中央18comic.fun

2018AnnualReportCONTENTS2CORPORATEINFORMATION3FINANCIALSUMMARY4CHAIRMAN'SSTATEMENT14MANAGEMENTDISCUSSIONANDANALYSIS31DIRECTORS'REPORT76CORPORATEGOVERNANCEREPORT100ENVIRONMENTAL,SOCIALANDGOVERNANCEREPORT123INDEPENDENTAUDITOR'SREPORT132CONSOLIDATEDINCOMESTATEMENT133CONSOLIDATEDSTATEMENTOFCOMPREHENSIVEINCOME134CONSOLIDATEDSTATEMENTOFFINANCIALPOSITION137CONSOLIDATEDSTATEMENTOFCHANGESINEQUITY140CONSOLIDATEDSTATEMENTOFCASHFLOWS143NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS265DEFINITION2TencentHoldingsLimitedDIRECTORSExecutiveDirectorsMaHuateng(Chairman)LauChiPingMartinNon-ExecutiveDirectorsJacobusPetrus(Koos)BekkerCharlesStLegerSearleIndependentNon-ExecutiveDirectorsLiDongShengIainFergusonBruceIanCharlesStoneYangSiuShunAUDITCOMMITTEEYangSiuShun(Chairman)IainFergusonBruceIanCharlesStoneCharlesStLegerSearleCORPORATEGOVERNANCECOMMITTEECharlesStLegerSearle(Chairman)IainFergusonBruceIanCharlesStoneYangSiuShunINVESTMENTCOMMITTEELauChiPingMartin(Chairman)MaHuatengCharlesStLegerSearleNOMINATIONCOMMITTEEMaHuateng(Chairman)LiDongShengIainFergusonBruceIanCharlesStoneCharlesStLegerSearleREMUNERATIONCOMMITTEEIanCharlesStone(Chairman)LiDongShengJacobusPetrus(Koos)BekkerAUDITORPricewaterhouseCoopersCertifiedPublicAccountantsPRINCIPALBANKERSBankofChinaLimitedTheHongkongandShanghaiBankingCorporationLimitedREGISTEREDOFFICECricketSquareHutchinsDrive,P.
O.
Box2681GrandCaymanKY1-1111CaymanIslandsTENCENTGROUPHEADOFFICETencentBinhaiTowersNo.
33Haitian2ndRoadNanshanDistrictShenzhen,518054ThePRCPRINCIPALPLACEOFBUSINESSINHONGKONG29/F.
,ThreePacificPlaceNo.
1Queen'sRoadEastWanchaiHongKongCAYMANISLANDSPRINCIPALSHAREREGISTRARANDTRANSFEROFFICESMPPartners(Cayman)LimitedRoyalBankHouse–3rdFloor24SheddenRoadP.
O.
Box1586GrandCayman,KY1-1110CaymanIslandsHONGKONGBRANCHSHAREREGISTRARANDTRANSFEROFFICEComputershareHongKongInvestorServicesLimitedShops1712-1716,17thFloorHopewellCentre183Queen'sRoadEastWanChai,HongKongCOMPANYWEBSITEwww.
tencent.
comSTOCKCODE7003CONDENSEDCONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOMEYearended31December20142015201620172018RMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRevenues78,932102,863151,938237,760312,694Grossprofit48,05961,23284,499116,925142,120Profitbeforeincometax29,01336,21651,64088,21594,466Profitfortheyear23,88829,10841,44772,47179,984ProfitattributabletoequityholdersoftheCompany23,81028,80641,09571,51078,719Totalcomprehensiveincomefortheyear21,97544,72348,61779,06167,760TotalcomprehensiveincomeattributabletoequityholdersoftheCompany21,89144,41648,19478,21866,339Non-GAAPprofitattributabletoequityholdersoftheCompany*24,73732,41045,42065,12677,469CONDENSEDCONSOLIDATEDSTATEMENTSOFFINANCIALPOSITIONAsat31December20142015201620172018RMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAssetsNon-currentassets95,845151,440246,745376,226506,441Currentassets75,321155,378149,154178,446217,080Totalassets171,166306,818395,899554,672723,521EquityandliabilitiesEquityattributabletoequityholdersoftheCompany80,013120,035174,624256,074323,510Non-controllinginterests2,1112,06511,62321,01932,697Totalequity82,124122,100186,247277,093356,207Non-currentliabilities39,00760,312108,455125,839164,879Currentliabilities50,035124,406101,197151,740202,435Totalliabilities89,042184,718209,652277,579367,314Totalequityandliabilities171,166306,818395,899554,672723,521*Comparativefigureshavebeenrestatedretrospectivelytoconformwiththepresentationadoptedin2015,whereas,amongothers,wehaveextendedthedefinitionofnon-GAAPadjustmentstocoverthatofourmaterialassociates.
Weadoptedthenewpresentationinordertomoreclearlyillustrateournon-GAAPfinancialmeasures,andtobemoreconsistentwithwhatwebelievetobeindustrypractice.
4TencentHoldingsLimitedIampleasedtopresentourannualreportfortheyearended31December2018totheshareholders.
RESULTSTheGroup'sauditedprofitattributabletoequityholdersoftheCompanyfortheyearended31December2018wasRMB78,719million,anincreaseof10%comparedwiththeresultsforthepreviousyear.
BasicanddilutedEPSfortheyearended31December2018wereRMB8.
336andRMB8.
228,respectively.
TheGroup'snon-GAAPprofitattributabletoequityholdersoftheCompanyfortheyearended31December2018wasRMB77,469million,anincreaseof19%comparedwiththeresultsforthepreviousyear.
Non-GAAPbasicanddilutedEPSfortheyearended31December2018wereRMB8.
203andRMB8.
097,respectively.
BUSINESSREVIEWANDOUTLOOK1.
CompanyStrategicHighlights2018markedthe20thanniversaryofthefoundingoftheGroup.
Throughoutourhistory,wehaveconstantlybeenembracingchangesinusers'needs,technologiesandmarketconditionstostayattheforefrontofourindustry.
InOctober,weinitiatedastrategicorganisationalupgradetoextendourstrengthsintheConsumerInternetandtocapturetheopportunitiesoftheIndustrialInternet.
Thisstrategicupgradeisintendedtoenableustodrivetheconvergenceofsocial,contentandtechnologytrends,andtobetterserveenterprises,aswellasconsumers.
Duringtheyear,westeppedupourinvestmentininnovationandtechnologiestostaycompetitiveintheevolvingInternetindustry.
Weenrichedoursocialplatformswithabroaderportfolioofdigitalcontent,aswellasonlineandofflineservices,thusdeepeningourconnectionwithourusers,advertisers,merchantsandenterprisepartners.
Throughtheseinitiatives,westrengthenedourmarketleadershipinsocial,games,digitalcontent,andpayment,contributingtocontinuinggrowthacrossourcorebusinesssegments.
5Wemadethefollowingkeyachievementsinourcorebusinesses:Oursocialcommunicationsplatforms,WeixinandQQ,representthelargestsocialcommunitiesinChinaintermsofMAU.
ThecombinedMAUofWeixinandWeChatincreasedtoapproximately1,098millionbytheendof2018.
Weixinfurtherpenetratedlowertiercitiesandcoveredawideragegroupofusers.
Onaverage,over750millionWeixinusersreadfriends'postsonMomentsperday.
MiniProgramsarenowwidelyadoptedbyusersandenterprisessettingtheindustrytrendsforconnectingonlineuserstoofflinescenarios.
DAUgrewrapidlyanddailyvisitsperuserincreasedby54%year-on-year.
MiniProgramscovermorethan200servicesectorsandconnectwithourusersviamultiplechannels,includingshortcutsinthechatinterface,ourin-appsearchfunctionandofflineMiniProgramsQRCodes.
Inadditiontoconnectingwithonlineusers,MiniProgramsenabledeveloperstoachievecross-platformdevelopmentandinstantaneousdeploymentfortheirproductsandservices.
Weempowerdeveloperswithcloud-baseddevelopmentkits,enhancingthedevelopmentefficiency,particularlyforlong-taildevelopers.
Dailyvisitstolong-tailMiniProgramsincreasedsignificantly,accountingfor43%ofthetotaldailyvisitstoMiniPrograms.
OverallMAUofQQincreasedto807millionbytheendof2018.
WestayedengagedwithyoungusersasQQintroducedinnovativeandAI-empoweredfeaturestomakeitschatexperiencemorefunandinteractive.
Weofferentertainment-orientedcontentinverticalsincludingeSports,comicsandlivestreamingservicestocatertotheentertainmentneedsofmillennialusers.
Inparticular,wefurtherincreasedtheuserengagementofQQKanDian,apopularnewsfeedserviceamongyoungusers,throughenrichingitscontentwithvideofeeds.
Wehavebuiltupacontentecosystemcoveringonlinegames,literature,video,music,newsandcomics.
Foronlinegames,wearetheleadingplatformgloballybyrevenueandusers.
OurtechnicalstrengthsupportstheoperationofmultiplePCandmobileblockbustergametitles,servinghundredsofmillionsofactiveuserseveryday.
Internationally,oursubsidiaryRiotGamesoperatesthehighest-MAUPCgame,LeagueofLegends,andweoperatethehighest-MAUsmartphonegame,PUBGMOBILE.
ThroughourpartnershipswithandinvestmentsingloballeaderssuchasEpicGames(creatorofFortnite)andSupercell(creatorofClashofClans),wesupporttheinnovationandgrowthoftheglobalgameindustry.
InChina,ourpopularsmartphonegamesexpandedouruserbaseandincreasedtimespent.
WehavetakentheleadinintroducingtheHealthyGameplaySystemtoassistparentsinmanagingtheamountoftimetheirchildrenspendplayinggames.
WeupgradedthesystemlastSeptemberbyintroducingmeasurestostrengthenreal-nameverification,andimplementinggametimelimitsforchildrenplayers,aswellasspendingalertstotheirparents.
OurTencentGameGuardianPlatformenablesparentstoengagewiththeirchildrenandtracktheirin-gameactivitiesonline.
