the year ended 31 December 2023
+2022
+2023
+Number of individuals
+Emolument bands
+The emoluments of the above senior management fell within the following bands:
+5,272,111
+4,610,447
+4,835,839
+4,042,105
+HKD8,000,000 ~ HKD50,000,000
+Share-based compensation expenses
+720
+Contributions to pension plans
+435,500
+567,622
+Salaries, bonuses, allowances and benefits in kind
+2022
+RMB'000
+RMB'000
+2023
+Senior management includes directors, chief executive officer ("CEO"), president and other senior executives. The
+aggregate compensation paid/payable to senior management for employee services (excluding the compensation
+paid/payable to (i) the then executive director of the Company during the period from 1 January 2023 to 17 May
+2023, and (ii) a director and the CEO of the Company, details of which have been reflected in Note 16(a)), is as
+follows:
+772
+(a) Senior management's emoluments
+1
+4
+119,897
+Annual Report 2023
+209
+Contributions to pension plans
+Salaries
+Bonuses
+The five individuals whose emoluments were the highest in the Group did not include any director for the year
+ended 31 December 2023 (2022: did not include any director). All of these individuals have not received any
+emolument from the Group as an inducement to join the Group during the years ended 31 December 2023 and
+2022. The emoluments paid/payable to the five (2022: five) individuals during the years are as follows:
+(b) Five highest paid individuals
+15 EMPLOYEE BENEFITS EXPENSES (continued)
+For the year ended 31 December 2023
+HKD50,000,001 ~ HKD200,000,000
+Notes to the Consolidated Financial Statements
+1
+207
+Annual Report 2023
+1
+1
+2
+HKD400,000,001 ~ HKD800,000,000
+HKD800,000,001 ~ HKD1,200,000,000
+HKD1,200,000,001 ~ HKD2,000,000,000
+4
+HKD200,000,001 ~ HKD400,000,000
+- 3 3 312
+15 EMPLOYEE BENEFITS EXPENSES (continued)
+For the year ended 31 December 2023
+Tencent Holdings Limited
+RMB'Million
+RMB'Million
+2022
+2023
+Note:
+Training expenses
+Welfare, medical and other expenses (Note)
+Contributions to pension plans (Note)
+Share-based compensation expenses
+71,225
+Wages, salaries and bonuses
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+205
+Annual Report 2023
+19.341
+11.887
+9,695
+9,610
+9,528
+167
+15 EMPLOYEE BENEFITS EXPENSES
+70,213
+22,782
+26,248
+206
+00
+Effective from 1 January 2022, additional employee benefits had been provided by the Group to certain employees, including (i)
+commercial health insurance benefits to certain eligible employees who have completed a required period of service; and (ii) one-off
+retirement cash bonus upon the retirement of qualified employees. The financial impacts relating to these additional benefits for the
+year ended 31 December 2023 and 2022 were not material.
+10.0 12.0%
+0.25 -1.5%
+5.0-10.0%
+12.0 20.0%
+Percentage
+Housing fund
+Unemployment insurance
+Medical insurance
+Pension insurance
+The majority of the Group's contributions to pension plans are related to the local employees in the PRC. All local employees of the
+subsidiaries in the PRC participate in employee social security plans established in the PRC, which cover pension, medical and other
+welfare benefits. The plans are organised and administered by the governmental authorities. Except for the contributions made to these
+social security plans, the Group has no other material commitments owing to the employees. According to the relevant regulations,
+the portion of premium and welfare benefit contributions that should be borne by the companies within the Group as required by the
+above social security plans are principally determined based on percentages of the basic salaries of employees, subject to certain
+ceilings imposed. These contributions are paid to the respective labour and social welfare authorities and are expensed as incurred.
+The applicable percentages used to provide for these social security plans for the years ended 31 December 2023 and 2022 are listed
+below:
+111,182
+107,675
+140
+128
+7,473
+6,241
+7,108
+7,299
+58
+60,190
+76
+43,723
+1
+2 - -
+IIN
+2
+1
+1
+1
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+2022
+16 BENEFITS AND INTERESTS OF DIRECTORS
+The remuneration of every director and the CEO is set out below:
+During the year ended 31 December 2023:
+Contributions Share-based
+Allowances
+to pension compensation
+and benefits
+Name of director
+Fees
+Salaries
+(a) Directors' and the chief executive's emoluments
+2023
+Number of individuals
+4,170,590
+Notes to the Consolidated Financial Statements
+Share-based compensation expenses
+Allowances and benefits in kind
+2023
+RMB'000
+2022
+RMB'000
+36,100
+1,091,373
+23,091
+2,391,324
+35,339
+1,105,178
+16,336
+3,013,520
+193
+217
+3,542,081
+The emoluments of the above five individuals (2022: five) fell within the following bands:
+Emolument bands
+HKD431,500,001 ~ HKD432,000,000
+HKD502,500,001 ~ HKD503,000,000
+HKD536,500,001 ~ HKD537,000,000
+HKD561,000,001 ~ HKD561,500,000
+HKD1,049,500,001 ~ HKD1,050,000,000
+HKD1,421,000,001 ~ HKD1,421,500,000
+HKD1,504,000,001 ~ HKD1,504,500,000
+HKD1,530,000,001 ~ HKD1,530,500,000
+00
+208 Tencent Holdings Limited
+Bonuses
+155
+plans expenses
+Total
+lan Charles Stone
+1,087
+6,239
+7,326
+Yang Siu Shun
+1,087
+5,545
+6,632
+Ke Yang
+3,935
+816
+3,858
+816
+1,929
+2,745
+Zhang Xiu Lan
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+6,369
+9,481
+3,042
+3,119
+816
+Li Dong Sheng
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+RMB'000
+(Note (i))
+Ma Huateng (CEO)
+1,275
+6,791
+34,723
+76
+58
+42,923
+Lau Chi Ping Martin (Note (ii))
+472
+2,690
+9,000
+40,316
+52,478
+in kind
+9,455
+Notes to the Consolidated Financial Statements
+114,230
+2023
+2022
+RMB'Million
+RMB'Million
+5,400
+400
+(16,379)
+250
+5,800
+(16,129)
+(a) During the year ended 31 December 2023, it represented the Group's share of its associates and joint ventures'
+post-acquisition profit or loss, including share of their impairment provisions for investee companies, goodwill and
+other intangible assets arising from acquisitions of approximately RMB1,933 million (2022: RMB3,201 million),
+amortisation of intangible assets arising from acquisitions of approximately RMB5,250 million (2022: RMB6,621
+million), share-based compensation expenses of approximately RMB4,984 million (2022: RMB7,063 million), non-
+recurring compliance-related adjustment gains of approximately RMB1 million (2022: losses of RMB1,920 million)
+and other net gains from investee companies of approximately RMB4,925 million (2022: RMB314 million).
+(b)
+Details of the Group's impairment provisions/reversals for investments in associates and joint ventures are included
+in Notes 9, 23 and 24.
+13 TAXATION
+(a) Income tax expense
+Income tax expense is recognised based on management's best knowledge of the income tax rates expected for
+the financial year.
+(i)
+Cayman Islands and British Virgin Islands corporate income tax
+187,503
+The Group was not subject to any taxation in the Cayman Islands and the British Virgin Islands for the years
+ended 31 December 2023 and 2022.
+(ii)
+Hong Kong profits tax
+Hong Kong profits tax had been provided for at the rate of 16.5% on the estimated assessable profits for the
+years ended 31 December 2023 and 2022.
+Share of profit/(loss) of associates, net (Note 23)
+Share of profit/(loss) of joint ventures, net (Note 24)
+12 SHARE OF PROFIT/(LOSS) OF ASSOCIATES AND JOINT VENTURES, NET
+Notes to the Consolidated Financial Statements
+200 Tencent Holdings Limited
+Note: (continued)
+(b)
+During the year ended 31 December 2023, the net fair value losses on FVPL mainly comprised net losses of approximately
+RMB2,886 million as a result of changes in valuations of certain investee companies (2022: RMB7,737 million).
+(c)
+During the year ended 31 December 2023, the net fair value losses on other financial instruments mainly included net losses of
+approximately RMB152 million, as a result of changes in valuations of investment-related financial instruments (2022: RMB586
+million).
+(d)
+During the year ended 31 December 2023, donations mainly included approximately RMB2,792 million for SSV & CPP of the
+Group (2022: RMB5,037 million).
+10 INTEREST INCOME
+Interest income mainly represents interest income from bank deposits, including bank balance and term deposits.
+11 FINANCE COSTS
+Annual Report 2023
+Interest and related expenses
+Exchange losses/(gains), net
+2022
+RMB'Million
+RMB'Million
+11,885
+383
+9,985
+(633)
+12,268
+9,352
+Interest and related expenses mainly arose from the borrowings, notes payable and lease liabilities as disclosed in Notes
+38, 39 and 20, respectively.
+00
+2023
+NET GAINS/(LOSSES) FROM INVESTMENTS AND OTHERS (continued)
+201
+For the year ended 31 December 2023
+Tax calculated at a tax rate of 25%
+226,354
+155,524
+16,129
+(5,800)
+Share of (profit)/loss of associates and joint ventures, net
+210,225
+161,324
+Profit before income tax
+RMB'Million
+RMB'Million
+2022
+2023
+The taxation on the Group's profit before income tax differs from the theoretical amount that would arise using
+the tax rate of 25% (2022: 25%) for the year ended 31 December 2023, being the general tax rate of the major
+subsidiaries of the Group before enjoying preferential tax treatments, as follows:
+21,516
+43,276
+(2,909)
+10,556
+24,425
+32,720
+RMB'Million
+38,881
+56,588
+2023
+For the year ended 31 December 2023
+13 TAXATION (continued)
+(a) Income tax expense (continued)
+(iii) PRC CIT
+PRC CIT had been provided for at applicable tax rates under the relevant regulations of the PRC after
+considering the available preferential tax benefits from refunds and allowances, and on the estimated
+assessable profit of entities within the Group established in the Mainland of China for the years ended 31
+December 2023 and 2022. The general PRC CIT rate was 25% in 2023 and 2022.
+Certain subsidiaries of the Company in the Mainland of China were approved as High and New Technology
+Enterprise, and they were subject to a preferential corporate income tax rate of 15% for the years ended
+31 December 2023 and 2022. Moreover, according to announcement and circular issued by relevant
+government authorities, a subsidiary which was qualified as a national key software enterprise was subject to
+a preferential corporate income tax rate of 10%.
+In addition, certain subsidiaries of the Company were entitled to other tax concessions, mainly including the
+preferential tax rate of 15% applicable to some subsidiaries located in certain areas of the Mainland of China
+upon fulfilment of certain requirements of the respective local governments.
+(iv)
+Corporate income tax in other jurisdictions
+Income tax on profit arising from other jurisdictions, including the United States, Europe, Asia and South
+America, had been calculated on the estimated assessable profit for the year at the respective rates
+prevailing in the relevant jurisdictions, which were not higher than 35%.
+(v) Withholding tax
+Notes to the Consolidated Financial Statements
+According to applicable tax regulations prevailing in the PRC, dividends distributed by a company
+established in the Mainland of China to a foreign investor with respect to profit derived after 1 January 2008
+are generally subject to a 10% withholding tax. If a foreign investor is incorporated in Hong Kong, under the
+double taxation arrangement between the Mainland of China and Hong Kong, the relevant withholding tax
+rate applicable to such foreign investor will be reduced from 10% to 5% subject to the fulfilment of certain
+Dividends distributed from certain jurisdictions that the Group's entities operate in are also subject to
+withholding tax at respective applicable tax rates.
+00
+202
+Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+13 TAXATION (continued)
+(a) Income tax expense (continued)
+The income tax expense of the Group is analysed as follows:
+Current income tax
+Deferred income tax (Note 30)
+conditions.
+RMB'Million
+2022
+City construction tax
+Tencent Holdings Limited
+204
+00
+Since none of the Pillar Two legislation relevant to the Group has come into effect, the Group does not recognise
+any relevant current tax or deferred tax for the year ended 31 December 2023.
+The Group has reviewed its corporate structure in light of the introduction of Pillar Two model rules in various
+jurisdictions and engaged external tax specialists in assessing its tax exposure. As at 31 December 2023, the
+Group mainly operates in the Mainland of China and Hong Kong, in which exposures to Pillar Two income taxes
+might exist in the future although the legislation is not yet substantively enacted or enacted. Besides, certain
+subsidiaries of the Company are located in jurisdictions mainly including Luxembourg, Netherlands and Ireland
+where Pillar Two legislation had been enacted or substantively enacted, but not yet in effect; it is estimated that the
+Group's income tax would not be materially different should those legislation had been in effect for the year ended
+31 December 2023.
+The Organisation for Economic Co-operation and Development ("OECD") published Pillar Two model rules in
+December 2021, with the effect that a jurisdiction may enact domestic tax laws ("Pillar Two legislation") to
+implement the Pillar Two model rules on a globally agreed common approach. Pillar Two legislation applies to a
+member of a multinational group within the scope of the Pillar Two model rules, which the Group is reasonably
+expected to fall into. It imposes a top-up tax on profits arising in a jurisdiction whenever the effective tax rate
+determined by the Pillar Two model rules on a jurisdictional basis is below a minimum rate of 15%.
+(c) OECD Pillar Two model rules
+(i) Effective from 1 July 2019 to 31 December 2024, the rate of cultural construction fee has been reduced by 50% in certain
+regions, while during the period from 1 January 2020 to 31 December 2021, this fee was fully exempted.
+Note:
+Net VAT payable amount
+5%
+Educational surcharge
+Net VAT payable amount
+9
+7%
+Weighted average number of ordinary shares for the calculation of
+diluted EPS (million shares)
+(Note (i))
+3%
+Cultural construction fee
+Notes to the Consolidated Financial Statements
+Sales value of goods sold and services fee income,
+offset by VAT on purchases
+Taxable advertising income
+For the year ended 31 December 2023
+(a) Basic
+the calculation of diluted EPS (RMB'Million)
+Profit attributable to equity holders of the Company for
+non wholly-owned subsidiaries and associates (RMB'Million)
+Profit attributable to equity holders of the Company (RMB'Million)
+Dilution effect arising from share-based awards granted by
+In addition, the profit attributable to equity holders of the Company (numerator) has been adjusted by the effect of
+the share-based awards granted by the Company's non wholly-owned subsidiaries and associates, excluding those
+which have anti-dilutive effect on the Group's diluted EPS.
+The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted
+EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption of
+the conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted by
+the Company (collectively forming the denominator for computing the diluted EPS), which is determined under the
+treasury stock method.
+(b) Diluted
+19.757
+12.186
+Basic EPS (RMB per share)
+9,528
+9,455
+Weighted average number of ordinary shares in issue excluding shares held
+for share award schemes and treasury shares (million shares)
+188,243
+115,216
+Profit attributable to equity holders of the Company (RMB'Million)
+2022
+2023
+Basic earnings per share ("EPS") is calculated by dividing the profit attributable to equity holders of the Company
+by the weighted average number of ordinary shares in issue (excluding shares held for share award schemes and
+treasury shares) during the year.
+14 EARNINGS PER SHARE
+Weighted average number of ordinary shares in issue excluding shares held
+Basis of levy
+Value-added tax ("VAT")
+2,918
+Expenses not deductible for tax purposes
+(84)
+(433)
+Income not subject to tax
+(4,641)
+(4,400)
+profits of subsidiaries incorporated in the Mainland of China
+Effects of tax holiday and preferential tax benefits on assessable
+(45,335)
+(13,971)
+Effects of different tax rates applicable to different subsidiaries of
+the Group
+Diluted EPS (RMB per share)
+2023
+2022
+115,216
+188,243
+(986)
+(740)
+2,532
+6-13%
+Withholding tax on earnings expected to be remitted by subsidiaries
+10,300
+Tax rate
+Category
+The operations of the Group are also mainly subject to the following taxes in the PRC:
+(b) Value-added tax and other taxes
+13 TAXATION (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+203
+Annual Report 2023
+21,516
+43,276
+114
+(2)
+Income tax expense
+Others
+7,992
+9,983
+Unrecognised deferred income tax assets
+4,350
+(Note 30)
+for share award schemes and treasury shares (million shares)
+Adjustments for share options and awarded shares (million shares)
+(2,491)
+4,319
+140,394
+Accumulated depreciation and impairment
+(6,582)
+(76,172)
+(2,052)
+(110)
+(87,407)
+Currency translation differences
+137
+109
+11
+48
+1
+Business combinations
+61,914
+1,595
+75
+1,055
+1
+46,077
+Opening net book amount
+Year ended 31 December 2022
+61,914
+1,595
+75
+1,055
+46,077
+13,112
+13,112
+Net book amount
+33
+Additions
+3,012
+(29)
+(393)
+(19,549)
+(1,135)
+Depreciation
+(160)
+(30)
+94
+(3)
+(124)
+Disposals
+13,360
+1,207
+25
+471
+9,186
+2,471
+(3)
+62
+(355)
+(58)
+Buildings
+00
+18 PROPERTY, PLANT AND EQUIPMENT (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+213
+Annual Report 2023
+53,232
+RMB'Million
+1,893
+970
+34,748
+15,557
+Net book amount
+245
+65
+(1)
+10
+64
+(292)
+Computer
+and other
+operating
+equipment
+RMB'Million RMB'Million
+and office
+equipment
+Currency translation differences
+(64,318)
+(2,264)
+(61)
+(1,487)
+(55,909)
+(4,597)
+Accumulated depreciation and impairment
+Furniture
+126,587
+2,545
+102,278
+17,767
+Cost
+At 1 January 2022
+RMB'Million
+Total
+Motor Leasehold
+vehicles improvements
+RMB'Million RMB'Million
+3,860
+110,811
+50,630
+Cost
+(ii) The emoluments were received by Mr Lau Chi Ping Martin in his capacity as a director of the Company during the period
+from 1 January 2023 to 17 May 2023.
+For the year ended 31 December 2023
+Note: (continued)
+(a) Directors' and the chief executive's emoluments (continued)
+16 BENEFITS AND INTERESTS OF DIRECTORS (continued)
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+210
+00
+(i) Allowances and benefits in kind include leave pay, insurance premium and club membership.
+Note:
+247,407
+114
+175,521
+128
+(607)
+14,456
+6,558
+Charles St Leger Searle
+Jacobus Petrus (Koos) Bekker
+572
+(iii)
+274
+(iv)
+During the year ended 31 December 2023, no options were granted to any executive director of the Company (2022: Nil),
+and no options previously granted were voluntarily waived by executive directors, except for voluntary waiver of 843,658
+options held by a former executive director which did not take place during his term of directorship (2022: 2,530,972
+options previously granted were voluntarily waived by an executive director), while 74,542 awarded shares were granted to
+five independent non-executive directors of the Company (2022: 58,398 awarded shares were granted to five independent
+non-executive directors of the Company).
+Dividends payable for distribution in specie was approximately RMB115.8 billion right before the Share Certificate
+Dispatch Date, measured at fair value using the market price of the Meituan Shares to be distributed. Fair value
+changes on the dividends payable amounted to approximately RMB30.0 billion from 1 January 2023 to the Share
+Certificate Dispatch Date were recognised in equity as a result of the changes in the fair value of the Meituan
+Shares to be distributed. Upon the dispatch of the share certificates of the Meituan Shares to be distributed, the
+assets held for distribution (Note 34) and dividends payable for distribution in specie were derecognised and
+the cumulative fair value losses of assets held for distribution amounted to approximately RMB19.0 billion were
+transferred from other reserves to retained earnings.
+On 16 November 2022, the Board resolved to declare a distribution of a special interim dividend by the Company
+in the form of a distribution in specie of approximately 948 million Class B ordinary shares of Meituan to the
+shareholders. The share certificates of the relevant shares of Meituan ("Meituan Shares") in respect of the
+distribution to qualifying shareholders were dispatched to qualifying shareholders on 24 March 2023 (the "Share
+Certificate Dispatch Date").
+(b) Settlement of special interim dividend by way of distribution in specie
+A final dividend in respect of the year ended 31 December 2023 of HKD3.40 per share (2022: HKD2.40 per
+share) was proposed pursuant to a resolution passed by the Board on 20 March 2024 and subject to the approval
+of the shareholders at the 2024 annual general meeting of the Company to be held on 14 May 2024 or any
+adjournment thereof. This proposed dividend is not reflected as dividend payable in the consolidated financial
+statements.
+The final dividends amounting to HKD22,762 million (2022: HKD15,260 million) were paid during the year ended
+31 December 2023.
+(a) Final dividends
+17 DIVIDENDS
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+211
+Annual Report 2023
+No significant transactions, arrangements and contracts in relation to the Group's business to which the Company
+was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted
+at the end of the year or at any time during the year.
+(e) Directors' material interests in transactions, arrangements or contracts
+No loans, quasi-loans and other dealings in favour of directors, their controlled bodies corporate and connected
+entities subsisted at the end of the year or at any time during the year.
+(d) Information about loans, quasi-loans and other dealings in favour of directors, their controlled bodies and
+connected entities
+No consideration provided to or receivable by third parties for making available directors' services subsisted at the
+end of the year or at any time during the year.
+(c) Consideration provided to third parties for making available directors' services
+No director's termination benefit subsisted at the end of the year or at any time during the year.
+(b) Directors' termination benefits
+No director received any emolument from the Group as an inducement to join or leave the Group or compensation for loss
+of office. Except as stated in Note (iii) above, no director waived or has agreed to waive any emoluments during the years
+ended 31 December 2023 and 2022.
+843,658 options previously granted were voluntarily waived by a former executive director in January 2024.
+(v)
+298
+Zhang Xiu Lan
+3,512
+7,103
+1,254
+Ma Huateng (CEO)
+(Note (i))
+RMB'000
+Total
+in kind
+RMB'000
+plans expenses
+RMB'000 RMB'000
+RMB'000
+RMB'000
+RMB'000
+Bonuses
+Salaries
+Fees
+Name of director
+to pension compensation and benefits
+Allowances
+Contributions Share-based
+During the year ended 31 December 2022:
+(a) Directors' and the chief executive's emoluments (continued)
+16 BENEFITS AND INTERESTS OF DIRECTORS (continued)
+30,194
+128
+15
+38,694
+2,708
+804
+Ke Yang
+6,350
+5,278
+1,072
+Yang Siu Shun
+7,035
+5,963
+1,072
+00
+lan Charles Stone
+2,981
+804
+Li Dong Sheng
+187,459
+99
+158,317
+20,436
+7,353
+1,254
+Lau Chi Ping Martin
+3,785
+22,077
+212
+Notes to the Consolidated Financial Statements
+(133)
+(17)
+(3)
+(9)
+(100)
+(4)
+Disposals
+19,170
+503
+37
+37
+193
+16,515
+1,922
+Additions
+31
+9
+1
+8
+13
+Business combinations
+Depreciation
+53,978
+(930)
+(376)
+At 31 December 2023
+53,232
+1,893
+64
+970
+34,748
+15,557
+Closing net book amount
+117
+7
+2
+72
+36
+Currency translation differences
+(36)
+(32)
+(4)
+Impairment provisions
+(19,895)
+(834)
+(40)
+(17,715)
+2,257
+69
+69
+131,603
+4,981
+155
+2,966
+103,343
+20,158
+Cost
+At 1 January 2023
+RMB'Million RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+Total
+Leasehold
+Motor
+vehicles improvements
+and office
+equipment
+operating
+equipment
+Buildings
+RMB'Million
+Furniture
+Computer
+and other
+18 PROPERTY, PLANT AND EQUIPMENT
+For the year ended 31 December 2023
+Accumulated depreciation and impairment
+(5,651)
+(67,413)
+(1,822)
+1,152
+35,967
+14,533
+Opening net book amount
+Year ended 31 December 2023
+53,978
+2,257
+69
+1,152
+35,967
+Tencent Holdings Limited
+14,533
+128
+58
+(1)
+8
+37
+26
+Currency translation differences
+(77,753)
+(2,782)
+(85)
+Net book amount
+(21,713)
+2023
+84
+Currency translation differences
+(154,667)
+(7,515)
+(5,971)
+(108,045)
+(10,035)
+(2,667)
+(23,101)
+319,615
+9,948
+13,865
+139,124
+14,179
+142,499
+Accumulated amortisation and impairment
+(34)
+(69)
+(304)
+7,590
+31,010
+4,110
+116,731
+Opening net book amount
+Year ended 31 December 2023
+161,802
+2,361
+7,590
+31,010
+4,110
+116,731
+Net book amount
+(3,146)
+(72)
+Cost
+At 1 January 2023
+RMB'Million
+RMB'Million RMB'Million
+18
+(4)
+(175)
+1
+5
+(2,055)
+(2,623)
+5,363
+7,129
+5,923
+9,229
+RMB'Million
+RMB'Million
+2022
+2023
+1
+2,361
+13,583
+As at 31 December 2023, construction in progress mainly comprised office buildings and data centers under
+construction located in the PRC.
+Total
+Others
+Trademarks
+Media
+content
+RMB'Million
+RMB'Million
+technology
+Goodwill
+RMB'Million
+software and
+Computer
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+22 INTANGIBLE ASSETS
+Tencent Holdings Limited
+218
+00
+9,229
+161,802
+Business combinations
+6,850
+(130,672)
+(11,031)
+(23,106)
+Accumulated amortisation and impairment
+354,633
+10,253
+14,591
+167,888
+14,935
+146,966
+Cost
+At 31 December 2023
+177,727
+2,193
+7,664
+(6,960)
+37,757
+(8,049)
+Currency translation differences
+219
+Annual Report 2023
+177,727
+2,193
+7,664
+37,757
+3,893
+126,220
+Net book amount
+2,912
+(11)
+33
+541
+(11)
+2,360
+(179,818)
+Closing net book amount
+3,893
+Closing net book amount
+(1)
+(1,347)
+(41)
+(2,383)
+Disposals and others
+32,127
+122
+31,298
+707
+Additions
+14,233
+194
+727
+6,277
+185
+(3,772)
+126,220
+Amortisation
+(30,088)
+6,058
+61
+337
+610
+23
+5,027
+Currency translation differences
+(98)
+(3)
+(90)
+(5)
+Impairment provisions
+(32,623)
+(545)
+(989)
+(1,001)
+Currency translation differences
+Disposal
+Business combinations
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Note:
+Closing net book amount
+Currency translation differences
+Impairment provisions
+Amortisation
+Disposals
+Reduction (Note)
+Additions
+Opening net book amount
+19 LAND USE RIGHTS
+214 Tencent Holdings Limited
+During the year ended 31 December 2023, depreciation of RMB16,630 million (2022: RMB18,856 million), RMB405
+million (2022: RMB349 million) and RMB2,860 million (2022: RMB2,508 million) were charged to "Cost of revenues",
+"Selling and marketing expenses" and "General and administrative expenses”, respectively.
+53,978
+It represented the return from the government due to actual occupancy area adjustments.
+2,257
+2023
+RMB'Million
+18,046
+17,179
+15
+2
+(9)
+(10)
+(546)
+(532)
+(162)
+(201)
+858
+36
+17,728
+18,046
+RMB'Million
+2022
+The land use rights mainly represented prepaid operating lease payments in respect of land in the Mainland of China
+with remaining lease periods of 25 to 47 years.
+69
+35,967
+103,343
+20,158
+Cost
+At 31 December 2022
+53,978
+2,257
+69
+1,152
+35,967
+14,533
+Closing net book amount
+483
+59
+11
+329
+2,966
+1,152
+155
+131,603
+14,533
+Net book amount
+128
+58
+8
+37
+26
+Currency translation differences
+(77,753)
+(2,782)
+(85)
+(1,822)
+(67,413)
+(5,651)
+Accumulated depreciation and impairment
+4,981
+Currency translation differences
+Annual Report 2023
+Notes to the Consolidated Financial Statements
+6,720
+6,397
+30
+34
+3,320
+3,436
+3,370
+2,927
+RMB'Million
+RMB'Million
+2022
+2023
+Computer and other operating equipment
+Others
+Buildings
+Depreciation charge of right-of-use assets
+1,011
+(b) Amounts recognised in consolidated income statement and consolidated statement of cash flows
+The consolidated income statement included the following amounts relating to leases (excluding the amortisation
+of land use rights, disclosed in Note 19):
+1,060
+Expense relating to short-term leases not included in lease liabilities
+Transfer to property, plant and equipment
+Additions
+Opening net book amount
+21 CONSTRUCTION IN PROGRESS
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Annual Report 2023 217
+The total cash outflow in financing activities for leases during the year ended 31 December 2023 was
+approximately RMB7,589 million (2022: RMB6,871 million), including principal elements of lease payments of
+approximately RMB6,652 million (2022: RMB5,969 million) and related interest paid of approximately RMB937
+million (2022: RMB902 million), respectively.
+Some leases of computer and other operating equipment contain variable lease payments. Variable payments are
+used for a variety of reasons, including managing cash outflows and minimising the fixed costs. Variable lease
+payments that depend on usage of bandwidth are recognised in profit or loss in the period in which the conditions
+that trigger those payments occur. Variable lease payments relating to computer and other operating equipment
+leases during the year ended 31 December 2023 were considered to be insignificant.
+5,577
+4,687
+Expense relating to variable lease payments not included in lease liabilities
+(included in cost of revenues and expenses)
+1,741
+1,595
+(included in cost of revenues and expenses)
+Interest expense (included in finance costs)
+215
+20 LEASES (EXCLUDING LAND USE RIGHTS) (continued)
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+Note:
+Closing net book amount
+Currency translation differences
+Impairment provisions
+Reduction (Note)
+Depreciation
+Additions
+Business combinations
+Opening net book amount
+Movement of right-of-use assets (excluding land use rights, disclosed in Note 19) is analysed as follows:
+00
+(a) Amounts recognised in the consolidated statement of financial position
+20 LEASES (EXCLUDING LAND USE RIGHTS)
+For the year ended 31 December 2023
+2022
+For the year ended 31 December 2023
+RMB'Million
+22,524
+216 Tencent Holdings Limited
+The reduction of right-of-use assets during the years ended 31 December 2023 and 2022 mainly arose from early termination
+and modification of lease contracts.
+22,524
+20,464
+438
+268
+(3)
+(543)
+(2,512)
+(6,722)
+(6,398)
+8,715
+6,535
+20,468
+171
+47
+RMB'Million
+Notes to the Consolidated Financial Statements
+175
+Notes to the Consolidated Financial Statements
+As at 31 December 2023, the financial instruments of the Group are analysed as follows:
+25 FINANCIAL INSTRUMENTS BY CATEGORY
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+226
+00
+During the year ended 31 December 2023, an aggregate impairment reversal of approximately RMB752 million (2022:
+impairment provision of RMB3 million) for the carrying amounts of the investments in joint ventures, based on the
+respective assessed recoverable amounts which were determined using fair value less costs of disposal, was recognised
+due to favourable events or changes in circumstances that indicated the reduction in impairment.
+Share of profit amounting to RMB400 million was recognised during the year ended 31 December 2023 (2022: RMB250
+million) (Note 12).
+As at 31 December 2023, the Group's investments in joint ventures of RMB7,969 million (31 December 2022:
+RMB6,672 million) mainly comprised an investee company that is a special purpose vehicle of which the Group has a
+majority stake for the investment in one of the telecommunication carriers in the PRC and other joint venture initiatives in
+entertainment-related businesses.
+24 INVESTMENTS IN JOINT VENTURES
+Financial assets
+There were no material contingent liabilities relating to the Group's interests in the associates.
+23 INVESTMENTS IN ASSOCIATES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+225
+Annual Report 2023
+As at 31 December 2023 and 2022, stakes in the associates which are listed entities consisted of directly and indirectly held listed
+equity interests.
+Note:
+(13,962)
+2,417
+(16,379)
+186,634
+Management had assessed the level of influence that the Group was able to exercise on certain associates with the
+respective shareholding below 20% and certain associates with shareholding over 50% (voting power is below 50%),
+with total carrying amounts of RMB148,749 million and RMB18,960 million as at 31 December 2023, respectively (31
+December 2022: RMB142,323 million and RMB19,615 million, respectively). Management had determined that it had
+significant influence thereon through the board of directors representation or other arrangements made, but it had no
+control or joint control over such investees since the Group had no power to direct or jointly direct relevant activities due
+to other arrangements made. Consequently, these investments had been classified as associates.
+Financial assets at amortised cost:
+Deposits and other receivables
+As at 31 December
+234,048
+226,048
+FVPL (Note 26)
+Financial assets at fair value:
+995
+1,735
+Other financial assets (Note 29)
+2,783
+3,818
+Restricted cash (Note 33(b))
+156,739
+172,320
+Cash and cash equivalents (Note 33(a))
+45,467
+46,606
+Accounts receivable (Note 32)
+133,112
+215,284
+Term deposits (Note 31)
+39,643
+46,985
+RMB'Million
+RMB'Million
+2022
+2023
+309,742
+555,785
+(12,358)
+(11,785)
+6,184
+103,724
+117,715
+250,491
+Listed entities (Note)
+2023
+RMB'Million
+31 December
+income
+associates
+as at
+continuing comprehensive comprehensive
+income
+RMB'Million
+RMB'Million
+operation
+RMB'Million
+Revenues
+RMB'Million
+Liabilities
+RMB'Million
+RMB'Million
+Assets
+Total
+Other
+in listed
+Profit/(loss)
+from
+of stakes
+Fair value
+The Group's share of the results, the revenues, the aggregated assets (including goodwill) and liabilities of its associates,
+as well as the fair value of its stakes in the associates which are listed entities, are shown in aggregate as follows:
+The associates of the Group have been accounted for by using equity method based on the financial information of the
+associates prepared under the accounting policies generally consistent with those of the Group.