Werecentlyprovidedteachersaccesstothisplatformtoenhancetheirengagementwiththeirstudentswhoplaygames.
TheseinitiativesbuiltapilotcasefortheChinagameindustryand,webelieve,helppositionitforsustainableandhealthygrowthinthelongrun.
6TencentHoldingsLimitedLeveragingourrichIPportfolio,weprovidedigitalcontenttoourusersacrossonlinemediaplatforms.
Ourtotaldigitalcontentsubscriptioncountsexceeded100millionbytheendof2018,up50%year-on-year.
Highqualitycontent,betterIPprotection,enhancedstreamingcapabilitiesandconvenienceofmobilepaymentwerethegrowthdriversforourdigitalcontentsubscriptionbusiness.
TencentVideoistheleadingonlinevideostreamingplatforminChinaintermsofmobileDAUandsubscriptions,generatingthehighestrevenuesintheonlinevideomarketinChinathroughsubscriptionsandadvertising.
TMEistheleadingonlinemusicentertainmentplatforminChina,operatingthecountry'smostpopularandinnovativemusicapps—QQMusic,KugouMusic,KuwoMusicandWeSing.
InDecember2018,welistedTMEontheNewYorkStockExchange.
Newsfeeds,shortvideosandminivideoscontributedsubstantiallytotrafficonourmediaanddistributionplatformsincludingTencentNews,QQKanDian,MobileQQBrowserandWeishi.
During2018,weenhancedthemonetisationpotentialofourplatformsthroughconnectingmoreadvertisers,acrossmoreplatforms,withmoreaccurateusertargetingcapabilities.
Forsocialadvertising,weincreasedouradvertisinginventorythroughaddingthesecondadunitinWeixinMoments,andwestartedtoinsertadunitsintoMiniPrograms.
Formediaadvertising,wecompletedthesystemrevampofournewsadvertisinginearly2018.
Leveragingourenhancedrecommendationalgorithms,steadytrafficgrowthandrisingfillrates,ournewsfeedbusinesssignificantlygrewitsadvertisingrevenues.
Ourvideoadvertisingoutpacedtheindustryintermsofitsrevenueamountandrevenuegrowthrate,duetothepopularityofourcontent,especiallyself-commissionedcontent,andthestronggrowthinsponsorshipadvertisingrevenue.
AspartoftheCompany'sstrategicreorganisation,wemergedouradvertisingsalesteamstoprovidebettermarketingsolutions,dataanalytics,andadplacementprocessesforouradvertisers,thusenhancingtheirROIs.
PaymentisoneofthekeyinfrastructureplatformsoftheCompany,enablingusandourmerchantpartnerstocompletetransactionsforonlineandofflineservices.
WeextendedourmarketleadershipastheleadingmobilepaymentplatformbyactiveusersandnumberoftransactionsinChina.
Ourtotaldailypaymenttransactionvolumeexceeded1billionfor2018,drivenbyrapidgrowthincommercialpayments,whichrepresentedmorethanhalfofthenumberoftransactions.
Ourcommercialpaymentrevenuemorethandoubledyear-on-yearin2018.
Ourpaymentplatformconnectswithtensofmillionsofmerchantsandmonthlyactivemerchantsincreasedover80%year-on-yearinthefourthquarterof2018.
WeboostedourpaymentpenetrationinthefoodandretailindustriesthankstofeaturessuchasourMiniProgramsandScan-to-Paysolution.
InHongKong,welaunchedthefirst-of-its-kindcross-bordermobilepaymentserviceinOctober2018,whichenablesWeChatPayHongKonguserstoconductRMB-denominatedtransactionsfundedbyHongKongdollars.
Thiscross-bordermobilepaymentservicenowcoversapproximately1millionmerchantsinMainlandChina,includingtaxi-hailing,foodordering,andhigh-speedrailwayticketingservices.
ThetransactionvolumeofWeChatPayHongKongincreasedmorethan10timesyear-on-year.
WelaunchedWeChatPayMalaysiaservicesinAugust,offeringonlinetransactionssuchasmobilecredittop-ups,flightandbusticketpurchases,andofflinetransactionsatretailoutlets,suchassupermarkets,fashionandbeautystores.
Globally,weareexpandingourfootprintbysupportingChinaoutboundtravelerstomakecross-borderpaymentsinoverseasdestinations,andwenowofferreal-timetaxrefundservicesforWeixinPayusersinover80airports.
WeixinPayisnowavailablein49marketsoutsideMainlandChina,supportingcross-borderpaymenttransactionsin16currencies.
7Buildingonourpaymentuserbase,weofferFinTechservicestounder-servedconsumers,convenientlyandatlowcost.
LiCaiTong,ourwealthmanagementplatform,helpedmanageoverRMB600billionofcustomerassetsasoftheendof2018.
WeBank,ourassociatewithanonlinebankingbusiness,achievedrapidgrowthintheoutstandingloanbalanceofitsmicro-loanproductforconsumers,WeiLiDai.
WeBankalsoexpandeditsloanservicestoenterprises,servingthefinancingneedsforsmallandmicrobusinessescustomersthroughWeiYeDai.
TencentCloudisthefoundationforoursmartindustrysolutions.
WeintegrateourcloudcomputingtechnologywithAIanddataanalyticscapabilities,toassistthedigitaltransformationofvariousindustries.
Ouronlinesecuritycapabilitiesenhancethestabilityandreliabilityofourcloudsolutions.
During2018,TencentCloudmaintainedmarketleadershipinverticalssuchasonlinegamesandstreamingvideoleveragingourindustryknow-howandsolidinfrastructure.
WenowserveoverhalfoftheChina-basedgamescompaniesandareexpandingoverseas.
WeexpandedourcustomerbaserapidlyforInternetservicesviastrategicpartnershipinverticals.
KeycategoriesincludeeCommerce,socialmediaandcommunity,handsetmanufacturerappstoresandsmarttransportation.
Wehavefurtherexpandedourpresenceinotherkeyindustriessuchasfinancialandretailsectors.
WearethepartnerofchoicefortopbanksincludingBOC,CCBandCMB.
Majorityoftoponlinefinancecompaniesandinsurancefirmsareourclients.
OurretailcloudsolutionsbuildonouruniquepropertiessuchasOfficialAccountsandMiniProgramstoincreaseretailers'consumerengagement,enhancetheirmarketingROIviaourconsumertargetingandanti-fraudtechnologies,andupgradeinternaloperationsusingAI,LBSandbigdatatechnologies.
Inadditiontogrowingourcorebusinessesorganically,wemakestrategicinvestmentsinbest-in-classcompaniessowecanfocusourmanagementattentionandcompanyresourcesonourowncoreplatforms,whilecapturingemergingopportunitiesinadjacentverticalsthroughinvesteecompanies.
Wehaveinvestedinmorethan700companies.
Morethan100investeecompanieswerevaluedatoverUSD1billioneach.
Amongwhich,over60wentpublic.
WeenrichourIPportfolioincludinggames,video,musicandliteratureviaupstreaminvestments,andbroadenuserreachandengagementviainvestmentsinverticalplatforms.
Weworkwithbusinessesthatcanexpandourofferingstomeetevolvinguserneeds,andacceleratetheadoptionofourenterpriseservicesandproducts,suchasO2Oandsmartretailcompanies,whichhashelpedourpaymentservicepenetrationandadvertiserbaseexpansion.
And,weuseinvestmentsasatoolforbetterunderstandingfrontiertechnologieswhichwillbecomeimportanttoourfuture,suchasconnectedcars,Internet-facilitatedhealthcare,andquantumcomputing.
Ourinvestmentshavecreatedvalueforourinvesteecompaniesbyofferingthemaccesstoourlargeuserbase,andprovidingtheminfrastructure,technologyandcapitalsupporttobolstertheirgrowth.
8TencentHoldingsLimited2.
CompanyFinancialPerformanceInfiscalyear2018Revenuesincreasedby32%year-on-year,primarilydrivenbyFinTechservices,socialandvideoadvertising,anddigitalcontentsubscriptionsandsales.
Operatingprofitincreasedby8%year-on-year.
Non-GAAPoperatingprofitincreasedby13%year-on-year.
ProfitattributabletoequityholdersoftheCompanyincreasedby10%year-on-year.
Non-GAAPprofitattributabletoequityholdersoftheCompanyincreasedby19%.
3.
CompanyBusinessHighlightsOperatingInformationAsat31December2018Asat31December2017Year-on-yearchangeAsat30September2018Quarter-on-quarterchange(inmillions,unlessspecified)MAUofQQ807.
1783.
43.
0%802.
60.
6%SmartdeviceMAUofQQ699.
8683.
02.
5%697.
90.
3%CombinedMAUofWeixinandWeChat1,097.
6988.
611.
0%1,082.
51.
4%SmartdeviceMAUofQzone532.
4554.
0-3.
9%531.
10.
2%Fee-basedVASregisteredsubscriptions160.
3134.
619.
1%154.
14.
0%9CommunicationandSocial–WeixinandWeChat:CombinedMAUwas1,098million,upby11.
0%year-on-year.
HundredsofmillionsofsocialvideosareuploadedandsharedontheWeixinplatformeveryday.
Weenrichedouruserexperienceviaanewvideofunctionthatallowsuserstoshare15-secondminivideoclipswithAI-recommendedbackgroundmusicwithfriends.
WeChatWork,anenterpriseapplicationintegratedwithWeixin,allowscompaniestodeepenengagementwithcustomers,digitaliseuserprofilesfordataanalytics,facilitateofficeadministrationandenhanceinternalcommunication.
Itisseeingparticularlyrapidadoptionbylargeenterprises,providingashowcaseforSMEs.
Approximately80%ofthetop500enterprisesinChinaarenowregisteredasWeChatWorkcorporateusers.
–QQ:SmartdeviceMAUwas699.
8million,upby2.
5%year-on-year.
SmartdeviceMAUforusersaged21yearsorbelowincreasedby13%year-on-year.
Wefurtherincreasedyounguserstickinessbyenhancingthevideorecordingfunctionsandnewsfeedfeatures.