+(373)
+FVOCI (Note 27)
+5,811
+Unlisted entities
+60,229
+204,432
+324,940
+Unlisted entities
+264,090
+(1,604)
+2,990
+(4,594)
+126,405
+105,310
+230,845
+Listed entities (Note)
+2022
+4,657
+(743)
+5,400
+170,099
+326,329
+580,025
+(1,154)
+(370)
+(784)
+66,375
+208,614
+329,534
+351,594
+23 INVESTMENTS IN ASSOCIATES (continued)
+213,951
+Assets held for distribution (Note 34)
+Changes in fair value (Note 9)
+Additions and transfers (Note (a))
+At beginning of the year
+Movement of FVPL is analysed as follows:
+26 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+228 Tencent Holdings Limited
+234,048
+226,048
+27,963
+Disposals and others
+14,903
+14,902
+Treasury investments and others
+2
+1
+Investments in listed entities
+Included in current assets:
+206,085
+211,145
+6,140
+8,952
+Treasury investments and others
+27,961
+Currency translation differences
+At end of the year
+Note:
+For the year ended 31 December 2023
+Annual Report 2023 229
+Management had assessed the level of influence that the Group was able to exercise on certain FVPL with shareholding
+exceeding 20%. Since these investments were either held in the form of redeemable instruments or interests in limited
+partnerships without significant influence, these investments had been classified as FVPL.
+except as described in Note 23(b), transfers mainly comprised certain investments with an aggregate amount of
+approximately RMB6,442 million designated as FVOCI due to the conversion of preference shares into ordinary shares
+upon their IPOs.
+(ii)
+new investments and additional investments with an aggregate amount of approximately RMB53,276 million in treasury
+investments, investee companies which are principally engaged in digital payment, games development and eCommerce,
+and others; and
+(i)
+During the year ended 31 December 2023, the Group's additions and transfers mainly comprised the following:
+234,048
+226,048
+16,128
+3,342
+(22,926)
+(50,303)
+(7,117)
+(1,954)
+45,206
+40,915
+202,757
+234,048
+RMB'Million
+RMB'Million
+2022
+2023
+(a)
+187,502
+190,698
+Investments in unlisted entities
+12,443
+22,622
+Lease liabilities
+92,381
+100,948
+Accounts payable (Note 42)
+6,204
+10,354
+Other financial liabilities (Note 41)
+6,867
+9,034
+Long-term payables
+159,115
+151,262
+Notes payable (Note 39)
+175,248
+197,356
+Borrowings (Note 38)
+Financial liabilities at amortised cost:
+Financial liabilities
+953,269
+933,488
+7,270
+6,741
+Other financial assets (Note 29)
+147,965
+24,778
+185,247
+Other payables and accruals
+32,659
+11,495
+Investments in listed entities
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+Included in non-current assets:
+FVPL include the following:
+00
+26 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
+The Group's exposure to various risks associated with the financial instruments is discussed in Note 4. The maximum
+exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
+mentioned above.
+25 FINANCIAL INSTRUMENTS BY CATEGORY (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Annual Report 2023 227
+648,524
+537,896
+147,965
+Dividends payable for distribution in specie (Note 17(b))
+Financial liabilities measured according to IFRIC 17:
+3,307
+2,985
+Other financial liabilities (Note 41)
+Financial liabilities at fair value:
+43,335
+For the year ended 31 December 2023
+(573)
+Tencent Holdings Limited
+(1,608)
+(240)
+(4,061)
+(8,826)
+Impairment provisions
+(32,695)
+(1,051)
+(1,111)
+(28,893)
+(1,640)
+Amortisation
+(2,671)
+(2,822)
+(8)
+(2,803)
+(3)
+Disposals
+23,025
+45
+22,292
+688
+Additions
+17,419
+563
+(8)
+(17,406)
+Currency translation differences
+2,232
+(5,971)
+(108,045)
+(10,035)
+(23,101)
+Accumulated amortisation and impairment
+319,615
+9,948
+13,865
+139,124
+14,179
+142,499
+Cost
+At 31 December 2022
+161,802
+2,361
+7,590
+31,010
+4,110
+116,731
+Closing net book amount
+2,905
+85
+142
+397
+49
+900
+Notes to the Consolidated Financial Statements
+836
+11,152
+Accumulated amortisation and impairment
+291,471
+9,354
+12,977
+125,114
+12,679
+131,347
+Cost
+At 1 January 2022
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million RMB'Million
+RMB'Million
+Total
+Others
+Trademarks
+content
+technology
+Goodwill
+Media
+software and
+Computer
+00
+22 INTANGIBLE ASSETS (continued)
+(14,275)
+(7,515)
+(4,355)
+(3,256)
+Business combinations
+171,376
+5,398
+9,275
+36,289
+8,241
+112,173
+Opening net book amount
+Year ended 31 December 2022
+171,376
+5,398
+9,275
+36,289
+8,241
+112,173
+Net book amount
+(6,051)
+(157)
+(446)
+(466)
+(83)
+(4,899)
+Currency translation differences
+(114,044)
+(3,799)
+(88,359)
+(154,667)
+3,968
+(2,667)
+Impairment provisions, net (Note (c) and Note 9)
+Currency translation differences
+(3,853)
+(2,544)
+(724)
+(5,235)
+7,009
+4,674
+Share of other changes in net assets of associates
+Dividends
+Disposals
+2,417
+(743)
+Share of other comprehensive income of associates
+(25,689)
+(16,379)
+Share of profit/(loss) of associates, net (Note 12)
+2,763
+(1,295)
+Dilution (losses)/gains on deemed disposal
+(54,438)
+4,408
+12,713
+7,696
+316,574
+246,043
+Transfers (Note (b))
+5,400
+2,139
+5,650
+At end of the year
+224
+Currency translation differences
+00
+During the year ended 31 December 2023, an aggregate impairment loss of approximately RMB6,847 million (2022: RMB25,689
+million) had been recognised for associates with impairment indicators, and the majority of these associates' recoverable amounts
+were determined using fair value less costs of disposal where the respective fair values had been determined according to the
+principle set out in Note 4.3.
+In respect of the recoverable amount using value in use, the discounted cash flows calculations are based on cash flow
+projections estimated by management and the key assumptions adopted in these cash flow projections include revenue growth
+rates, terminal growth rates and discount rates. In respect of the recoverable amount based on fair value less costs of disposal,
+the amount is calculated with reference to their respective market prices for listed investments, or using certain key valuation
+assumptions including the selection of comparable companies, recent market transactions, liquidity discounts adopted for lack of
+marketability for unlisted investments.
+Both external and internal sources of information of associates are considered in assessing whether there is any indicator that
+the investments may be impaired, including but not limited to information about financial position and business performance of
+the associates, and a significant or prolonged decline in the fair value of an investment below its carrying amount is also objective
+evidence of impairment. The Group carries out impairment assessments on those investments with impairment indicators, and
+the respective recoverable amounts of investments are determined with reference to the higher of fair value less costs of disposal
+and value in use.
+(c)
+investments in associates with an aggregate amount of approximately RMB1,317 million transferred to FVPL due to
+resignation of board representatives.
+(iii)
+except as described above, investment in associates with an aggregate amount of approximately RMB7,968 million
+transferred from FVPL due to conversion of the redeemable instruments into ordinary shares; and
+(ii)
+investment in an associate of approximately RMB2,304 million transferred from FVPL due to conversion of the
+redeemable instruments into ordinary shares upon its IPO in January 2023; and this investment with a carrying amount of
+approximately RMB2,293 million was transferred from investment in an associate to FVOCI due to resignation of the board
+representative in March 2023;
+(i)
+(b) During the year ended 31 December 2023, the Group's transfers mainly comprised the following:
+Note: (continued)
+23 INVESTMENTS IN ASSOCIATES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+223
+Annual Report 2023
+During the year ended 31 December 2023, the Group's additions mainly comprised new investments and additional investments
+in certain investee companies, which are principally engaged in games development, streaming media and other Internet-related
+businesses.
+(a)
+Note:
+246,043
+253,696
+Additions (Note (a))
+At beginning of the year
+(6,847)
+22 INTANGIBLE ASSETS (continued)
+Notes to the Consolidated Financial Statements
+221
+For goodwill attributable to the Group's online game business within VAS segment, the recoverable amount was
+determined using fair value less costs of disposal where the fair value was determined as Level 3 according to the
+principle set out in Note 4.3. Fair value less costs of disposal was primarily determined based on ratios of EV (enterprise
+value) divided by EBITDA of several comparable public companies (range: 11-19x) (2022: range: 13-21x) multiplied by
+the EBITDA of the related CGU (or group of CGUS) and liquidity discounted for lack of marketability at a range of 10% to
+20% (2022: 10% to 20%). The comparable public companies were chosen based on factors such as industry similarity,
+company size, profitability and financial risks etc.
+The key assumptions used for the calculation of the recoverable amounts of the CGUs (or groups of CGUs) under
+impairment testing are as follows:
+The Group carries out its impairment testing on goodwill by comparing the recoverable amounts of CGUS or groups of
+CGUS to their carrying amounts. For the purpose of goodwill impairment review, the recoverable amount of a CGU (or
+group of CGUS) is the higher of its fair value less costs of disposal and its value in use.
+Goodwill was allocated to VAS segment with RMB121,437 million (31 December 2022: RMB112,120 million), Online
+Advertising segment with RMB434 million (31 December 2022: RMB468 million), FinTech and Business Services
+segment with RMB1,432 million (31 December 2022: RMB1,226 million) and Others segment with RMB2,917 million (31
+December 2022: RMB2,917 million).
+Impairment tests for goodwill
+During the year ended 31 December 2023, impairment losses of RMB95 million (2022: RMB17,265 million) on goodwill
+and other intangible assets arising from acquisitions were charged to the consolidated income statement under "Net
+gains/(losses) from investments and others", and RMB3 million (2022: RMB141 million) were charged to "Cost of
+revenues".
+During the year ended 31 December 2023, amortisation of RMB30,217 million (2022: RMB29,511 million) and
+RMB2,406 million (2022: RMB3,184 million) were charged to "Cost of revenues" and "General and administrative
+expenses", respectively.
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+220 Tencent Holdings Limited
+161,802
+2,361
+7,590
+31,010
+4,110
+116,731
+Net book amount
+(3,146)
+(72)
+(304)
+RMB'Million
+(69)
+(34)
+For the year ended 31 December 2023
+22 INTANGIBLE ASSETS (continued)
+Annual Report 2023
+120,508
+2022
+2023
+For the year ended 31 December 2023
+Movement of investments in associates is analysed as follows:
+23 INVESTMENTS IN ASSOCIATES (continued)
+Notes to the Consolidated Financial Statements
+246,043
+253,696
+Impairment tests for goodwill (continued)
+120,920
+125,535
+132,776
+RMB'Million
+RMB'Million
+Investments in associates
+For goodwill attributable to the Group's online music business and online literature business within VAS segment,
+FinTech and Business Services segment and television series and film production businesses within Others segment,
+value in use was calculated using discounted cash flows. The valuations were based on five-year financial projections
+plus a terminal value related to cash flows beyond the projection period extrapolated at an estimated terminal growth
+rate of generally not more than 5% (2022: not more than 5%). Pre-tax discount rates of not more than 22% (2022: not
+more than 22%) were applied, which reflected assessment of time value and specific risks relating to the industries that
+the Group operates in. Management leveraged their experiences in the industries and provided forecast based on past
+performance and their anticipation of future business and market developments. Key parameters applied in the financial
+projections for impairment review purpose also included revenue growth rates, on a compound annual basis, of not more
+than 25% (2022: not more than 25%).
+Management had not identified any reasonably possible change in key assumptions that could cause carrying amounts
+of the above CGUs (or groups of CGUs) to exceed their recoverable amounts.
+23 INVESTMENTS IN ASSOCIATES
+2022
+- Listed entities
+RMB'Million
+00
+222 Tencent Holdings Limited
+As at 31 December
+2023
+- Unlisted entities
+159,861
+22,671
+22,838
+1,994
+2,548
+RMB'Million
+185,247
+2023
+2022
+189,286
+213,951
+RMB'Million
+4,796
+2022
+2023
+As at 31 December
+(a)
+Note:
+At end of the year
+Currency translation differences
+Disposals
+Changes in fair value
+Additions and transfers (Note (a))
+RMB'Million
+At beginning of the year
+RMB'Million
+185,247
+3,667
+19,048
+Movement of FVOCI is analysed as follows:
+Loans to investees and investees' shareholders (Note (a))
+17,260
+13,872
+Prepayments for media content and game licences
+Included in non-current assets:
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+28 PREPAYMENTS, DEPOSITS AND OTHER ASSETS
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+230 Tencent Holdings Limited
+During the year ended 31 December 2023, except as described in Note 23(b)(i) and Note 26(a)(ii), the Group's additions and
+transfers mainly comprised certain new investments and additional investments with an aggregate amount of approximately
+RMB8,454 million in investee companies which are principally engaged in eCommerce, FinTech services and other Internet-
+related businesses.
+185,247
+213,951
+12,025
+5,311
+(9,191)
+(8,074)
+(148,169)
+12,419
+80,325
+250,257
+Treasury investments
+116
+Equity investments in listed entities
+45,467
+46,606
+(6,536)
+(7,749)
+52,003
+54,355
+Accounts receivable from contracts with agents/customers
+Loss allowance
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+32 ACCOUNTS RECEIVABLE
+Tencent Holdings Limited
+238
+00
+Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2023 and
+2022, the carrying amounts of the term deposits with initial terms of over three months approximated their fair values.
+133,112
+215,284
+104,776
+185,983
+195
+Prepayments for capital transactions
+Accounts receivable and their ageing analysis, based on recognition date, are as follows:
+0-30 days
+31 - 60 days
+61 - 90 days
+00
+FVOCI include the following:
+27 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+55,248
+239
+Annual Report 2023
+45,467
+46,606
+4,396
+4,476
+Equity investments in unlisted entities
+6,545
+9,247
+11,708
+25,279
+24,259
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+The majority of the Group's accounts receivable were denominated in RMB.
+Over 90 days
+~
+6,163
+3,201
+65,798
+Running royalty fees for online games (Note (b))
+Total
+RMB'Million
+(Note)
+At 31 December 2022
+9,718
+3,655
+10,493
+372
+10,578
+34,816
+Adjustment on Amendments to IAS 12 (Note 2.2)
+3,430
+3,430
+At 1 January 2023 (Restated)
+9,718
+3,655
+10,493
+(473)
+(595)
+(168)
+1,389
+income statement
+Credited/(charged) to consolidated
+payments
+and others
+RMB'Million
+47
+34
+7
+Business combinations
+38,246
+10,578
+3,802
+6
+Lease
+liabilities
+RMB'Million
+expenses
+RMB'Million
+RMB'Million
+At 31 December 2022 (Restated)
+180
+(261)
+441
+Currency translation differences
+232
+38,246
+372
+financial instruments
+Transfer upon disposal and deemed disposal of
+(569)
+(1,028)
+459
+changes in equity
+(140)
+(2,435)
+(20,526)
+00
+RMB'Million
+Tax losses
+assets
+Accrued
+of intangible
+Share-based
+17,720
+amortisation
+Deferred income tax assets on temporary differences arising from
+The movements of deferred income tax assets before offsetting are as follows:
+30 DEFERRED INCOME TAXES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+234 Tencent Holdings Limited
+Accelerated
+(2,282)
+Charged to consolidated statement of
+changes in equity
+Credited to consolidated statement of
+3,522
+1,335
+504
+(1,726)
+1,958
+changes in equity
+1,451
+Credited/(charged) to consolidated
+50
+28
+22
+Business combinations
+33,914
+income statement
+8,620
+459
+Transfer upon disposal and deemed disposal of
+38,246
+10,578
+3,802
+10,493
+3,655
+9,718
+459
+At 31 December 2022 (Restated)
+276
+(32)
+Currency translation differences
+(140)
+(140)
+financial instruments
+441
+Credited/(charged) to consolidated statement of
+3,298
+1,707
+At 31 December 2023
+45
+(13)
+23
+14
+4
+11,124
+17
+(45)
+(45)
+financial instruments
+Transfer upon disposal and deemed disposal of
+(368)
+(368)
+Currency translation differences
+12,022
+3,498
+3,358
+8,267
+At 1 January 2022 (Restated)
+3,070
+3,070
+Adjustment on Amendments to IAS 12 (Note 2.2)
+30,844
+9,946
+8,620
+12,022
+1,707
+8,267
+At 31 December 2021
+35,643
+7,717
+228
+Withholding taxes paid
+3,250
+3,250
+- to be recovered after more than 12 months
+Gross deferred income tax liabilities:
+29,882
+29,017
+Net deferred income tax assets
+(8,364)
+- to be recovered within 12 months
+(6,626)
+38,246
+35,643
+13,556
+12,541
+24,690
+23,102
+Set-off of deferred income tax assets pursuant to set-off provisions
+- to be recovered within 12 months
+(22,919)
+(1,342)
+30 DEFERRED INCOME TAXES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+233
+Annual Report 2023
+(12,162)
+(18,227)
+(17,635)
+8,364
+6,626
+Set-off of deferred income tax liabilities pursuant to set-off provisions
+(20,526)
+(24,261)
+(2,299)
+Net deferred income tax liabilities
+The movements of the deferred income tax assets/liabilities before offsetting are as follows:
+― to be recovered after more than 12 months
+RMB'Million
+Included in:
+8,265
+8,476
+7,270
+6,133
+6,741
+Non-current assets
+Current assets
+302
+Others
+6,968
+3,489
+Interest rate swap (Note)
+Measured at fair value:
+995
+3,252
+2023
+Restated
+RMB'Million
+Note:
+6,987
+As at 1
+January
+As at 31
+December
+2023
+Gross deferred income tax assets:
+Deferred income tax assets/liabilities are analysed as follows:
+Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rates which
+are expected to apply at the time of reversal of the temporary differences.
+30 DEFERRED INCOME TAXES
+2,527
+For the year ended 31 December 2023
+232 Tencent Holdings Limited
+The Group's outstanding interest rate swap contracts were measured at fair value and used to hedge the exposure arising from certain
+borrowings and senior notes carried at floating rates. As at 31 December 2023, the aggregate notional principal amounts of these
+outstanding interest rate swap contracts were USD13,698 million (equivalent to approximately RMB97,019 million) (31 December
+2022: USD14,848 million (equivalent to approximately RMB103,410 million)).
+8,265
+8,476
+1,278
+5,949
+Notes to the Consolidated Financial Statements
+Annual Report 2023
+Deferred
+Deferred
+income tax
+At 31 December 2021
+11,382
+(24,261)
+35,643
+At 31 December 2023
+(197)
+30,844
+(242)
+Currency translation differences
+467
+512
+(45)
+financial instruments
+Transfer upon disposal and deemed disposal of
+45
+1,735
+(17,918)
+Adjustment on Amendments to IAS 12 (Note 2.2)
+2,909
+(613)
+3,522
+Credited/(charged) to consolidated income statement (Note 13(a))
+(1,208)
+(1,258)
+12,926
+50
+12,926
+(20,988)
+33,914
+At 1 January 2022 (Restated)
+(3,070)
+3,070
+Business combinations
+income tax
+(1,218)
+(368)
+3,430
+Adjustment on Amendments to IAS 12 (Note 2.2)
+17,720
+(17,096)
+34,816
+At 31 December 2022
+(3,430)
+RMB'Million
+RMB'Million
+net
+liabilities
+assets
+income tax,
+Deferred
+RMB'Million
+(850)
+At 1 January 2023 (Restated)
+(20,526)
+changes in equity
+Charged to consolidated statement of
+6,550
+6,550
+Withholding taxes paid
+(10,556)
+38,246
+(8,274)
+Charged to consolidated income statement (Note 13(a))
+(1,384)
+(1,431)
+47
+Business combinations
+17,720
+(2,282)
+235
+197
+For the year ended 31 December 2023
+(20,526)
+(275)
+(3,440)
+(2,405)
+(1,256)
+(3,425)
+Note:
+(5,041)
+At 31 December 2022 (Restated)
+(261)
+(69)
+(16)
+(80)
+(15)
+(4,684)
+(81)
+As at 31 December 2023, the Group recognised the relevant deferred income tax liabilities of RMB8,795 million (31 December 2022:
+RMB5,041 million) on earnings anticipated to be remitted by certain subsidiaries in the foreseeable future. No withholding tax had been
+provided for the earnings of approximately RMB43,162 million (31 December 2022: RMB107,316 million) expected to be retained
+by the PRC subsidiaries and not to be remitted to a foreign investor in the foreseeable future based on several factors, including
+management's estimation of overseas funding requirements.
+Notes to the Consolidated Financial Statements
+453
+Other currencies
+27,970
+28,848
+RMB term deposits
+Included in non-current assets:
+Annual Report 2023 237
+RMB'Million
+RMB'Million
+2023
+As at 31 December
+An analysis of the Group's term deposits by currency is as follows:
+31 TERM DEPOSITS
+For the year ended 31 December 2023
+2022
+366
+Currency translation differences
+372
+income statement
+Credited/(charged) to consolidated
+(1,258)
+(1,258)
+Business combinations
+Notes to the Consolidated Financial Statements
+3,080
+(120)
+(3,655)
+(963)
+(2,827)
+(3,926)
+(6,425)
+At 1 January 2022 (Restated)
+(3,072)
+372
+(4,350)
+(293)
+financial instruments
+deemed disposal of
+Transfer upon disposal and
+(1,028)
+(1,028)
+of changes in equity
+138
+Charged to consolidated statement
+3,250
+Withholding tax paid
+(613)
+(86)
+(368)
+1,266
+3,250
+(3,070)
+29,301
+Included in current assets:
+9,101
+6,504
+Loans to investees and investees' shareholders (Note (a))
+3,113
+1,233
+Lease and other deposits
+Interest receivables
+1,715
+Refundable VAT
+1,596
+1,524
+Dividend and other investment-related receivables.
+1,033
+832
+1,258
+Others
+15,939
+Running royalty fees for online games (Note (b))
+517
+464
+Others
+7,182
+8,099
+28,439
+16,172
+36,752
+Prepayments and prepaid expenses
+27,824
+24,393
+Receivables related to financial services (Note (c))
+18,824
+15,807
+Included in current assets:
+28,336
+9,033
+88,411
+As at 31 December 2023 and 2022, the carrying amounts of prepayments, deposits and other assets (excluding
+prepayments and refundable VAT) approximated their fair values.
+29 OTHER FINANCIAL ASSETS
+00
+Measured at amortised cost:
+As at 31 December
+2023
+As at 31 December 2023, loss allowance subject to the ECL model made against the gross amounts of deposits and
+other assets amounted to RMB2,761 million (31 December 2022: RMB2,863 million).
+2022
+RMB'Million
+49,412
+119,990
+Other currencies
+USD term deposits
+RMB term deposits
+RMB'Million
+9,195
+Loan receivables related to the Group's financial services are initially measured at fair value. Given the business models in which
+the loan receivables are held, they were subsequently measured at amortised cost. During the year ended 31 December 2023,
+the impairment loss on loan receivables related to financial services was immaterial.
+Note: (continued)
+76,685
+116,850
+113,437
+Note:
+(a)
+(b)
+(c)
+As at 31 December 2023, the balances of loans to investees and investees' shareholders were mainly repayable within a period
+of one to seven years (included in non-current assets), or within one year (included in current assets), and were interest-bearing
+Running royalty fees for online games comprised prepaid royalty fees, unamortised running royalty fees and deferred Online
+Service Fees.
+Annual Report 2023
+231
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+28 PREPAYMENTS, DEPOSITS AND OTHER ASSETS (continued)
+at rates of not higher than 18.0% per annum (31 December 2022: not higher than 10.0% per annum). The loan arrangements
+are in line with the Group's overall business strategy.
+(3,070)
+(20,988)
+Adjustment on Amendments to
+(275)
+(17,096)
+Adjustment on Amendments to
+IAS 12 (Note 2.2)
+(3,430)
+(3,430)
+At 1 January 2023 (Restated)
+(4,684)
+(5,041)
+(3,425)
+(1,256)
+(2,405)
+(3,440)
+(275)
+(20,526)
+Business combinations
+(1,411)
+(44)
+535
+794
+(120)
+(301)
+(10,300)
+(10)
+1,162
+IAS 12 (Note 2.2)
+(1,431)
+(1)
+(5)
+(12)
+(2)
+income statement
+(2,405)
+(1,256)
+(3,425)
+tax
+Accelerated
+Deemed
+disposals of
+Changes in
+fair value
+of FVPL
+in business be remitted by
+Treasury investments
+Right-of-
+earnings
+anticipated to
+Intangible
+assets
+acquired
+Deferred income tax liabilities on temporary differences arising from
+The movements of deferred income tax liabilities before offsetting are as follows:
+The Group only recognises deferred income tax assets for unused cumulative tax losses if it is probable that future taxable profits will be
+available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting
+periods. As at 31 December 2023, the Group did not recognise deferred income tax assets of RMB12,903 million (31 December 2022:
+RMB7,343 million) in respect of unused cumulative tax losses amounting to RMB68,715 million (31 December 2022: RMB39,683
+million). The majority of these unused tax losses were originated from subsidiaries located in the Mainland of China and will expire from
+2024 to 2033.
+Note:
+30 DEFERRED INCOME TAXES (continued)
+Withholding
+tax on the
+(8,274)
+combinations
+and FVOCI
+(5,041)
+(4,684)
+At 31 December 2022
+RMB'Million
+RMB'Million
+Total
+subsidiaries
+Others
+RMB'Million
+depreciation
+investees
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+use assets
+RMB'Million
+Withholding tax paid
+Credited/(charged) to consolidated
+6,550
+RMB'Million
+RMB'Million
+and FVOCI
+subsidiaries
+6,550
+tax
+RMB'Million
+disposals of
+Deemed
+Changes in
+fair value
+of FVPL
+in business be remitted by
+earnings
+anticipated to
+acquired
+tax on the
+Accelerated
+Intangible
+assets
+investees
+RMB'Million
+Right-of-
+use assets
+(17,918)
+(120)
+(3,655)
+(963)
+(2,827)
+(3,926)
+depreciation
+(6,425)
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+Total
+Others
+At 31 December 2021
+Deferred income tax liabilities on temporary differences arising from
+combinations
+30 DEFERRED INCOME TAXES (continued)
+(80)
+(4)
+(235)
+Currency translation differences
+512
+512
+7
+412
+Withholding
+Transfer upon disposal and
+(850)
+(850)
+of changes in equity
+Charged to consolidated statement
+financial instruments
+(29)
+deemed disposal of
+(242)
+99
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+00
+(24,261)
+(221)
+236
+(1,616)
+(1,376)
+(4,146)
+(8,795)
+(5,168)
+(2,939)
+At 31 December 2023
+At 1 January 2022
+RMB'Million
+Total
+shares award schemes
+RMB'Million
+RMB'Million
+RMB'Million
+9,608,378,469
+premium
+RMB'Million
+67,330
+995
+62,487
+Employee share option schemes:
+-value of employee services
+2,055
+- shares issued (Note (a))
+Employee share award schemes:
+6,806,825
+2,055
+995
+- value of employee services
+-shares withheld for share
+capital
+(4,843)
+shares*
+(4,378)
+Treasury
+5,071
+6,923
+11,221
+2,419
+(33,219)
+Annual Report 2023
+245
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+36 OTHER RESERVES (continued)
+Investments in
+Currency
+PRC
+Share-based
+Capital
+reserves
+associates and
+translation
+statutory
+compensation
+FVOCI
+joint ventures
+differences
+reserves
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+reserves
+RMB'Million
+22,344
+Others
+(45,025)
+Balance at 31 December 2023
+66
+ི
+73
+73
+1,583
+1,583
+21
+21
+1,449
+95
+(4,594)
+117
+(1,349)
+912
+912
+9,650
+(701)
+Currency translation differences
+(9)
+11,480
+(9)
+11,480
+Other fair value losses, net
+(3,515)
+(3,515)
+Losses from changes in fair value of
+assets held for distribution
+(29,991)
+(29,991)
+(36,172)
+(118)
+RMB'Million
+(Note (a))
+Acquisition of additional equity interests in
+non wholly-owned subsidiaries
+992
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+179
+Recognition of put option liabilities
+arising from business combinations
+(175)
+Changes in put option liabilities in respect
+of non-controlling interests
+727
+Dilution of interests in subsidiaries
+(929)
+Profit appropriations to statutory reserves
+Net losses from changes in fair
+value of FVOCI
+Share of other comprehensive income of
+associates and joint ventures
+Transfer of share of other comprehensive
+income to profit or loss upon disposal
+and deemed disposal of associates
+and joint ventures
+Currency translation differences
+Other fair value gains, net
+Net losses from changes in fair value of
+assets held for distribution
+Balance at 31 December 2022
+11
+Tax benefit from share-based payments
+Total
+RMB'Million
+- Employee share award schemes
+Value of employee services:
+(Note (b))
+(Note (c))
+(Note (d))
+Balance at 1 January 2022
+(32,684)
+102,223
+14,743
+(23,903)
+4,929
+8,004
+589
+73,901
+disposal of financial instruments to
+retained earnings, net of tax
+7,838
+Share of other changes in net assets of
+associates and joint ventures
+7,009
+7,838
+7,009
+Transfer of share of other changes in
+net assets of associates and
+joint ventures to profit or loss upon
+disposal and deemed disposal
+Transfer of share of other comprehensive
+income to retained earnings upon
+disposal and deemed disposal of
+associates and joint ventures
+Transfer to profit or loss upon disposal
+of FVOCI
+- Employee share option schemes
+700
+(701)
+66
+35 SHARE CAPITAL, SHARE PREMIUM, TREASURY SHARES AND SHARES HELD FOR SHARE AWARD
+SCHEMES (continued)
+Note:
+(a)
+During the year ended 31 December 2023, 13,148,354 options (2022: 6,806,825 options) with exercise prices ranging from
+HKD126.57 to HKD343.96 (2022: HKD135.50 to HKD386.60) per share were exercised, while the right to receive 4,327,793
+shares (2022: Nil) was surrendered by certain grantees to set off against the exercise consideration and individual income tax
+payable by the grantees when they exercised their options.
+(b)
+(c)
+During the year ended 31 December 2023, the Share Scheme Trust purchased and withheld 13,976,126 ordinary shares
+(2022: withheld 9,341,643 ordinary shares) of the Company for an amount of approximately HKD4,839 million (equivalent to
+approximately RMB4,378 million) (2022: HKD3,408 million (equivalent to approximately RMB2,882 million)), which had been
+deducted from the equity.
+During the year ended 31 December 2023, the Company allotted 46,249,024 ordinary shares (2022: 54,196,641 ordinary
+shares) to the Share Scheme Trust for the purpose of granting awarded shares to the participants under the share award
+schemes.
+(d)
+During the year ended 31 December 2023, the Share Scheme Trust transferred 47,931,238 ordinary shares of the Company
+(2022: 53,951,167 ordinary shares) to the share awardees upon vesting of the awarded shares (Note 37(b)).
+(e)
+During the year ended 31 December 2023, the Company repurchased 152,205,700 of its own shares from the market, out of
+which, 17,830,000 had not been cancelled as at 31 December 2023 and had been subsequently cancelled in January 2024
+(2022: the Company repurchased 107,083,000 of its own shares from the market, out of which, 6,440,000 had not been
+cancelled as at 31 December 2022 and had been subsequently cancelled in January 2023). The shares were repurchased at
+prices ranging from HKD263.80 to HKD393.80 per share, with an average price of HKD324.78 per share.
+00
+244
+Tencent Holdings Limited
+36
+OTHER RESERVES
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+Investments in
+Currency
+Capital
+reserves
+associates and
+translation
+PRC
+statutory
+Share-based
+compensation
+FVOCI
+joint ventures
+For the year ended 31 December 2023
+differences
+Notes to the Consolidated Financial Statements
+Annual Report 2023
+award schemes (Note (b))
+20,632
+20,632
+(2,882)
+(2,882)
+- shares allotted for share
+award schemes (Note (c))
+54,196,641
+- shares vested from share award schemes and
+transferred to the grantees (Note (d))
+(2,882)
+Repurchase and cancellation of shares (Note (e))
+Repurchase of shares (to be cancelled) (Note (e))
+(100,643,000)
+(28,010)
+(1,868)
+2,882
+(28,010)
+(1,868)
+Transfer of equity interests of subsidiaries to
+non-controlling interests
+At 31 December 2022
+9,568,738,935
+2,298
+617
+2,915
+62,418
+(1,868)
+(4,226)
+56,324
+As at 31 December 2023, the total number of issued ordinary shares of the Company included 91,783,469 shares (31 December
+2022: 79,489,557 shares) held for the share award schemes.
+243
+reserves
+RMB'Million
+RMB'Million
+Value of employee services:
+- Employee share option schemes
+- Employee share award schemes
+Tax benefit from share-based payments
+Acquisition of additional equity interests in
+non wholly-owned subsidiaries
+Transfer of equity interests of subsidiaries
+to non-controlling interests
+Recognition of put option liabilities
+1,449
+95
+95
+arising from business combinations
+(Note (e))
+(4,594)
+Changes in put option liabilities in respect
+of non-controlling interests
+117
+Dilution of interests in subsidiaries
+(1,349)
+Profit appropriations to statutory reserves
+Net gains from changes in fair
+value of FVOCI
+Share of other comprehensive income of
+associates and joint ventures
+Transfer of share of other comprehensive
+income to profit or loss upon disposal
+and deemed disposal of associates
+and joint ventures
+9,650
+(118)
+associates and joint ventures
+disposal and deemed disposal of
+income to retained earnings upon
+Transfer of share of other comprehensive
+RMB'Million
+RMB'Million
+(Note (a))
+(Note (b))
+RMB'Million
+(Note (c))
+reserves
+RMB'Million
+Others
+RMB'Million
+Total
+RMB'Million
+(Note (d))
+Balance at 1 January 2023
+(31,890)
+(42,530)
+18,426
+(6,409)
+(146,500)
+6,011
+5,934
+(40,914)
+Transfer of losses on disposal and
+deemed disposal of financial
+instruments to retained earnings,
+17,846 - --- -17,
+17,846
+4,680
+4,680
+net of tax
+Share of other changes in net assets of
+associates and joint ventures
+Transfer of share of other changes in
+net assets of associates and
+joint ventures to profit or loss upon
+disposal and deemed disposal
+9,544
+(5,541)
+7
+2,337
+(a) Cash and cash equivalents
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+As at 31 December
+2023
+2022
+RMB'Million
+RMB'Million
+Bank balances and cash
+127,241
+104,767
+Term deposits and highly liquid investments with initial terms
+within three months
+45,079
+51,972
+172,320
+156,739
+Approximately RMB85,673 million (31 December 2022: RMB96,849 million) within the total balance of the
+Group's cash and cash equivalents was denominated in RMB.
+(b) Restricted cash
+As at 31 December 2023, restricted deposits held at banks of RMB3,818 million (31 December 2022: RMB2,783
+million) were mainly denominated in RMB, the majority of which were reserves provided for certain licensed
+business under regulatory requirements.
+34 ASSETS HELD FOR DISTRIBUTION
+As at 31 December 2022, assets held for distribution represented the Meituan Shares to be distributed under the
+distribution in specie held by the Group as the interim dividend declared on 16 November 2022. Fair value losses
+amounted to approximately RMB30.0 billion from 1 January 2023 to the Share Certificate Dispatch Date were recorded
+in other comprehensive income as a result of the changes in the fair value of the Meituan Shares to be distributed.
+These assets were distributed to the qualifying shareholders of the Company on 24 March 2023.
+Annual Report 2023 241
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+35 SHARE CAPITAL, SHARE PREMIUM, TREASURY SHARES AND SHARES HELD FOR SHARE AWARD
+SCHEMES
+As at 31 December 2023 and 2022, the authorised share capital of the Company comprised 50,000,000,000 ordinary
+shares with par value of HKD0.00002 per share.
+At 1 January 2023
+Employee share option schemes:
+33 BANK BALANCES AND CASH
+- value of employee services
+Tencent Holdings Limited
+00
+249
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+32 ACCOUNTS RECEIVABLE (continued)
+The carrying amounts of accounts receivable of the Group's major agents/customers are as follows:
+FinTech and cloud customers
+Online advertising customers and agents
+Third party platform providers
+Content production related customers
+Others
+As at 31 December
+2023
+2022
+RMB'Million
+RMB'Million
+16,703
+16,421
+14,045
+13,787
+7,849
+5,658
+2,609
+3,550
+5,400
+6,051
+46,606
+45,467
+Some online advertising customers and agents are usually granted with a credit period within 30 to 90 days immediately
+following the month-end in which the relevant obligations under the relevant contracted advertising orders are delivered.
+Third party platform providers usually settle the amounts due by them within 60 days. Other customers, mainly including
+content production related customers and FinTech and cloud customers, are usually granted with a credit period within
+90 days.
+The Group applies the simplified approach prescribed by IFRS 9, which requires expected lifetime losses to be
+recognised from initial recognition of the assets. The provision matrix is determined based on historical observed default
+rates over the expected life of the receivables with similar credit risk characteristics and is adjusted for forward-looking
+estimates. The historical observed default rates are updated and changes in the forward-looking estimates are analysed
+at year end. For the years ended 31 December 2023 and 2022, information about the impairment of accounts receivable
+and the Group's exposure to credit risk and foreign exchange risk can be found in Note 4.1.
+As at 31 December 2023 and 2022, the carrying amounts of the accounts receivable approximated their fair values.
+240
+- proceeds from shares issued,
+Number of
+issued and fully
+Shares held
+- shares vested from share award schemes
+and transferred to the grantees (Note (d))
+Repurchase and cancellation of shares (Note (e))
+Repurchase of shares (to be cancelled) (Note (e))
+Transfer of equity interests of subsidiaries to
+non-controlling interests
+(2,071)
+2,071
+(140,815,700)
+(42,112)
+1,868
+(40,244)
+(4,740)
+(4,740)
+At 31 December 2023
+(28)
+1,183
+1,155
+9,482,992,820
+37,989
+(4,740)
+(5,350)
+27,899
+00
+242 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+35 SHARE CAPITAL, SHARE PREMIUM, TREASURY SHARES AND SHARES HELD FOR SHARE AWARD
+SCHEMES (continued)
+Number of
+issued and fully
+Shares held
+paid ordinary
+Share
+Share
+46,249,024
+- shares allotted for share award schemes (Note (c))
+(4,378)
+schemes (Note (b))
+paid ordinary
+Share
+Share
+Treasury
+for share
+shares*
+capital
+RMB'Million RMB'Million
+premium
+shares
+RMB'Million
+award schemes
+Total
+RMB'Million
+RMB'Million
+9,568,738,935
+Annual Report 2023
+62,418
+(4,226)
+56,324
+1,687
+net of withholding individual income tax (Note (a))
+8,820,561
+828
+Employee share award schemes:
+- value of employee services
+- shares purchased/withheld for share award
+17,267
+1,687
+828
+28
+17,267
+(1,868)
+for share
+As a result of the distribution in specie of Meituan Shares, pursuant to the scheme rules of the Post-IPO Option Scheme II
+and the Post-IPO Option Scheme IV, adjustments had been made to the exercise prices of the outstanding share options
+thereunder as at 5 January 2023, and were reflected in the average exercise prices of related outstanding share options
+listed above.
+43,255,764 72,408,255
+(40,914)
+246
+Tencent Holdings Limited
+36 OTHER RESERVES (continued)
+Note:
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+(a)
+The capital reserve mainly arises from transactions undertaken with non-controlling interests.
+(b)
+(c)
+Gains and losses on certain investments, including changes in fair value, are recognised in other comprehensive income. These
+changes are accumulated within FVOCI reserve in equity. When the relevant investments are derecognised, amounts from this
+reserve are transferred to retained earnings for equity instruments or to profit or loss for debt instruments.
+In accordance with the Companies Laws of the PRC and the stipulated provisions of the articles of association of subsidiaries with
+limited liabilities in the PRC, appropriation of net profit (after offsetting accumulated losses from prior years) should be made by
+these companies to their respective Statutory Surplus Reserve Funds and Discretionary Reserve Funds before distributions are
+made to the owners. The percentage of appropriation to Statutory Surplus Reserve Fund is 10%. The amount to be transferred
+to the Discretionary Reserve Fund is determined by the equity owners of these companies. When the balance of the Statutory
+Surplus Reserve Fund reaches 50% of the registered capital, further transfer needs not be made. Both the Statutory Surplus
+Reserve Fund and Discretionary Reserves Fund can be capitalised as capital of an enterprise, provided that the remaining
+Statutory Surplus Reserve Fund shall not be less than 25% of the registered capital.
+In addition, in accordance with the Law of the PRC on Enterprises with Foreign Investments and the stipulated provisions of the
+articles of association of wholly-owned foreign subsidiaries in the PRC, appropriation from net profit (after offsetting accumulated
+losses brought forward from prior years) should be made by these companies to their respective Reserve Fund. The percentage
+of net profit to be appropriated to the Reserve Fund is not less than 10% of the net profit. When the balance of the Reserve Fund
+reaches 50% of the registered capital, further transfer needs not be made.
+(d)
+With approvals obtained from respective boards of directors of these companies, the Reserve Fund can be used to offset
+accumulated deficit or to increase capital.
+Share-based compensation reserve arises from share option schemes and share award schemes adopted by certain subsidiaries
+of the Group (Note 37(d)).
+(e)
+During the year ended 31 December 2023, the Group had granted put option to a non-controlling shareholder of a non wholly-
+owned subsidiary, and the non-controlling shareholder shall have the right to request the Group to purchase remaining equity
+interests when certain conditions are met. The put price was determined based on the financial performance of the non wholly-
+owned subsidiary in the future periods, not exceeding a certain amount as stated in the respective agreement. Accordingly, the
+put option liability of approximately USD644 million (equivalent to approximately RMB4.5 billion) was initially recognised at the
+present value of the estimated future cash outflows.
+Annual Report 2023
+247
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+37 SHARE-BASED PAYMENTS
+(a) Share option schemes
+The Company had adopted six share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option
+Scheme I, the Post-IPO Option Scheme II, the Post-IPO Option Scheme III, the Post-IPO Option Scheme IV and the
+2023 Share Option Scheme.
+The Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the Post-IPO Option Scheme II and the Post-IPO
+Option Scheme III expired on 31 December 2011, 23 March 2014, 16 May 2017 and 13 May 2019, respectively.
+Upon the expiry of these schemes, no further options would be granted under these schemes, but the options
+granted prior to such expiry continued to be valid and exercisable in accordance with provisions of the schemes.
+As at 31 December 2023, there were no outstanding share options exercisable under the Pre-IPO Option Scheme,
+the Post-IPO Option Scheme I and the Post-IPO Option Scheme III.
+The Post-IPO Option Scheme IV had been terminated upon the completion of the transfer of the outstanding share
+options of the Post-IPO Option Scheme IV to the 2023 Share Option Scheme in accordance with the circular of the
+Company dated 24 April 2023.
+In respect of the 2023 Share Option Scheme, the Board may, at its discretion, grant options to any qualifying
+participant to subscribe for shares in the Company, subject to the terms and conditions stipulated therein. The
+exercise price must be in compliance with the requirements under the Listing Rules. In addition, the option vesting
+period is determined by the Board provided that it is not later than the last day of a 10-year period after the date of
+grant of option.
+5,934
+The Company allowed certain of the grantees under the Post-IPO Option Scheme II, the Post-IPO Option Scheme
+IV and the 2023 Share Option Scheme to surrender their rights to receive a portion of the underlying shares (with
+equivalent fair value) to set off against the exercise consideration and/or individual income tax payable when they
+exercised their options.
+9,544
+(6,409)
+(5,541)
+7
+11
+110
+110
+1,425
+1,425
+5
+5
+992
+179
+(175)
+727
+(929)
+1,082
+1,082
+(146,500)
+2,337
+(129)
+17,494
+(129)
+17,494
+5,345
+5,345
+(6,102)
+(6,102)
+(31,890)
+(42,530)
+18,426
+6,011
+00
+248
+Tencent Holdings Limited
+Number
+of options
+Post-IPO Option Scheme IV
+Average
+exercise price
+Number
+of options
+Total
+Number
+of options
+At 1 January 2022
+HKD191.64
+35,146,117
+HKD402.75
+81,689,281 116,835,398
+Granted
+HKD353.22 12,778,815 12,778,815
+Exercised
+HKD146.28 (5,862,075)
+Lapsed/forfeited/waived
+HKD135.50
+(22,176)
+HKD279.99
+HKD557.65
+(944,750) (6,806,825)
+(3,361,436) (3,383,612)
+At 31 December 2022
+HKD200.77
+29,261,866
+HKD391.24
+90,161,910 119,423,776
+Exercisable as at 31 December 2022
+HKD200.73
+29,152,491
+HKD382.60
+Post-IPO Option Scheme II
+Average
+exercise price
+HKD356.48 52,857,824 70,066,776
+17,208,952
+Exercisable as at 31 December 2023 HKD185.65
+Notes to the Consolidated Financial Statements
+37 SHARE-BASED PAYMENTS (continued)
+(a) Share option schemes (continued)
+(i)
+Movements in share options
+For the year ended 31 December 2023
+Movements in the number of share options outstanding and their related weighted average exercise prices
+are as follows:
+Post-IPO Option Scheme II Post-IPO Option Scheme IV
+Average Number Average
+exercise price of options exercise price
+2023 Share Option Scheme
+Number Average
+of options exercise price
+Total
+Number
+of options
+Number
+of options
+At 1 January 2023 (Note)
+Note:
+HKD177.28
+Granted
+HKD354.26 90,161,910
+HKD375.60 3,659,925 HKD334.04
+119,423,776
+13,561,932 17,221,857
+Exercised
+Lapsed/forfeited
+HKD143.33
+HKD165.15 (11,941,689)
+(1,850)
+Transferred
+HKD262.55 (752,225) HKD250.65 (454,440) (13,148,354)
+HKD453.51 (276,898) HKD376.26 (607,455) (886,203)
+HKD355.55 (92,792,712) HKD355.55 92,792,712
+At 31 December 2023
+HKD185.65
+17,318,327
+HKD353.11 105,292,749 122,611,076
+29,261,866
+Transfer of losses on disposal and deemed
+175,248
+Annual Report 2023
+Included in current liabilities:
+Non-current portion of long-term USD notes payable
+Included in non-current liabilities:
+39 NOTES PAYABLE
+The Group had complied with all of the financial covenants of its borrowing facilities for the years ended 31 December
+2023 and 2022.
+As at 31 December 2023 and 2022, the carrying amounts of borrowings approximated their fair values.
+The Group had entered into interest rate swap contracts to hedge its exposure arising from certain long-term bank
+borrowings carried at floating rates. The Group's outstanding interest rate swap contracts as at 31 December 2023 and
+2022 are detailed in Note 29.
+1.50% 4.80%
+RMB6,007
+1.60% 3.48%
+SOFR + 0.50% ~ 0.55%
+USD2,600
+USD bank borrowings
+RMB7,160
+RMB bank borrowings
+Interest rate
+(per annum)
+(Million)
+(per annum)
+(Million)
+Amount
+Current portion of long-term USD notes payable
+As at 31 December
+2023
+2022
+Interest rate
+(per annum)
+(Million)
+Amount
+31 December 2022
+31 December 2023
+The aggregate principal amounts of notes payable and applicable interest rates are as follows:
+Note:
+39 NOTES PAYABLE (continued)
+For the year ended 31 December 2023
+Interest rate
+Notes to the Consolidated Financial Statements
+Annual Report 2023
+159,115
+151,262
+10,446
+14,161
+148,669
+137,101
+RMB'Million
+RMB'Million
+257
+Amount
+31 December 2023
+The aggregate principal amounts of short-term bank borrowings and applicable interest rates are as follows:
+The long-term bank borrowings are repayable as follows:
+The zero interest rate of JPY borrowings was due to the special interest exemption for COVID-19 by Tokyo Metropolitan
+Government.
+Following the IBOR benchmark reform, all the borrowings the Group held which referenced to USD LIBOR, had been transitioned
+to SOFR-referenced in July 2023.
+1.00% -2.54%
+EUR3
+1.00% -2.54%
+EUR2
+EUR bank borrowings
+TIBOR + 1.70%
+Within 1 year
+JPY36
+JPY21
+JPY bank borrowings
+0.00% 1.86%
+JPY1,250
+0.00% 1.86%
+JPY894
+JPY bank borrowings
+1.41%
+USD60
+TIBOR + 1.70%
+Amount
+Between 1 and 2 years
+Over 5 years
+(b)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Note: (continued)
+38 BORROWINGS (continued)
+169,267
+171,795
+3
+2
+Between 2 and 5 years
+130,487
+5,599
+33,178
+41,643
+15,976
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+256 Tencent Holdings Limited
+114,174
+(Million)
+Interest rate
+(per annum)
+USD notes payable
+12,169
+4,682
+5,459
+306
+85
+1,007
+1,227
+3,072
+5,398
+9,067
+RMB'Million
+2022
+2023
+As at 31 December
+(a)
+Note:
+Current liabilities
+Non-current liabilities
+Included in:
+Others
+RMB'Million
+Contingent consideration
+As at 31 December
+2022
+259
+Annual Report 2023
+It comprised redemption liabilities arising from put option arrangements made with non-controlling shareholders of acquired
+subsidiaries of approximately RMB10,354 million (31 December 2022: RMB6,204 million).
+9,511
+13,339
+3,937
+4,558
+5,574
+8,781
+2023
+9,511
+3,307
+2,985
+71
+3,236
+2,966
+19
+6,204
+10,354
+RMB'Million
+RMB'Million
+13,339
+USD bank borrowings
+Measured at fair value:
+Measured at amortised cost:
+RMB'Million
+2022
+As at 31 December
+2023
+More than 5 years
+Between 2 and 5 years
+Between 1 and 2 years
+Within 1 year
+The notes payable are repayable as follows:
+The Group had entered into interest rate swap contracts to hedge its exposure arising from its senior notes carried at
+floating rates. The Group's outstanding interest rate swap contracts as at 31 December 2023 and 2022 are detailed in
+Note 29.
+RMB'Million
+Following the IBOR benchmark reform, the notes payable the Group held which referenced to USD LIBOR, had been transitioned to
+Term SOFR-referenced in July 2023.
+USD21,700
+1.375% -4.700%
+USD20,700
+USD notes payable
+LIBOR +0.605%
+~ 0.910%
+CAS+0.910%
+USD1,250
+Term SOFR +
+USD750
+1.375% 4.700%
+Redemption liabilities (Note (a))
+14,161
+8,486
+41 OTHER FINANCIAL LIABILITIES
+Others
+Payables relating to capital transaction
+Cash-settled share-based compensation payables (Note 37(d))
+Payables relating to media content and running royalty fee for online games
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+40 LONG-TERM PAYABLES
+Tencent Holdings Limited
+10,446
+258
+As at 31 December 2023, the fair value of the notes payable amounted to approximately RMB131,247 million (31
+December 2022: RMB134,516 million). The respective fair value was assessed based on the active market prices of
+these notes at the reporting date or by making reference to similar instruments traded in the observable market.
+All of these notes payable issued by the Group were unsecured.
+159,115
+151,262
+115,998
+100,340
+18,758
+28,275
+13,913
+00
+LIBOR + 0.80% ~ 0.95%
+31 December 2022
+SOFR+ CAS +
+0.80% 0.95%
+As disclosed in the circular of the Company dated 24 April 2023, upon the completion of the transfer of the
+shares held by the trustee for the purpose of satisfying the outstanding share awards under the 2013 Share Award
+Scheme and the 2019 Share Award Scheme to the trustee administering the 2023 Share Award Scheme, the 2013
+Share Award Scheme and the 2019 Share Award Scheme would be terminated. The transfer had been completed
+during the year ended 31 December 2023. As at 31 December 2023, the 2023 Share Award Scheme was the only
+effective share award scheme of the Company which was administered by the independent trustee appointed by
+the Group. The vesting period of the awarded shares is determined by the Board.
+(b) Share award schemes
+37 SHARE-BASED PAYMENTS (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+251
+The expected volatility, measured as the standard deviation of expected share price returns, is determined based on the
+average daily trading price volatility of the shares of the Company.
+Note:
+34%
+Movements in the number of awarded shares for the years ended 31 December 2023 and 2022 are as follows:
+2.11% 2.56%
+0.25%
+HKD341.90
+2.82% 3.98%
+0.31%
+36%~ 37%
+Expected volatility (Note)
+Dividend yield
+Risk-free rate
+Weighted average share price at the grant date
+2022
+2023
+Other than the exercise price mentioned above, significant judgments on parameters, such as risk-free rate,
+dividend yield and expected volatility, were required to be made by the directors in applying the Binomial
+Model, which are summarised as below.
+The directors of the Company had used the Binomial Model to determine the fair value of the options as at
+the respective grant dates, which was to be expensed over the relevant vesting period. The weighted average
+fair value of options granted during the year ended 31 December 2023 was HKD126.73 per share (equivalent
+to approximately RMB115.38 per share) (2022: HKD113.60 per share (equivalent to approximately
+RMB94.75 per share)).
+HKD342.95
+For the year ended 31 December 2023
+At beginning of the year
+Lapsed/forfeited
+During the year ended 31 December 2023, 74,542 awarded shares were granted to five independent non-
+executive directors of the Company (2022: 58,398 awarded shares were granted to five independent non-executive
+directors of the Company).
+As a result of the distribution in specie of Meituan Shares, pursuant to the scheme rules of the 2013 Share Award Scheme and
+the 2019 Share Award Scheme, adjustments had been made to the number of shares subject to share awards which remained
+unvested as at 5 January 2023. The number of awarded shares granted during the year ended 31 December 2023 included a
+total of 6,186,967 additional awarded shares which were awarded pursuant to such adjustments.
+Note:
+13,767
+38,955
+Vested but not transferred as at the end of the year
+123,861,178
+132,989,249
+(47,931,238) (53,951,167)
+Granted (Note)
+(8,677,008)
+65,174,957
+64,604,655
+121,314,396
+123,861,178
+2022
+2023
+Number of awarded shares
+At end of the year
+Vested and transferred
+(7,545,346)
+00
+Fair value of options
+(a) Share option schemes (continued)
+4,234,341
+HKD126.57~HKD143.33
+7 years commencing from
+2022
+2023
+Range of exercise price
+Expiry Date
+31 December
+31 December
+the date of grant of options
+Number of share options
+Outstanding share options
+(ii)
+During the year ended 31 December 2023, 13,148,354 options (2022: 6,806,825 options) were exercised
+and the right to receive 4,327,793 shares (2022: Nil) was surrendered by certain grantees to set off against
+the exercise consideration and individual income tax payable by the grantees when they exercised their
+options. The weighted average price of the shares at the time these options were exercised was HKD338.98
+per share (equivalent to approximately RMB301.28 per share) (2022: HKD305.94 per share (equivalent to
+approximately RMB269.73 per share)).
+During the year ended 31 December 2023, no options were granted to any director of the Company (2022:
+Nil).
+(i) Movements in share options (continued)
+(a) Share option schemes (continued)
+37 SHARE-BASED PAYMENTS (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Details of the expiry dates, exercise prices and the respective numbers of share options which remained
+outstanding as at 31 December 2023 and 2022 are as follows:
+USD20,998
+HKD185.65~HKD256.06
+28,870,121
+37 SHARE-BASED PAYMENTS (continued)
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+250
+00
+The outstanding share options as of 31 December 2023 were divided into one to four tranches at their grant
+dates. The first tranche can be exercised after a specified period ranging from one month to five years from
+the grant date, and then the remaining tranches will become exercisable in each subsequent year.
+119,423,776
+122,611,076
+6,032,799
+20,358,477
+5,876,352
+9,394,340
+9,092,271
+HKD433.25~HKD511.83
+22,143,949
+25,754,058
+HKD355.51~HKD387.16
+48,748,226
+61,529,918
+HKD276.01~HKD348.04
+HKD526.97~HKD533.39
+252 Tencent Holdings Limited
+(iii)
+For the year ended 31 December 2023
+255
+Annual Report 2023
+197,356
+11,580
+41,537
+15
+3
+4
+4
+Notes to the Consolidated Financial Statements
+4
+1
+19
+16
+5,572
+15,936
+100
+5,981
+7,046
+18,415
+1
+163,668
+38 BORROWINGS (continued)
+00
+Notes to the Consolidated Financial Statements
+USD 17,750
+USD bank borrowings
+2.80% 4.80%
+(per annum)
+RMB22,514
+2.45% 4.60%
+RMB46,015
+RMB bank borrowings
+Note:
+(Million)
+(Million)
+Interest rate
+Amount
+Interest rate
+Amount
+31 December 2022
+31 December 2023
+The aggregate principal amounts of long-term bank borrowings and applicable interest rates are as follows:
+(a)
+(per annum)
+155,819
+For the year ended 31 December 2023
+37 SHARE-BASED PAYMENTS (continued)
+38 BORROWINGS
+Tencent Holdings Limited
+00
+The Group has to estimate the Expected Retention Rate in order to determine the amount of share-based
+compensation expenses charged to the consolidated income statement. As at 31 December 2023, the Expected
+Retention Rate of the Group's wholly-owned subsidiaries was assessed to be not lower than approximately 89% (31
+December 2022: not lower than 89%).
+(e) Expected Retention Rate of grantees
+Certain subsidiaries of the Company operate their own share-based compensation plans (share options and/
+or share award schemes). Their exercise prices of the share options, as well as the vesting periods of the share
+options and awarded shares are determined by the respective board of directors of these subsidiaries at their sole
+discretion and in accordance with the relevant rules. The share options or awarded shares of the subsidiaries
+granted are normally vested by several tranches. Participants of some subsidiaries have the right to request the
+Group to repurchase their vested equity interests of the respective subsidiaries (the "Repurchase Transaction").
+The Group has discretion to settle the Repurchase Transaction either by using equity instruments of the Company
+or by cash. For the Repurchase Transaction which the Group has settlement options, the directors of the Company
+are currently of the view that some of them would be settled by equity instruments of the Company. As a result,
+they are accounted for using the equity-settled share-based payment method. For some of them to be settled in
+cash, they are accounted for using cash-settled share-based payment method.
+(d) Share options and share award schemes adopted by subsidiaries
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+253
+The related share-based compensation expenses incurred for the years ended 31 December 2023 and 2022 were
+insignificant to the Group.
+For aligning the interests of key employees with the Group, the Group established several employees' investment
+plans in the form of limited liability partnerships (the “EISS”) among which the five EISS approved/established in
+2014, 2015, 2016, 2017 and 2021 are in effect as at 31 December 2023. According to the terms of the EISS,
+the Board may, at its absolute discretion, invite any qualifying participants of the Group, excluding any director
+of the Company, to participate in the EISS by subscribing for the partnership interest at cash consideration. The
+participating employees are entitled to the economic benefits generated by the EISS, if any, after a specified vesting
+period under the respective EISs, ranging from four to seven years. Wholly-owned subsidiaries of the Company
+acting as general partner of these EISS administer and in essence, control the EISs. These EISS are therefore
+consolidated by the Company as structured entities.
+(c) Employee investment schemes
+The outstanding awarded shares as of 31 December 2023 were divided into one to seven tranches as at their grant
+dates. The first tranche can be exercised immediately or after a specified period ranging from one month to seven
+years from the grant date, and the remaining tranches will become exercisable in each subsequent year.
+The weighted average fair value of awarded shares granted during the year ended 31 December 2023 was
+HKD342.27 per share (equivalent to approximately RMB310.79 per share) (2022: HKD326.30 per share
+(equivalent to approximately RMB277.69 per share)).
+The fair value of the awarded shares was calculated based on the market price of the Company's shares at the
+respective grant date, which was to be expensed over the relevant vesting period. The expected dividends during
+the vesting period had been taken into account when assessing the fair value of these awarded shares.
+(b) Share award schemes (continued)
+7
+37 SHARE-BASED PAYMENTS (continued)
+Annual Report 2023
+For the year ended 31 December 2023
+254
+Included in non-current liabilities:
+3
+9
+6
+3
+2
+45
+26
+141,090
+109,782
+46,000
+RMB'Million
+22,514
+2022
+2023
+As at 31 December
+Current portion of long-term USD bank borrowings, unsecured (Note (a))
+Current portion of long-term JPY bank borrowings, unsecured (Note (a))
+Current portion of long-term JPY bank borrowings, secured (Note (a))
+Current portion of long-term EUR bank borrowings, unsecured (Note (a))
+Current portion of long-term EUR bank borrowings, secured (Note (a))
+Current portion of long-term RMB bank borrowings, unsecured (Note (a))
+RMB bank borrowings, secured (Note (b))
+USD bank borrowings, unsecured (Note (b))
+RMB bank borrowings, unsecured (Note (b))
+RMB'Million
+Included in current liabilities:
+Non-current portion of long-term USD bank borrowings, unsecured (Note (a))
+Non-current portion of long-term RMB bank borrowings, unsecured (Note (a))
+Non-current portion of long-term JPY bank borrowings, unsecured (Note (a))
+Non-current portion of long-term JPY bank borrowings, secured (Note (a))
+Non-current portion of long-term EUR bank borrowings, secured (Note (a))
+Non-current portion of long-term EUR bank borrowings, unsecured (Note (a))
+44 BUSINESS COMBINATIONS
+During the year ended 31 December 2023, the Group completed the acquisition of a game company by acquiring
+67% of its equity interest at a cash consideration of approximately USD0.9 billion (equivalent to approximately RMB6.5
+billion), which was accounted for as a subsidiary of the Group upon the completion of the transaction.
+Goodwill of approximately RMB5.6 billion was recognised as a result of the transaction. It was mainly attributable to the
+operating synergies and economies of scale expected to be derived from combining the operations. None of the goodwill
+was expected to be deductible for income tax purpose.
+The following table summarises the purchase consideration, the fair value of assets acquired, liabilities assumed and the
+non-controlling interest as at the acquisition date.
+Total consideration:
+For the year ended 31 December 2023
+6,481
+Cash paid
+RMB'Million
+Notes to the Consolidated Financial Statements
+Notes to the Consolidated Financial Statements
+260
+00
+Others primarily consist of deposits from third parties, reserve for platform services, sundry payables and other accruals.
+Note:
+61,139
+76,595
+18,147
+27,318
+6,481
+Others (Note)
+Tencent Holdings Limited
+Recognised amounts of identifiable assets acquired and liabilities assumed:
+Intangible assets
+Annual Report 2023
+Cash and cash equivalents
+816
+261
+The related transaction costs of the transaction recognised in the Group's consolidated income statement were not material.
+The Group's revenue for the year ended 31 December 2023 would be increased by not more than 5% and results for the year ended 31
+December 2023 would not be materially different should the transaction had occurred on 1 January 2023.
+Note:
+6,481
+5,617
+(3,192)
+4,056
+(92)
+(227)
+Goodwill
+Non-controlling interests
+Total identifiable net assets
+Other liabilities
+Other payables and accruals
+(858)
+Deferred income tax liabilities
+279
+Other assets
+138
+4,816
+669
+For the year ended 31 December 2023
+1,496
+180
+528
+1,512
+3,099
+87,612
+94,537
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+43 OTHER PAYABLES AND ACCRUALS
+Over 90 days
+61 - 90 days
+31 - 60 days
+0-30 days
+Accounts payable and their ageing analysis, based on invoice date, are as follows:
+42 ACCOUNTS PAYABLE
+Notes to the Consolidated Financial Statements
+(20,243)
+For the year ended 31 December 2023
+2,784
+3,077
+100,948
+92,381
+1,022
+Purchase consideration payables for investee companies
+1,655
+1,718
+Interests payable
+2,620
+3,451
+Purchase of land use rights, buildings and construction related costs
+4,157
+4,574
+Prepayments received from customers and others
+General and administrative expenses accruals
+7,096
+Selling and marketing expense accruals
+27,664
+30,747
+Staff costs and welfare accruals
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+4,584
+45 NOTE TO CONSOLIDATED STATEMENT OF CASH FLOWS
+Cash flows
+Profit for the year
+86,872
+82,562
+LIABILITIES
+Non-current liabilities
+Notes payable
+131,465
+Other financial liabilities
+67
+143,134
+153
+131,532
+143,287
+Current liabilities
+Note:
+(14,832)
+(148,669)
+(10,446)
+(163,668)
+(11,580)
+162,792
+156,739
+Net debt as at 31 December 2022
+1,851
+9,485
+Total equity
+(9,563)
+17,621
+Retained earnings (b)
+4,821
+4,480
+Construction/purchase of buildings and purchase of land use rights
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+Contracted:
+Capital commitments as at 31 December 2023 and 2022 are analysed as follows:
+(a) Capital commitments
+46 COMMITMENTS
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+264 Tencent Holdings Limited
+00
+It mainly resulted from the reclassification from non-current to current and assets/liabilities acquired from business combinations.
+(18,733)
+(5,350)
+(4,226)
+Other reserves (b)
+(5,279)
+8,617
+64,252
+5,597
+(5,734)
+2,066
+198,954
+329,633
+285,826
+268 Tencent Holdings Limited
+Notes to the Consolidated Financial Statements
+For the year ended 31 December 2023
+48 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)
+(b) Reserve movement of the Company
+At 1 January 2023
+Profit for the year
+Cash dividends
+Dividends under distribution in specie
+Transfer of losses on settlement of assets held for
+distribution to retained earnings
+Losses from changes in fair value of assets held for distribution
+Net losses from changes in the fair value of financial assets at fair value
+through other comprehensive income
+Currency translation differences
+At 31 December 2023
+At 1 January 2022
+Profit for the year
+Cash dividends
+Dividends under distribution in specie
+Total equity and liabilities
+Total liabilities
+186,346
+67,422
+Other non-cash movements (Note)
+(15,380)
+(12,564)
+(883)
+(12,492)
+(273)
+3,326
+7,506
+Exchange impacts
+18,940
+(19,837)
+Capital investments in investees
+13,430
+Amounts due to subsidiaries
+50,111
+25,944
+Other payables and accruals
+3,150
+1,991
+Notes payable
+14,161
+10,446
+Dividends payable for distribution in specie
+147,965
+44,080
+9,685
+12,623
+Purchase of other capital assets
+177
+178
+45,516
+74,986
+217,783
+209,008
+Total assets
+Assets held for distribution
+Cash and cash equivalents
+Prepayments, deposits and other receivables
+Amounts due from subsidiaries
+Current assets
+15
+1,944
+951
+Financial assets at fair value through other comprehensive income
+Contribution to Share Scheme Trust
+440
+399
+Investments in associates
+215,342
+207,615
+Investments in subsidiaries
+42
+1,654
+754
+147,965
+76,818
+Shares held for share award schemes
+(1,868)
+(4,740)
+Treasury shares
+62,418
+37,989
+Share premium
+RMB'Million
+RMB'Million
+2022
+2023
+43
+As at December 31
+EQUITY
+00
+(a) Financial position of the Company (continued)
+48 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+267
+Annual Report 2023
+412,195
+285,826
+194,412
+Share capital
+Transfer of losses on settlement of assets held for
+Intangible assets
+ASSETS
+29,308
+(a) Reconciliation of net profit to cash generated from operations:
+5,427
+5,103
+Later than five years
+14,124
+12,801
+Later than one year and not later than five years
+13,037
+11,404
+Not later than one year
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+Contracted:
+The Group's commitments under agreements mainly for bandwidth, online game licensing, media content and
+other technical services, which are contracted but not provided in the consolidated financial statements, are as
+follows:
+(b) Other commitments
+17,602
+17,609
+158
+3,444
+32,588
+47 RELATED PARTY TRANSACTIONS
+Except as disclosed in Note 15(a) (Senior management's emoluments), Note 15(b) (Five highest paid individuals), Note
+16 (Benefits and interests of directors), Note 28 (Loans to investees and investees' shareholders) and Note 37 (Share-
+based payments) to the consolidated financial statements, other significant transactions carried out between the Group
+and its related parties during the years are presented as follows. These related party transactions were carried out in the
+normal course of business and at terms negotiated between the Group and the respective related parties.