WelaunchedAI-poweredfiltersandstickersforvideochat,increasingthenumberofshortandminivideossharedbyyoungusersbyover50%year-on-year.
ForQQKanDian,weaddedabulletchattingfunctionwithinvideoandenhancedvideofeedrecommendationalgorithms,boostingtheclick-throughvolumeandincreasingusertimespent.
QQKanDiandailyvideoviewsroseover300%year-on-year.
OnlineGamesFor2018,oursmartphonegamesbusinessachievedRMB77.
8billionrevenues(includingsmartphonegamesrevenuesattributabletooursocialnetworksbusiness),up24%year-on-year;forthefourthquarter,itachievedRMB19.
0billionrevenues,up12%year-on-year.
Wereleased9licensedgamesinthefourthquarter,mostofwhichwereroleplayinggames.
Theindustryregulatorre-startedissuinggamemonetisationlicense("banhao")approvalsinDecember2018,afteranine-monthsuspension.
Atotalof8Tencentgames(including7smartphonegamesand1PCgame)havereceivedapprovalsofar,includingroleplayinggames,strategy,casualandfunctionalgenres.
Sincethereisasizeablebacklogforthebanhaoapplicationsintheindustry,ourscheduledgamereleaseswillinitiallybeslowerthaninsomeprioryears.
WehaveimplementedourupgradedHealthyGameplaySystemin39smartphonegames,includingourmostpopulartitlessuchasHonourofKings,QQSpeedMobile,CrossFireMobile,NarutoOLMobileandMT4.
Thesystemhasresultedinminorsspendingsignificantlylesstimeintheaffectedgames,butimmaterialimpactontimespentbyadultplayers.
10TencentHoldingsLimitedInChina,weincreasedourmarketshareinsmartphonegamesintermsofactiveusers.
Weenhanceduserengagementacrossmultiplegenres.
Foractiontitles,QQSpeedMobile'sanniversarypromotionsincreaseditsDAUsequentially.
CrossFireMobileintroducedaseasonpasstoencouragein-gameengagement.
Forroleplayinggames,welaunchedseveralIP-basedgamesthatattractedfansofpopularanimeandcomicfranchisessuchasBattlethroughtheHeavens,NarutoOLMobileandSamuraiSpirits.
ForMOBA,HonourofKingsorganiseditsflagshipeSportseventKPLFallFinalinDecember,attractingover75millionuniqueviewersforthelivebroadcast.
Ininternationalmarkets,PUBGMOBILEachievedbreakoutsuccess,becomingthemostpopulargamegloballybyMAU,andwasnamedtheBestGameof2018byGooglePlay.
Ourinvesteecompanies'successaddedtoourproventrackrecordofworkingwithcategoryleadersinthegamesindustry.
Forexample,Supercell'snewMOBAgameBrawlStarswasthemostdownloadedgamein50marketsafteritsgloballaunchinDecember2018.
And,EpicGames'Fortnitecontinueditsphenomenalsuccess,toppingUSiOSGrossingChartinthefourthquarter.
Sea'sfirstself-developedgame,FreeFire,wasthefourthmostdownloadedgamegloballyin2018,accordingtoAppAnnie.
OurPCclientgamesbusinessachievedapproximatelyRMB50.
6billionrevenues,down8%year-on-year,for2018,andapproximatelyRMB11.
2billionrevenuesforthefourthquarter,down13%year-on-yearasuserscontinuetoshifttimetomobile.
LeagueofLegendsintroduceditsfirstseasonpassandincreasedaverageusertimespent,withactiveusersgrowingsequentiallyafteraChinateamwontheWorldChampionshipinNovember2018.
WereleasedasequeltoNBA2KinChina,significantlyexpandingthetotaluserbaseofthispopularbasketballfranchise.
WelaunchedtwonewinternallydevelopedPCgames,IrisFallandBladedFury,tobetterservenicheaudienceinterests.
DigitalContentOurfee-basedVASsubscriptionswereupby19.
1%year-on-yearto160.
3million,mainlyattributabletogrowthinvideoandmusicsubscriptions.
TencentVideoexpandeditssubscriptioncountsto89million,up58%year-on-year,drivenbypremiumcontentandcross-promotions.
Wereleasedsequelstopopularself-commissionedIPs,extendingthelongevityandmonetisationopportunitiesoftheseIPs.
TheseincludedCandleintheTombSeason3inthedramacategory,theLandofWarriorsSeason2inChineseanime,andOnceUponABiteindocumentary(whoserelatedIPprogram,FlavorfulOrigins,welicensedtoNetflixfordistributionoutsideChina).
WeupgradedourVIPloyaltyprogramtooffersubscribersdifferenttiersofprivileges.
WemaintainedhealthyengagementtrendswithvideoviewsperDAUupover40%year-on-year,asconsumerswatchedmoreshortformvideos.
WearetheleadingstreamingplatformforsportsfansinChina,featuring40topglobalsportsIPs,includingthe4majorsportsleaguesintheUS.
Wedistributesportscontentinliveprograms,newsfeedsandshortvideosformatsacrossTencentSports,TencentNews,TencentVideo,MobileQQBrowserandWeiShi.
SincewebeganlicensingNBAlivestreamingrightsin2015,wehaveexpandedthetotalaudiencesizeforNBAgamesinChina.
Overtheperiod,averagedailyuniquevisitorsperlive-streamedNBAgameinChinahavetripled.
11OnlineAdvertisingOuronlineadvertisingbusinessachievedRMB58.
1billionrevenues,up44%year-on-year,for2018,andRMB17.
0billionrevenues,up38%year-on-year,forthefourthquarter.
SocialandothersadvertisinggrewtoRMB39.
8billion,up55%year-on-yearforthefullyear,andRMB11.
8billion,up44%year-on-yearforthefourthquarter,drivenbyWeixinMoments,MiniPrograms,QQKanDianandourmobileadvertisingnetwork.
WereceivedpositivefeedbackfromadvertisersafterthelaunchoftheseconddailyadunitforMoments,andtheoveralladfillratesremainedhigh.
About50%ofMomentsDAUwereshownthesecondadunit,andMomentsadclick-throughratesremainedathealthylevels.
MediaadvertisingrevenuesamountedtoRMB18.
3billion,up23%forthefullyear,andRMB5.
2billion,up26%forthefourthquarter.
Amongwhich,videoadvertisingrevenuesincreasedby34%year-on-yearfor2018and21%year-on-yearforthefourthquarter.
Theincreaseinthefourthquarterwasdrivenbymorevideoviewsandsponsorshipadvertisingforourpopularself-commissionedvarietyshows.
Ournewsadvertisingrevenuespickedupyear-on-yearinthelatterhalfoftheyear,recoveringfromoursystemrevamp.
Mediafeedadvertisingrevenuesgrewbyover10timesyear-on-year.
OthersOurotherbusinessesgrewrevenuesby80%year-on-yearfortheyear2018,primarilycontributedbyFinTechandcloudservices.
TheincreaseinFinTechrevenueswasdrivenbyourtake-rateoncommercialtransactionscollectedfrommerchants,cashwithdrawalfeesandcreditcardrepaymentchargescollectedfromusers,andtheservicefeesfromfinancialinstitutionsforthedistributionofFinTechproductssuchasWeiLiDaiandthewealthmanagementproductsonourLiCaiTongplatform.
InJanuary2019,wecompletedthetransitiontothecentralisedclearingandsettlementsystemandmovedallcustodiancashtotheaccountsofthePeople'sBankofChina.
Asweaddedmoreusecasesonlineandofflineforourpaymentservices,ourpaymentactiveusersincreasedrobustlyyear-on-year.
Users'transactionfrequencyandvaluepertransactionalsoincreased.
WeixinPaylaunchedanewuserinterfaceenablingeasieraccesstonewfeaturesincludingvirtualsubsidiarycardsforparentsandchildren.
Weenhancedaccountmanagementtoolsformerchants,includingcashregister,book-keepingandrevenuesharingsettlementfunctions.
LiCaiTongenlargeditsuserbase,reaching100millionaccumulatedusersbyendof2018.
WeexpandedourFinTechservicesbyrollingoutLingQianTong,whichenablesuserstoinvesttheunusedcashbalanceintheirWeixinPayaccountsinfunds.
Ourcloudrevenuesincreasedbyover100%toRMB9.
1billionfortheyear2018.
Payingcustomersmorethandoubledyear-on-yearinthefourthquarterof2018.
TencentCloud'sglobalinfrastructurecovered25regionsandoperated53availabilityzonesasoftheendof2018.
WedevelopedandlaunchednewIaaSandPaaSproductsinthefourthquarter.
Inadditiontostrengtheningourleadershipingamesandvideoverticals,wefurtherpromotedourpresenceinfinancialandretailcloudservices,leveragingourAIandsecuritycapabilities.
12TencentHoldingsLimited4.
CompanyOutlookandStrategiesfor2019Lookingahead,wewillinvestincoreinfrastructureandfrontiertechnologiestoembracethetrendoftheIndustrialInternet,whilecontinuingtodrivetheevolutionoftheConsumerInternet.
Wewillenableourenterprisepartnerstobetterconnectwithourusersviaanexpanding,openandconnectedecosystem.
Utilisingourinnovationandtechnologycapabilities,weseektoassistarangeofindustriesinundergoingdigitalupgradesandtransformation.
Foroursocialcommunicationsplatforms,wewillstrengthenconnectionsbetweenouruserswithdigitalcontent,aswellasonlineandofflineservices.
WewillalsoenhanceconnectionswithenterprisesleveragingMiniPrograms,WeixinPayandWeChatWork.
Foronlinegames,wewillstrengthenourgameportfoliothroughenhancingourinternalR&Dcapabilityandexternalpartnerships.
Wewillfurtherexpandouroverseasbusinessthroughexploringnewgamegenresandstrengtheningouroverseaspublishingcapability.
Fordigitalcontent,wewillcontinuetoinvestandgrowoursubscriptionbusiness.
Foradvertising,wewillstrengthenourusertargetingcapabilitiestofurtherincreaseourROIstoadvertisersandrelevancetoconsumers.