+Annual Report 2023 265
+RMB'Million
+RMB'Million
+2022
+2023
+As at 31 December
+(a) Financial position of the Company
+48 FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+266
+Non-current assets
+00
+The Group has entered into certain contracts for purchasing services or content with certain associates or joint
+ventures. As at 31 December 2023, commitments in respect of these agreements amounted to RMB4,433 million.
+The Group has certain business co-operation arrangements with certain associates, which are engaged in
+various Internet businesses including eCommerce, Online-To-Offline platforms, and FinTech services, in respect
+of the provision of various services such as FinTech services, business services and online advertising to these
+associates. As at 31 December 2023, contract liabilities arising from these business co-operation arrangements
+were RMB1,373 million (31 December 2022: RMB1,959 million).
+As at 31 December 2023, accounts payable and other payables to related parties were RMB2,681 million and
+RMB144 million, respectively (31 December 2022: RMB1,530 million and RMB64 million, respectively).
+As at 31 December 2023, accounts receivable and other receivables from related parties were RMB9,891 million
+and RMB493 million, respectively (31 December 2022: RMB10,755 million and RMB186 million, respectively).
+(b) Year end balances with related parties
+The Group has commercial arrangements with certain associates and joint ventures to purchase online game
+licenses and related services, media content and related services, FinTech and Business Services and others, the
+costs and expenses of which, for the year ended 31 December 2023, amounted to RMB3,082 million, RMB4,752
+million, RMB2,222 million and RMB1,532 million, respectively (2022: RMB1,734 million, RMB4,226 million,
+RMB3,710 million and RMB1,030 million, respectively).
+The Group has commercial arrangements with certain associates and joint ventures to provide Online Advertising
+services, FinTech and Business Services, and other services, the revenue from which, for the year ended 31
+December 2023, amounted to RMB7,286 million, RMB42,141 million and RMB2,740 million, respectively (2022:
+RMB5,819 million, RMB39,200 million and RMB2,577 million, respectively).
+(a) Significant transactions with related parties
+47 RELATED PARTY TRANSACTIONS (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Other than the transactions and balances disclosed above or elsewhere in the consolidated financial statements, the
+Group had no other material transactions with related parties during the years ended 31 December 2023 and 2022, and
+no other material balances with related parties as at 31 December 2023 and 2022.
+distribution to retained earnings
+412,195
+Net gains from changes in the fair value of financial assets at fair value
+Major non-cash transactions during the year ended 31 December 2023 were the settlement of dividend declared
+to be distributed in specie of Meituan Shares (Note 17(b) and Note 34).
+(b) Major non-cash transactions
+45 NOTE TO CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+173,760
+256,691
+(6,637)
+3,821
+2,239
+(322)
+(4,851)
+1,349
+(6,518)
+8,044
+(5,840)
+5,469
+(1,201)
+1,882
+4,336
+(1,010)
+Tencent Holdings Limited
+262
+00
+Cash generated from operations
+(c) Net cash/(debt) reconciliation
+Deferred revenue
+This section sets out an analysis of net cash/(debt) and the movements in net cash/(debt) for each of the years
+presented.
+As at 31 December
+(14,832)
+54,740
+Net cash/(debt)
+(148,669)
+(137,101)
+Notes payable - repayable after one year
+(10,446)
+(14,161)
+Notes payable - repayable within one year
+(163,668)
+(155,819)
+Net losses from changes in fair value of assets held for distribution
+(11,580)
+(41,537)
+Borrowings - repayable within one year
+162,792
+231,038
+Term deposits and others
+156,739
+172,320
+Cash and cash equivalents
+RMB'Million
+RMB'Million
+2022
+2023
+Net cash/(debt)
+Other tax liabilities
+Other payables and accruals
+Accounts payable
+(126)
+Net gains on disposals of intangible assets, land use rights, property,
+plant and equipment, construction in progress and right-of-use assets
+Interest income
+32,772
+32,703
+Amortisation of intangible assets and land use rights
+28,444
+26,305
+right-of-use assets
+Depreciation of property, plant and equipment, investment properties and
+(948)
+(546)
+Dividend income
+(172,707)
+(4,283)
+Net gains on disposals and deemed disposals of investee companies
+21,516
+43,276
+Income tax expense
+188,709
+118,048
+RMB'Million
+RMB'Million
+2022
+2023
+Adjustments for:
+(108)
+(13,808)
+(8,592)
+Interest and related expenses
+Prepayments, deposits and other receivables
+Inventories
+Accounts receivable
+Changes in working capital:
+(633)
+383
+Exchange losses/(gains), net
+17,428
+134
+investment properties and property, plant and equipment
+Net impairment of intangible assets, land use rights, right-of-use assets,
+7,750
+Annual Report 2023 263
+2,119
+27,538
+6,095
+joint ventures and others
+Impairment provisions for investments in associates, investments in
+16,129
+(5,800)
+Share of (profit)/loss of associates and joint ventures, net
+24,949
+21,073
+Equity-settled share-based compensation expenses
+9,985
+11,885
+Net fair value losses on FVPL and other financial instruments
+Notes to the Consolidated Financial Statements
+Borrowings repayable after one year
+45 NOTE TO CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
+55
+(794)
+17,621
+8,617
+49 SUBSEQUENT EVENTS
+There were no material subsequent events during the period from 31 December 2023 to the approval date of these
+financial statements by the Board on 20 March 2024.
+Annual Report 2023
+269
+(145,590)
+(136,936)
+(19,003)
+113,320
+167,966
+Net debt as at 1 January 2022
+For the year ended 31 December 2023
+(137,101)
+(14,161)
+(155,819)
+(41,537)
+231,038
+172,320
+Net cash as at 31 December 2023
+(6,102)
+11,750
+(11,750)
+(130,156)
+through other comprehensive income
+Currency translation differences
+At 31 December 2022
+Retained
+earnings
+RMB'Million
+Other
+reserves
+RMB'Million
+17,621
+8,617
+54,011
+(20,586)
+740
+32,169
+18,963
+(29,991)
+(1,020)
+(1,848)
+64,252
+(5,279)
+506
+3,708
+171,971
+(12,950)
+(18,963)
+13,773
+54,740
+15,597
+(13,844)
+(148,669)
+(10,446)
+(163,668)
+(11,580)
+162,792
+156,739
+Net debt as at 1 January 2023
+RMB'Million
+Total
+1 year
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+RMB'Million
+1 year
+due after
+due within
+Notes payable
+Notes payable
+Borrowings
+due after
+1 year
+Borrowings
+due within
+1 year
+and others
+equivalents
+deposits
+Term
+Cash and
+cash
+(c) Net cash/(debt) reconciliation (continued)
+Cash flows
+14,228
+(14,832)
+(14,234)
+65,897
+(94)
+(2,537)
+(12)
+(2,205)
+(1,989)
+Other non-cash movements (Note)
+843
+1,506
+1,353
+Exchange impacts
+70,821
+10,141
+(5,211)
+(15,629)
+"Beijing BIZCOM"
+"CAS"
+"Board"
+"Beijing Starsinhand"
+Beijing BIZCOM Technology Company Limited
+"Domestic Games"
+PricewaterhouseCoopers, the auditor of the Company
+"EBITDA"
+"DAU"
+"Cyber Tianjin❞
+"Cyber Shenzhen"
+"COSO Framework"
+"Corporate Governance Committee"
+"Company Website"
+"CG Code'
+Beijing Starsinhand Technology Company Limited
+"Company"
+"Chongqing Tencent Information"
+"
+the share(s) of the Company awarded under the Share Award Schemes
+"Awarded Share(s)"
+the share award scheme adopted by the Company on Adoption Date I, as
+amended
+Definition
+the audit committee of the Company
+the third amended and restated articles of association of the Company adopted by
+special resolution passed on 18 May 2022
+artificial intelligence
+17 May 2023, being the date on which the Company adopted the 2023 Share
+Award Scheme
+25 November 2019, being the date on which the Company adopted the 2019
+Share Award Scheme
+13 November 2013, being the date on which the Company adopted the 2013
+Share Award Scheme
+13 December 2007, being the date on which the Company adopted the 2007
+Share Award Scheme
+the annual general meeting of the Company to be held on 14 May 2024 or any
+adjournment thereof
+the share option scheme adopted by the Company on 17 May 2023, as amended
+from time to time
+"Auditor"
+the share award scheme adopted by the Company on Adoption Date IV, as
+amended from time to time
+the share award scheme adopted by the Company on Adoption Date II, as
+amended
+"Audit Committee"
+"Articles of Association"
+"AI"
+the board of directors of the Company
+Annual Report 2023
+273
+Definition
+Term
+the share award scheme adopted by the Company on Adoption Date III, as
+amended
+credit adjustment spread, which is a fixed spread adjustment incorporated to
+bridge the gap between LIBOR and SOFR in order to minimise the economic
+impact of the transfer from a LIBOR-based debt to a SOFR-based debt
+"Share Subdivision"
+Chongqing Tencent Information Technology Company Limited
+the remuneration committee of the Company
+the lawful currency of the PRC
+any Eligible Person(s) selected by the Board to participate in the respective Share
+Award Schemes
+Annual Report 2023 277
+Definition
+Term
+Definition
+"Service Provider(s)"
+"SFO"
+"Shanghai Tencent Information"
+"Share(s)"
+"Share Award Schemes"
+"Adoption Date IV"
+"Shenzhen Tencent Information"
+person(s) who, or entity(ies) which, provide services to the Group on a continuing
+or recurring basis in their ordinary and usual course of business which are
+in the interests of the long term growth of the Group, including independent
+contractor(s), consultant(s), adviser(s), agent(s) and supplier(s), with reference
+to, among other things, research and development, engineering or technical
+contribution, the design or development or distribution of products/services
+provided by the Group, or otherwise will contribute significantly to the growth of
+the Group's financial or business performance for research and development,
+product commercialisation, marketing, innovation upgrading, strategic/commercial
+planning on corporate image and investor relations in investment environment of
+the Group, as determined by the Board in its sole and absolute discretion
+the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) as
+amended, supplemented or otherwise modified from time to time
+Shanghai Tencent Information Technology Company Limited
+ordinary share(s) of HKD0.00002 each in the share capital of the Company (or
+of such other nominal amount as shall result from a sub-division, consolidation,
+reclassification or reconstruction of the share capital of the Company from time to
+time)
+the 2013 Share Award Scheme, the 2019 Share Award Scheme and the 2023
+Share Award Scheme
+with effect from 15 May 2014, each existing issued and unissued share of
+HKD0.0001 each in the share capital of the Company was subdivided into five
+subdivided shares of HKD0.00002 each, after passing of an ordinary resolution at
+the annual general meeting of the Company held on 14 May 2014 and granting by
+the Stock Exchange of the listing of, and permission to deal in, the subdivided shares
+a holding company (as defined in the Listing Rules), a fellow subsidiary
+("subsidiary" as defined in the Listing Rules) or an associated company of the
+Company
+Shenzhen Tencent Information Technology Company Limited
+research and development
+the Pre-IPO Share Option Scheme adopted by the Company on 27 July 2001
+"Post-IPO Option Scheme III"
+"Post-IPO Option Scheme IV"
+"PRC" or "China"
+"PRC CIT"
+"Pre-IPO Option Scheme"
+"PUBG"
+"R&D"
+"Related Entity"
+"Remuneration Committee"
+"RMB"
+"Selected Participant(s)"
+the Model Code for Securities Transactions by Directors of Listed Issuers set out
+in Appendix C3 to the Listing Rules
+NASDAQ Global Select Market
+the nomination committee of the Company
+personal computer
+the Post-IPO Share Option Scheme adopted by the Company on 24 March 2004
+the Post-IPO Share Option Scheme adopted by the Company on 16 May 2007
+the Post-IPO Share Option Scheme adopted by the Company on 13 May 2009
+the Post-IPO Share Option Scheme adopted by the Company on 17 May 2017
+the People's Republic of China
+PRC corporate income tax as defined in the "Corporate Income Tax Law of the
+People's Republic of China"
+PlayerUnknown's Battlegrounds
+"Post-IPO Option Scheme II"
+Shenzhen Tencent Network Information Technology Company Limited
+"Shenzhen Tencent Tianyou"
+the co-operation framework contract dated 28 February 2004 entered into
+between Tencent Technology and Tencent Computer
+the co-operation committee established under the TCS CFC
+Tencent Technology (Beijing) Company Limited
+Tencent Technology (Chengdu) Company Limited
+Shenzhen Tencent Computer Systems Company Limited
+"Tencent Enterprise Management"
+Shenzhen Tencent Enterprise Management Limited
+"Tencent Shanghai"
+Tencent Technology (Shanghai) Company Limited
+"Tencent Technology"
+"Tencent Wuhan"
+"Tenpay"
+"Term SOFR"
+"TIBOR"
+Tencent Technology (Shenzhen) Company Limited
+Tencent Technology (Wuhan) Company Limited
+Tenpay Payment Technology Co., Ltd., a member of the Group operating in the
+Mainland of China and engaging in the provision of payment services
+the term SOFR reference rate administered by CME Group Benchmark
+Administration Limited for the relevant period published by CME Group Benchmark
+Administration Limited
+Tokyo InterBank Offered Rate
+Annual Report 2023
+279
+Supercell Oy, a non wholly-owned subsidiary of the Company which is a private
+company incorporated in Finland
+"Shenzhen Tencent Network"
+The Stock Exchange of Hong Kong Limited
+Secured Overnight Financing Rate
+Shenzhen Tencent Tianyou Technology Company Limited
+"Shiji Kaixuan"
+Shenzhen Shiji Kaixuan Technology Company Limited
+00
+278 Tencent Holdings Limited
+Term
+Definition
+Definition
+"SKT CFC"
+"SKT Co-operation Committee'
+"SOFR"
+"SSV & CPP"
+"Stock Exchange"
+"Supercell"
+"TCS CFC"
+"TCS Co-operation Committee"
+"Tencent Beijing"
+"Tencent Chengdu"
+"Tencent Computer"
+the co-operation framework contract dated 28 February 2004 entered into
+between Cyber Tianjin and Shiji Kaixuan
+the co-operation committee established under the SKT CFC
+Sustainable Social Value and Common Prosperity Programmes
+"Post-IPO Option Scheme I"
+"PC"
+"Nomination Committee'
+"Guian New Area Tencent Cyber"
+"Hainan Network"
+"Hangzhou Tencent Information"
+"HKD"
+“Hong Kong”
+"HUYA"
+"IA"
+"IAS"
+any person(s) eligible to participate in the respective Share Award Schemes
+director(s) or employee(s) of any member of the Group (including person(s) who
+is/are granted options under the Post-IPO Option Scheme II, the Post-IPO Option
+Scheme IV and the 2023 Share Option Scheme or awards under the Share
+Award Schemes as an inducement to enter into employment contracts with these
+companies (as the case may be))
+earnings per share
+the environmental, social and governance reporting guide as set out in Appendix
+C2 to the Listing Rules
+financial technology
+Follow-on Public Offering
+in relation to any Awarded Share, the date on which the Awarded Share is, was or
+is to be granted
+the Company and its subsidiaries
+Guangzhou Tencent Computer System Company Limited
+Guangzhou Tencent Technology Company Limited
+Guian New Area Tencent Cyber Company Limited
+Hainan Tencent Network Information Technology Company Limited
+Hangzhou Tencent Information Technology Company Limited
+"Guangzhou Tencent Technology"
+the lawful currency of Hong Kong
+"Guangzhou Tencent Computer"
+"Grant Date"
+Tencent Holdings Limited, a limited liability company organised and existing
+under the laws of the Cayman Islands and the Shares of which are listed on the
+Stock Exchange
+the website of the Company at www.tencent.com
+the corporate governance committee of the Company
+the Internal Control Integrated Framework issued by the Committee of Sponsoring
+Organisations
+Tencent Cyber (Shenzhen) Company Limited
+Tencent Cyber (Tianjin) Company Limited
+daily active user accounts
+for the purpose of preparing financial and operating information, Domestic Games
+refers to our games business in the PRC, excluding Hong Kong, the Macao
+Special Administrative Region and Taiwan, China
+earnings before interest, tax, depreciation and amortisation
+00
+274
+Tencent Holdings Limited
+Term
+Definition
+Definition
+"Eligible Person(s)"
+"Employee Participant(s)"
+"EPS"
+"ESG Reporting Guide"
+"FinTech"
+"FPO"
+"Group"
+the Hong Kong Special Administrative Region, the PRC
+HUYA Inc., a non wholly-owned subsidiary of the Company which is incorporated
+in the Cayman Islands with limited liability and the shares of which are listed on
+the New York Stock Exchange
+for the purpose of preparing financial and operating information, International
+Games refers to our games business other than our Domestic Games business
+the investment committee of the Company
+intellectual property
+initial public offering
+information technology
+the lawful currency of Japan
+London InterBank Offered Rate
+the Rules Governing the Listing of Securities on the Stock Exchange
+mergers and acquisitions
+monthly active user accounts
+Meituan, a company controlled through weighted voting rights and incorporated in
+the Cayman Islands with limited liability, whose Class B ordinary shares are listed
+on the Stock Exchange
+the approximately 948 million Class B ordinary shares in the share capital of
+Meituan with a par value of USD0.00001 each, of which the Group completed the
+distribution on 24 March 2023
+players who are aged under 18
+00
+276
+Tencent Holdings Limited
+Term
+Definition
+Definition
+"Model Code"
+"NASDAQ❞
+Instant Messaging
+International Financial Reporting Standards as issued by the International
+Accounting Standards Board
+risk management and internal control department of the Company
+"Minor(s)"
+internal audit department of the Company
+International Accounting Standards
+Annual Report 2023
+275
+Definition
+Term
+Definition
+"IC"
+"IFRS"
+"IM"
+the corporate governance code as set out in Appendix C1 to the Listing Rules
+"International Games"
+"IP"
+"IPO"
+"IT"
+"JPY"
+"LIBOR"
+"Listing Rules"
+"M&A"
+"MAU"
+"Meituan"
+"Meituan Shares"
+"Investment Committee"
+"Adoption Date III"
+All subsidiaries' undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary's
+undertakings held directly by the parent company does not differ from its proportion of ordinary shares held. The parent company
+does not have any shareholdings in the preference shares of subsidiary's undertakings included in the Group.
+"Adoption Date |"
+100%
+(Note (a))
+RMB10,000,000
+in the PRC
+(Note (a))
+Provision of value-added services
+100%
+RMB1,216,500,000
+Established in the PRC,
+limited liability company
+Established in the PRC,
+limited liability company
+Established in the PRC,
+wholly foreign
+owned enterprise
+Tencent Cyber (Shenzhen)
+Company Limited
+Beijing Starsinhand Technology
+Company Limited
+Beijing BIZCOM Technology
+Company Limited
+in the PRC
+Provision of value-added services
+100%
+(Note (a))
+RMB10,290,000
+Established in the PRC,
+limited liability company
+Nanjing Wang Dian Technology
+Company Limited
+provision of information technology
+services in the PRC
+owned enterprise
+wholly foreign
+Development and sale of softwares and
+Provision of value-added services
+in the PRC
+USD30,000,000
+100%
+Tencent Technology (Chengdu)
+Company Limited
+in the PRC
+of information technology services
+wholly foreign
+owned enterprise
+Development of softwares and provision
+100%
+USD5,000,000
+Established in the PRC,
+Tencent Technology (Shanghai)
+Company Limited
+by the Group (%) Principal activities and place of operation
+100%
+Proportion of
+equity interest held
+Place of establishment and
+nature of legal entity
+Name
+Particulars of
+50 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+Tencent Holdings Limited
+270
+00
+Development of softwares in the PRC
+issued/paid-in
+capital
+USD1,000,000
+Established in the PRC,
+Tencent Technology (Beijing)
+Company Limited
+USD2,000,000
+Established in the PRC,
+Tencent Technology
+in the PRC
+Internet advertisement services
+(Note (a))
+Provision of value-added services and
+100%
+RMB65,000,000
+Established in the PRC,
+limited liability company
+100%
+Tencent Computer
+capital
+Proportion of
+equity interest held
+issued/paid-in
+Place of establishment and
+nature of legal entity
+Name
+Particulars of
+The following is a list of material subsidiaries of the Company as at 31 December 2023:
+50 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+by the Group (%) Principal activities and place of operation
+Established in the PRC,
+wholly foreign
+owned enterprise
+Development of softwares and provision of
+owned enterprise
+Asset management in Hong Kong
+100%
+USD100
+Established in the British
+Virgin Islands,
+limited liability company
+"Adoption Date II"
+in the PRC
+information technology services
+owned enterprise
+wholly foreign
+Development of softwares and provision of
+wholly foreign
+100%
+Established in the PRC,
+Tencent Cyber (Tianjin) Company
+Limited
+services in the PRC
+(Note (a))
+Provision of Internet advertisement
+100%
+RMB11,000,000
+Established in the PRC,
+limited liability company
+Shenzhen Shiji Kaixuan Technology
+Company Limited
+information technology services
+in the PRC
+USD90,000,000
+USD220,000,000
+Tencent Asset Management Limited
+Development of softwares and provision
+The directors of the Company considered that none of the non wholly-owned subsidiaries has non-controlling interests that
+are material to the Group, therefore, no summarised financial information of these non wholly-owned subsidiaries is presented
+separately.
+In September 2020, TME issued two tranches of senior notes with an aggregate principal amount of USD800 million due in 5
+years to 10 years, with interest rates ranging from 1.375% to 2.000%. As at 31 December 2023, the principal amount and net
+book balance of its notes payable were USD800 million and USD796 million respectively.
+As described in Note 1, the Company does not have legal ownership in equity of these structured entities or their subsidiaries.
+Nevertheless, under certain contractual agreements entered into with the registered owners of these structured entities, the
+Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing their
+financial and operating policies, appointing or removing the majority of the members of their controlling authorities, and casting
+the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards
+of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as controlled
+structured entities of the Company.
+(d)
+(c)
+(b)
+(a)
+Note:
+50 SUBSIDIARIES AND CONTROLLED STRUCTURED ENTITIES (continued)
+For the year ended 31 December 2023
+Notes to the Consolidated Financial Statements
+271
+Annual Report 2023
+on an outstanding basis
+of information technology services
+Development of softwares and provision
+100%
+RMB70,000,000
+Established in the PRC,
+wholly foreign
+owned enterprise
+Technology Company Limited
+in the PRC
+(e)
+Significant restrictions
+(f)
+As at 31 December 2023, cash and cash equivalents, term deposits and restricted cash of the Group, amounting to
+RMB231,391 million were held in the Mainland of China and they are subject to local exchange control and other financial and
+treasury regulations. The local exchange control, and other financial and treasury regulations provide for restrictions, on payment
+of dividends, share repurchase and offshore investments, other than through normal activities.
+100%
+"2024 AGM"
+"2023 Share Option Scheme"
+"2023 Share Award Scheme'
+"2019 Share Award Scheme"
+"2013 Share Award Scheme"
+"2007 Share Award Scheme"
+Definition
+Term
+In this annual report, unless the context otherwise requires, the following expressions shall have the following meanings:
+Provision of value-added services
+Definition
+272
+00
+During the year ended 31 December 2023, the Company contributed approximately RMB4,378 million (2022: RMB2,882
+million) to the Share Scheme Trust for financing its acquisition of the Company's shares.
+As the Company has the power to govern the financial and operating policies of the Share Scheme Trust and can derive benefits
+from the contributions of the eligible persons who are awarded with the shares by the schemes, the directors of the Company
+consider that it is appropriate to consolidate the Share Scheme Trust.
+Administering and holding the Company's shares acquired for share award schemes
+which are set up for the benefits of eligible persons of the schemes
+Principal activities
+Share Scheme Trust
+Structured entity
+As mentioned in Note (a) above and Note 37(c), the Company has consolidated the operating entities within the Group without
+any legal interests and the EISS where wholly-owned subsidiaries of the Company act as general partner. In addition, due to the
+implementation of the share award schemes of the Group mentioned in Note 37(b), the Company has also set up a structured
+entity ("Share Scheme Trust”), and its particulars are as follows:
+Consolidation of structured entities
+Tencent Holdings Limited
+100%
+(Note (a))
+in the PRC
+Established in the PRC,
+limited liability company
+USD102,339
+Established in the
+China Literature Limited
+limited liability company
+online games in the United States
+United States,
+Development and operation of
+RMB50,000,000
+USD1,310
+Established in the
+Riot Games, Inc.
+Design and production of advertisement
+in the PRC
+100%
+RMB5,000,000
+Established in the PRC,
+limited liability company
+Beijing Tencent Culture Media
+Company Limited
+integration services in the PRC
+Provision of information system
+100%
+(Note (a))
+RMB1,042,500,000
+Established in the PRC,
+limited liability company
+Tencent Cloud Computing (Beijing)
+Company Limited
+of information technology services
+in the PRC
+57.03%*
+Cayman Islands,
+99.72%
+Design and production of advertisement
+in the PRC
+Provision of online literature services
+in the PRC
+100%
+RMB5,000,000
+Established in the PRC,
+limited liability company
+Shenzhen Tencent Culture Media
+Company Limited
+mobile games in Finland
+Shenzhen Tencent Tianyou
+Technology Company Limited
+Guangzhou Tencent
+Development and operation of
+81.22%
+EUR2,500
+Supercell Oy
+limited liability company
+entertainment services in the PRC
+Cayman Islands,
+Provision of online music
+53.09%*
+USD280,753
+Established in the
+TME (Note (b))
+limited liability company
+Established in Finland,
+limited liability company
+"Wang Dian"
+"VAS"
+"WFOES"
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2023 Share Award Scheme
+Product/Service provided to business customers
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2013 Share Award Scheme
+a trust deed entered into between the Company and the Trustee (as restated,
+supplemented and amended from time to time) in respect of the appointment of
+the Trustee for the administration of the 2019 Share Award Scheme
+Tencent Music Entertainment Group, a non wholly-owned subsidiary of the
+Company which is incorporated in the Cayman Islands with limited liability and
+the shares of which are listed on the New York Stock Exchange and the Stock
+Exchange
+"USD"
+Definition
+"Trustee"
+"Trust Deed IV"
+"Trust Deed III"
+"Trust Deed II"
+"ToB"
+"TME"
+Definition
+Term
+an independent trustee appointed by the Company for managing the Share Award
+Schemes
+"United States"
+the United States of America
+Telephone
+value-added services
+the lawful currency of the United States
+Weixin Official Account for Investor Relations: Tencent_IR
+Wanchai, Hong Kong
+No. 1 Queen's Road East
+29/F., Three Pacific Place
+Tencent Holdings Limited Hong Kong Office
+86-755-86013388
+Zipcode : 518054
+Nanshan District, Shenzhen, the PRC
+Telephone 852-21795122
+Tencent Group Head Office
+Tencent Binhai Towers, No. 33 Haitian 2nd Road
+"Wuhan Tencent Information"
+Wuhan Tencent Information Technology Company Limited
+Tencent Technology, Cyber Tianjin, Tencent Beijing, Shenzhen Tencent
+Information, Tencent Chengdu, Chongqing Tencent Information, Shanghai
+Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network,
+Guangzhou Tencent Technology, Shenzhen Tencent Network, Guian New Area
+Tencent Cyber, Cyber Shenzhen, Wuhan Tencent Information, Guangzhou
+Tencent Computer and Hangzhou Tencent Information
+280 Tencent Holdings Limited
+Tencent 腾讯
+Website: www.tencent.com
+00
+Nanjing Wang Dian Technology Company Limited
+6,512
+1
+27,025
+to equity holders
+Profit attributable
+43,833
+(829)
+2,960
+1,594
+5,705
+(94)
+6,646
+27,850
+(55)
+00
+2,719
+2.807
+1,594
+28%
+32%
+4.443
+4.537
+18%
+Net margin
+27%
+5,650
+Operating margin
+- diluted
+2.873
+- basic
+EPS (RMB per share)
+42,681
+(765)
+1
+Profit for the period
+49,135
+(b)
+437
+of intangible
+investee
+Share-based
+As
+Impairment
+Amortisation
+losses from
+Net (gains)/
+Adjustments
+Unaudited three months ended 31 December 2023
+The following tables set forth the reconciliations of the Group's non-IFRS financial measures for the fourth quarter of 2023 and
+2022, the third quarter of 2023, as well as the years ended 31 December 2023 and 2022 to the nearest measures prepared in
+accordance with IFRS:
+The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary
+information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact
+of investment-related transactions. In addition, non-IFRS adjustments include relevant non-IFRS adjustments for the Group's
+major associates based on available published financials of the relevant major associates, or estimates made by the Company's
+management based on available information, certain expectations, assumptions and premises.
+To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS financial
+measures (in terms of operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders
+of the Company, basic EPS and diluted EPS) have been presented in this annual report. These unaudited non-IFRS financial
+measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared
+in accordance with IFRS. In addition, these non-IFRS financial measures may be defined differently from similar terms used by
+other companies.
+NON-IFRS FINANCIAL MEASURES
+Management Discussion and Analysis
+provisions/
+1
+SSV &
+reported compensation
+1,564
+5,732
+41,401
+Operating profit
+(RMB in millions, unless specified)
+(e)
+(d)
+(a)
+Non-IFRS
+effects
+Others
+CPP
+(reversals)
+assets
+companies
+Income tax
+20
+(e)
+Tencent Holdings Limited
+As at 31 December 2023, bank balances and cash of the Group were mainly denominated in RMB and primarily held by
+subsidiaries in the Mainland of China whose functional currencies are RMB. The Group considers that any reasonable
+changes in foreign exchange rates of currencies against major functional currencies would not result in a significant change
+in the Group's results, as the net carrying amounts of financial assets and liabilities denominated in a currency other than
+the respective subsidiaries' functional currencies are considered to be not significant. Details are set out in Note 4.1 to the
+consolidated financial statements.
+For the fourth quarter of 2023, the Group generated free cash flow of RMB34.2 billion. This was a result of net cash flow
+generated from operating activities of RMB54.0 billion, partially offset by payments for capital expenditures of RMB9.3 billion,
+payments for media content of RMB7.7 billion, and payments for lease liabilities of RMB2.8 billion.
+As at 31 December 2023, the Group had net cash of RMB54.7 billion, compared to net cash of RMB36.4 billion as at
+30 September 2023. The sequential improvement was primarily driven by free cash flow generation, partially offset by cash
+used for share repurchases and net cash outflows related to strategic investments.
+Management Discussion and Analysis
+36,431
+54,740
+(153,318)
+(151,262)
+(197,702)
+(197,356)
+387,451
+403,358
+240,975
+As at 31 December 2023, the Group's total debts comprised borrowings and notes payable. Particulars of the Group's
+borrowings and notes payable are set out in Note 38 and Note 39 to the consolidated financial statements respectively.
+231,038
+172,320
+(RMB in millions)
+2023
+2023
+20
+31 December
+Audited
+Tencent Holdings Limited
+24
+00
+Net cash
+Notes payable
+Borrowings
+146,476
+As at 31 December 2023, the Group held some floating rate debts, including borrowings and senior notes, whose cash
+flows are hedged by using interest rate swaps. The effects of the interest rate swaps on the Group's financial position and
+performance are set out in Note 4.1 to the consolidated financial statements.
+The Group assesses its creditworthiness based on its business and financial risk profile and monitors its capital by regularly
+reviewing its total debts to Adjusted EBITDA ratio, being the measure of the Group's ability to pay off all of its debts which in
+turn reflects the Group's financial health and liquidity position. Details are set out in Note 4.2 to the consolidated financial
+statements.
+The Group had no material contingent liabilities outstanding as at 31 December 2023.
+BORROWINGS AND NOTES PAYABLE
+Particulars of the Company's material subsidiaries as at 31 December 2023 are set out in Note 50 to the consolidated financial
+statements.
+SUBSIDIARIES
+Details of the movements in the share capital of the Company during the year are set out in Note 35 to the consolidated
+financial statements.
+SHARE CAPITAL
+A fair review of the business of the Group, comprising a discussion and analysis of the Group's performance during the
+year, an indication of likely future development in the business of the Group and the proposed dividend for the year
+ended 31 December 2023 are set out in the "Chairman's Statement" on pages 4 to 6 of this annual report. Particulars of
+important events affecting the Group that have occurred since the end of the financial year 2023 are set out in Note 49 to
+the consolidated financial statements. An analysis using financial key performance indicators is set out in the "Management
+Discussion and Analysis" on pages 7 to 25 of this annual report. Discussions on the Group's environmental policies and
+performance, and an account of the Group's key relationships with its stakeholders are set out in the standalone “Environmental,
+Social and Governance Report”. Details regarding the Group's compliance with the relevant laws and regulations which have
+a significant impact on the Group are also set out in the standalone “Environmental, Social and Governance Report" and the
+"Corporate Governance Report" on pages 85 to 118 of this annual report. A description of the principal risks and uncertainties
+facing the Group is set out in the "Corporate Governance Report" on pages 85 to 118 of this annual report.