ForFinTech,wewilldriveinnovationinourpaymentproductdevelopmentandaddnewpaymentusecases.
WewillalsoexpandourFinTechsolutionsandproductportfoliotocatertothewealthmanagementandfinancialneedsofourusers.
Forcloud,wewillintegrateouradvancedcloudcomputingcapability,dataanalytics,AIandsecuritysolutions,todevelopcustomisedsolutionsforvariousindustriessuchasretail,financial,transportation,healthcareandeducation.
Wewillassistenterprisesinupgradingandinnovatingforthedigitalage.
DIVIDENDTheBoardhasrecommendedthepaymentofafinaldividendofHKD1.
00pershare(2017:HKD0.
88pershare)fortheyearended31December2018,subjecttotheapprovaloftheshareholdersatthe2019AGM.
Suchproposeddividendwillbepayableon31May2019totheshareholderswhosenamesappearontheregisterofmembersoftheCompanyon22May2019.
13APPRECIATIONOnbehalfoftheBoard,Iwouldliketothankourstaffandmanagementteamfortheirefforts,dedicationanddevotiontotheGroup.
IwouldalsoliketoexpressoursinceregratitudetoourshareholdersandstakeholdersfortheirunwaveringsupporttotheGroup.
Weareconfidentthatourcommitmenttobuildanecosystemtoenhanceouruserexperience,andthestrategicupgradetostepintotheIndustrialInterneterawillcreatevalueforourshareholders.
MaHuatengChairmanHongKong,21March201914TencentHoldingsLimitedYEARENDED31DECEMBER2018COMPAREDTOYEARENDED31DECEMBER2017Thefollowingtablesetsforththecomparativefiguresfortheyearsended31December2018and2017:Yearended31December20182017(RMBinmillions)Revenues312,694237,760Costofrevenues(170,574)(120,835)Grossprofit142,120116,925Interestincome4,5693,940Othergains,net16,71420,140Sellingandmarketingexpenses(24,233)(17,652)Generalandadministrativeexpenses(41,522)(33,051)Operatingprofit97,64890,302Financecosts,net(4,669)(2,908)Shareofprofitofassociatesandjointventures1,487821Profitbeforeincometax94,46688,215Incometaxexpense(14,482)(15,744)Profitfortheyear79,98472,471Attributableto:EquityholdersoftheCompany78,71971,510Non-controllinginterests1,26596179,98472,471Non-GAAPprofitattributabletoequityholdersoftheCompany77,46965,12615Revenues.
Revenuesincreasedby32%toRMB312.
7billionfortheyearended31December2018onayear-on-yearbasis.
Thefollowingtablesetsforthourrevenuesbylineofbusinessfortheyearsended31December2018and2017:Yearended31December20182017Amount%oftotalrevenuesAmount%oftotalrevenues(RMBinmillions,unlessspecified)VAS176,64656%153,98365%Onlineadvertising58,07919%40,43917%Others77,96925%43,33818%Totalrevenues312,694100%237,760100%–RevenuesfromourVASbusinessincreasedby15%toRMB176.
6billionfortheyearended31December2018onayear-on-yearbasis.
Onlinegamesrevenuesgrewby6%toRMB104.
0billion.
TheincreaseprimarilyreflectedgrowthinrevenuesfromourexistingsmartphonegamessuchasHonourofKingsandQQSpeedMobile,andnewtitlessuchasMUAwakeningandQQDancersMobile.
RevenuesfromourPCclientgamesdecreasedmainlyduetousers'timeshifttosmartphonegamesalthoughsomeindividualPCgamesperformedrobustly.
Socialnetworksrevenuesincreasedby30%toRMB72,654million.
Theincreasewasmainlyduetohighercontributionsfromourdigitalcontentservicessuchaslivebroadcastservicesandvideostreamingsubscriptions,aswellasfromin-gamevirtualitemsales.
–Revenuesfromouronlineadvertisingbusinessincreasedby44%toRMB58,079millionfortheyearended31December2018onayear-on-yearbasis.
Socialandothersadvertisingrevenuesincreasedby55%toRMB39,773million.
TheincreasemainlyreflectedhigheradvertisingrevenuesderivedfromWeixinMoments,MiniProgramsandourmobileadvertisingnetwork.
Mediaadvertisingrevenuesgrewby23%toRMB18,306million.
TheincreasewasprimarilydrivenbygreateradvertisingrevenuesfromTencentVideo.
–Revenuesfromourotherbusinessesincreasedby80%toRMB77,969millionfortheyearended31December2018onayear-on-yearbasis.
TheincreasewasmainlyduetorevenuegrowthfromourFinTechandcloudservices.
16TencentHoldingsLimitedCostofrevenues.
Costofrevenuesincreasedby41%toRMB170.
6billionfortheyearended31December2018onayear-on-yearbasis.
Theincreaseprimarilyreflectedgreatercontentcosts,costsofFinTechservices,andchannelcosts.
Asapercentageofrevenues,costofrevenuesincreasedto55%fortheyearended31December2018from51%fortheyearended31December2017.
Thefollowingtablesetsforthourcostofrevenuesbylineofbusinessfortheyearsended31December2018and2017:Yearended31December20182017Amount%ofsegmentrevenuesAmount%ofsegmentrevenues(RMBinmillions,unlessspecified)VAS73,96142%61,38940%Onlineadvertising37,27364%25,58663%Others59,34076%33,86078%Totalcostofrevenues170,574120,835–CostofrevenuesforourVASbusinessincreasedby20%toRMB73,961millionfortheyearended31December2018onayear-on-yearbasis.
Theincreasewasmainlyduetogreatercontentcostsforservicesandproductsincludinglivebroadcast,videostreamingsubscriptionsandonlinegames,aswellashigherchannelcostsforoursmartphonegames.
–Costofrevenuesforouronlineadvertisingbusinessincreasedby46%toRMB37,273millionfortheyearended31December2018onayear-on-yearbasis.
Theincreasewasprimarilydrivenbygreatercontentcosts,trafficacquisitioncostsandadvertisingcommissions.
–Costofrevenuesforourotherbusinessesincreasedby75%toRMB59,340millionfortheyearended31December2018onayear-on-yearbasis,mainlyreflectingtheincreasedscaleofourFinTechandcloudservices.
17Othergains,net.
WerecordednetothergainstotallingRMB16,714millionfortheyearended31December2018.
Therewereincreasesinvaluationsforcertaininvesteecompanies,includingafairvaluegainfromMeituanDianpinguponitsIPO,partlyoffsetbyimpairmentprovisionsforcertainotherinvesteecompanies.
Sellingandmarketingexpenses.
Sellingandmarketingexpensesincreasedby37%toRMB24,233millionfortheyearended31December2018onayear-on-yearbasis.
Theincreasewasmainlydrivenbygreatermarketingspendingonservicesandproductssuchasdigitalcontentservices,FinTechservicesandsmartphonegames.
Asapercentageofrevenues,sellingandmarketingexpensesincreasedto8%fortheyearended31December2018from7%fortheyearended31December2017.
Generalandadministrativeexpenses.
Generalandadministrativeexpensesincreasedby26%toRMB41,522millionfortheyearended31December2018onayear-on-yearbasis.
TheincreasemainlyreflectedgreaterR&Dexpensesandstaffcostsasaresultofourexpandedbusinessvolume.
Asapercentageofrevenues,generalandadministrativeexpensesdecreasedto13%fortheyearended31December2018from14%fortheyearended31December2017.
Financecosts,net.
Netfinancecostsincreasedby61%toRMB4,669millionfortheyearended31December2018onayear-on-yearbasis.
Theincreaseprimarilyreflectedgreaterinterestexpensesdrivenbyhigheramountofindebtedness.
Incometaxexpense.
Incometaxexpensedecreasedby8%toRMB14,482millionfortheyearended31December2018onayear-on-yearbasis.
Thedecreasewasmainlyduetotheentitlementsofpreferentialtaxtreatmentsandbenefits.
ProfitattributabletoequityholdersoftheCompany.
ProfitattributabletoequityholdersoftheCompanyincreasedby10%toRMB78,719millionfortheyearended31December2018onayear-on-yearbasis.
Non-GAAPprofitattributabletoequityholdersoftheCompanyincreasedby19%toRMB77,469millionfortheyearended31December2018.
18TencentHoldingsLimitedFOURTHQUARTEROF2018COMPAREDTOFOURTHQUARTEROF2017Thefollowingtablesetsforththecomparativefiguresforthefourthquarterof2018andthefourthquarterof2017:UnauditedThreemonthsended31December201831December2017(RMBinmillions)Revenues84,89666,392Costofrevenues(49,744)(34,897)Grossprofit35,15231,495Interestincome1,3501,156Other(losses)/gains,net(2,139)7,906Sellingandmarketingexpenses(5,730)(6,022)Generalandadministrativeexpenses(11,345)(8,811)Operatingprofit17,28825,724Financecosts,net(1,372)(859)Shareofprofit/(loss)ofassociatesandjointventures16(120)Profitbeforeincometax15,93224,745Incometaxexpense(1,906)(3,123)Profitfortheperiod14,02621,622Attributableto:EquityholdersoftheCompany14,22920,797Non-controllinginterests(203)82514,02621,622Non-GAAPprofitattributabletoequityholdersoftheCompany19,73017,45419Revenues.
Revenuesincreasedby28%toRMB84,896millionforthefourthquarterof2018onayear-on-yearbasis.
Thefollowingtablesetsforthourrevenuesbylineofbusinessforthefourthquarterof2018andthefourthquarterof2017:UnauditedThreemonthsended31December201831December2017Amount%oftotalrevenuesAmount%oftotalrevenues(RMBinmillions,unlessspecified)VAS43,65151%39,94760%Onlineadvertising17,03320%12,36119%Others24,21229%14,08421%Totalrevenues84,896100%66,392100%–RevenuesfromourVASbusinessincreasedby9%toRMB43,651millionforthefourthquarterof2018onayear-on-yearbasis.
OnlinegamesrevenueswereRMB24,199million,broadlystablecomparedtothefourthquarterof2017.
Socialnetworksrevenuesgrewby25%toRMB19,452million.