+BUSINESS REVIEW AND DIVIDEND
+Details of the movements in property, plant and equipment of the Group during the year are set out in Note 18 to the
+consolidated financial statements.
+PROPERTY, PLANT AND EQUIPMENT
+Directors' Report
+Tencent Holdings Limited
+26
+00
+Details of the movements in the reserves of the Group and the Company during the year are set out in the consolidated
+statement of changes in equity on pages 133 to 136, Note 35, Note 36 and Note 48 to the consolidated financial statements
+respectively.
+As at 31 December 2023, the Company had distributable reserves amounting to RMB86,872 million (2022: RMB82,562
+million).
+The Company may pay dividends out of share premium, retained earnings and any other reserves provided that immediately
+following the payment of such dividends, the Company will be in a position to pay off its debts as they fall due in the ordinary
+course of business.
+RESERVES
+The Board has recommended the payment of a final dividend of HKD3.40 per Share for the year ended 31 December 2023.
+The dividend is expected to be payable on 31 May 2024 to the shareholders whose names appear on the register of members
+of the Company on 22 May 2024. The total final dividend proposed for the year is HKD3.40 per Share.
+The results of the Group for the year are set out in the consolidated statement of comprehensive income on page 129 of this
+annual report.
+RESULTS AND APPROPRIATIONS
+The analysis of the Group's revenues and contribution to results by business segments and the Group's revenues by
+geographical area of operations is set out in Note 6 to the consolidated financial statements.
+The principal activity of the Company is investment holding. The activities of the material subsidiaries are set out in Note 50 to
+the consolidated financial statements.
+PRINCIPAL ACTIVITIES
+The directors have pleasure in presenting their report together with the audited financial statements for the year ended
+31 December 2023.
+Directors' Report
+25
+Annual Report 2023
+As at 31 December 2023, the Group's equity share in an investee company at a carrying amount of approximately
+RMB3.1 billion was charged to a bank syndicate (as part of the collateral) against a loan extended to such investee company.
+CHARGES
+Cash and cash equivalents
+Term deposits and others
+Our cash and debt positions as at 31 December 2023 and 30 September 2023 were as follows:
+LIQUIDITY AND FINANCIAL RESOURCES
+We continue to closely monitor the performance of our investment portfolio, strategically make investments, and explore
+opportunities in monetising some of the existing investments if appropriate opportunities in the market arise.
+We manage our investment portfolio with a primary objective to strengthen our leading position in core businesses and
+complement our "Connection" strategy in various industries, particularly in social and digital content, retail and FinTech
+sectors. We also invest in healthcare, cloud and Al, transportation and other sectors.
+Changes in respective items in the consolidated statement of financial position have been disclosed in the notes to the
+consolidated financial statements in this annual report.
+financial assets at fair value through profit or loss and through other comprehensive income (including assets held for
+distribution).
+investments in associates and joint ventures which are accounted for by using equity method; and
+As at 31 December 2023, our investment portfolio amounted to approximately RMB701,664 million (31 December 2022:
+RMB819,975 million) as recorded in the consolidated statement of financial position under various categories including:
+INVESTMENTS HELD
+Income tax effects of non-IFRS adjustments
+(g)
+Primarily non-recurring compliance-related costs and expenses incurred for certain litigation settlements of the Group and/or arising
+from investee companies
+Mainly including donations and expenses incurred for the Group's SSV & CPP initiatives
+Mainly including impairment provisions/(reversals) for associates, joint ventures, goodwill and other intangible assets arising from
+acquisitions
+(f)
+(e)
+(d)
+Amortisation of intangible assets resulting from acquisitions
+(c)
+Including net (gains)/losses on deemed disposals/disposals of investee companies, fair value changes arising from investee
+companies, and other expenses in relation to equity transactions of investee companies
+Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies'
+share-based incentive plans which can be acquired by the Group, and other incentives
+(b)
+(a)
+Note:
+Management Discussion and Analysis
+22 Tencent Holdings Limited
+00
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+21%
+26%
+34%
+Net margin
+The fair value of our shareholdings in listed investee companies (excluding subsidiaries) amounted to RMB550.7 billion as
+at 31 December 2023 (31 December 2022: RMB585.1 billion), and the carrying book value of our unlisted investments was
+RMB337.3 billion as at 31 December 2023 (31 December 2022: RMB333.4 billion). None of the carrying value of any of our
+investments (including listed equity investments) constituted 5% or more of our total assets as at 31 December 2023.
+Particulars of the Group's borrowings and notes payable are set out in Note 38 and Note 39 to the consolidated financial
+statements respectively.
+4
+Annual Report 2023
+(5,197)
+(5,019)
+Amortisation of intangible assets resulting from acquisitions
+(16,129)
+5,800
+Share of profit/(loss) of associates and joint ventures, net
+(44,803)
+(6,190)
+intangible assets from acquisitions
+Impairment provision for investee companies, goodwill and other
+(7,703)
+(2,106)
+Net fair value losses
+172,707
+4,283
+Net gains on disposals and deemed disposals of investee companies
+948
+546
+Dividend income
+RMB'Million
+RMB'Million
+2022
+2023
+(Classified by nature)
+Performance of Principal Investment
+Losses from our investment portfolio amounted to RMB2,686 million for the year ended 31 December 2023, compared to
+gains of RMB99,823 million in previous year. Details of our return from investment portfolio are as follows:
+There were no material changes in our significant investment portfolio during the year ended 31 December 2023 that need to
+be disclosed under paragraph 32 of Appendix D2 to the Listing Rules.
+Management Discussion and Analysis
+23
+Including those held via special purpose vehicles, on an attributable basis.
+Annual Report 2023
+27
+Directors' Report
+USD'Million
+USD'Million
+the unutilised amount
+2023
+2023
+timeline for utilising
+31 December
+amount as at Expected
+Unutilised
+utilised
+during the
+year ended
+Actual amount
+31 December
+use of
+proceeds
+from the FPO
+Intended
+In April 2019, HUYA launched its FPO of 18,400,000 American depositary shares ("ADS") representing 18,400,000 of its
+Class A ordinary shares (including 13,600,000 ADSS sold by HUYA and 4,800,000 ADSS sold by the selling shareholder) at
+a public offering price of USD24.00 per ADS. The net proceeds from the FPO amounted to approximately USD313.8 million
+and are intended to be applied in accordance with the proposed application as set out in the FPO prospectus of HUYA dated
+10 April 2019. Up to 31 December 2023, USD142.7 million of the net proceeds from the FPO were utilised according to the
+intentions previously disclosed by HUYA. Details of the use of proceeds are as follows:
+HUYA
+Directors' Report
+The use of proceeds from the FPO of HUYA, our non wholly-owned subsidiary, is set out below:
+USE OF PROCEEDS FROM FPO OF A NON WHOLLY-OWNED SUBSIDIARY
+Tencent Holdings Limited
+28
+Save as disclosed above and in Note 35 to the consolidated financial statements, neither the Company nor any
+of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities during the year ended
+31 December 2023.
+49,432,707,948.16
+152,205,700
+Total:
+10,043,448,981.00
+263.80
+325.60
+33,370,000
+USD'Million
+December
+Investment in content ecosystem and
+31.4
+29
+Annual Report 2023
+As at 31 December 2023, the remaining USD171.1 million of the net proceeds from the FPO was placed with banks.
+Before the end of 2027
+up to 65.2
+28.4
+15.7 to 94.1
+General corporate purposes
+service offerings
+Before the end of 2027
+up to 17.2
+2.1
+15.7 to 31.4
+Expanding and enhancing product and
+potential strategic investments and
+merger and acquisition opportunities
+Before the end of 2027
+up to 40.0
+3.6
+31.4 to 47.1
+Overseas expansion opportunities and
+Before the end of 2027
+up to 75.3
+3.8
+78.5 to 94.1
+Research and development to strengthen
+technologies and products
+genres and improve content quality
+eSports partners to expand content
+Before the end of 2027
+up to 51.9
+94.1 to 125.5
+20%
+3,611,667,996.00
+332.40
+4,640,000
+April
+1,755,093,825.00
+362.80
+393.80
+4,620,000
+March
+2,873,963,974.54
+329.00
+384.80
+7,853,100
+January
+paid
+HKD
+HKD
+HKD
+price paid
+Aggregate
+consideration
+Lowest
+Highest
+price paid
+purchased
+Month of purchase in 2023
+No. of Shares
+Purchase consideration per Share
+During the year ended 31 December 2023, the Company repurchased a total of 152,205,700 Shares on the Stock Exchange
+for an aggregate consideration of approximately HKD49.4 billion before expenses. The repurchased Shares were subsequently
+cancelled. The repurchase was effected for the enhancement of shareholder value in the long term. Details of the Shares
+repurchased are as follows:
+PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES
+A summary of the condensed consolidated results and financial positions of the Group is set out on page 3 of this annual
+report.
+FINANCIAL SUMMARY
+The donations made by the Group in the year were RMB2,952 million.
+DONATION
+390.80
+313.80
+354.40
+May
+11,170,000
+November
+3,612,873,698.00
+295.40
+317.00
+11,800,000
+October
+3,643,776,854.48
+4,017,450,018.00
+7,628,303,223.00
+296.60
+334.80
+24,280,000
+September
+314.80
+333.80
+12,380,000
+August
+320.20
+352.40
+10,859,200
+July
+7,971,702,166.14
+311.40
+361.00
+23,493,400
+June
+2,514,634,060.00
+306.00
+345.40
+7,740,000
+1,759,793,152.00
+(Restated)*
+Unaudited
+30 September
+11.835
+106,904
+Profit for the period
+36,424
+14
+326
+1,241
+5,680
+29,163
+Operating profit (Restated)*
+(RMB in millions, unless specified)
+(f)
+(b)
+(a)
+Non-IFRS
+effects
+Others
+CPP
+(reversals)
+assets
+companies
+reported compensation
+Income tax
+SSV &
+provisions/
+of intangible
+investee
+Share-based
+As
+Impairment
+7,217
+Amortisation
+(107,955)
+23,700
+25%
+74%
+Net margin
+20%
+(Restated)*
+Operating margin
+3.042
+3.124
+10.977
+- diluted
+11.173
+- basic
+EPS (RMB per share)
+29,711
+(3,672)
+90
+206
+1,600
+23,693
+2,420
+(107,928)
+7,124
+106,268
+to equity holders
+Profit attributable
+30,556
+(3,717)
+206
+1,600
+2,601
+21%
+losses from
+Adjustments
+51,668
+231
+1,434
+5,655
+44,348
+Operating profit (Restated)*
+(RMB in millions, unless specified)
+(d)
+Non-IFRS
+effects
+CPP
+(reversals)
+assets
+companies
+compensation
+reported
+Income tax
+SSV &
+provisions/
+of intangible
+investee
+As Share-based
+Impairment
+Amortisation
+losses from
+Net (gains)/
+Adjustments
+Unaudited three months ended 30 September 2023
+Management Discussion and Analysis
+Profit for the period
+Net (gains)/
+36,781
+(565)
+Unaudited three months ended 31 December 2022
+30%
+33%
+4.657
+4.753
+24%
+Net margin
+29%
+Operating margin (Restated)*
+Operating margin
+- diluted
+3.828
+- basic
+EPS (RMB per share)
+44,921
+(579)
+301
+309
+2,458
+(583)
+6,833
+36,182
+to equity holders
+Profit attributable
+45,837
+(640)
+301
+346
+2,666
+6,948
+Certain items have been reclassified from above to below the operating profit line, and the comparative figures for prior periods have
+been restated accordingly. Please refer to Note 2.2 in the notes to the consolidated financial statements for details.
+3.752
+21
+Operating profit (Restated)*
+(RMB in millions, unless specified)
+(f)
+(b)
+(a)
+Non-IFRS
+effects
+Others
+CPP
+(reversals)
+assets
+companies
+compensation
+reported
+Income tax
+SSV &
+provisions/
+of intangible
+investee
+Share-based
+As
+Impairment
+Amortisation
+losses from
+Net (gains)/
+Adjustments
+Year ended 31 December 2022
+27%
+32%
+110,827
+16.320
+26,248
+726
+12.138
+Annual Report 2023
+19.341
+- diluted
+19.757
+- basic
+EPS (RMB per share)
+115,649
+(5,499)
+2,125
+5,763
+46,326
+10,880
+(164,840)
+32,651
+188,243
+to equity holders
+Profit attributable
+119,193
+(5,839)
+2,125
+5,763
+48,004
+11,818
+(164,698)
+33,311
+188,709
+143,203
+205
+5,197
+16.678
+Profit for the year
+Net margin
+160,074
+Operating profit
+(RMB in millions, unless specified)
+(g)
+(d)
+(b)
+(a)
+Non-IFRS
+effects
+Others
+CPP
+(reversals)
+assets
+companies
+Income tax
+SSV &
+provisions/
+of intangible
+investee
+Share-based
+As
+Impairment
+Amortisation
+losses from
+Net (gains)/
+Adjustments
+19%
+Year ended 31 December 2023
+Management Discussion and Analysis
+22,782
+5,019
+reported compensation
+3,013
+Operating margin
+26%
+11.887
+998
+- diluted
+12.186
+- basic
+EPS (RMB per share)
+157,688
+3,012
+3,790
+8,004
+9,462
+(6,024)
+27,100
+(2,872)
+10,269
+115,216
+Profit for the year
+27,766
+(6,170)
+191,886
+8,123
+118,048
+3,012
+(3,104)
+161,734
+Profit attributable
+to equity holders
+3,790
+Tencent Holdings Limited
+2,892
+38
+00
+342.50
+4,595
+2,891
+2,890
+342.81
+4,584
+7,486
+7,474
+343.06
+4,595
+Number of share options
+7,487
+Directors' Report
+2023
+As at
+2023
+15 Feb 2023 to 23 Mar 2029 (Note 8)
+price
+the year
+the year
+the year
+(Notes 14
+Exercise
+Lapsed/
+during 31 December
+during
+1 January
+Date of grant
+As at
+forfeited
+Exercised
+Granted
+during
+343.77
+8,953
+2,889
+2,866
+1,101
+790,044
+24 Mar 2022
+342.87
+6,827
+2,126
+786,077
+343.21
+178
+8,950
+343.22
+6,827
+2,126
+Exercise period/Performance targets
+8,953
+8,772
+4,583
+343.84
+790,206
+7,472
+24 Mar 2022
+342.81
+3,094
+3,094
+343.06
+3,094
+27 Jan 2023 to 23 Mar 2029 (Note 9)
+3,094
+343.77
+3,094
+3,094
+24 Mar 2022
+343.20
+787,278
+2,928
+15 Feb 2023 to 23 Mar 2029 (Note 10)
+(Note 13)
+1,884,286
+(Note 20)
+17 Aug 2023
+334.04
+60,862
+60,862
+17 Aug 2023
+15 Jun 2024 to 17 Aug 2030 (Notes 9 and 12)
+334.04
+22,551
+36,883
+17 Aug 2023
+15 Apr 2024 to 22 Mar 2030 (Notes 8 and 11)
+375.60
+3,071,143
+3,071,143
+23 Mar 2023
+15 Jan 2024 to 22 Mar 2030 (Notes 9 and 11)
+36,883
+375.60
+22,551
+15 Jul 2024 to 17 Aug 2030 (Notes 9 and 12)
+5 Jul 2022 to 23 Mar 2029 (Note 8)
+39
+Annual Report 2023
+886,203 122,611,076
+119,423,776 17,221,857 13,148,354
+Total:
+15 Sep 2024 to 17 Aug 2030 (Notes 8 and 12)
+334.04
+334.04
+11,557,350
+17 Aug 2023
+15 Jul 2024 to 17 Aug 2030 (Notes 8 and 12)
+334.04
+1,864,852
+- 19,434
+17 Aug 2023
+11,557,350
+HKD
+588,526
+588,782
+341.94
+1,399,357
+1,399,357
+342.49
+1,399,356
+1,399,356
+342.79
+18 Aug 2022
+1,399,355
+24 Mar 2023 to 23 Mar 2029 (Note 8)
+343.61
+1,399,354
+1,399,354
+24 Mar 2022
+(Note 16)
+and 15)
+1,399,355
+256
+1,370,532
+22,476
+23 Mar 2023
+276.01
+1,301,252
+69,883
+1,371,135
+276.81
+1,301,030
+78,148
+69,870
+277.42
+1,300,846
+69,857
+1,370,703
+15 Jul 2023 to 17 Aug 2029 (Note 8)
+277.91
+1,269,908
+1,370,900
+343.96
+15 Jun 2024 to 17 Aug 2030 (Notes 10 and 12)
+78
+305.66
+21 Jan 2021 to 19 Mar 2027 (Note 9)
+187,837
+4,730
+183,107
+305.64
+20 Mar 2020
+98,981
+1,697,498
+305.66
+8,769
+1,746,159
+1,746,159
+305.49
+1,746,159
+1,746,159
+1,697,498
+304.23
+1,272
+20 Mar 2020
+2 Dec 2019
+82
+82
+290.39
+15 Nov 2020 to 1 Dec 2026 (Note 10)
+17,582
+17,582
+100,253
+289.77
+74,340
+74,340
+330.89
+15 Dec 2020 to 7 Jan 2027 (Note 10)
+37,170
+37,170
+329.92
+8 Jan 2020
+1,770,490
+1,770,490
+303.74
+14,429
+307,657
+470.14
+322,132
+23,830
+298,302
+469.87
+322,086
+10 Jul 2020
+876
+471.92
+5 Jul 2022 to 9 Jul 2027 (Note 8)
+877
+877
+470.14
+877
+876
+471.92
+307,590
+14,426
+22 May 2020
+16,613
+16,613
+367.16
+15 May 2021 to 21 May 2027 (Note 10)
+16,613
+16,613
+366.70
+16,614
+16,614
+365.53
+10 Jul 2020
+308,486
+13,799
+294,687
+472.04 5 Jul 2021 to 9 Jul 2027 (Note 8)
+322,016
+(Note 16)
+and 15)
+(Note 20)
+HKD
+3,000
+3,000
+306.21
+8 Jul 2021 to 7 Jul 2026 (Note 4)
+3,001
+3,001
+305.79
+8 Jul 2019
+3,001
+304.61
+3,003
+3,003
+301.46
+23 Aug 2019
+9,870
+9,870
+3,001
+304.61
+445,027
+27,729
+17,500,000
+320.01
+4 Apr 2024 to 3 Apr 2026 (Note 6)
+8 Jul 2019
+710,896
+29,039
+12,094
+669,763
+306.21
+8 Jul 2020 to 7 Jul 2026 (Note 3)
+490,100
+40,675
+11,166
+438,259
+305.79
+486,839
+14,083
+288.46
+877
+15 Aug 2020 to 22 Aug 2026 (Note 10)
+92,469
+As at
+1 January
+during
+during
+during 31 December
+Exercise
+Date of grant
+forfeited
+2023
+the year
+the year
+2023
+price
+Exercise period/Performance targets
+(Notes 14
+(Note 13)
+the year
+Exercised
+Granted
+As at
+48,737
+43,732
+288.89
+15 Aug 2020 to 22 Aug 2026 (Note 7)
+46,235
+24,369
+21,866
+288.46
+46,236
+46,236
+287.49
+00
+34
+Tencent Holdings Limited
+Number of share options
+Directors' Report
+Lapsed/
+23 Aug 2019
+17,500,000
+470.04
+877
+23 Dec 2020
+7,014
+7,014
+495.23
+15 Dec 2021 to 22 Dec 2027 (Note 9)
+7,014
+7,014
+508.53
+494.94
+35,069
+35,069
+495.23
+15 Dec 2021 to 22 Dec 2027 (Note 10)
+35,069
+35,069
+494.94
+23 Dec 2020
+35,069
+4,207
+510.57
+2,952
+2,952
+511.59
+2,952
+2,952
+510.71
+23 Nov 2020
+4,207
+4,206
+511.83
+15 Nov 2021 to 22 Nov 2027 (Note 8)
+4,206
+4,206
+511.54
+4,206
+4,206
+4,206
+35,069
+494.22
+30 Mar 2021
+during
+during
+during 31 December
+Exercise
+Date of grant
+2023
+the year
+1 January
+(Notes 14
+the year
+2023
+price
+Exercise period/Performance targets
+HKD
+(Note 20)
+and 15)
+the year
+(Note 13)
+As at
+forfeited
+Exercised
+524,998
+6,654
+518,344
+533.39
+8 Feb 2022 to 29 Mar 2028 (Note 9)
+525,200
+6,663
+518,537
+533.13
+00
+36
+Tencent Holdings Limited
+Number of share options
+Directors' Report
+Lapsed/
+As at
+Granted
+15 Oct 2021 to 22 Nov 2027 (Note 10)
+511.83
+2,951
+2,951
+during
+during 31 December
+Exercise
+Date of grant
+2023
+the year
+the year
+during
+the year
+price
+Exercise period/Performance targets
+(Notes 14
+(Note 13)
+HKD
+(Note 20)
+and 15)
+2023
+1 January
+As at
+forfeited
+469.87
+21 Aug 2020
+12,232
+12,232
+444.32
+15 Jul 2021 to 20 Aug 2027 (Note 9)
+12,233
+12,233
+444.07
+Annual Report 2023
+35
+Directors' Report
+Number of share options
+Lapsed/
+As at
+Granted
+Exercised
+(Note 16)
+877
+21 Aug 2020
+3,511
+443.08
+1,243
+753
+490
+442.82
+23 Nov 2020
+54,353
+490
+7,852
+511.83
+15 Oct 2021 to 22 Nov 2027 (Note 9)
+15,363
+7,853
+7,510
+511.59
+23 Nov 2020
+46,501
+752
+1,242
+444.01
+444.32
+15 Aug 2021 to 20 Aug 2027 (Note 10)
+3,512
+3,512
+444.01
+3,512
+3,512
+443.08
+21 Aug 2020
+1,239
+751
+488
+444.32
+15 Aug 2021 to 20 Aug 2027 (Note 8)
+1,240
+751
+489
+3,511
+(Note 16)
+4 Apr 2019
+1,447,427
+Note:
+1.
+2.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 1 year after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+In relation to the exercise of 750,000 share options out of 3,750,000 share options, 489,211 Shares were issued. The automatic
+deduction of 260,789 Shares represents the consideration payable for the exercise of 750,000 share options.
+3.
+The weighted average closing price immediately before the date on which the options were exercised was HKD373.8 per Share.
+Directors' Report
+4.
+5.
+No options were cancelled or lapsed during the period from 1 January 2023 to 17 May 2023.
+6.
+Details of movements of share options granted to Mr Lau Chi Ping Martin during the year ended 31 December 2023 were included in
+the following section on details of movements of share options granted to Employee Participants of the Group.
+7.
+Such options were voluntarily waived by Mr Lau Chi Ping Martin in January 2024.
+8.
+As a result of the distribution in specie of Meituan Shares, pursuant to the scheme rules of the Post-IPO Option Scheme II and the
+Post-IPO Option Scheme IV, adjustments had been made to the exercise prices of the share options which remained outstanding as at
+5 January 2023 (Meituan ex-dividend date). The adjusted exercise prices of the share options are reflected above. Please refer to the
+announcement of the Company dated 9 January 2023 for details.
+As at 31 December 2023, there were no outstanding share options granted to any director of the Company.
+31
+17,215,853
+1,099,954
+1,099,954
+304.23
+(Note 1)
+1,099,954
+1,099,954
+303.74
+Annual Report 2023
+30 March 2021
+843,658
+532.06
+30 March 2022 to
+29 March 2028
+(Notes 1 and 7)
+20,965,853
+3,750,000
+843,658
+00
+32
+Tencent Holdings Limited
+(Notes 14
+(Note 13)
+HKD
+Exercise period/Performance targets
+(Note 20)
+and 15)
+(Note 16)
+21 Mar 2016
+price
+3,917,500
+126.57
+21 Mar 2017 to 20 Mar 2023 (Note 3)
+6 Jul 2016
+316,841
+314,991
+1,850
+143.33
+3,917,500
+2023
+the year
+the year
+Directors' Report
+Details of movements of share options granted to Employee Participants of the Group (including Mr Lau Chi Ping Martin)
+during the year ended 31 December 2023 are as follows:
+Number of share options
+Lapsed/
+As at
+Granted
+Exercised
+forfeited
+As at
+1 January
+during
+during
+during 31 December
+Exercise
+Date of grant
+2023
+the year
+19 March 2027
+305.49
+1,099,954
+1,099,954
+Date of grant
+2023
+period
+period
+2023
+price
+Exercise period
+Name of director
+(Note 3)
+(Note 4)
+Lau Chi Ping Martin
+21 March 2016
+3,750,000
+3,750,000
+(ceased to be a director
+(Note 2)
+HKD
+Exercise
+17 May
+during the
+00
+Directors' Report
+SHARE OPTION SCHEMES
+The Company has adopted six share option schemes, namely, the Pre-IPO Option Scheme, the Post-IPO Option Scheme I,
+the Post-IPO Option Scheme II, the Post-IPO Option Scheme III, the Post-IPO Option Scheme IV and the 2023 Share Option
+Scheme. The Pre-IPO Option Scheme, the Post-IPO Option Scheme I, the Post-IPO Option Scheme II and the Post-IPO Option
+Scheme III expired on 31 December 2011, 23 March 2014, 16 May 2017 and 13 May 2019, respectively. As at 31 December
+2023, there were no outstanding share options exercisable under the Pre-IPO Option Scheme, the Post-IPO Option Scheme |
+and the Post-IPO Option Scheme III. The Post-IPO Option Scheme IV was terminated on 17 May 2023. Please refer to the
+circular of the Company dated 24 April 2023 for details. In respect of the 2023 Share Option Scheme, the Board may, at its
+discretion, grant options to any qualifying participant to subscribe for Shares, subject to the terms and conditions stipulated
+therein. The exercise price must be in compliance with the requirements under the Listing Rules. In addition, the option
+vesting period is determined by the Board provided that it is not later than the last day of a 10-year period after the date of
+grant of options.
+The total number of options available for grant under the scheme mandate of the Post-IPO Option Scheme IV as at
+1 January 2023 was 277,023,785 and such scheme was terminated on 17 May 2023. The total number of options available
+for grant under the scheme mandate of the 2023 Share Option Scheme as at the date of adoption (17 May 2023) and
+31 December 2023 were 287,638,307 and 274,076,375, respectively. The total number of options available for grant under
+the Service Providers sub-limit of the 2023 Share Option Scheme as at the date of adoption (17 May 2023) and 31 December
+2023 were both 958,794.
+30
+30
+Tencent Holdings Limited
+Directors' Report
+As at 17 May 2023, there were a total of 17,215,853 outstanding share options granted to Mr Lau Chi Ping Martin, details of
+which are as follows:
+Number of share options
+As at
+Granted
+Exercised
+As at
+1 January
+during the
+with effect from
+6 Jul 2017 to 5 Jul 2023 (Note 3)
+17 May 2023)
+5,250,000
+1,753,290
+321.04
+4 April 2020 to
+876,645
+876,645
+320.78
+3 April 2026
+1,753,290
+876,645
+320.45
+(Note 1)
+20 March 2020
+1,099,953
+1,099,953
+305.66
+20 March 2021 to
+876,645
+4 April 2019
+(Note 1)
+8 April 2025
+126.57
+21 March 2017 to
+20 March 2023
+(Note 1)
+5,250,000
+185.65
+24 March 2018 to
+23 March 2024
+(Note 1)
+9 April 2018
+2,411,850
+2,411,850
+358.11
+9 April 2019 to
+803,950
+803,950
+357.86
+24 March 2017
+320.45
+24 Mar 2017
+136,498
+Exercise
+Date of grant
+2023
+the year
+(Notes 14
+the year
+(Note 13)
+the year
+2023
+during 31 December
+price
+HKD
+(Note 20)
+and 15)
+(Note 16)
+6 Jul 2018
+2,024
+2,024
+Exercise period/Performance targets
+332.87
+during
+1 January
+6 Jul 2019 to 5 Jul 2025 (Note 3)
+1,047,719
+53,641
+10,755
+983,323
+332.47
+Annual Report 2023
+during
+33
+Number of share options
+Lapsed/
+As at
+Granted
+Exercised
+forfeited
+As at
+Directors' Report
+6 Jul 2020 to 5 Jul 2025 (Note 4)
+2,013
+2,013
+24 Aug 2019 to 23 Aug 2025 (Note 2)
+4 Apr 2019
+193,566
+24,538
+169,028
+321.04
+4 Apr 2020 to 3 Apr 2026 (Note 1)
+302.78
+4 Apr 2019
+2,894,848
+321.04
+4 Apr 2020 to 3 Apr 2026 (Note 3)
+1,447,425
+1,447,425
+320.78
+1,447,427
+2,894,848
+17,780
+17,780
+24 Aug 2018
+332.47
+2,013
+2,013
+331.57
+6 Jul 2018
+647
+647
+332.87 6 Jul 2021 to 5 Jul 2025 (Note 5)
+4,532
+4,532
+332.47
+4,533
+4,533
+331.57
+4,534
+4,534
+331.40
+332.87
+1,980,404
+21,820
+85,195
+10 Jul 2017
+4,288
+560
+3,728
+230.89
+10 Jul 2019 to 9 Jul 2024 (Note 4)
+5,108
+10 Jul 2018 to 9 Jul 2024 (Note 3)
+560
+230.87
+23 Nov 2017
+71,190
+39,760
+31,430
+368.46
+23 Nov 2018 to 22 Nov 2024 (Note 2)
+4,548
+230.87
+3,031,874
+19,073
+690,152
+185.65
+24 Mar 2018 to 23 Mar 2024 (Note 1)
+24 Mar 2017
+24,200,875
+7,572,700
+16,628,175
+185.65
+24 Mar 2018 to 23 Mar 2024 (Note 3)
+10 Jul 2017
+4,469
+4,469
+230.87
+10 Jul 2018 to 9 Jul 2024 (Note 2)
+10 Jul 2017
+3,828,731
+777,784
+16 Jan 2018
+826,650
+97,915
+387.16
+26,390
+26,390
+355.51
+24 May 2019 to 23 May 2025 (Note 2)
+22 Jun 2018
+13,055
+13,055
+24 May 2018
+348.04
+22 Jun 2018
+70,525
+70,525
+348.04
+22 Jun 2019 to 21 Jun 2025 (Note 2)
+6 Jul 2018
+2,087,419
+22 Jun 2019 to 21 Jun 2025 (Note 1)
+357.86
+4,984,470
+4,984,470
+16 Jan 2019 to 15 Jan 2025 (Note 2)
+9 Apr 2018
+1,871,500
+9,800
+1,861,700
+358.11
+9 Apr 2019 to 8 Apr 2025 (Note 1)
+9 Apr 2018
+191,555
+191,555
+358.11
+9 Apr 2019 to 8 Apr 2025 (Note 2)
+9 Apr 2018
+14,851,089
+14,851,089
+358.11
+9 Apr 2019 to 8 Apr 2025 (Note 3)
+97,915
+30 Mar 2021
+20 Mar 2021 to 19 Mar 2027 (Note 8)
+Total:
+Exercise
+Date of grant
+2023
+the year
+the year
+the year
+2023
+price
+Exercise period/Performance targets
+(Notes 14
+(Note 13)
+HKD
+(Note 20)
+(Note 16)
+14 Jul 2021
+during 31 December
+during
+during
+1 January
+3,854
+528.51
+50,537
+46,683
+3,854
+527.29
+Annual Report 2023
+1,917,789
+37
+Number of share options
+Lapsed/
+As at
+Granted
+Exercised
+forfeited
+As at
+Directors' Report
+43,508
+1,874,281
+478.17
+436.86
+57,633
+57,633
+433.54
+16 Nov 2021
+5,231
+5,231
+57,632
+435.86
+5,231
+5,231
+434.78
+5,232
+5,232
+433.25
+24 Mar 2022
+15 Oct 2022 to 15 Nov 2028 (Note 10)
+46,682
+57,632
+437.83
+5 Jul 2022 to 13 Jul 2028 (Note 8)
+1,918,080
+48,057
+1,870,023
+477.46
+1,918,365
+62,649
+15 Sep 2022 to 15 Nov 2028 (Note 10)
+1,855,716
+1,918,693
+62,659
+1,856,034
+476.09
+16 Nov 2021
+57,632
+57,632
+476.52
+8,947
+50,536
+529.15
+533.13
+1,445
+1,445
+532.24
+30 Mar 2021
+761
+761
+533.39
+15 Feb 2022 to 29 Mar 2028 (Note 8)
+762
+762
+533.13
+763
+763
+532.35
+1,444
+1,444
+15 Feb 2022 to 29 Mar 2028 (Note 10)
+533.39
+25,083
+25,083
+533.39
+8 Feb 2022 to 29 Mar 2028 (Note 8)
+25,083
+25,083
+533.13
+763
+25,084
+532.35
+25,085
+25,085
+531.71
+30 Mar 2021
+1,444
+1,444
+25,084
+763
+532.24
+30 Mar 2021
+2,173
+529.18
+5 Jul 2021 to 9 Jun 2028 (Note 8)
+771
+2,173
+529.08
+771
+771
+2,174
+771
+2,174
+526.97
+10 Jun 2021
+50,534
+46,681
+3,853
+528.40
+15 May 2022 to 9 Jun 2028 (Note 10)
+끼끼끼끼
+2,945
+966,958
+966,958
+533.39
+30 Mar 2022 to 29 Mar 2028 (Note 8)
+966,958
+966,958
+533.07
+2,945
+966,961
+532.29
+1,810,622
+1,810,622
+532.06
+10 Jun 2021
+2,944
+2,944
+966,961
+100
+and 15)
+2019 Share Award Scheme
+4.
+Details
+Tencent Holdings Limited
+42
+00
+The maximum number
+of Shares in respect of
+which options may be
+granted under the 2023
+Share Option Scheme shall
+be 287,638,307 Shares,
+3% of the relevant class of
+securities of the Company in
+issue as at 17 May 2023.
+The maximum number
+of Shares in respect of
+which options may be
+granted under the Post-
+IPO Option Scheme IV shall
+be 379,099,339 Shares,
+4% of the relevant class of
+securities of the Company in
+issue as at 17 May 2017.
+of the Company in issue as
+at 16 May 2007 (Note 1).
+The maximum number
+of Shares in respect of
+which options may be
+granted under the Post-
+IPO Option Scheme II shall
+be 444,518,270 Shares
+(after the effect of the Share
+Subdivision), 5% of the
+relevant class of securities
+Any Employee Participant,
+any director or employee of
+a Related Entity, and any
+Service Provider
+Any employee (whether full
+time or part time), executive
+or officer, director (including
+executive, non-executive
+and independent non-
+executive directors) of any
+member of the Group or
+any invested entity, and any
+consultant, adviser or agent
+of any member of the Board,
+who have contributed or will
+contribute to the growth and
+development of the Group
+or any invested entity
+Any employee (whether full
+time or part time), executive
+or officer, director (including
+executive, non-executive
+and independent non-
+executive directors) of any
+member of the Group or
+any invested entity, which
+is any entity in which the
+Group holds an equity
+interest, and any consultant,
+adviser or agent of any
+member of the Board, who
+have contributed or will
+contribute to the growth and
+development of the Group
+or any invested entity
+To recognise the contribution that certain individuals have made to the Group, to attract
+the best available personnel and to promote the success of the Group's business
+2023 Share Option Scheme
+Post-IPO Option Scheme IV
+Post-IPO Option Scheme II
+Scheme limit
+3.
+Qualifying participants
+2.
+Purposes
+1.
+Details
+Maximum entitlement
+of each participant
+SUMMARY OF THE SHARE OPTION SCHEMES
+5.
+6.
+Acceptance of offer
+7.
+Details
+Directors' Report
+43
+Annual Report 2023
+The total vesting period
+of options granted ranges
+from approximately 22 to 72
+months.
+The total vesting period
+of options granted ranges
+from approximately 22 to 72
+months.
+The total vesting period
+of options granted ranges
+from approximately 24 to 83
+months.
+Vesting period
+The option period is
+determined by the Board
+provided that it shall expire
+not later than the last day of
+the 10-year period after the
+date of grant of the options.
+There is no minimum period
+for which an option must
+be held before it can be
+exercised.
+Company.
+Person (excluding any
+lapsed options or awards)
+under the share scheme(s)
+of the Company shall not
+exceed 1% of the issued
+Shares from time to time,
+unless such grant is
+separately approved by
+the shareholders of the
+granted to any Eligible
+For any 12-month period
+up to and including the
+date of grant, the aggregate
+number of Shares issued
+and to be issued in respect
+of all options or awards
+2023 Share Option Scheme
+The option period is
+determined by the Board
+provided that it shall expire
+not later than the last day of
+the 7-year period after the
+date of grant of the options.
+There is no minimum period
+for which an option must
+be held before it can be
+exercised.
+1% of the issued Shares
+from time to time within any
+12-month period up to the
+date of the latest grant
+Post-IPO Option Scheme IV
+The option period is
+determined by the Board
+provided that it shall expire
+not later than the last day of
+the 7-year period after the
+date of grant of the options.
+There is no minimum period
+for which an option must
+be held before it can be
+exercised.
+1% of the issued Shares
+from time to time within any
+12-month period up to the
+date of the latest grant
+Post-IPO Option Scheme II
+Directors' Report
+Option period
+8.
+Directors' Report
+Annual Report 2023
+The first 33.33% (one-third) of the total options shall be vested and can be exercised on the dates as specified in the relevant grant
+letters, and each 33.33% (one-third) of the total options will be vested and become exercisable in each subsequent year.
+The first 50% of the total options shall be vested and can be exercised on the dates as specified in the relevant grant letters, and the
+remaining 50% of the total options will be vested and become exercisable in the subsequent year.
+The first 25% of the total options shall be vested and can be exercised on the dates as specified in the relevant grant letters, and each
+25% of the total options will be vested and become exercisable in each subsequent year.
+11.
+10.
+9.
+8.
+Subject to the satisfaction of certain conditions, the first 25% of the total options shall be vested and can be exercised on the dates as
+specified in the relevant grant letters, and each 25% of the total options will be vested and become exercisable in each subsequent
+year.
+For options granted with exercisable date determined based on the grant date of options, 100% of the total options shall be vested and
+can be exercised 5 years after the grant date.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 3 years after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 2 years after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 25% of the total options shall be
+vested and can be exercised 1 year after the grant date, and each 25% of the total options will be vested and become exercisable in
+each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 33.33% (one-third) of the total options
+shall be vested and can be exercised 1 year after the grant date, and each 33.33% (one-third) of the total options will be vested and
+become exercisable in each subsequent year.
+For options granted with exercisable date determined based on the grant date of options, the first 50% of the total options shall
+be vested and can be exercised 1 year after the grant date, and the remaining 50% of the total options will be vested and become
+exercisable in the subsequent year.
+7.
+6.
+5.
+4.
+3.
+2.
+1.
+Note:
+Directors' Report
+The closing price immediately before the date on which the options were granted on 23 March 2023 was HKD347.2 per Share.
+41
+00
+40
+Please refer to the Definition section for the description of Employee Participants.
+21.
+21
+All of the grants made during the year ended 31 December 2023 were made without any performance targets.
+Details of the valuation of share options of the Company during the year ended 31 December 2023, including the accounting standard
+and policy adopted for the share option schemes, are set out in Note 37 and Note 2.20 to the consolidated financial statements.
+20.
+19.
+None of the participants has been granted with options and awards in excess of the 1% individual limit.
+18.
+No options granted to the Employee Participants were cancelled during the year ended 31 December 2023.
+As a result of the distribution in specie of Meituan Shares, pursuant to the scheme rules of the Post-IPO Option Scheme II and the
+Post-IPO Option Scheme IV, adjustments had been made to the exercise prices of the share options which remained outstanding as at
+5 January 2023 (Meituan ex-dividend date). The adjusted exercise prices of the share options are reflected above. Please refer to the
+announcement of the Company dated 9 January 2023 for details.
+17.
+16.
+The average fair value of the options granted on 17 August 2023 was HKD125.28 per Share at the date of grant.
+The average fair value of the options granted on 23 March 2023 was HKD132.11 per Share at the date of grant.
+The weighted average closing price immediately before the date on which the options were exercised (without taking into account the
+exercise of options by Mr Lau Chi Ping Martin during the period from 1 January 2023 to 17 May 2023) was HKD329.57 per Share.
+Directors' Report
+14.
+13.
+The closing price immediately before the date on which the options were granted on 17 August 2023 was HKD328.8 per Share.
+12.
+Directors' Report
+Tencent Holdings Limited
+40
+Exercise price
+15.
+Remaining life of
+1% of the issued Shares at
+the Adoption Date II (i.e.
+92,979,085 Shares (after
+the effect of the Share
+Subdivision))
+1% of the issued Shares at
+the Adoption Date III (i.e.
+95,523,658 Shares)
+For any 12-month period up
+to and including the date of
+grant, the aggregate number
+of Shares issued and to be
+issued in respect of all options
+or awards granted to any
+Eligible Person (excluding
+any lapsed options or awards)
+under the share scheme(s) of
+the Company shall not exceed
+1% of the issued Shares from
+time to time, unless such grant
+is separately approved by the
+shareholders of the Company.
+6.
+Operation
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+The Board may at any time
+at its discretion, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources or any subsidiary's
+resources into an account
+for the purchase and/or
+subscription of the Awarded
+Shares after the Grant Date.
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+The Board may at any time
+at its discretion, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources or any subsidiary's
+resources into an account
+for the purchase and/or
+subscription of the Awarded
+Shares after the Grant Date.
+The Board may, from time to
+time, at its absolute discretion
+select any Eligible Person
+to be a Selected Participant
+and grant to such Selected
+Participant Awarded Shares.
+The Board may at any time
+at its discretion, in respect
+of each Selected Participant,
+cause to be paid the relevant
+amount from the Company's
+resources or any subsidiary's
+resources into an account
+for the purchase and/or
+subscription of the Awarded
+Shares after the Grant Date.
+00
+48
+Tencent Holdings Limited
+7.
+Restrictions
+2013 Share Award Scheme
+Directors' Report
+2019 Share Award Scheme
+2023 Share Award Scheme
+No award may be made by
+the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there
+is inside information which
+must be disclosed under Part
+XIVA of the SFO, until such
+inside information has been
+published on the websites of
+the Stock Exchange and the
+Company; (ii) after any inside
+information in relation to the
+securities of the Company has
+occurred or has become the
+subject of a decision, until
+such inside information has
+been published; (iii) within
+the period commencing 60
+days (in the case of yearly
+results), or 30 days (in the
+case of results for half-year,
+quarterly or other interim
+period) immediately preceding
+the earlier of (1) the date of
+a meeting of the Board (as
+such date is first notified to
+the Stock Exchange) for the
+approval of the Company's
+results for any year, half-year,
+quarterly or other interim
+period (whether or
+Maximum entitlement
+of each participant
+No award may be made by
+the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there
+5.
+2019 Share Award Scheme
+9.
+2023 Share Award Scheme
+Any employee (whether full
+time or part time), executives
+or officers, directors (including
+executive, non-executive and
+independent non-executive
+directors) of any member of
+the Group, any invested entity
+or any business partner and
+any consultant, adviser or
+agent of any member of the
+Group, any invested entity
+or any business partner,
+who have contributed or will
+contribute to the growth and
+development of the Group or
+any invested entity
+Any employee (whether full
+time or part time), executives
+or officers, directors (including
+executive, non-executive and
+independent non-executive
+directors) of any member of
+the Group, any invested entity
+or any business partner and
+any consultant, adviser or
+agent of any member of the
+Group, any invested entity
+or any business partner,
+who have contributed or will
+contribute to the growth and
+development of the Group or
+any invested entity
+Any Employee Participant,
+any director or employee of
+a Related Entity, and any
+Service Provider
+4.
+Scheme limit
+3% of the issued Shares
+as at the Adoption Date II
+(i.e. 278,937,260 Shares
+(after the effect of the Share
+Subdivision))
+2% of the issued Shares
+as at the Adoption Date III
+(i.e. 191,047,317 Shares)
+4.5% of the issued Shares as
+at the Adoption Date IV (i.e.
+431,457,460 Shares), among
+I which the total number of new
+Shares which may be issued
+in respect of all awards to be
+granted under the 2023 Share
+Award Scheme shall be no
+more than 3.5% of the issued
+Shares as at the Adoption
+Date IV (i.e. 335,578,024
+Shares) and the number of
+existing Shares to be used for
+satisfying the awards to be
+granted under the 2023 Share
+Award Scheme shall be no
+Shares as at the Adoption Date
+IV (i.e. 95,879,435 Shares)
+Annual Report 2023
+47
+Directors' Report
+2013 Share Award Scheme
+2023 Share Award Scheme
+is inside information which
+must be disclosed under Part
+XIVA of the SFO, until such
+inside information has been
+published on the websites of
+the Stock Exchange and the
+Company; (ii) after any inside
+information in relation to the
+securities of the Company has
+occurred or has become the
+subject of a decision, until
+such inside information has
+been published; (iii) within
+the period commencing 60
+days (in the case of yearly
+results), or 30 days (in the
+case of results for half-year,
+quarterly or other interim
+period) immediately preceding
+the earlier of (1) the date of
+a meeting of the Board (as
+such date is first notified to
+the Stock Exchange) for the
+approval of the Company's
+results for any year, half-year,
+quarterly or other interim
+period (whether or
+more than 1% of the issued
+Annual Report 2023
+3.
+2.
+The Post-IPO Option Scheme II expired on 16 May 2017 and no further options will be granted under the scheme.
+1.
+Directors' Report
+Note:
+Tencent Holdings Limited
+44
+00
+It shall expire on 17 May
+2033, subject to early
+termination in accordance
+with the scheme rules
+(i.e. the remaining life of
+the scheme as at the date
+of this annual report is
+approximately 9 years and 2
+months).
+The total number of Shares available for issue under the 2023 Share Option Scheme as at the date of this annual report is 378,388,424,
+representing approximately 4.01% of the issued Shares as at the date of this annual report.
+The Post-IPO Option
+Scheme IV had been
+terminated upon the
+completion of the transfer
+of the outstanding share
+options of the Post-IPO
+Option Scheme IV to the
+2023 Share Option Scheme
+in accordance with the
+circular of the Company
+dated 24 April 2023.
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated in
+the Stock Exchange's daily
+quotations sheets for the five
+business days immediately
+preceding the date of grant;
+and (iii) the nominal value
+of the Share.
+2023 Share Option Scheme
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated in
+the Stock Exchange's daily
+quotations sheets for the five
+business days immediately
+preceding the date of grant;
+and (iii) the nominal value
+of the Share.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per grant.
+Post-IPO Option Scheme IV
+The exercise price must
+be at least the higher of:
+(i) the closing price of the
+securities as stated in the
+Stock Exchange's daily
+quotations sheet on the
+date of grant, which must
+be a business day; (ii) the
+average closing price of
+the securities as stated in
+the Stock Exchange's daily
+quotations sheets for the five
+business days immediately
+preceding the date of grant;
+and (iii) the nominal value
+of the Share.
+Options granted must be
+accepted within 28 days
+of the date of grant, upon
+payment of HKD1 per grant.
+Post-IPO Option Scheme II
+No award may be granted
+by the Board to any Selected
+Participant: (i) where the
+Company has information
+that must be disclosed under
+Rule 13.09 of the Listing
+Rules or where the Company
+reasonably believes there
+is inside information which
+must be disclosed under Part
+XIVA of the SFO, until (and
+including) the trading date
+after such inside information
+has been published on
+the websites of the Stock
+Exchange and the Company;
+(ii) after any inside information
+in relation to the securities of
+the Company has occurred
+or has become the subject
+of a decision, until such
+inside information has been
+published; (iii) within the
+period commencing 60
+days (in the case of yearly
+results), or 30 days (in the
+case of results for half-year,
+quarterly or other interim
+period) immediately preceding
+the earlier of (1) the date of
+a meeting of the Board (as
+such date is first notified to
+the Stock Exchange) for the
+approval of the Company's
+results for any year, half-year,
+quarterly or other interim
+period (whether or
+the scheme
+It expired on 16 May 2017.
+The total number of unexercised outstanding Shares (i.e. the total number of Shares available for issue) under the Post-IPO Option
+Scheme Il as at the date of this annual report is 16,619,375, representing approximately 0.18% of the issued Shares as at the date of
+this annual report.
+Options granted must be
+accepted within 28 days of
+the date of grant.
+45
+49
+2013 Share Award Scheme
+Annual Report 2023
+Eligible Persons
+3.
+Tencent Holdings Limited
+00
+It shall be valid and effective
+unless and until being
+terminated on the earlier of:
+(i) the 10th anniversary date
+of the Adoption Date IV; and
+(ii) such date of early
+termination as determined by
+the Board provided that such
+termination does not affect
+any subsisting rights of any
+Selected Participant.
+It shall be valid and effective
+unless and until being
+terminated on the earlier of:
+(i) the 15th anniversary date
+of the Adoption Date III; and
+(ii) such date of early
+termination as determined by
+the Board provided that such
+termination does not affect
+any subsisting rights of any
+Selected Participant.
+It shall be valid and effective
+unless and until being
+terminated on the earlier of:
+(i) the 15th anniversary date
+of the Adoption Date II; and
+(ii) such date of early
+termination as determined by
+the Board provided that such
+termination does not affect
+any subsisting rights of any
+Selected Participant.
+Duration and termination
+2.
+46
+Purposes
+To recognise the contributions and to attract, motivate and retain eligible persons (including any
+director) of the Group
+SHARE AWARD SCHEMES
+The Company has adopted four share award schemes, namely, the 2007 Share Award Scheme, the 2013 Share Award
+Scheme, the 2019 Share Award Scheme and the 2023 Share Award Scheme, among which the 2007 Share Award Scheme
+expired on 13 December 2022 and the 2023 Share Award Scheme was adopted on 17 May 2023. All the outstanding
+unvested share awards under the 2013 Share Award Scheme and the 2019 Share Award Scheme had been transferred to
+the 2023 Share Award Scheme. As disclosed in the circular of the Company dated 24 April 2023, upon the completion of the
+transfer of the shares held by the Trustee for the purpose of satisfying the outstanding share awards under the 2013 Share
+Award Scheme and the 2019 Share Award Scheme to the Trustee administering the 2023 Share Award Scheme, the 2013
+Share Award Scheme and the 2019 Share Award Scheme would be terminated. The transfer had been completed during the
+year ended 31 December 2023. As at 31 December 2023, the 2023 Share Award Scheme was the only effective share award
+scheme of the Company. As at 31 December 2023, there were no outstanding share awards under the 2007 Share Award
+Scheme.
+Details of the movements in the share options of the Company during the year are set out in Note 37 to the consolidated
+financial statements.
+MOVEMENTS IN THE SHARE OPTIONS
+2013 Share Award Scheme
+2019 Share Award Scheme
+2023 Share Award Scheme
+1.
+Directors' Report
+(Note 1)
+Vesting period
+(Note 4)
+lan Charles Stone
+4 April 2019
+4,378
+4 April 2020 to
+4,597
+4 April 2023
+20 March 2020
+8,756
+2023
+4,595
+438
+219
+the year
+Vested
+the year
+Directors' Report
+4,599
+As at 31 December 2023, there were a total of 155,017 outstanding Awarded Shares granted to the directors of the Company,
+details of which are as follows:
+Number of Awarded Shares
+As at
+Granted
+Additional
+As at
+1 January
+during
+Awarded
+during 31 December
+Name of director
+Date of grant
+2023
+Shares
+20 March 2021 to
+2,098
+30 March 2021
+41,949
+21,996
+17,702
+48,341
+Li Dong Sheng
+4 April 2019
+Total:
+2,190
+2,300
+4 April 2020 to
+20 March 2020
+4,378
+219
+53
+110
+(Notes 2 and 3)
+15 April 2027
+21,996 15 April 2024 to
+10,815
+541
+3,785
+7,571
+30 March 2022 to
+30 March 2025
+24 March 2022
+18,000
+900
+4,725
+14,175
+24 March 2023 to
+24 March 2026
+23 March 2023
+21,996
+20 March 2024
+Annual Report 2023
+2019 Share Award Scheme
+The total number of Shares available for issue under the 2023 Share Award Scheme as at the date of this annual report is
+335,745,161, representing approximately 3.56% of the issued Shares as at the date of this annual report.
+2013 Share Award Scheme
+Directors' Report
+2023 Share Award Scheme
+Vesting and
+clawback/lapse
+The vesting of the Awarded
+Shares is subject to the
+Selected Participant remaining
+at all times after the Grant Date
+and on the date of vesting,
+an Eligible Person, subject to
+the rules of the 2013 Share
+Award Scheme. The Awarded
+Shares can either be vested
+immediately or up to a period
+of approximately 84 months,
+subject to a vesting schedule
+as determined by the Board
+on the date of grant.
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2013 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+8.
+The vesting of the Awarded
+Shares is subject to the
+Selected Participant remaining
+at all times after the Grant Date
+and on the date of vesting,
+an Eligible Person, subject to
+the rules of the 2019 Share
+Award Scheme. The Awarded
+Shares can either be vested
+immediately or up to a period
+of approximately 60 months,
+subject to a vesting schedule
+as determined by the Board
+on the date of grant.
+The vesting of the Awarded
+Shares is subject to the
+Selected Participant remaining
+at all times after the Grant Date
+and on the date of vesting,
+an Eligible Person, subject to the
+rules of the 2023 Share Award
+Scheme. The Awarded
+Shares can be vested up to
+a period of approximately 84
+months, subject to a vesting
+schedule as determined by the
+Board on the date of grant.
+Where a grantee's service or
+employment with the Group
+has been terminated by the
+Group by reason of, among
+others, dishonesty or serious
+misconduct, incompetence or
+negligence in the performance
+of his/her duties, the grantee
+having been convicted of any
+criminal offence involving his/
+her integrity or honesty, the
+grantee will cease to be an
+Eligible Person and the awards
+granted will automatically lapse.
+Annual Report 2023
+51
+Directors' Report
+8.
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2019 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+Tencent Holdings Limited
+granted.
+authorities has not been
+2,297
+320
+00
+Directors' Report
+7.
+Restrictions (continued)
+50
+50
+2013 Share Award Scheme
+2019 Share Award Scheme
+2023 Share Award Scheme
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish
+its quarterly, interim or
+annual results announcement
+for any such period, and
+ending on the date of such
+announcement; or (iv) in
+any other circumstances
+where dealings by Selected
+Participant (including
+directors of the Company) are
+prohibited under the Listing
+Rules, the SFO or any other
+applicable laws or regulations
+or where the requisite approval
+from any applicable regulatory
+authorities has not been
+granted.
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish
+its quarterly, interim or
+annual results announcement
+for any such period, and
+ending on the date of such
+announcement; or (iv) in
+any other circumstances
+where dealings by Selected
+Participant (including
+directors of the Company) are
+prohibited under the Listing
+Rules, the SFO or any other
+applicable laws or regulations
+or where the requisite approval
+from any applicable regulatory
+authorities has not been
+granted.
+not required under the Listing
+Rules); and (2) the deadline
+for the Company to publish
+its quarterly, interim or
+annual results announcement
+for any such period, and
+ending on the date of such
+announcement; or (iv) in
+any other circumstances
+where dealings by Selected
+Participant (including
+directors of the Company) are
+prohibited under the Listing
+Rules, the SFO or any other
+applicable laws or regulations
+or where the requisite approval
+from any applicable regulatory
+Vesting and
+clawback/lapse (continued)
+2013 Share Award Scheme
+2019 Share Award Scheme
+The 2019 Share Award
+Scheme had been terminated
+upon the completion of the
+transfer of the shares held by
+the Trustee for the purpose
+of satisfying the outstanding
+share awards under the 2019
+Share Award Scheme to the
+Trustee administering the
+2023 Share Award Scheme in
+accordance with the circular
+of the Company dated 24 April
+2023.
+It shall expire on 17 May
+2033, subject to early
+termination in accordance
+with the scheme rules (i.e. the
+remaining life of the scheme
+as at the date of this annual
+report is approximately 9 years
+and 2 months).
+00
+52
+Tencent Holdings Limited
+Directors' Report
+Note:
+1.
+2.
+3.
+The total number of awards available for grant under the scheme mandate of the 2013 Share Award Scheme as at 1 January 2023 was
+13,790,025 and such scheme was terminated during the year ended 31 December 2023.
+The total number of awards available for grant under the scheme mandate of the 2019 Share Award Scheme as at 1 January 2023 was
+31,752,436 and such scheme was terminated during the year ended 31 December 2023.
+The total number of awards available for grant under the scheme mandate of the 2023 Share Award Scheme as at the Adoption Date IV
+and 31 December 2023 were 431,457,460 and 383,287,393 respectively. The total number of awards (to be satisfied by new Shares)
+available for grant under the Service Providers sub-limit of the 2023 Share Award Scheme as at the Adoption Date IV and 31 December
+2023 were both 958,794.
+During the year, a total of 156,911, 9,923,573 and 48,337,204 Awarded Shares were granted under the 2013 Share Award
+Scheme, the 2019 Share Award Scheme and the 2023 Share Award Scheme respectively and out of which, 74,542 Awarded
+Shares were granted to the independent non-executive directors of the Company under the 2019 Share Award Scheme.
+In addition, a total of 6,186,967 additional Awarded Shares were awarded pursuant to adjustments made as a result of the
+distribution in specie of Meituan Shares and out of which, 6,281 Awarded Shares were awarded to the independent non-
+executive directors of the Company. Details of the movements in the Share Award Schemes during the year are set out in Note
+37 to the consolidated financial statements.
+During the year, a total of 55,069,585 Shares were issued to option holders who exercised their share options granted under
+the Post-IPO Option Scheme II, the Post-IPO Option Scheme IV and the 2023 Share Option Scheme, and pursuant to the
+Share Award Schemes.
+The 2013 Share Award
+Scheme had been terminated
+upon the completion of the
+transfer of the shares held by
+the Trustee for the purpose
+of satisfying the outstanding
+share awards under the 2013
+Share Award Scheme to the
+Trustee administering the
+2023 Share Award Scheme in
+accordance with the circular
+of the Company dated 24 April
+2023.
+The total number of Shares that may be issued in respect of options and awards granted under all share schemes of the
+Company during the year ended 31 December 2023 divided by the weighted average number of Shares in issue for the year
+was 0.73%.
+the scheme
+Remaining life of
+9.
+Purchase price
+Not applicable
+10.
+Voting rights
+Not applicable
+2023 Share Award Scheme
+Where a grantee is involved
+in serious misconduct
+or malfeasance, or has
+conducted any unlawful acts
+which prejudiced the interest
+and reputation of the Group,
+the awards granted shall be
+clawed back and shall lapse
+accordingly.
+Subject to the satisfaction
+of all vesting conditions as
+prescribed in the 2023 Share
+Award Scheme, the Selected
+Participants will be entitled to
+receive the Awarded Shares.
+Not applicable
+The Trustee shall not exercise
+any voting rights in respect
+of any Shares held pursuant
+to the Trust Deed II or as
+nominee.
+The Trustee shall not exercise
+any voting rights in respect
+of any Shares held pursuant
+to the Trust Deed III or as
+nominee.
+The Trustee shall not exercise
+any voting rights in respect
+of any Shares held pursuant
+to the Trust Deed IV or as
+nominee.
+11.
+4 April 2023
+2,300 20 March 2021 to
+1,678
+30 March 2021
+15 Dec 2024
+375.6
+347.2
+15,092
+15 Dec 2023 to
+23 Mar 2023
+15 Apr 2027
+375.6
+347.2
+2,287,189
+15 Apr 2024 to
+23 Mar 2023
+15 Apr 2026
+23 Mar 2023
+375.6
+911
+15 Apr 2024 to
+23 Mar 2023
+15 Apr 2025
+375.6
+347.2
+1,084,932
+15 Apr 2024 to
+23 Mar 2023
+HKD
+H
+of awards
+at the date of
+grant per Share
+Fair value
+347.2
+Closing
+price of Shares
+immediately before
+date of grant
+HKD
+15 Dec 2023 to
+347.2
+23 Mar 2023
+15 Feb 2026
+375.6
+347.2
+163,354
+15 Feb 2024 to
+23 Mar 2023
+15 Feb 2025
+375.6
+347.2
+18,064
+6,398
+15 Feb 2024 to
+293,027
+23 Mar 2023
+375.6
+347.2
+39,833
+15 Dec 2024 to
+23 Mar 2023
+15 Dec 2026
+375.6
+347.2
+13,146
+15 Dec 2023 to
+23 Mar 2023
+15 Dec 2025
+375.6
+15 Dec 2026
+Number of
+Shares granted
+Vesting period
+Employee Participants
+106,033
+19,966
+399,358
+2022
+Note 2
+71,335
+43,407
+5,463
+109,279
+2021
+Note 2
+6,333
+11,649
+5,865
+856
+2020
+Note 2
+3,779
+180
+3,599
+2019
+(Note 4)
+Service Providers
+132,088,694
+47,644,930 7,532,909
+57,906,105 6,154,221
+123,206,207
+Total:
+17,126
+307,426 Note 2
+2023
+437,041
+Date of grant
+The following grants were made during the year ended 31 December 2023:
+5.
+For Service Providers, the weighted average closing price of the Shares immediately before the dates on which the awards were vested
+in 2023 was HKD338.91 per Share.
+4.
+For Employee Participants, the weighted average closing price of the Shares immediately before the dates on which the awards were
+vested in 2023 was HKD351.29 per Share.
+3.
+The Awarded Shares can either be vested immediately or over a period of up to 4 years.
+2.
+The Awarded Shares can either be vested immediately or over a period of up to 7 years.
+1.
+Note:
+Directors' Report
+57
+Annual Report 2023
+7,545,346 132,834,232
+47,879,823
+123,735,569 58,343,146 6,180,686
+Grand Total:
+745,538
+12,437
+234,893
+26,465
+437,041
+529,362
+Total:
+Notes 2 and 5
+6,572
+70,025
+15 Feb 2024 to
+6,439
+347.2
+375.6
+15 Oct 2023 to
+23 Mar 2023
+15 Nov 2026
+375.6
+347.2
+21,958
+15 Nov 2024 to
+23 Mar 2023
+15 Nov 2026
+375.6
+347.2
+3,120
+15 Nov 2023 to
+3,665
+23 Mar 2023
+375.6
+347.2
+83,432
+15 Nov 2023 to
+23 Mar 2023
+15 Nov 2024
+375.6
+347.2
+8,757
+15 Nov 2023 to
+23 Mar 2023
+15 Mar 2027
+375.6
+15 Nov 2025
+347.2
+375.6
+15 Oct 2025
+20 March 2024
+320
+1,678
+5,040
+18 August 2023 to
+18 August 2026
+23 March 2023
+10,998
+10,998
+15 April 2024 to
+15 April 2027
+(Notes 2 and 3)
+Total:
+6,398
+10,998
+59
+Annual Report 2023
+15 Oct 2024
+375.6
+347.2
+5,392
+23 Mar 2023 to
+23 Mar 2023
+15 Jan 2025
+375.6
+347.2
+346
+23 Mar 2023 to
+23 Mar 2023
+347.2
+7,532,909 109,088,238
+32,900
+23 Mar 2023
+230,778
+15 Jan 2024 to
+23 Mar 2023
+15 Jan 2025
+375.6
+347.2
+4,982,360
+15 Jan 2024 to
+23 Mar 2023
+of awards
+at the date of
+grant per Share
+HKD
+immediately before
+date of grant
+HKD
+Fair value
+Closing
+price of Shares
+347.2
+Directors' Report
+Vesting period
+Employee Participants
+Date of grant
+Tencent Holdings Limited
+58
+00
+15 Feb 2027
+375.6
+347.2
+5,992
+15 Feb 2025 to
+23 Mar 2023
+15 Feb 2027
+Number of
+Shares granted
+375.6
+15 Jan 2026
+23 Mar 2023
+15 Mar 2027
+375.6
+347.2
+64,589
+15 Mar 2024 to
+23 Mar 2023
+15 Mar 2026
+375.6
+347.2
+179,521
+15 Mar 2024 to
+23 Mar 2023
+15 Mar 2025
+375.6
+347.2
+12,173
+15 Mar 2024 to
+23 Mar 2023
+15 Jan 2027
+375.6
+347.2
+67,615
+15 Jan 2025 to
+23 Mar 2023
+15 Jan 2027
+375.6
+347.2
+37,512
+15 Jan 2024 to
+15 Mar 2025 to
+45,769,000
+360,444
+56,811,186
+1,622
+5,021,769
+3,090
+20 March 2020
+23 August 2023
+23 August 2020 to
+1,619
+77
+1,542
+23 August 2019
+Ke Yang
+42,971
+15,689
+1,623
+1,862
+37,246
+Total:
+(Notes 2 and 3)
+15 April 2027
+15 April 2024 to
+19,552
+19,552
+23 March 2023
+24 March 2026
+12,600 24 March 2023 to
+4,200
+800
+16,000
+19,552
+20 March 2021 to
+20 March 2024
+30 March 2021
+Additional
+Granted
+As at
+Number of Awarded Shares
+Directors' Report
+55
+Annual Report 2023
+23,495
+7,495
+952
+10,998
+19,040
+Total:
+(Notes 2 and 3)
+15 April 2027
+10,998 15 April 2024 to
+10,998
+23 March 2023
+24 March 2026
+7,088 24 March 2023 to
+2,362
+450
+9,000
+24 March 2022
+30 March 2025
+3,786 30 March 2022 to
+1,892
+270
+5,408
+24 March 2022
+Vested
+6,762 30 March 2022 to
+30 March 2025
+483
+Directors' Report
+Number of Awarded Shares
+Tencent Holdings Limited
+54
+00
+24,172
+8,851
+1,049
+10,998
+20,976
+Total:
+(Notes 2 and 3)
+15 April 2027
+As at
+15 April 2024 to
+10,998
+23 March 2023
+24 March 2026
+7,088 24 March 2023 to
+2,362
+450
+9,000
+24 March 2022
+30 March 2025
+3,786 30 March 2022 to
+1,892
+270
+5,408
+10,998
+Granted
+Additional
+Vested
+9,657
+30 March 2021
+4,057 20 March 2021 to
+20 March 2024
+4,055
+386
+7,726
+20 March 2020
+4 April 2023
+4 April 2020 to
+4,056
+193
+3,863
+4 April 2019
+Yang Siu Shun
+(Note 4)
+(Note 1)
+Vesting period
+2023
+the year
+Shares
+the year
+2023
+Date of grant
+Name of director
+during 31 December
+Awarded
+during
+1 January
+As at
+3,378
+As at
+155
+during
+Note 1
+32,467
+1,546
+30,921
+2017
+7,099 Note 1
+7,099
+2016
+Participants
+Other Employee
+23,000,456
+1,875,930
+1,094,919 1,132,452
+2018
+22,649,015
+Notes 1 and 5
+Note 1
+16,222,500 Note 1
+6,520,941
+257,015
+837,904
+1,094,919
+2023
+1,038,026
+359,952
+7,199,015
+2021
+772,500
+15,450,000
+2019
+Sub-total:
+50,475
+2,523
+46,537
+100,557,192
+Sub-total:
+Note 1
+3,969,773
+2,631,618 19,517,277 Note 1
+3,150,081 32,623,161 Note 1
+954,972 52,863,632 Notes 1 and 5
+2,992,582
+56,811,186
+2023
+15,308,366
+2,431,853
+48,649,755
+2022
+16,562,512
+1,842,047
+36,869,360
+2021
+644,205
+5,885,905
+497,669
+10,002,214
+2020
+101,685 Note 1
+151,183
+4,940,631
+246,131
+4,947,368
+2019
+1 January
+5,611
+850
+employees (Note 10)
+Top five highest paid
+Note 1
+Employee Participants
+4.