Theincreasemainlyreflectedgrowthinrevenuesfromdigitalcontentservicessuchaslivebroadcastservicesandvideostreamingsubscriptions.
–Revenuesfromouronlineadvertisingbusinessincreasedby38%toRMB17,033millionforthefourthquarterof2018onayear-on-yearbasis.
Socialandothersadvertisingrevenuesincreasedby44%toRMB11,846million,primarilycontributedbyanincreaseinadvertisingrevenuesderivedfromWeixinMoments,MiniProgramsandQQKanDian.
Mediaadvertisingrevenuesgrewby26%toRMB5,187million,mainlyreflectingcontributionsfromourmediaplatformssuchasTencentVideoandTencentNews.
–Revenuesfromourotherbusinessesincreasedby72%toRMB24,212millionforthefourthquarterof2018onayear-on-yearbasis.
TheincreasemainlyreflectedhigherrevenuesfromourFinTechandcloudservices,aswellasfilmandtelevisionproductionbusiness.
20TencentHoldingsLimitedCostofrevenues.
Costofrevenuesincreasedby43%toRMB49,744millionforthefourthquarterof2018onayear-on-yearbasis.
Theincreasemainlyreflectedgreatercontentcosts,costsofFinTechservices,aswellaschannelcosts.
Asapercentageofrevenues,costofrevenuesincreasedto59%forthefourthquarterof2018from53%forthefourthquarterof2017.
Thefollowingtablesetsforthourcostofrevenuesbylineofbusinessforthefourthquarterof2018andthefourthquarterof2017:UnauditedThreemonthsended31December201831December2017Amount%ofsegmentrevenuesAmount%ofsegmentrevenues(RMBinmillions,unlessspecified)VAS20,33047%16,26841%Onlineadvertising10,80063%7,75963%Others18,61477%10,87077%Totalcostofrevenues49,74434,897–CostofrevenuesforourVASbusinessincreasedby25%toRMB20,330millionforthefourthquarterof2018onayear-on-yearbasis.
Theincreasewasprimarilyduetogreatercontentcostsforvideostreamingsubscriptions,livebroadcastservicesandonlinegames.
Channelcostsforoursmartphonegamesalsoincreased.
–Costofrevenuesforouronlineadvertisingbusinessincreasedby39%toRMB10,800millionforthefourthquarterof2018onayear-on-yearbasis.
Theincreasewasmainlyduetogreatercontentcostsandadvertisingcommissions.
–Costofrevenuesforourotherbusinessesincreasedby71%toRMB18,614millionforthefourthquarterof2018onayear-on-yearbasis.
TheincreasewasprimarilydrivenbythescaleexpansionofourFinTechandcloudservices,aswellasfilmandtelevisionproductionbusiness.
21Other(losses)/gains,net.
WerecordednetotherlossesofRMB2,139millionforthefourthquarterof2018,whichprimarilyconsistedofone-offexpensesinrespectoftheissuanceofordinarysharestostrategicpartnersrecognisedbyTME,aswellasimpairmentprovisionsforcertaininvesteecompanies,reflectingrevisionsoftheirfinancialoutlookandchangesinthemarketenvironment.
Sellingandmarketingexpenses.
Sellingandmarketingexpensesdecreasedby5%toRMB5,730millionforthefourthquarterof2018onayear-on-yearbasis.
Thedecreasewasprimarilydrivenbythereductionofadvertisingandpromotionexpensesduetointernalinitiativestoreducelesseffectivemarketingcampaigns.
Asapercentageofrevenues,sellingandmarketingexpensesdecreasedto7%forthefourthquarterof2018from9%forthefourthquarterof2017.
Generalandadministrativeexpenses.
Generalandadministrativeexpensesincreasedby29%toRMB11,345millionforthefourthquarterof2018onayear-on-yearbasis.
TheincreasemainlyreflectedgreaterR&Dexpensesandstaffcosts.
Asapercentageofrevenues,generalandadministrativeexpenseswere13%forthefourthquarterof2018,broadlystablecomparedtothefourthquarterof2017.
Financecosts,net.
Netfinancecostsincreasedby60%toRMB1,372millionforthefourthquarterof2018onayear-on-yearbasis.
Theincreasewasprimarilyduetogreaterinterestexpensesasaresultofhigheramountofindebtedness.
Incometaxexpense.
Incometaxexpensedecreasedby39%toRMB1,906millionforthefourthquarterof2018onayear-on-yearbasis.
Thedecreasemainlyreflectedtheentitlementsofpreferentialtaxtreatmentsandbenefits.
ProfitattributabletoequityholdersoftheCompany.
ProfitattributabletoequityholdersoftheCompanydecreasedby32%toRMB14,229millionforthefourthquarterof2018onayear-on-yearbasis.
Thedecreasewasgreatlyaffectedbynon-cashexpensesrelatedtocapitalraisingatasubsidiaryinthefourthquarterof2018,coupledwithsubstantialdeemeddisposalgainsrelatingtothecapitalactivitiesofcertaininvesteecompanies(suchastheIPOsofYixin,SeaandSogou)inthefourthquarterof2017.
Non-GAAPprofitattributabletoequityholdersoftheCompanyincreasedby13%toRMB19,730million.
22TencentHoldingsLimitedFOURTHQUARTEROF2018COMPAREDTOTHIRDQUARTEROF2018Thefollowingtablesetsforththecomparativefiguresforthefourthquarterof2018andthethirdquarterof2018:UnauditedThreemonthsended31December201830September2018(RMBinmillions)Revenues84,89680,595Costofrevenues(49,744)(45,115)Grossprofit35,15235,480Interestincome1,3501,082Other(losses)/gains,net(2,139)8,762Sellingandmarketingexpenses(5,730)(6,573)Generalandadministrativeexpenses(11,345)(10,890)Operatingprofit17,28827,861Financecosts,net(1,372)(1,492)Shareofprofitofassociatesandjointventures16264Profitbeforeincometax15,93226,633Incometaxexpense(1,906)(3,228)Profitfortheperiod14,02623,405Attributableto:EquityholdersoftheCompany14,22923,333Non-controllinginterests(203)7214,02623,405Non-GAAPprofitattributabletoequityholdersoftheCompany19,73019,71023Revenues.
Revenuesincreasedby5%toRMB84,896millionforthefourthquarterof2018onaquarter-on-quarterbasis.
–RevenuesfromourVASbusinesswereRMB43,651millionforthefourthquarterof2018,broadlystablecomparedtothepreviousquarter.
Onlinegamesrevenuesdecreasedby6%toRMB24,199million.
ThedecreasemainlyreflectedlowerrevenuesfromourPCclientgamessuchasDnF.
Socialnetworksrevenuesincreasedby7%toRMB19,452million.
Theincreasewasprimarilydrivenbyrevenuegrowthfromourdigitalcontentservicessuchaslivebroadcastservicesandvideostreamingsubscriptions.
–Revenuesfromouronlineadvertisingbusinessincreasedby5%toRMB17,033millionforthefourthquarterof2018.
Socialandothersadvertisingrevenuesgrewby6%toRMB11,846million.
TheincreasemainlyreflectedhigheradvertisingrevenuesderivedfromWeixin.
Mediaadvertisingrevenuesincreasedby2%toRMB5,187million.
–Revenuesfromourotherbusinessesincreasedby19%toRMB24,212millionforthefourthquarterof2018.
Theincreasewasmainlyduetogrowthinrevenuesfromfilmandtelevisionproductionbusiness,FinTechandcloudservices.
Costofrevenues.
Costofrevenuesincreasedby10%toRMB49,744millionforthefourthquarterof2018onaquarter-on-quarterbasis.
Theincreaseprimarilyreflectedgreatercontentcosts,costsofFinTechservicesandchannelcosts.
Asapercentageofrevenues,costofrevenuesincreasedto59%forthefourthquarterof2018from56%forthethirdquarterof2018.
–CostofrevenuesforourVASbusinessincreasedby6%toRMB20,330millionforthefourthquarterof2018.
Theincreasewasprimarilydrivenbygreatercontentcostsforourlivebroadcastservices,musicservicesandsmartphonegames.
–Costofrevenuesforouronlineadvertisingbusinessincreasedby5%toRMB10,800millionforthefourthquarterof2018.
Theincreasewasmainlyduetogreateradvertisingcommissionsandtrafficacquisitioncosts,partlyoffsetbylowercontentcosts.
–Costofrevenuesforourotherbusinessesincreasedby19%toRMB18,614millionforthefourthquarterof2018.
ThegrowthprimarilyderivedfromourFinTechservices,filmandtelevisionproductionbusinessandcloudservices.
Other(losses)/gains,net.
WerecordednetotherlossesofRMB2,139millionforthefourthquarterof2018,whichprimarilyconsistedofone-offexpensesinrespectoftheissuanceofordinarysharestostrategicpartnersrecognisedbyTME,aswellasimpairmentprovisionsforcertaininvesteecompanies,reflectingrevisionsoftheirfinancialoutlookandchangesinthemarketenvironment.
Sellingandmarketingexpenses.
Sellingandmarketingexpensesdecreasedby13%toRMB5,730millionforthefourthquarterof2018onaquarter-on-quarterbasis.
Thedecreasemainlyreflectedloweradvertisingandpromotionexpenses,resultingfrominternalinitiativestoreducelesseffectivemarketingcampaigns.
24TencentHoldingsLimitedGeneralandadministrativeexpenses.
Generalandadministrativeexpensesincreasedby4%toRMB11,345millionforthefourthquarterof2018onaquarter-on-quarterbasis.
Theincreasemainlyreflectedgreaterspendingonstafffringebenefitsandconferencefees.
Incometaxexpense.
Incometaxexpensedecreasedby41%toRMB1,906millionforthefourthquarterof2018onaquarter-on-quarterbasis.
Thedecreasewasprimarilydrivenbyreversalsofincometaxprovisionsresultingfromtheentitlementsofpreferentialtaxtreatmentsandbenefits,partlyoffsetbygreaterwithholdingtax.
ProfitattributabletoequityholdersoftheCompany.