+The fair value of the Awarded Shares granted on 23 March 2023 was HKD375.6 per Share at the date of grant.
+3.
+The closing price immediately before the date on which the Awarded Shares were granted on 23 March 2023 was HKD347.2 per Share.
+2.
+As a result of the distribution in specie of Meituan Shares, pursuant to the scheme rules of the 2013 Share Award Scheme and the
+2019 Share Award Scheme, adjustments had been made to the number of Shares subject to share awards which remained unvested
+as at 5 January 2023 (Meituan ex-dividend date). The number of additional Awarded Shares awarded pursuant to the adjustments is
+shown above. Please refer to the announcement of the Company dated 9 January 2023 for details.
+1.
+Note:
+155,017
+51,415
+6,281
+74,542
+125,609
+Grand Total:
+16,038
+Zhang Xiulan
+(Note 4)
+(Note 1)
+Vesting period
+2023
+the year
+Shares
+the year
+2023
+Date of grant
+Name of director
+during 31 December
+(Note 3)
+Awarded
+The weighted average closing price of the Shares immediately before the dates on which the awards were vested in 2023 was
+HKD351.25 per Share.
+5.
+18 August 2022
+6.
+(Note 11)
+No Awarded Shares granted to the directors were lapsed or cancelled during the year ended 31 December 2023.
+2023
+the year
+the year
+Shares
+the year
+Vesting period/
+As at
+forfeited
+during
+during
+Awarded
+during
+Performance targets
+(Note 9)
+31 December
+Year of grant
+00
+1 January
+2023
+56
+All of the grants made during the year ended 31 December 2023 were made without any performance targets.
+Directors' Report
+Details of movements of Awarded Shares of the Group (excluding directors of the Company) during the year ended
+31 December 2023 are as follows:
+Tencent Holdings Limited
+Lapsed/
+As at
+Granted
+Additional
+Vested
+Number of Awarded Shares
+The directors and senior management of the Company during the year and up to the date of this annual report were:
+Executive Directors
+Ma Huateng (Chairman)
+Lau Chi Ping Martin (ceased to be a director with effect from 17 May 2023)
+Non-Executive Directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Ke Yang
+Li Dong Sheng
+lan Charles Stone
+Yang Siu Shun
+Zhang Xiulan
+In accordance with Article 87 of the Articles of Association, Mr Charles St Leger Searle and Professor Ke Yang will retire at the
+2024 AGM and, being eligible, will offer themselves for re-election.
+DIRECTORS AND SENIOR MANAGEMENT
+Independent Non-Executive Directors
+Directors' Report
+7.
+Annual Report 2023
+Tencent Holdings Limited
+The Company has received from each independent non-executive director an annual confirmation of his/her independence
+and the Board considers them independent.
+Directors' Report
+6.
+No Awarded Shares granted to the Employee Participants or the Service Providers were cancelled during the year ended 31 December
+2023.
+None of the participants has been granted with options and awards in excess of the 1% individual limit. None of the Service Providers
+has been granted with options and awards in any 12-month period in excess of 0.1% of the Shares in issue.
+8.
+63
+9.
+11.
+Details of the valuation of share awards of the Company during the year ended 31 December 2023, including the accounting standard
+and policy adopted for the Share Award Schemes, are set out in Note 37 and Note 2.20 to the consolidated financial statements.
+All of the grants made during the year ended 31 December 2023 were made without any performance targets.
+Disclosures herein with respect to the top five highest paid employees consist of the number of Awarded Shares to be satisfied by
+existing Shares only. The number of Awarded Shares granted to the top five highest paid employees to be satisfied by Shares to be
+issued are included under the "Other Employee Participants" category.
+As a result of the distribution in specie of Meituan Shares, pursuant to the scheme rules of the 2013 Share Award Scheme and
+the 2019 Share Award Scheme, adjustments had been made to the number of Shares subject to share awards which remained
+unvested as at 5 January 2023 (Meituan ex-dividend date). The number of additional Awarded Shares awarded pursuant to the
+adjustments is shown above. Please refer to the announcement of the Company dated 9 January 2023 for details.
+12.
+Please refer to the Definition section for the description of Employee Participants and Service Providers.
+10.
+00
+Directors' Report
+Tencent Holdings Limited
+BIOGRAPHICAL DETAILS OF SENIOR MANAGEMENT
+Lau Chi Ping Martin, age 50, President, joined the Company in 2005 as the Chief Strategy and Investment Officer and was
+responsible for corporate strategies, investments, mergers and acquisitions and investor relations. In 2006, Mr Lau was
+promoted to President of the Company to manage the day-to-day operations of the Company. In 2007, Mr Lau was appointed
+as an executive director of the Company until his retirement by rotation on 17 May 2023. Prior to joining the Company, Mr Lau
+was an executive director at Goldman Sachs (Asia) L.L.C.'s investment banking division and the Chief Operating Officer of its
+Telecom, Media and Technology Group. Prior to that, he worked at McKinsey & Company, Inc. as a management consultant.
+Mr Lau received a Bachelor of Science degree in Electrical Engineering from University of Michigan, a Master of Science
+degree in Electrical Engineering from Stanford University and an MBA degree from Kellogg Graduate School of Management,
+Northwestern University. Mr Lau currently serves as a director or corporate representative of certain subsidiaries of the
+Company.
+Xu Chenye, age 52, Chief Information Officer, oversees the strategic planning and development for the website properties and
+communities, and customer relations of the Company. Mr Xu is one of the core founders and has been employed by the Group
+since 1999. Prior to that, Mr Xu had experiences in software system design, network administration as well as marketing and
+sales management in his previous position at Shenzhen Data Telecommunications Bureau. Mr Xu received a Bachelor of
+Science degree in Computer Science from Shenzhen University in 1993 and a Master of Science degree in Computer Science
+from Nanjing University in 1996. Mr Xu currently serves as a director or officer of certain subsidiaries of the Company.
+Ren Yuxin, age 48, Chief Operating Officer and President of Platform & Content Group and Interactive Entertainment Group,
+joined the Company in 2000 and had served as the General Manager for the Value-Added Services Development Division and
+General Manager for the Interactive Entertainment Business Division. Since September 2005, Mr Ren has been responsible for
+the research and development, operations, marketing and sales of gaming products for the Interactive Entertainment Business.
+Since May 2012, Mr Ren has been appointed as Chief Operating Officer and is now in charge of the overall operation of the
+Platform & Content Group and the Interactive Entertainment Group. Prior to joining the Company, Mr Ren worked at Huawei
+Technologies Co., Ltd. Mr Ren received a Bachelor of Science degree in Computer Science and Engineering from University of
+Electronic Science and Technology of China in 1998 and an EMBA degree from China Europe International Business School
+(CEIBS) in 2008.
+Zhang Xiaolong, age 54, Senior Executive Vice President and President of Weixin Group, joined the Company in March
+2005 and had served as the General Manager for the Guangzhou R&D Division and led the QQ Mail team to be the top mail
+service provider in China. Later he was promoted to Corporate Vice President and since September 2012, Mr Zhang has
+been appointed as Senior Vice President in charge of the product and team management of Weixin/WeChat and QQ Mail.
+He is also responsible for the management and review of major innovation projects. In May 2014, Mr Zhang was promoted
+to Senior Executive Vice President in charge of the Weixin Group. Prior to joining the Company, Mr Zhang developed Foxmail
+independently in 1997 as the first generation of Internet software developer in China. He joined Boda China as Corporate Vice
+President in 2000, responsible for corporate mail developing. Mr Zhang received a Master's degree in Telecommunications
+from Huazhong University of Science and Technology in 1994.
+00
+68
+Tencent Holdings Limited
+James Gordon Mitchell, age 50, Chief Strategy Officer and Senior Executive Vice President, joined the Company in 2011. He is
+responsible for various functions, including the Company's strategic planning and implementation, investor relations, mergers
+and acquisitions and investment activities. Prior to joining the Company, Mr Mitchell had worked in investment banking for
+16 years. Most recently, Mr Mitchell was a managing director at Goldman Sachs in New York, leading the bank's
+Communications, Media and Entertainment research team, which analysed Internet, entertainment and media companies
+globally. Mr Mitchell received a degree from Oxford University and holds a Chartered Financial Analyst Certification.
+Mr Mitchell currently serves as a chairman and/or a director of certain subsidiaries of the Company.
+Tong Tao Sang, age 50, Senior Executive Vice President and President of Cloud and Smart Industries Group, is leading the
+Industrial Internet strategy and the enterprise businesses for Tencent. Mr Tong manages the security labs, the multi-media
+lab, and Youtu Al lab, and he is one of the co-chairs of Tencent's technology council. Mr Tong joined the Company as a
+technical architect in 2005, and had previously led QQ, Qzone, QQshow, and their advertising and value-added services.
+Mr Tong received a Bachelor of Science degree in Computer Engineering from University of Michigan, Ann Arbor and a
+Master of Science degree in Electrical Engineering from Stanford University. Mr Tong currently serves as a director of certain
+subsidiaries of the Company.
+Lu Shan, age 49, Senior Executive Vice President and President of Technology and Engineering Group, joined the Company
+in 2000 and had served as the General Manager for the IM Product Division, Vice President for the Platform Research and
+Development System and Senior Vice President for the Operations Platform System. Since March 2008, Mr Lu has been
+in charge of management of the Operations Platform System of the Company. Since May 2012, Mr Lu has been in charge
+of management of the Technology and Engineering Group. Prior to joining the Company, he worked for Shenzhen Liming
+Network Systems Limited. Mr Lu received a Bachelor of Science degree in Computer Science and Technology from University
+of Science and Technology of China (USTC) in 1998. Mr Lu currently serves as a director or officer of certain subsidiaries of
+the Company.
+Ma Xiaoyi, age 50, Senior Vice President, joined the Company in 2007 and has been responsible for international publishing
+of Tencent Games, establishing and maintaining long-term business partnerships and cooperation for the Company since
+November 2008. Prior to joining the Company, Mr Ma served as the General Manager of the games division of OPTIC
+Communication Co., Ltd. Prior to that, Mr Ma worked as the General Manager in Shanghai EasyService Technology
+Development Ltd. Mr Ma graduated from Shanghai Jiaotong University in 1997, and received an EMBA degree from Fudan
+University in 2008. Mr Ma currently serves as a director of certain subsidiaries of the Company.
+Annual Report 2023
+69
+62
+Directors' Report
+67
+Annual Report 2023
+Zhang Xiulan, age 60, has been an independent non-executive director since August 2022. Professor Zhang is currently a
+consultant at the University of California, San Francisco. She was previously the Dean of the School of Social Development
+and Public Policy, Beijing Normal University. She was also a member of the 11th and 12th Beijing Municipal Committee of
+the Chinese People's Political Consultative Conference and a member of the Healthcare Reform Advisory Committee of the
+State Council. Professor Zhang has led over 40 research projects, including national level priority social science projects,
+and projects funded by the Ministry of Science and Technology and the Ministry of Education. In expert capacity, Professor Zhang
+has also provided expert consultation to government on policy making, including the 11th National Five-Year Plan, the
+"Five Guarantees Regulations", the Adjustment Mechanism for Urban Minimum Living Standard, Urban and Rural Medical
+Assistance Policy, Social Assistance System and others. In addition, Professor Zhang has also worked on mandates from the
+State Council Healthcare Restructuring Office, Ministry of Education, Ministry of Health, Ford Foundation, European Union,
+World Bank, World Health Organization, UNICEF, Save the Children Foundation and other organizations. Professor Zhang
+received her Bachelor's Degree in Physical Geography, and Master's Degree in Economic Geography from the Beijing Normal
+University in 1985 and 1988, respectively. After graduation, she joined the "China Society", a newspaper published by the
+Ministry of Civil Affairs as an Editor. In 1999, she received her Doctor of Philosophy in Social Welfare from the University of
+California at Berkeley with her research focused on social protection, social policy, social welfare and healthcare. In the same
+year, Professor Zhang founded the first Institute of Social Development and Public Policy in China at the Beijing Normal
+University, which subsequently became the School of Social Development and Public Policy.
+Directors' Report
+BIOGRAPHICAL DETAILS AND OTHER INFORMATION OF DIRECTORS
+Jacobus Petrus (Koos) Bekker, age 71, has been a non-executive director since November 2012. Koos led the founding team
+of the M-Net/MultiChoice pay-television business in 1985. He was also a founder director of MTN in cellular telephony. Koos
+headed the MIH group in its international and Internet expansions until 1997, when he became chief executive of Naspers,
+which is listed on the Johannesburg Stock Exchange. He serves on the boards of other companies within the group and
+associates, as well as other bodies. In April 2015, he became non-executive chair. On 14 August 2019, he was appointed
+as non-executive chair of Prosus N.V., which is listed on Euronext Amsterdam and on the Johannesburg Stock Exchange.
+Academic qualifications include BA Hons and honorary doctorate in commerce (Stellenbosch University), LLB (University of
+the Witwatersrand) and MBA (Columbia University, New York).
+Charles St Leger Searle, age 60, has been a non-executive director since June 2001. Mr Searle is currently the Chief Executive
+Officer of Naspers Internet Listed Assets. He serves on the board of a number of companies associated with the Naspers
+Group, and was a director of VK Company Limited (now known as VK International Public Joint-Stock Company) that is listed
+on the Moscow Exchange and was delisted on the London Stock Exchange on 12 September 2023 until his resignation on
+4 March 2022. Prior to joining the Naspers Group, he held positions at Cable & Wireless plc and at Deloitte & Touche in
+London and Sydney. Mr Searle is a member of the Institute of Chartered Accountants in Australia and New Zealand. Mr Searle
+has more than 30 years of international experience in the telecommunications and Internet industries. Mr Searle also serves as
+a director of certain subsidiaries of the Company.
+Li Dong Sheng, age 66, has been an independent non-executive director since April 2004. Mr Li is the Chairman and Chief
+Executive Officer of TCL Technology Group Corporation that is listed on the Shenzhen Stock Exchange, and the strategic
+development consultant of TCL Electronics Holdings Limited that is listed on the Stock Exchange, both of which produce
+consumer electronic products. Mr Li graduated from South China University of Technology in 1982 with a Bachelor degree in
+radio technology and has more than 29 years of experience in the information technology field. Mr Li was the Chairman and
+an executive director of TCL Electronics Holdings Limited, that is listed on the Stock Exchange, up to 9 August 2021.
+Annual Report 2023
+65
+64
+Directors' Report
+Yang Siu Shun, age 68, has been an independent non-executive director since July 2016. Mr Yang is currently serving as a
+Member of the 14th National Committee of the Chinese People's Political Consultative Conference, a Justice of the Peace in
+Hong Kong, a Steward of the Hong Kong Jockey Club, and an independent non-executive director of Industrial and Commercial
+Bank of China Limited which is publicly listed on the Stock Exchange and the Shanghai Stock Exchange. Mr Yang is also an
+independent non-executive director of Man Wah Holdings Limited and Xinyi Glass Holdings Limited, both of these companies
+are publicly listed on the Stock Exchange. Mr Yang retired from PricewaterhouseCoopers ("PwC") on 30 June 2015. Before his
+retirement, he served as the Chairman and Senior Partner of PwC Hong Kong, the Executive Chairman and Senior Partner of
+PwC China and Hong Kong, one of the five members of the Global Network Leadership Team of PwC and the PwC Asia Pacific
+Chairman. Mr Yang served as a Board Member and the Audit Committee Chairman of The Hang Seng University of Hong Kong
+(formerly known as Hang Seng Management College), up to 30 September 2018 and the Deputy Chairman of the Council of
+Hong Kong Metropolitan University ("HKMU”) (formerly known as The Open University of Hong Kong), up to 19 June 2019.
+Mr Yang also served as a Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority, up to
+31 August 2021. Mr Yang graduated from the London School of Economics and Political Science in 1978 and was awarded
+the degree of Honorary Doctor of Social Sciences by HKMU in 2019. Mr Yang is a Fellow Member of the Institute of Chartered
+Accountants in England and Wales, the Hong Kong Institute of Certified Public Accountants and the Chartered Institute of
+Management Accountants.
+00
+99
+66
+Tencent Holdings Limited
+Directors' Report
+Ke Yang, age 68, has been an independent non-executive director since August 2019. Professor Ke is currently the Director
+of Laboratory of Genetics of Peking University Cancer Hospital and an international member of the United States National
+Academy of Medicine. Professor Ke is also the President of the Peking University Health Science Center Alumni Association,
+Vice-president of China Medical Women's Association, and Vice-president of Cancer Foundation of China. Professor Ke's
+research focus is on the upper gastrointestinal tumors, including the cloning of gastric cancer related genes and the functional
+study of such genes. Together with her team, she has also established the population cohort in esophageal cancer high
+incidence regions in China, studied the etiology of esophageal cancer, and evaluated the effects and economic efficacy of early
+screening of the disease. She has published more than 100 papers and had registered patents and been granted awards at
+national and provincial levels for technological and educational achievements. Professor Ke was a member of the 11th and
+12th National Committee of the Chinese People's Political Consultative Conference, an executive Vice-president of Peking
+University and of the Peking University Health Science Center (formerly known as Beijing Medical College), a member of the
+Committee of Academic Degrees of the State Council, a member of the Healthcare Reform Advisory Committee of the State
+Council, the Chairperson of the Working Committee for Graduate Medical and Pharmaceutical Education of the Office of
+Academic Degrees of the State Council, Vice-president of the 24th and 25th Chinese Medical Association, Vice-chairperson
+of the Steering Committee of Clinical Medicine of the Committee of Academic Degrees of the State Council, Vice-president
+of the Peking University Alumni Association, and President of the Health Professional Education Committee of the Chinese
+Association of Higher Education. Professor Ke graduated from the Peking University Health Science Center in 1982. From
+1985 to 1988, Professor Ke worked at the National Cancer Institute of the National Institutes of Health of the United States as
+a postdoctoral fellow. Professor Ke is currently an independent non-executive director of Keymed Biosciences Inc. which is
+publicly listed on the Stock Exchange.
+lan Charles Stone, age 73, has been an independent non-executive director since April 2004. Mr Stone is currently an
+independent advisor on Technology, Media and Telecoms after retiring from PCCW in Hong Kong in 2011. His career in the
+last 34 years has been primarily in leading mobile telecoms businesses, and new wireless and Internet technology, during
+which time he held senior roles in PCCW, SmarTone, First Pacific, Hong Kong Telecom and CSL, as Chief Executive or at
+Director level, primarily in Hong Kong, and also in London and Manila. Since 2011, Mr Stone has provided telecoms advisory
+services to telecom companies and investors in Hong Kong (China), the Mainland of China, South East Asia and the Middle
+East and has more than 53 years of experience in the telecom and mobile industries. Mr Stone was an independent director of
+Summit Healthcare Acquisition Corp. that was listed on NASDAQ, up to 16 March 2023. Mr Stone is a fellow member of The
+Hong Kong Institute of Directors.
+00
+Ma Huateng, age 52, is an executive director, Chairman of the Board and Chief Executive Officer of the Company. Mr Ma
+has overall responsibilities for strategic planning and positioning and management of the Group. Mr Ma is one of the core
+founders and has been employed by the Group since 1999. Prior to his current employment, Mr Ma was in charge of research
+and development for Internet paging system development at China Motion Telecom Development Limited, a supplier of
+telecommunications services and products in China. Mr Ma was a deputy to the 12th and 13th National People's Congress.
+Mr Ma has a Bachelor of Science degree specialising in Computer and its Application obtained in 1993 from Shenzhen
+University and more than 30 years of experience in the telecommunications and Internet industries. He is a director of Advance
+Data Services Limited, which has an interest in the shares of the Company which would fall to be disclosed to the Company
+under the provisions of Divisions 2 and 3 of Part XV of the SFO. Mr Ma also serves as a director of certain subsidiaries of the
+Company.
+Grand Total:
+Directors' Report
+Closing
+price of Shares
+Fair value
+immediately before
+date of grant
+HKD
+of awards
+at the date of
+grant per Share
+HKD
+17 Aug 2023
+15 Jul 2024 to
+580,826
+328.8
+332.8
+15 Jul 2026
+17 Aug 2023
+15 Jul 2024 to
+28,331,934
+328.8
+332.8
+Number of
+Shares granted
+Vesting period
+Employee Participants
+Date of grant
+332.8
+15 Aug 2027
+17 Aug 2023
+15 Aug 2025 to
+29,328
+328.8
+332.8
+15 Aug 2027
+15 Jul 2027
+17 Aug 2023
+1,470,297
+328.8
+332.8
+15 Jul 2025
+00
+60
+60
+Tencent Holdings Limited
+15 Jul 2024 to
+328.8
+17 Aug 2023
+3,635
+15 May 2024 to
+8,922
+328.8
+332.8
+15 May 2025
+17 Aug 2023
+15 May 2024 to
+316,492
+328.8
+332.8
+15 May 2026
+17 Aug 2023
+15 May 2025 to
+28,129
+328.8
+332.8
+15 May 2027
+17 Aug 2023
+15 Jun 2027
+332.8
+328.8
+328.8
+332.8
+15 Jul 2027
+17 Aug 2023
+15 Jun 2024 to
+30,295
+328.8
+332.8
+15 Jul 2025 to
+15 Jun 2025
+15 Jun 2024 to
+430,983
+328.8
+332.8
+15 Jun 2026
+17 Aug 2023
+15 Jun 2025 to
+7,334
+17 Aug 2023
+15 Aug 2024 to
+17 Aug 2023
+15 Aug 2026
+375.6
+1 Oct 2026
+17 Aug 2023
+1 Apr 2024 to
+31,093
+328.8
+332.8
+1 Apr 2027
+17 Aug 2023
+1 Jul 2024 to
+15,253
+328.8
+332.8
+1 Jul 2027
+17 Aug 2023
+15 Apr 2024 to
+173,070
+347.2
+76,521
+1 Oct 2023 to
+23 Mar 2023
+Directors' Report
+Date of grant
+Employee Participants
+Closing
+price of Shares
+58,343,146
+of awards
+Number of
+328.8
+Vesting period
+immediately before
+date of grant
+HKD
+at the date of
+grant per Share
+HKD
+23 Mar 2023
+1 Jan 2024 to
+80,390
+347.2
+375.6
+1 Jan 2027
+Shares granted
+332.8
+15 Apr 2025
+17 Aug 2023
+15 Apr 2028
+17 Aug 2023
+15 Apr 2026 to
+2,964
+328.8
+332.8
+15 Apr 2029
+17 Aug 2023
+332.8
+15 Aug 2024 to
+328.8
+332.8
+15 Aug 2025
+17 Aug 2023
+15 Aug 2024 to
+447,887
+328.8
+332.8
+24,834
+17 Aug 2023
+328.8
+15 Apr 2025 to
+15 Apr 2024 to
+400,687
+328.8
+332.8
+15 Apr 2026
+17 Aug 2023
+15 Apr 2024 to
+16,795
+2,964
+328.8
+15 Apr 2027
+17 Aug 2023
+15 Apr 2025 to
+25,547
+328.8
+332.8
+15 Apr 2027
+17 Aug 2023
+332.8
+15 Sep 2028
+Fair value
+328.8
+25,338
+347.2
+375.6
+15 Mar 2027
+17 Aug 2023
+15 Apr 2024 to
+4,399
+328.8
+332.8
+15 Apr 2027
+17 Aug 2023
+15 Aug 2024 to
+63,484
+328.8
+332.8
+15 Mar 2024 to
+23 Mar 2023
+15 Mar 2025
+375.6
+23 Mar 2023
+15 Jan 2024 to
+12,353
+347.2
+375.6
+15 Jan 2026
+23 Mar 2023
+15 Aug 2027
+15 Jan 2024 to
+347.2
+375.6
+15 Jan 2027
+23 Mar 2023
+15 Mar 2024 to
+5,166
+347.2
+18,183
+15 Jan 2025
+17 Aug 2023
+7,316
+15 Jun 2027
+17 Aug 2023
+15 May 2024 to
+15,969
+328.8
+332.8
+15 May 2027
+17 Aug 2023
+17 Aug 2023
+64,980
+328.8
+332.8
+Total:
+437,041
+12,000,000
+332.8
+328.8
+23,493
+15 Jun 2024 to
+328.8
+332.8
+15 Jul 2026
+17 Aug 2023
+15 Jul 2024 to
+31,831
+328.8
+15 Jul 2024 to
+332.8
+17 Aug 2023
+15 Jun 2024 to
+38,635
+328.8
+332.8
+15 Jun 2026
+17 Aug 2023
+15 Jul 2027
+375.6
+5,662
+23 Mar 2023
+15 Dec 2026
+23 Mar 2023
+15 Feb 2024 to
+30,423
+347.2
+375.6
+15 Feb 2027
+Annual Report 2023
+61
+Directors' Report
+Closing
+price of Shares
+Fair value
+of awards
+Number of
+immediately before
+Date of grant
+Vesting period
+Shares granted
+375.6
+347.2
+20,188
+15 Dec 2023 to
+17 Aug 2023
+17 Aug 2023
+3,702,166
+328.8
+332.8
+Total:
+57,906,105
+Service Providers
+23 Mar 2023
+HKD
+15 Apr 2024 to
+347.2
+375.6
+15 Apr 2025
+23 Mar 2023
+15 Apr 2024 to
+2,314
+347.2
+375.6
+15 Apr 2027
+66,106
+at the date of
+grant per Share
+HKD
+date of grant
+23 Mar 2023
+Service Providers
+15 Jan 2024 to
+6,863
+347.2
+332.8
+Directors' Report
+Tencent Holdings Limited
+74
+For a summary of the major terms of the Structure Contracts, please refer to the sections headed “Our History and Structure"
+and "Structure Contracts" in the IPO prospectus. During the year ended 31 December 2023, there was no material change
+in the Structure Contracts and/or the circumstances under which they were adopted, and none of the Structure Contracts has
+been unwound as none of the restrictions that led to the adoption of Structure Contracts has been removed.
+Current PRC laws and regulations limit foreign investment in businesses providing value-added telecommunications services
+in China. As foreign-invested enterprises, the WFOES do not have licences to provide Internet content or information services
+and other telecommunications value-added services. Accordingly, the value-added telecommunications business of the
+Group has been conducted through Tencent Computer, Shiji Kaixuan, Wang Dian, Beijing BIZCOM, Beijing Starsinhand and
+Shenzhen Tencent Tianyou (Wang Dian, Beijing BIZCOM, Beijing Starsinhand and Shenzhen Tencent Tianyou are referred
+herein as the "New OPCOS", and together with Tencent Computer and Shiji Kaixuan, the "OPCOs") by themselves or through
+their subsidiaries under the Structure Contracts (as defined in the section "Our History and Structure - Structure Contracts"
+of the IPO prospectus of the Company). As a result of the Structure Contracts, the Group is able to recognise and receive
+the economic benefit of the business and operations of the OPCOs. The Structure Contracts are also designed to provide the
+Company with effective control over and (to the extent permitted by PRC law) the right to acquire the equity interests in and/or
+assets of the OPCOS.
+The reasons for using Structure Contracts
+Reference is made to the waiver granted by the Stock Exchange regarding the compliance with the applicable disclosure,
+reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules when the Company was listed in
+June 2004.
+CONNECTED TRANSACTIONS
+(registered capital)
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) as at 31 December
+54.29%
+54.29%
+of shareholding
+Approximate %
+RMB5,971,427
+Personal
+Shiji Kaixuan
+Provision of value-added services in the PRC
+Provision of value-added services in the PRC
+Save as disclosed above, none of the directors or chief executive of the Company and their associates, had interests or
+short positions in any shares, underlying shares or debentures of the Company and its associated corporations as at
+31 December 2023.
+2023
+However, the Circular 13 does not provide any interpretation of the term "foreign investors" or make a distinction between
+foreign online game companies and companies under a corporate structure similar to the Group. Thus, it is unclear whether
+National Press and Publication Administration (National Copyright Administration) will deem the Group's structure and
+operations to be in violation of these provisions.
+Provision of value-added services in the PRC
+Provision of value-added services in the PRC
+Provision of Internet advertisement services
+in the PRC
+Tencent Computer
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+54.29% by Ma Huateng
+22.85% by Zhang Zhidong
+11.43% by Xu Chenye
+11.43% by Chen Yidan
+Shiji Kaixuan
+Provision of value-added services and
+Internet advertisement services in the PRC
+Tencent Computer
+Business activities
+as at 31 December 2023
+Name of the operating companies
+Registered owners
+Set out below is the registered owners and business activities of the OPCOS which had entered into transactions with the Group
+during the year ended 31 December 2023:
+Directors' Report
+75
+Annual Report 2023
+It is uncertain whether any new PRC laws, rules or regulations relating to Structure Contracts will be adopted or if adopted,
+what they would provide. On 15 March 2019, the Standing Committee of National People's Congress promulgated Law of
+Foreign Investment which became effective on 1 January 2020 (the "2019 Law of Foreign Investment"). While the 2019 Law of
+Foreign Investment does not define Structure Contracts as a form of foreign investment explicitly, the Company cannot assure
+that future laws and regulations will not provide for Structure Contracts as a form of foreign investment. Therefore, there can be
+no assurance that the Company's control over OPCOs through Structure Contracts will not be deemed as foreign investment in
+the future. If the Structure Contracts were to be deemed as a method of foreign investment under any future laws, regulations
+and rules, and if any of the Company's business operations were to fall under the "negative list" for foreign investment, the
+Company would need to take further actions in order to comply with these laws, regulations and rules, which may materially
+and adversely affect its current corporate structure, business, financial condition and results of operations.
+However, the Company's PRC legal advisers also advised that there are substantial uncertainties regarding the interpretation
+and application of the currently applicable PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and
+PRC courts may in the future take a view that is contrary to the position of the Company's PRC legal advisers concerning the
+Structure Contracts.
+In the view of the Company's PRC legal advisers, the arrangement of the Structure Contracts does not violate applicable
+existing PRC laws and regulations as the businesses involving value-added telecommunication services, online and mobile
+games, online advertising and other Internet and wireless portals in the PRC are operated by OPCOS that hold the necessary
+licenses for the existing lines of businesses.
+Requirements related to Structure Contracts (other than relevant foreign ownership restrictions) include the Notice on Further
+Strengthening the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of
+Imported Online Games (關於貫徹落實國務院《“三定”規定》和中央編辦有關解釋,進一步加強網絡遊戲前置審批和進
+□&¥(the "Circular 13") jointly issued by PRC General Administration of Press and Publication, the
+National Copyright Administration and the National Office of Combating Pornography and Illegal Publications in September
+2009, which provides that foreign investors are not permitted to invest in online game-operating businesses in the PRC via
+wholly-owned, equity joint venture or co-operative joint venture investments and further expressly prohibits foreign investors
+from gaining control over or participating in domestic online game operators through indirect ways such as establishing other
+joint venture companies or entering into contractual or technical arrangements with the Chinese licence holders.
+Wang Dian
+As at 31 December 2023, the interests and short positions of the directors and the chief executive of the Company in the
+shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the
+SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV
+of the SFO (including interests and short positions which they have taken, or are deemed to have taken, under such provisions
+of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be recorded in the register required to be kept by the
+Company; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as
+follows:
+Beijing Starsinhand
+5.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified domain names against payment of annual royalties determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no domain name
+licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+6.
+Pursuant to the domain name licence agreement dated 28 February 2004 entered into between Tencent Technology,
+as licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to
+use specified domain names against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual
+revenues (which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no domain name licence
+was transacted under such arrangements, save as disclosed elsewhere in this section.
+7.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Tencent Computer, as licensee, Tencent Technology shall grant to Tencent Computer a non-exclusive
+licence to use specified trademarks against payment of annual royalties determined as a percentage of Tencent
+Computer's annual revenues (which may be adjusted pursuant to the agreement or the TCS CFC). During the year, no
+trademark licence was transacted under such arrangements, save as disclosed elsewhere in this section.
+8.
+Pursuant to the trademark licence agreement dated 28 February 2004 entered into between Tencent Technology, as
+licensor, and Shiji Kaixuan, as licensee, Tencent Technology shall grant to Shiji Kaixuan a non-exclusive licence to use
+specified trademarks against payment of annual royalties determined as a percentage of Shiji Kaixuan's annual revenues
+(which may be adjusted pursuant to the agreement or the SKT CFC). During the year, no trademark licence was
+transacted under such arrangements, save as disclosed elsewhere in this section.