ProfitattributabletoequityholdersoftheCompanydecreasedby39%toRMB14,229millionforthefourthquarterof2018onaquarter-on-quarterbasis.
Thedecreasewasgreatlyaffectedbynon-cashexpensesrelatedtocapitalraisingatasubsidiaryinthefourthquarterof2018versushigherfairvaluegainsfromcertaininvesteecompanies(includingafairvaluegainfromMeituanDianpinguponitsIPO)inthethirdquarterof2018.
Non-GAAPprofitattributabletoequityholdersoftheCompanywasRMB19,730million,essentiallyflatquarter-on-quarter.
OTHERFINANCIALINFORMATIONUnauditedThreemonthsendedYearended31December30September31December31December20182018201720182017(RMBinmillions,unlessspecified)EBITDA(a)27,18027,56823,278110,40489,724AdjustedEBITDA(a)29,70129,57725,127118,27395,861AdjustedEBITDAmargin(b)35%37%38%38%40%Interestandrelatedexpenses1,3451,2988394,8983,060Net(debt)/cash(c)(12,170)(29,227)16,332(12,170)16,332Capitalexpenditures(d)4,5645,9744,97523,94113,585Note:(a)EBITDAconsistsofoperatingprofitlessinterestincomeandothergains/losses,net,andplusdepreciationofproperty,plantandequipmentaswellasinvestmentproperties,andamortisationofintangibleassets.
AdjustedEBITDAconsistsofEBITDAplusequity-settledshare-basedcompensationexpenses.
(b)AdjustedEBITDAmarginiscalculatedbydividingAdjustedEBITDAbyrevenues.
(c)Net(debt)/cashrepresentsperiodendbalanceandiscalculatedascashandcashequivalents,plustermdepositsandothers,minusborrowingsandnotespayable.
(d)Capitalexpendituresconsistofadditions(excludingbusinesscombinations)toproperty,plantandequipment,constructioninprogress,investmentproperties,landuserightsandintangibleassets(excludingmediacontents,gamelicensesandothercontents).
25ThefollowingtablereconcilesouroperatingprofittoourEBITDAandadjustedEBITDAfortheperiodspresented:UnauditedThreemonthsendedYearended31December30September31December31December20182018201720182017(RMBinmillions,unlessspecified)Operatingprofit17,28827,86125,72497,64890,302Adjustments:Interestincome(1,350)(1,082)(1,156)(4,569)(3,940)Otherlosses/(gains),net2,139(8,762)(7,906)(16,714)(20,140)Depreciationofproperty,plantandequipmentandinvestmentproperties2,5202,3211,3768,4234,880Amortisationofintangibleassets6,5837,2305,24025,61618,622EBITDA27,18027,56823,278110,40489,724Equity-settledshare-basedcompensation2,5212,0091,8497,8696,137AdjustedEBITDA29,70129,57725,127118,27395,861NON-GAAPFINANCIALMEASURESTosupplementtheconsolidatedresultsoftheGrouppreparedinaccordancewithIFRS,certainadditionalnon-GAAPfinancialmeasures(intermsof,operatingprofit,operatingmargin,profitfortheperiod,netmargin,profitattributabletoequityholdersoftheCompany,basicEPSanddilutedEPS),havebeenpresentedinthisannualreport.
Theseunauditednon-GAAPfinancialmeasuresshouldbeconsideredinadditionto,notasasubstitutefor,measuresoftheGroup'sfinancialperformancepreparedinaccordancewithIFRS.
Inaddition,thesenon-GAAPfinancialmeasuresmaybedefineddifferentlyfromsimilartermsusedbyothercompanies.
TheCompany'smanagementbelievesthatthenon-GAAPfinancialmeasuresprovideinvestorswithusefulsupplementaryinformationtoassesstheperformanceoftheGroup'scoreoperationsbyexcludingcertainnon-cashitemsandcertainimpactsofM&Atransactions.
Inaddition,non-GAAPadjustmentsincluderelevantnon-GAAPadjustmentsfortheGroup'smaterialassociatesbasedonavailablepublishedfinancialsoftherelevantmaterialassociates,orestimatesmadebytheCompany'smanagementbasedonavailableinformation,certainexpectations,assumptionsandpremises.
26TencentHoldingsLimitedThefollowingtablessetforththereconciliationsoftheGroup'snon-GAAPfinancialmeasuresforthefourthquarterof2018and2017,thethirdquarterof2018,andtheyearsended31December2018and2017tothenearestmeasurespreparedinaccordancewithIFRS:Unauditedthreemonthsended31December2018AdjustmentsAsreportedShare-basedcompensationNet(gains)/lossesfrominvesteecompaniesAmortisationofintangibleassetsImpairmentprovisionNon-GAAP(a)(b)(c)(d)(RMBinmillions,unlessspecified)Operatingprofit17,2882,4591,57919886422,388Profitfortheperiod14,0262,8795171,88293620,240Profitattributabletoequityholders14,2292,804(125)1,8141,00819,730EPS(RMBpershare)–basic1.
5052.
087–diluted1.
4892.
065Operatingmargin20%26%Netmargin17%24%Unauditedthreemonthsended30September2018AdjustmentsAsreportedShare-basedcompensationNet(gains)/lossesfrominvesteecompaniesAmortisationofintangibleassetsImpairmentprovisionNon-GAAP(a)(b)(c)(d)(RMBinmillions,unlessspecified)Operatingprofit27,8612,011(20,949)12713,51322,563Profitfortheperiod23,4053,531(20,840)91613,41120,423Profitattributabletoequityholders23,3333,458(20,819)87612,86219,710EPS(RMBpershare)–basic2.
4692.
085–diluted2.
4402.
061Operatingmargin35%28%Netmargin29%25%27Unauditedthreemonthsended31December2017AdjustmentsAsreportedShare-basedcompensationNet(gains)/lossesfrominvesteecompaniesAmortisationofintangibleassetsImpairmentprovisionNon-GAAP(a)(b)(c)(d)(RMBinmillions,unlessspecified)Operatingprofit25,7241,874(6,281)11242421,853Profitfortheperiod21,6222,146(6,229)47435818,371Profitattributabletoequityholders20,7972,084(6,189)44232017,454EPS(RMBpershare)–basic2.
2061.
852–diluted2.
1771.
827Operatingmargin39%33%Netmargin33%28%Yearended31December2018AdjustmentsAsreportedShare-basedcompensationNet(gains)/lossesfrominvesteecompaniesAmortisationofintangibleassetsImpairmentprovisionNon-GAAP(a)(b)(c)(d)(RMBinmillions,unlessspecified)Operatingprofit97,6487,900(31,168)52417,57792,481Profitfortheyear79,98410,654(32,121)4,14217,63380,292Profitattributabletoequityholders78,71910,325(32,696)3,96417,15777,469EPS(RMBpershare)–basic8.
3368.
203–diluted8.
2288.
097Operatingmargin31%30%Netmargin26%26%28TencentHoldingsLimitedYearended31December2017AdjustmentsAsreportedShare-basedcompensationNet(gains)/lossesfrominvesteecompaniesAmortisationofintangibleassetsImpairmentprovisionNon-GAAP(a)(b)(c)(d)(RMBinmillions,unlessspecified)Operatingprofit90,3026,253(17,816)4902,79482,023Profitfortheyear72,4717,080(18,112)1,8413,12466,404Profitattributabletoequityholders71,5106,875(18,051)1,7063,08665,126EPS(RMBpershare)–basic7.
5986.
920–diluted7.
4996.
830Operatingmargin38%34%Netmargin30%28%Note:(a)Includingputoptionsgrantedtoemployeesofinvesteecompaniesontheirsharesandsharestobeissuedunderinvesteecompanies'share-basedincentiveplanswhichcanbeacquiredbytheGroup,andotherincentives(b)Includingnet(gains)/lossesondeemeddisposals/disposalsofinvesteecompanies,fairvaluechangesarisingfrominvesteecompanies,andotherexpensesinrelationtoequitytransactionsofinvesteecompanies(c)Amortisationofintangibleassetsresultingfromacquisitions,netofrelateddeferredtax(d)Impairmentprovisionsforassociates,jointventures,AFS(2017)andintangibleassetsarisingfromacquisitions29INVESTMENTSHELDAsat31December2018,ourinvestmentportfolioamountedtoapproximatelyRMB369,186million(31December2017:RMB275,617million)asrecordedintheconsolidatedstatementoffinancialpositionundervariouscategoriesincluding:–investmentsinassociatesandjointventureswhichareaccountedforbyusingequitymethod;–available-for-salefinancialassets(2017);–financialassetsatfairvaluethroughprofitorlossandthroughothercomprehensiveincome;–investmentsinredeemableinstrumentsofassociates(2017);and–otherfinancialassets(2017).
Changesinrespectiveitemsintheconsolidatedstatementoffinancialpositionhavebeendisclosedinthenotestotheconsolidatedfinancialstatementsinthisannualreport.
Wemanageourinvestmentportfoliowithaprimaryobjectivetostrengthenourleadingpositionincorebusinessesandcomplementour"Connection"strategyinvariousindustries,particularlyinsocialanddigitalcontent,O2Oandsmartretailsectors.
Wealsoinvestintransportation,FinTech,cloudandothersectors.
Thefairvalueofourstakesinlistedinvesteecompanies(excludingsubsidiaries)amountedtoRMB238,040millionasat31December2018(31December2017:RMB210,848million).
OtherthanMeituanDianpingasdisclosedinNote20totheconsolidatedfinancialstatements,noneofthecarryingamountofanyofourinvestments(includinglistedinvesteecompanies)constitutes5%ormoreofourtotalassetsasat31December2018.
WerecordedreturnfromourinvestmentportfolioamountedtoRMB17,285millionfortheyearended31December2018,withadecreaseof2%comparedtolastyear.
Detailsofourreturnfrominvestmentportfolioareasfollows:IncomeofPrincipalInvestment20182017(Classifiedbynatureofincome)RMB'MillionRMB'MillionDividendincome6861,713Netgainsondisposalsanddeemeddisposalsofinvesteecompanies2,93213,518Netfairvaluegains29,7574,298Impairmentprovisionforinvesteecompaniesandintangibleassetsfromacquisitions(17,577)(2,794)Shareofprofitofassociatesandjointventures1,487821Wecontinuetocloselymonitortheperformanceofourinvestmentportfolioandstrategicallymakeinvestments,M&A,andexploreopportunitiesinmonetisingsomeoftheexistinginvestmentsifappropriateopportunitiesinthemarketarise.
30TencentHoldingsLimitedLIQUIDITYANDFINANCIALRESOURCESOurcashpositionsasat31December2018and30September2018areasfollows:AuditedUnaudited31December201830September2018(RMBinmillions)Cashandcashequivalents97,814105,394Termdepositsandothers69,30539,079167,119144,473Borrowings(114,271)(108,543)Notespayable(65,018)(65,157)Netdebt(12,170)(29,227)Fairvalueofourstakesinlistedinvesteecompanies(excludingsubsidiaries)238,040273,104Asat31December2018,theGrouphadnetdebtofRMB12,170million,comparedtonetdebtofRMB29,227millionasof30September2018.
Thesequentialdecreaseinindebtednesswasmainlyduetofreecashflowgeneration,proceedsfromTME'scapitalraisingactivitiesanddisposalsofourstakesincertaininvesteecompanies,partiallyoffsetbypaymentsforM&Ainitiativesandmediacontent.
Forthefourthquarterof2018,theGrouphadfreecashflowofRMB28,623million.
ThiswasaresultofnetcashflowgeneratedfromoperatingactivitiesofRMB33,221million,offsetbypaymentsforcapitalexpenditureofRMB4,598million.
31Thedirectorshavepleasureinpresentingtheirreporttogetherwiththeauditedfinancialstatementsfortheyearended31December2018.
PRINCIPALACTIVITIESTheprincipalactivityoftheCompanyisinvestmentholding.
TheactivitiesoftheprincipalsubsidiariesaresetoutinNote46totheconsolidatedfinancialstatements.
TheanalysisoftheGroup'srevenuesandcontributiontoresultsbybusinesssegmentsandtheGroup'srevenuesbygeographicalareaofoperationsaresetoutinNote5totheconsolidatedfinancialstatements.
RESULTSANDAPPROPRIATIONSTheresultsoftheGroupfortheyeararesetoutintheconsolidatedstatementofcomprehensiveincomeonpage133ofthisannualreport.
ThedirectorshaverecommendedthepaymentofafinaldividendofHKD1.
00persharefortheyearended31December2018.
Thedividendisexpectedtobepayableon31May2019totheshareholderswhosenamesappearontheregisterofmembersoftheCompanyon22May2019.
ThetotaldividendfortheyearunderreviewisHKD1.
00pershare.
RESERVESTheCompanymaypaydividendsoutofsharepremium,retainedearningsandanyotherreservesprovidedthatimmediatelyfollowingthepaymentofsuchdividendstheCompanywillbeinapositiontopayoffitsdebtsastheyfalldueintheordinarycourseofbusiness.
Asat31December2018,theCompanyhaddistributablereservesamountingtoRMB28,385million(2017:RMB26,074million).
DetailsofthemovementsinthereservesoftheGroupandtheCompanyduringtheyeararesetoutintheconsolidatedstatementofchangesinequityonpages137to139,Note31,Note32andNote45totheconsolidatedfinancialstatementsrespectively.
PROPERTY,PLANTANDEQUIPMENTDetailsofthemovementsinproperty,plantandequipmentoftheGroupduringtheyeararesetoutinNote16totheconsolidatedfinancialstatements.
32TencentHoldingsLimitedBUSINESSREVIEWANDDIVIDENDAfairreviewofthebusinessoftheGroup,comprisingadiscussionandanalysisoftheGroup'sperformanceduringtheyear,particularsofimportanteventsaffectingtheGroupthathaveoccurredsincetheendofthefinancialyear2018andanindicationoflikelyfuturedevelopmentinthebusinessoftheGroupaswellastheproposeddividendfortheyearended31December2018aresetoutinthe"Chairman'sStatement"onpages4to13ofthisannualreport.
Ananalysisusingfinancialkeyperformanceindicatorsissetoutinthe"ManagementDiscussionandAnalysis"onpages14to30ofthisannualreport.
DiscussionsontheGroup'senvironmentalpoliciesandperformance,andanaccountoftheGroup'skeyrelationshipswithitsstakeholdersaresetoutinthe"Environmental,SocialandGovernanceReport"onpages100to122ofthisannualreport.
DetailsregardingtheGroup'scompliancewiththerelevantlawsandregulationswhichhaveasignificantimpactontheGrouparealsosetoutinthe"Environmental,SocialandGovernanceReport"onpages100to122andthe"CorporateGovernanceReport"onpages76to99aswellasonpage73ofthisannualreport.
AdescriptionoftheprincipalrisksanduncertaintiesfacingtheGroupissetoutin"CorporateGovernanceReport"onpages76to99ofthisannualreport.
Allsuchdiscussionsformpartofthisreport.
SHARECAPITALDetailsofthemovementsinthesharecapitaloftheCompanyduringtheyeararesetoutinNote31totheconsolidatedfinancialstatements.
SUBSIDIARIESParticularsoftheCompany'sprincipalsubsidiariesasat31December2018aresetoutinNote46totheconsolidatedfinancialstatements.
BORROWINGSParticularsoftheGroup'sborrowingsandnotespayablearesetoutinNote34andNote35totheconsolidatedfinancialstatementsrespectively.
DONATIONThedonationmadebytheGrouptoTencentCharityFundsintheyearwasRMB730million.
33FINANCIALSUMMARYAsummaryofthecondensedconsolidatedresultsandfinancialpositionsoftheGroupissetoutonpage3ofthisannualreport.
PURCHASE,SALEORREDEMPTIONOFTHECOMPANY'SLISTEDSECURITIESDuringtheyearended31December2018,theCompanyrepurchased2,848,000sharesontheStockExchangeforanaggregateconsiderationofapproximatelyHKD886.
8millionbeforeexpenses.
Therepurchasedsharesweresubsequentlycancelled.
TherepurchasewaseffectedbytheBoardfortheenhancementofshareholdervalueinthelongterm.
Detailsofthesharesrepurchasedareasfollows:PurchaseconsiderationpershareNo.
ofsharesHighestLowestAggregateconsiderationMonthofpurchasein2018purchasedpricepaidpricepaidpaidHKDHKDHKDSeptember1,668,500333.
40306.
00535,627,842October1,179,500322.
80265.
20351,174,951Total:2,848,000886,802,793SaveasdisclosedaboveandinNote31totheconsolidatedfinancialstatements,neithertheCompanynoranyofitssubsidiarieshaspurchased,soldorredeemedanyoftheCompany'ssharesduringtheyearended31December2018.
ISSUANCEOFDEBTSECURITIESOn19January2018,theCompanyissuedfourtranchesofseniornotesundertheGlobalMediumTermNoteProgrammefortheCompany'sgeneralcorporatepurposes.
DetailsoftheissuanceofdebtsecuritiesaresetoutinNote35totheconsolidatedfinancialstatements.
34TencentHoldingsLimitedUSEOFPROCEEDSFROMIPOOFNON-WHOLLYOWNEDSUBSIDIARYTheuseofproceedsofTMEandChinaLiterature,ournon-whollyownedsubsidiaries,aresetoutbelow:TMETheAmericandepositorysharesofTMEwerelistedontheNewYorkStockExchangeon12December2018andthenetproceedsraisedbyTMEduringitsIPOwereapproximatelyUSD509million(equivalenttoapproximatelyRMB3,500million).
Asat31December2018,TMEhasnotyetusedanyoftheproceedsreceivedfromtheIPO.
TMEwillapplythenetproceedsinthemannerassetoutinitsIPOprospectus.
ChinaLiteratureThesharesofChinaLiterature,werelistedontheStockExchangeon8November2017andthenetproceedsraisedbyChinaLiteratureduringitsIPOwereapproximatelyHKD7,235million(equivalenttoapproximatelyRMB6,145million).
Asat31December2018,ChinaLiteraturehadused:–approximatelyRMB345.
4millionforexpandingitsonlinereadingbusinessandsalesandmarketingactivities;–approximatelyRMB200.
9millionforexpandingitsinvolvementinthedevelopmentofderivativeentertainmentproductsadaptedfromitsonlineliterarytitles;and–approximatelyRMB1,734.
9millionforfundingitspotentialinvestments,acquisitionsandstrategicalliances.
Theremainingbalanceofthenetproceedswasplacedwithbanks.
ChinaLiteraturewillapplytheremainingnetproceedsinthemannerassetoutinitsIPOprospectus.
35SHAREOPTIONSCHEMESTheCompanyhasadoptedfiveshareoptionschemes,namely,thePre-IPOOptionScheme,thePost-IPOOptionSchemeI,thePost-IPOOptionSchemeII,thePost-IPOOptionSchemeIIIandthePost-IPOOptionSchemeIV.
ThePre-IPOOptionScheme,thePost-IPOOptionSchemeIandthePost-IPOOptionSchemeIIexpiredon31December2011,23March2014and16May2017respectively.
Asat31December2018,therewereatotalof17,215,800outstandingshareoptionsgrantedtoadirectoroftheCompany,detailsofwhichareasfollows:NumberofshareoptionsNameofdirectorDateofgrantAsat1January2018GrantedduringtheyearExercisedduringtheyearAsat31December2018ExercisepriceExerciseperiodHKDLauChiPingMartin24March20102,500,000–2,500,000(Note4)–31.
7024March2015to23March2020(Note1)25March20145,000,000––5,000,000114.
5225March2015to24March2021(Note2)21March20163,750,000––3,750,000158.
1021March2017to20March2023(Note3)24March20175,250,000––5,250,000225.
4424March2018to23March2024(Note3)9April2018–3,215,800(Note5)–3,215,800410.