+00
+Pursuant to the IP transfer agreement dated 28 February 2004 entered into between Cyber Tianjin and Shiji Kaixuan,
+Shiji Kaixuan shall assign to Cyber Tianjin its principal present and future IP rights, free from encumbrance (except
+for licences granted in the ordinary course of Shiji Kaixuan's business) in consideration of Cyber Tianjin's undertaking
+to provide certain technology and information services to Shiji Kaixuan. During the year, no IP transfer was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+78
+Directors' Report
+9.
+Pursuant to the information consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Tencent Computer, Tencent Technology shall provide specified information consultancy
+services to Tencent Computer against payment of an annual consultancy service fee determined by the TCS Co-operation
+Committee within a range of percentages of Tencent Computer's annual revenues. During the year, no consultancy
+service was transacted under such arrangements, save as disclosed elsewhere in this section.
+10.
+Pursuant to the technical consultancy services agreement dated 28 February 2004 entered into between Tencent
+Technology, as consultant, and Shiji Kaixuan, Tencent Technology shall provide specified technical consultancy services
+to Shiji Kaixuan against payment of an annual consultancy service fee determined by the SKT Co-operation Committee
+within a range of percentages of Shiji Kaixuan's annual revenues. During the year, no consultancy service was transacted
+under such arrangements, save as disclosed elsewhere in this section.
+11.
+Pursuant to the co-operation framework agreement entered into between each of the New OPCOS and the relevant
+WFOES, the parties shall cooperate in the provision of communications services. For each agreement, the WFOES shall
+allow the New OPCOS to use its and its affiliates' assets and provide services to the New OPCOs. The New OPCOS shall
+transfer all of its Surplus Cash to the WFOES and its affiliates as consideration. Co-operation committees have also been
+established according to these agreements. During the year, (i) revenue sharing amounting to approximately RMB627
+and RMB0.041 million were paid or payable by Wang Dian to Tencent Technology and Tencent Beijing respectively;
+(ii) revenue sharing amounting to approximately RMB311 and RMB85 million were paid or payable by Beijing BIZCOM
+to Tencent Technology and Shenzhen Tencent Information respectively; (iii) revenue sharing amounting to approximately
+RMB44,952 million, RMB505 million, RMB4 million, RMB50,351 million, RMB2,300 million, RMB117 million, RMB241
+million, RMB99 million, RMB37 million, RMB4,245 million, RMB571 million and RMB6 million were paid or payable
+by Shenzhen Tencent Tianyou to Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu, Tencent
+Shanghai, Tencent Wuhan, Chongqing Tencent Information, Shenzhen Tencent Information, Hainan Network, Shenzhen
+Tencent Network, Cyber Shenzhen and Wuhan Tencent Information respectively.
+Annual Report 2023
+79
+Tencent Holdings Limited
+Beijing BIZCOM
+4.
+DIRECTORS' INTERESTS IN SECURITIES
+Shenzhen Tencent Tianyou*
+Shiji Kaixuan
+Tencent Enterprise Management
+(registered capital)
+Ultimate registered owners being Mr Ma Huateng and Mr Xu Chenye, both being founders, and a management team member, each
+ultimately interested in 60%, 35% and 5% respectively of Tencent Enterprise Management.
+The above OPCOs are significant to the Group as they hold relevant licences to provide Internet information services and
+other value-added telecommunications services. The aggregate gross revenue and net asset value of the above OPCOS that
+are subject to the Structure Contracts amounted to approximately RMB310 billion for the year ended 31 December 2023 and
+approximately RMB27 billion as at 31 December 2023 respectively.
+Review of the transactions carried out under the Structure Contracts during the financial year
+The Company's independent non-executive directors had reviewed the Structure Contracts and confirmed that the transactions
+carried out during the financial year had been entered into in accordance with the relevant provisions of the Structure Contracts
+and, had been operated so as to transfer by the date of this annual report the Surplus Cash (as defined in the section "Our
+History and Structure - Structure Contracts" of the IPO prospectus of the Company) of each of the OPCOS as at 31 December
+2023 to Tencent Technology, Cyber Tianjin (formerly known as Shidai Zhaoyang Technology (Shenzhen) Company Limited in
+the IPO prospectus of the Company), Tencent Beijing, Shenzhen Tencent Information, Tencent Chengdu, Chongqing Tencent
+Information, Shanghai Tencent Information, Tencent Shanghai, Tencent Wuhan, Hainan Network, Guangzhou Tencent
+Technology, Shenzhen Tencent Network, Guian New Area Tencent Cyber, Cyber Shenzhen, Wuhan Tencent Information,
+Guangzhou Tencent Computer and Hangzhou Tencent Information.
+00
+Pursuant to the amended and restated IP transfer agreement dated 28 February 2004 entered into between Tencent
+Technology and Tencent Computer, Tencent Computer shall assign to Tencent Technology its principal present and
+future IP rights, free from encumbrances (except for licences granted in the ordinary course of Tencent Computer's
+business) in consideration of Tencent Technology's undertaking to provide certain technology and information services
+to Tencent Computer. During the year, no IP transfer was transacted under such arrangements, save as disclosed
+elsewhere in this section.
+76 Tencent Holdings Limited
+The Company's independent non-executive directors had also confirmed that no dividends or other distributions had been
+made by the OPCOS to the holders of their equity interests and the terms of any new Structure Contracts entered into, renewed
+and/or cloned during the relevant financial period are fair and reasonable so far as the Group was concerned and in the
+interests of the Company's shareholders as a whole. To this extent, similar Structure Contracts were entered into relating to the
+New OPCOS.
+The Auditor had carried out procedures on the transactions conducted pursuant to the Structure Contracts and had provided
+a letter to the Board confirming that such transactions had been approved by the Board and had been entered into, in all
+material respects, in accordance with the relevant Structure Contracts and had been operated so as to transfer the Surplus
+Cash of the OPCOS as at 31 December 2023 to the WFOES and that no dividends or other distributions had been made by the
+OPCOS to the holders of their equity interests.
+Transactions carried out during the year ended 31 December 2023, which have been eliminated in the consolidated financial
+statements of the Group, are set out as follows:
+1.
+Pursuant to the TCS CFC, the parties shall co-operate in the provision of communications services. Tencent
+Technology and its affiliates shall allow Tencent Computer to use its and its affiliates' assets and provide services to
+Tencent Computer. Tencent Computer shall transfer all of its Surplus Cash to Tencent Technology and its affiliates
+as consideration. The parties also established the TCS Co-operation Committee according to this agreement. During
+the year, revenue sharing amounting to approximately RMB142,015 million, RMB822 million, RMB23,566 million,
+RMB1,069 million, RMB15,936 million, RMB2, 113 million, RMB3, 189 million, RMB2 million, RMB1,757 million,
+RMB628 million, RMB0.027 million, RMB55 million, RMB583 million, RMB1,986 million, RMB157 million and RMB2 million
+were paid or payable by Tencent Computer to Tencent Technology, Cyber Tianjin, Tencent Beijing, Tencent Chengdu,
+Tencent Shanghai, Tencent Wuhan, Chongqing Tencent Information, Shenzhen Tencent Information, Hainan Network,
+Guangzhou Tencent Technology, Shenzhen Tencent Network, Guian New Area Tencent Cyber, Cyber Shenzhen, Wuhan
+Tencent Information, Guangzhou Tencent Computer and Hangzhou Tencent Information respectively.
+2.
+Pursuant to the SKT CFC, the parties shall co-operate in the provision of communications services. Cyber Tianjin and its
+affiliates shall allow Shiji Kaixuan to use its and its affiliates' assets and provide services to Shiji Kaixuan. Shiji Kaixuan
+shall transfer all of its Surplus Cash to Cyber Tianjin and its affiliates as consideration. The parties also established the
+SKT Co-operation Committee according to this agreement. During the year, no services were transacted under such
+arrangements, save as disclosed elsewhere in this section.
+Annual Report 2023 77
+Directors' Report
+Directors' Report
+RMB35,285,705
+3.
+Tencent Computer
+PERMITTED INDEMNITY PROVISION
+Save as disclosed in this annual report, no transaction, arrangement or contract of significance in relation to the Group's
+business to which the Company or any of its subsidiaries was a party and in which a director of the Company or an entity
+connected with a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the
+year or at any time during the year.
+DIRECTORS' INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS
+None of the directors who are proposed for re-election at the 2024 AGM has a service contract with the Company which is not
+determinable by the Company within one year without payment of compensation, other than statutory compensation.
+Each of Mr Ma Huateng and Mr Lau Chi Ping Martin (Mr Lau ceased to be a director with effect from 17 May 2023) has entered
+into a service contract with the Company for a term of three years from 1 January 2022 to 31 December 2024. The term of their
+service contracts can be renewed upon expiry and the Company may terminate their service contracts by three months' written
+notice.
+DIRECTORS' SERVICE CONTRACTS
+Directors' Report
+Tencent Holdings Limited
+70
+70
+00
+Yeung Kwok On, age 62, Senior Management Adviser, joined the Company in 2008. He supports and facilitates organisational
+innovation and leadership development within the Company and its key strategic partners. Mr Yeung also serves as Dean
+of TencentX, a corporate learning platform that has approximately 700 entrepreneur alumni. Prior to joining the Company,
+Mr Yeung, as a professor, had taught at University of Michigan and China Europe International Business School and also
+served as Chief HR Officer of Acer Group from 1998 to 2002. Mr Yeung received a Bachelor's and a Master's degree from The
+University of Hong Kong and a Doctoral degree from University of Michigan.
+Xi Dan, age 48, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the Company's
+talent development and functional management since May 2008. Prior to joining the Company, Mr Xi was responsible for
+HR management in ZTE Corporation and has more than 28 years of experience in IT and Internet industries. Mr Xi received
+a Bachelor of Science degree in Applied Computer Science from Shenzhen University in 1996 and an MBA degree from
+Tsinghua University in 2005. Mr Xi currently serves as a director or officer of certain subsidiaries of the Company.
+Guo Kaitian, age 51, Senior Vice President, joined the Company in 2002 and has been responsible for overseeing the
+Company's functional divisions of legal affairs, administration, infrastructure, procurement, public strategy, information security
+and corporate social responsibility. Mr Guo received a Bachelor of Law degree from Zhongnan University of Economics and
+Law in 1996. Mr Guo currently serves as a director or officer of certain members of the Group.
+John Shek Hon Lo, age 55, Chief Financial Officer and Senior Vice President, joined the Company in 2004 and was appointed
+as Chief Financial Officer in May 2012. Prior to joining the Company, Mr Lo worked at PricewaterhouseCoopers. He is a Fellow
+of the CPA Australia, a Fellow of the Hong Kong Institute of Certified Public Accountants, a Fellow of the Chartered Institute of
+Management Accountants and a Fellow of the Association of Chartered Certified Accountants. Mr Lo received a Bachelor of
+Business degree in Accounting from Curtin University and an EMBA degree from Kellogg Graduate School of Management,
+Northwestern University and The Hong Kong University of Science and Technology. Mr Lo currently serves as a director of a
+subsidiary of the Company.
+Lin Ching-Hua, age 51, Senior Vice President, joined the Company in 2013 and has been responsible for the exploration
+and development of the Company's Advertising and Smart Retail businesses. He also oversees strategic development of
+the Company and drives the Group's strategic upgrade and business collaboration. In 2020, Mr Lin was promoted to Senior
+Vice President. Prior to joining the Company, Mr Lin was a partner at McKinsey & Company and the managing partner of
+its Taiwan office. Mr Lin received a Bachelor of Sociology degree from National Taiwan University and a Master of Business
+Administration degree from Harvard University. Mr Lin currently serves as a director or officer of certain subsidiaries of the
+Company.
+Directors' Report
+119,250
+240,000
+A permitted indemnity provision for the benefit of the directors of the Company is currently in force and was in force throughout
+the financial year. The Company has taken out and maintained directors and officers liability insurance which provides
+appropriate cover for, among others, directors of the Company.
+DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES
+Save as disclosed in this annual report, neither the Company nor any of its subsidiaries was a party to any arrangements to
+enable directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company
+or any other body corporate at any time during the year or at the end of the year.
+Annual Report 2023
+Personal
+(A) Long position in the shares and underlying shares of the Company
+Name of director
+Ma Huateng
+Nature of interest
+Corporate (Note 1)
+Li Dong Sheng
+Personal*
+Number of Shares/
+underlying Shares held
+359,250
+Approximate %
+of shareholding
+804,859,700
+8.49%
+58,000
+0.0006%
+(Note 2)
+lan Charles Stone
+Personal*
+Family*
+Directors' Report
+71
+(Note 7)
+(Note 3)
+Particulars of the OPCOS
+Yang Siu Shun
+The interest comprises 310,909 Shares and 48,341 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme, and all the outstanding unvested Awarded Shares granted under these
+two schemes were transferred to the 2023 Share Award Scheme. Details of the Awarded Shares granted to this director are set out
+above under "Share Award Schemes".
+4.
+The interest comprises 2,430 Shares and 42,971 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme, and all the outstanding unvested Awarded Shares granted under these
+two schemes were transferred to the 2023 Share Award Scheme. Details of the Awarded Shares granted to this director are set out
+above under "Share Award Schemes".
+5.
+The interest comprises 16,874 Shares and 23,495 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme, and all the outstanding unvested Awarded Shares granted under these
+two schemes were transferred to the 2023 Share Award Scheme. Details of the Awarded Shares granted to this director are set out
+above under "Share Award Schemes".
+6.
+The interest comprises 1,678 Shares and 16,038 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2019 Share Award Scheme and all the outstanding unvested Awarded Shares granted under such scheme were transferred to the
+2023 Share Award Scheme. Details of the Awarded Shares granted to this director are set out above under "Share Award Schemes".
+0.004%
+As at 31 December 2023, the total number of issued Shares was 9,482,992,820.
+3.
+Interests of beneficial owner
+Annual Report 2023
+73
+Directors' Report
+(B) Long position in the shares of associated corporations of the Company
+Name of director
+Ma Huateng
+Name of associated
+corporation
+Nature of interest
+Number of shares and
+class of shares held
+Interests of spouse or child under 18 as beneficial owner
+The interest comprises 33,828 Shares and 24,172 underlying Shares in respect of the Awarded Shares granted pursuant to the
+2013 Share Award Scheme and the 2019 Share Award Scheme, and all the outstanding unvested Awarded Shares granted under these
+two schemes were transferred to the 2023 Share Award Scheme. Details of the Awarded Shares granted to this director are set out
+above under "Share Award Schemes".
+7.
+2.
+Advance Data Services Limited, a British Virgin Islands company wholly-owned by Mr Ma Huateng, holds 709,859,700 Shares directly
+and 95,000,000 Shares indirectly through its wholly-owned subsidiary, Ma Huateng Global Foundation.
+45,401
+0.0005%
+(Note 4)
+Ke Yang
+Personal*
+40,369
+0.0004%
+(Note 5)
+Zhang Xiulan
+Personal*
+17,716
+0.0002%
+(Note 6)
+00
+72
+Tencent Holdings Limited
+Directors' Report
+Note:
+1.
+Personal*
+As at 31 December 2023, the Group had 105,417 employees (2022: 108,436). The number of employees employed by the
+Group varies from time to time depending on needs and employees are remunerated based on industry practice.
+The remuneration policy and package of the Group's employees are periodically reviewed. Apart from pension funds and in-
+house training programmes, discretionary bonuses, share awards and share options may be awarded to employees according
+to the assessment of individual performance.
+The total remuneration cost incurred by the Group for the year ended 31 December 2023 was RMB107,675 million (2022:
+RMB111,182 million).
+83
+As at the date of this annual report, based on information that is publicly available to the Company and within the knowledge
+of its directors, the directors confirm that the Company has maintained during the year the amount of public float as required
+under the Listing Rules.
+Annual Report 2023
+EMPLOYEE AND REMUNERATION POLICIES
+SUFFICIENCY OF PUBLIC FLOAT
+There is no provision for pre-emptive rights under the Articles of Association, or the laws of the Cayman Islands, which would
+oblige the Company to offer new Shares on a pro rata basis to existing shareholders of the Company.
+Tencent Holdings Limited
+The Company has adopted a code of conduct regarding directors' securities transactions on terms no less exacting than
+the required standard set out in the Model Code. The directors of the Company have complied with such code of conduct
+throughout the accounting year covered by this annual report.
+ADOPTION OF CODE OF CONDUCT REGARDING DIRECTORS' SECURITIES TRANSACTIONS
+Directors' Report
+82
+00
+The Group is committed to minimising the impact on the environment from our business activities and the details of such
+efforts are set out in the section headed "Environmental Protection" in the standalone "Environmental, Social and Governance
+Report". As far as the Board is aware, the Group has complied with the relevant laws and regulations that have a significant
+impact on the Group in all material respects.
+ENVIRONMENT AND COMPLIANCE WITH LAWS
+The Audit Committee, together with the Auditor, has reviewed the Group's audited consolidated financial statements for the
+year ended 31 December 2023. The Audit Committee has also reviewed the accounting principles and practices adopted by
+the Group and discussed auditing, risk management, internal control and financial reporting matters.
+PRE-EMPTIVE RIGHTS
+Directors' Report
+BOARD OF DIRECTORS
+(A) Entitlement to Attend and Vote at the 2024 AGM
+AUDIT COMMITTEE
+The Company promotes the values of "Integrity, Proactivity, Collaboration, Creativity" as its guiding principles for the
+Company's long-term sustainable development. The essence of the Company's vision and mission of “Value for Users, Tech
+for Good" is to use the power of technology to better care for the people; and the creation of social value is a journey where
+the Company transforms the abstract concept of kindness and care into executable strategies, action plans, products, and
+operations. The Company promotes the integration of its corporate values into the Company's operations through policies and
+initiatives, including without limitation advocating a workplace culture of diversity, equity, and inclusion and focusing on long-
+term creation of sustainable social value by driving innovation in technologies, products and models, and providing solutions
+to social challenges. For further information of the Company's corporate culture, please refer to the "Environmental, Social and
+Governance Report 2023" published by the Company.
+CORPORATE CULTURE
+The Board continues to monitor and review the Company's corporate governance practices and makes necessary changes
+when appropriate.
+The Company's corporate governance practices are based on the code provisions as set out in the CG Code. The Board
+believes that throughout the year ended 31 December 2023, the Company complied with the applicable code provisions set
+out in the CG Code, except for the deviation from code provisions B.2.2 regarding the retirement and re-election of directors
+and C.2.1 regarding the segregation of the roles of chairman and chief executive. The reasons for the deviations are further
+explained in the sub-sections headed “Chairman and Chief Executive Officer" and "Appointments, Re-election and Removal"
+below.
+CORPORATE GOVERNANCE PRACTICES
+Maintaining the highest standards of corporate governance and ethical business practices are core values of the Group. The
+Board views effective corporate governance practices as a priority of the Group, with the aim of providing our investors with a
+thorough understanding of the Group's management and how such management oversees and manages different businesses
+of the Group. Our belief is that investors will realise significant long-term value when the Group's businesses are conducted
+in an open and responsible manner. Ethical business practices go hand in hand with strong corporate governance, and we
+believe that running our businesses in an ethical manner will lead to public trust and will ultimately create shareholder value
+for the Group.
+Corporate Governance Report
+Tencent Holdings Limited
+CLOSURE OF REGISTER OF MEMBERS
+84
+Hong Kong, 20 March 2024
+Chairman
+Ma Huateng
+On behalf of the Board
+The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for
+re-appointment at the 2024 AGM.
+AUDITOR
+For the purpose of determining the shareholders' entitlement to the proposed final dividend, the register of members of
+the Company will be closed from Tuesday, 21 May 2024 to Wednesday, 22 May 2024, both days inclusive, during which
+period no transfer of Shares will be registered. In order to qualify for the proposed final dividend, all duly completed
+transfer forms accompanied by the relevant share certificates must be lodged with the Company's branch share registrar,
+Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's
+Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on Monday, 20 May 2024.
+(B) Entitlement to the Proposed Final Dividend
+For the purpose of determining the shareholders' entitlement to attend and vote at the 2024 AGM, the register of
+members of the Company will be closed from Thursday, 9 May 2024 to Tuesday, 14 May 2024, both days inclusive,
+during which period no transfer of Shares will be registered. In order to be entitled to attend and vote at the 2024
+AGM, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the
+Company's branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716,
+17th Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on
+Wednesday, 8 May 2024.
+00
+None of the directors, their close associates or any shareholder (which to the knowledge of the directors owns more than 5% of
+the number of issued Shares) had an interest in any of the major customers or suppliers noted above.
+2,366,821,000
+MAJOR CUSTOMERS AND SUPPLIERS
+Shares/ underlying
+Shares held
+Nature of
+interest/capacity
+Long/short position
+Name of shareholder
+Number of
+Long/ short position in the shares of the Company
+As at 31 December 2023, the following persons, other than the directors or chief executive of the Company, had interests or
+short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of
+Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company under section 336 of
+the SFO, or who was, directly or indirectly, interested in 5% or more of the Shares:
+INTERESTS OF SUBSTANTIAL SHAREHOLDERS
+Directors' Report
+Approximate %
+of shareholding
+Tencent Holdings Limited
+00
+The Group entered into certain transactions with “related parties" as defined under applicable accounting standards during
+the financial year ended 31 December 2023 which were disclosed in Note 15(a) (Senior management's emoluments), Note
+15(b) (Five highest paid individuals), Note 16 (Benefits and interests of directors), Note 28 (Loans to investees and investees'
+shareholders), Note 37 (Share-based payments) and Note 47 (Related party transactions) to the consolidated financial
+statements. Save as the related parties transactions involving payment of remuneration to certain directors of the Group which
+constitute continuing connected transactions fully exempt from the connected transaction requirements under Rule 14A.76(1)
+or Rule 14A.95 of the Listing Rules, no related parties transactions disclosed in the consolidated financial statements
+constitutes a connected transaction as defined under Chapter 14A of the Listing Rules.
+Other connected transactions
+For details of the risks associated with the Structure Contracts, please refer to the section headed "Risk factors - Risks relating
+to our structure" in the IPO prospectus.
+Due to the legal constraints in relation to foreign investment in the telecommunications value-added services industry in
+the PRC, a number of agreements have been entered into between members of the Group whereby the Company and the
+WFOEs derive substantially all their revenues from transactions with the OPCOs. The recognition of revenues outlined in these
+intra-group contracts could be challenged by tax authorities and any adjustment in tax treatment could have a material and
+adverse impact on the taxable profitability of the Group. As advised by the Company's PRC legal advisers, it is unlikely that the
+tax treatment of revenues will be challenged by the PRC tax authorities, provided that the transactions under these intra-group
+contracts represent bona fide transactions conducted on an arm's length basis. The Company will take all necessary actions to
+ensure and monitor that relevant transactions are to be conducted on an arm's length basis to minimise the risks of adjustment
+in tax treatment.
+The WFOES have been structured and located in order to benefit from preferential tax treatments offered to companies located
+in designated economic zones and/or operating software-related businesses. Although the relevant governmental authority has
+granted such preferential tax treatment to certain WFOES and OPCOS, there can be no assurance that the conditions under
+which these treatments are provided will always be present. The relevant WFOES and OPCOS would use their reasonable
+endeavours to take all necessary actions, including but not limited to maintaining or acquiring their status as "High and New
+Technology Enterprise" or "National Key Software Enterprise", in order to continue to enjoy the reduced income tax rate and
+the other tax concessions.
+Due to regulatory limitations restricting foreign investment in businesses providing value-added telecommunications services in
+China, the Company conducts some of its business in the PRC through the OPCOs. These contractual arrangements may not
+be as effective in providing control as direct ownership. Pursuant to the Structure Contracts, the arbitration tribunal is entitled
+to decide compensation for the equity interests or property ownership of OPCOS, decide to implement enforceable remedy
+(including mandatorily requiring OPCOS to transfer the equity interests of OPCOS to the WFOES, etc.) or order the bankruptcy of
+OPCOS. Prior to the formation of the arbitration tribunal, the courts of the places where the major assets of OPCOS are situated
+are entitled to implement interim remedies to ensure the enforcement of the future decisions of the arbitration tribunals.
+The risks associated with Structure Contracts and the actions taken by the Company to mitigate the risks
+Directors' Report
+80
+(Note 3)
+MIH Internet Holdings B.V.
+Long position
+No contracts concerning the management and administration of the whole or any substantial part of the business of the
+Company were entered into or existed during the year.
+MANAGEMENT CONTRACTS
+Directors' Report
+81
+Annual Report 2023
+Save as disclosed above, the Company had not been notified of any other persons (other than the directors or chief executive
+of the Company) who, as at 31 December 2023, had interests or short positions in the Shares and underlying Shares as
+recorded in the register required to be kept under section 336 of the SFO.
+As at 31 December 2023, the total number of issued Shares was 9,482,992,820.
+3.
+Advance Data Services Limited holds 709,859,700 Shares directly and 95,000,000 Shares indirectly through its wholly-owned
+subsidiary, Ma Huateng Global Foundation. As Advance Data Services Limited is wholly-owned by Mr Ma Huateng, Mr Ma has an
+interest in these Shares as disclosed under the section of "Directors' Interests in Securities".
+2.
+MIH Internet Holdings B.V. is controlled by Naspers Limited and held through its non wholly-owned subsidiary, Prosus N.V.
+MIH Internet Holdings B.V. is a wholly-owned subsidiary of Prosus N.V. As such, Naspers Limited, Prosus N.V. and MIH Internet
+Holdings B.V. are deemed to be interested in the same block of 2,366,821,000 Shares under Part XV of the SFO.
+1.
+Note:
+8.49%
+804,859,700
+Corporate (Note 2)
+Long position
+Advance Data Services
+Limited
+24.96%
+Responsibilities
+Corporate (Note 1)
+For the year ended 31 December 2023, the five largest customers of the Group accounted for approximately 7.49% of
+the Group's total revenues while the largest customer of the Group accounted for approximately 3.87% of the Group's
+total revenues. In addition, for the year ended 31 December 2023, the five largest suppliers of the Group accounted for
+approximately 20.42% of the Group's total purchases while the largest supplier of the Group accounted for approximately 6.54%
+of the Group's total purchases.
+The Board's fundamental responsibility is to exercise its best judgment and to act in the best interests of the Company and
+its shareholders. The Board oversees management's efforts to promote the Company's success while operating in an effective
+and responsible manner. The Board also formulates the Company's overall business strategy and monitors management's
+execution of such strategy.
+Audit Committee
+85
+Lau Chi Ping Martin²
+Ma Huateng
+Executive directors
+Name of director
+We believe education and training are important for maintaining an effective Board. New directors undergo an orientation
+programme designed to provide a thorough understanding of the Group's operations and businesses, and also receive a
+handbook outlining their responsibilities under the Listing Rules and applicable laws. Existing directors are provided with
+tailored training programmes covering topics such as best practices in corporate governance, legal and regulatory trends
+and, given the nature of our business, emerging technologies and products. Directors also regularly meet with the senior
+management team to understand the Group's businesses, governance policies and regulatory environment. During the year
+ended 31 December 2023, the Company arranged training on topics relating to corporate governance, legal and regulatory
+updates and product trends which are relevant to the Group's businesses. The table below summarises the participation of
+each of the directors in continuous professional development during the year ended 31 December 2023:
+All directors have full and timely access to all relevant information as well as the advice and services of the Company's general
+counsel and the company secretary, with a view to ensuring that Board procedures and all applicable rules and regulations
+are followed. All directors may also obtain independent professional advice at the Company's expense for carrying out their
+functions.
+Corporate Governance Report
+Tencent Holdings Limited
+88
+00
+The major work of these committees during the year 2023 is set out on pages 95 to 102.
+The terms of reference of the Remuneration Committee were revised in January 2023 taking into account the roles and
+responsibilities of the Remuneration Committee set out under the new requirements in Chapter 17 of the Listing Rules which
+took effect in January 2023, and were further revised in March 2024 to align with the revised structure of the appendices to
+the Listing Rules which took effect from 31 December 2023.
+reviews and approves matters relating to share schemes under Chapter 17 of the Listing Rules.
+ensures that no director or any of his associates is involved in deciding his own remuneration; and
+ensures that these remuneration proposals are aligned to corporate goals and objectives;
+reviews and approves proposals about the policy and structure of remuneration of directors and senior management
+team;
+Remuneration Committee
+The terms of reference of the Nomination Committee were revised in March 2024 to align with the revised structure of the
+appendices to the Listing Rules which took effect from 31 December 2023.
+reviews and monitors the implementation of the board diversity policy and the board nomination policy of the Company.
+Non-executive directors
+Jacobus Petrus (Koos) Bekker
+Charles St Leger Searle
+Independent non-executive directors
+89
+Annual Report 2023
+Mr Lau Chi Ping Martin ceased to be an executive director with effect from the conclusion of the annual general meeting
+of the Company held on 17 May 2023 (the "2023 AGM").
+2
+Attended training/seminar/conference arranged by the Company or other external parties or read relevant materials.
+1
+V
+V
+V
+V
+assesses the independence of independent non-executive directors and the perspectives, skills and experience that such
+director can bring to the Board; and
+V
+development¹
+professional
+continuous
+Participated in
+Zhang Xiulan
+Ke Yang
+Yang Siu Shun
+lan Charles Stone
+Li Dong Sheng
+√
+reviews and makes recommendations to the Board on individuals nominated to be directors by shareholders;
+identifies suitable and qualified individuals and makes recommendations to the Board as to new Board members, by
+taking into account the individual's experience, knowledge, skills, gender and background, as well as the Listing Rules
+requirements;
+reviews and monitors the structure, size, composition and diversity of the Board in light of the Company's strategy;
+The Company's governance structure of these committees can be summarised as follows:
+Corporate Governance Report
+Tencent Holdings Limited
+86
+To better serve the long-term interests of our stakeholders, the Board delegates certain matters requiring particular time,
+attention and expertise to its committees. The Board has determined that these matters are better dealt with by the committees
+as they require independent oversight and specialist input. As such, the Board has established five committees to assist the
+Board: Audit Committee, Corporate Governance Committee, Investment Committee, Nomination Committee and Remuneration
+Committee. Each of the committees has its terms of reference which clearly specifies its powers and authorities. All committees
+report back to the Board and make recommendations to the Board if necessary.
+The Board delegates the responsibility of day-to-day business and operations to the Company's senior management team,
+which includes its chief officers, the president and executive vice-presidents. The senior management team meets once
+every two weeks or as frequently as necessary to formulate policies and make recommendations to the Board. The senior
+management team administers, enforces, interprets and supervises compliance with the internal rules and operational
+procedures of the Company as well as its subsidiaries and conducts regular reviews, recommends and advises on appropriate
+amendments to such rules and procedures. The senior management team reports to the Board on a regular basis and
+communicates with the Board whenever required.
+regularly evaluates its own performance and effectiveness.
+considers and, if appropriate, declares the payment of dividends to shareholders; and
+defines levels of delegation in respect of specific matters, with required authority to Board committees and management;
+monitors non-financial aspects pertaining to the businesses of the Group;
+handles the relationship with the Company's external auditor;
+establishes Board committees with clear terms of reference and responsibilities as appropriate;
+• determines directors' selection, orientation and evaluation;
+determines the Group's communication policy;
+approves the Company's financial statements and interim and annual reports;
+appoints the Chief Executive Officer, who reports to the Board, and ensures that succession is planned;
+retains full and effective control over the Group and monitors management with regard to the implementation of the
+approved annual business plan and budget;
+approves the annual business plan and budget proposed by management;
+determines the Group's mission, provides its strategic direction and is responsible for the approval of strategic plans;
+The Board has defined the business and governance issues for which it needs to be responsible, and these matters are
+reviewed periodically to ensure that the Company maintains effective and up-to-date corporate governance practices. In this
+regard, the Board:
+Corporate Governance Report
+ensures that the Group has appropriate risk management, internal control, internal audit and regulatory compliance
+procedures in place and that it communicates adequately with shareholders and stakeholders;
+Annual Report 2023
+reviews the Company's financial information;
+reviews the work done by the Company's management with respect to risk management and internal control systems;
+Nomination Committee
+ensures compliance with the Listing Rules and any other relevant laws and regulations on any mergers, acquisitions and
+disposals.
+Investment Committee
+Corporate Governance Report
+87
+Annual Report 2023
+The terms of reference of the Corporate Governance Committee were revised in March 2024 to align with the revised structure
+of the appendices to the Listing Rules which took effect from 31 December 2023.
+reviews and monitors the training and continuous professional development of the directors and senior management
+team.
+reviews the Company's ESG strategy and makes recommendations to the Board; and
+exercises oversight of the Company's financial reporting system;
+reviews the Company's compliance with the CG Code and disclosure in the Corporate Governance Report and the ESG
+Report;
+reviews and monitors the evaluation and management of issues related to the Company's Environmental, Social and
+Governance ("ESG") matters;
+reviews the shareholders communication policy and makes recommendations to the Board where appropriate to
+enhance effective communications between the Company and its shareholders;
+develops, reviews and monitors the code of conduct and compliance manual (if any) applicable to employees and
+directors;
+reviews and monitors the Company's policies and practices on its compliance with legal and regulatory requirements;
+reviews the Company's corporate governance and makes recommendations to the Board;
+Corporate Governance Committee
+oversees the Group's anti-money laundering and sanctions compliance system.
+•
+oversees the risks undertaken by the Company including determining the level of risk the Company expects and is able
+to take; and
+reviews and monitors the progress made against ESG-related goals and targets;
+identifies, considers and makes recommendations on mergers, acquisitions and disposals; and