009April2019to8April2025(Note3)Total:16,500,0003,215,8002,500,00017,215,80036TencentHoldingsLimitedNote:1.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst25%ofthetotaloptionscanbeexercised5yearsafterthegrantdate,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
2.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst20%ofthetotaloptionscanbeexercised1yearafterthegrantdate,andeach20%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
3.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst25%ofthetotaloptionscanbeexercised1yearafterthegrantdate,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
4.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionswereexercisedon28March2018wasHKD432.
2.
5.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon9April2018wasHKD405.
8.
6.
Nooptionswerecancelledorlapsedduringtheyear.
DetailsofmovementsofshareoptionsgrantedtoemployeesoftheGroup(apartfromadirectoroftheCompany)duringtheyearended31December2018areasfollows:NumberofshareoptionsAsatGrantedExercisedLapsed/forfeitedAsat1Januaryduringduringduring31DecemberExerciseDateofgrant2018theyeartheyeartheyear2018priceExerciseperiod(Note16)HKD24Mar2011646,250–646,250––38.
8824Mar2014to23Mar2018(Note1)15Aug201158,800–58,800––37.
8015Aug2012to14Aug2018(Note2)15Aug2011342,125–342,125––37.
8015Aug2013to14Aug2018(Note3)15Aug201125,000–25,000––37.
8015Aug2014to14Aug2018(Note1)13Sep2012560,875–538,000–22,87549.
7613Sep2013to12Sep2019(Note2)25Mar20142,562,500–20,000–2,542,500114.
5225Mar2015to24Mar2021(Note4)25Mar20143,570,000–425,000–3,145,000114.
5225Mar2015to24Mar2021(Note2)37NumberofshareoptionsAsatGrantedExercisedLapsed/forfeitedAsat1Januaryduringduringduring31DecemberExerciseDateofgrant2018theyeartheyeartheyear2018priceExerciseperiod(Note16)HKD22May201462,500–––62,500112.
3022May2015to21May2021(Note4)10Jul20141,138,005–469,35326,313642,339124.
3010Jul2015to9Jul2021(Note5)12Dec201480,650–40,300–40,350116.
4012Dec2016to11Dec2021(Note6)2Apr2015525,000–––525,000149.
802Apr2016to1Apr2022(Note5)10Jul2015739,804–170,70514,070555,029148.
9010Jul2016to9Jul2022(Note5)21Mar20166,675,000–550,000–6,125,000158.
1021Mar2017to20Mar2023(Note5)6Jul20161,283,309–162,4724,0201,116,817174.
866Jul2017to5Jul2023(Note5)24Mar20171,417,930–125,080–1,292,850225.
4424Mar2018to23Mar2024(Note7)24Mar201721,822,500–393,750–21,428,750225.
4424Mar2018to23Mar2024(Note5)10Jul201713,405–––13,405272.
3610Jul2018to9Jul2024(Note4)10Jul20179,020,095–424,414137,5328,458,149272.
3610Jul2018to9Jul2024(Note5)10Jul201725,340–––25,340272.
3610Jul2019to9Jul2024(Note6)10Jul20177,455–––7,455272.
3610Jul2020to9Jul2024(Note8)38TencentHoldingsLimitedNumberofshareoptionsAsatGrantedExercisedLapsed/forfeitedAsat1Januaryduringduringduring31DecemberExerciseDateofgrant2018theyeartheyeartheyear2018priceExerciseperiod(Note16)HKD23Nov201789,565–––89,565419.
6023Nov2018to22Nov2024(Note4)16Jan2018–155,050––155,050444.
2016Jan2019to15Jan2025(Notes4and9)9Apr2018–2,082,920––2,082,920410.
009Apr2019to8Apr2025(Notes7and10)9Apr2018–235,515––235,515410.
009Apr2019to8Apr2025(Notes4and10)9Apr2018–16,692,585––16,692,585410.
009Apr2019to8Apr2025(Notes5and10)24May2018–26,390––26,390407.
0024May2019to23May2025(Notes4and11)22Jun2018–13,055––13,055403.
1622Jun2019to21Jun2025(Notes7and12)22Jun2018–70,525––70,525403.
1622Jun2019to21Jun2025(Notes4and12)6Jul2018–5,159,630–30,8705,128,760386.
606Jul2019to5Jul2025(Notes5and13)6Jul2018–8,050––8,050386.
606Jul2020to5Jul2025(Notes6and13)6Jul2018–43,890–9,66034,230386.
606Jul2021to5Jul2025(Notes8and13)24Aug2018–17,780––17,780354.
0024Aug2019to23Aug2025(Notes4and14)24Aug2018–2,660––2,660354.
006Jul2019to5Jul2025(Notes14and15)Total:50,666,10824,508,0504,391,249222,46570,560,44439Note:1.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst20%ofthetotaloptionscanbeexercised3yearsafterthegrantdate,andeach20%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
2.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst20%ofthetotaloptionscanbeexercised1yearafterthegrantdate,andeach20%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
3.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst20%ofthetotaloptionscanbeexercised2yearsafterthegrantdate,andeach20%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
4.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst33.
33%(one-third)ofthetotaloptionscanbeexercised1yearafterthegrantdate,andeach33.
33%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
5.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst25%ofthetotaloptionscanbeexercised1yearafterthegrantdate,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
6.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst25%ofthetotaloptionscanbeexercised2yearsafterthegrantdate,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
7.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst50%ofthetotaloptionscanbeexercised1yearafterthegrantdate,andtheremaining50%ofthetotaloptionswillbecomeexercisableinthesubsequentyear.
8.
Foroptionsgrantedwithexercisabledatedeterminedbasedonthegrantdateofoptions,thefirst25%ofthetotaloptionscanbeexercised3yearsafterthegrantdate,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
9.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon16January2018wasHKD433.
2.
10.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon9April2018wasHKD405.
8.
11.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon24May2018wasHKD407.
12.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon22June2018wasHKD396.
8.
13.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon6July2018wasHKD385.
6.
14.
Theclosingpriceimmediatelybeforethedateonwhichtheoptionsweregrantedon24August2018wasHKD359.
15.
Subjecttothesatisfactionofcertainconditions,thefirst25%ofthetotaloptionscanbeexercisedonthedatesasspecifiedintherelevantgrantletters,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
16.
TheweightedaverageclosingpriceimmediatelybeforethedateonwhichtheoptionswereexercisedwasHKD398.
8.
40TencentHoldingsLimitedDetailsofmovementsofshareoptionsgrantedtoemployeesandcertainexternalconsultantsundertheshareoptionschemesadoptedbyTME,asubsidiaryoftheGroup,duringtheyearended31December2018areasfollows:NumberofshareoptionsAnti-dilutionLapsed/AsatadjustmentsGrantedExercisedforfeitedAsat1Januaryduringduringduringduring31DecemberExerciseDateofgrant2018theyeartheyeartheyeartheyear2018priceExerciseperiod(Note4)(Note4)USDEmployees1Mar201511,924,1361,054,796––33,58712,945,3450.
0000761Mar2016to28Feb2025(Note1)1Mar20159,939,200879,143––41,71210,776,6310.
271Mar2016to28Feb2025(Note1)30Mar20153,444,042304,608–––3,748,6500.
2730Mar2016to29Mar2025(Note1)1Jul2015200,00017,690––142,59075,1000.
271Jul2016to30Jun2025(Note1)1Oct2015780,60069,000––57,720791,8800.
271Oct2016to30Sep2025(Note1)31Dec20152,933,281259,242––155,8373,036,6860.
2731Dec2016to30Dec2025(Note1)31Dec2015212,00018,750–––230,7500.
00007631Dec2016to30Dec2025(Note1)1Mar2016761,00067,270––81,627746,6430.
271Mar2017to28Feb2026(Note1)31Mar2016340,50030,115––575370,0400.
2731Mar2017to30Mar2026(Note1)1Jun20166,521,513576,827–––7,098,3400.
271Jun2017to31May2026(Note2)41NumberofshareoptionsAnti-dilutionLapsed/AsatadjustmentsGrantedExercisedforfeitedAsat1Januaryduringduringduringduring31DecemberExerciseDateofgrant2018theyeartheyeartheyeartheyear2018priceExerciseperiod(Note4)(Note4)USD30Jun2016600,00053,070–––653,0700.
00007630Jun2017to29Jun2026(Note1)30Jun201610,863,902961,076––624,94311,200,0350.
2730Jun2017to29Jun2026(Note1)16Jun20172,468,764218,362–––2,687,1262.
325Jul2017to15Jun2027(Note3)16Jun20179,565,716846,088–––10,411,8042.
3231Mar2018to15Jun2027(Note3)31Aug20177,666,803678,087––576,2977,768,5930.
2731Aug2018to30Aug2027(Note1)20Dec20177,260,103642,177–––7,902,2802.
3220Dec2018to19Dec2027(Note3)16Apr2018––1,300,000––1,300,0004.
0416Apr2019to15Apr2028(Note3)3Sep2018––460,724–460,724–2.
693Sep2019to2Sep2028(Note3)17Oct2018––2,319,000––2,319,0007.
1412Jul2019to16Oct2028(Note3)17Oct2018––3,697,500––3,697,5007.
1412Jul2020to16Oct2028(Note5)Sub-total:75,481,5606,676,3017,777,224–2,175,61287,759,47342TencentHoldingsLimitedNumberofshareoptionsAnti-dilutionLapsed/AsatadjustmentsGrantedExercisedforfeitedAsat1Januaryduringduringduringduring31DecemberExerciseDateofgrant2018theyeartheyeartheyeartheyear2018priceExerciseperiod(Note4)(Note4)USDExternalconsultants1Mar20152,348,099207,701––207,7012,348,0990.
0000761Mar2016to28Feb2025(Note1)1Mar20152,630,000232,650––147,7102,714,9400.
271Mar2016to28Feb2025(Note1)Sub-total:4,978,099440,351––355,4115,063,039Total:80,459,6597,116,6527,777,224–2,531,02392,822,512Note:1.
Thefirst25%ofthetotaloptionscanbeexercised1yearafterthecommencementdatesasspecifiedintherelevantgrantletters,andeach12.
5%ofthetotaloptionswillbecomeexercisableineachsubsequentsixmonths.
2.
Alltheoptionscanbeexercised1yearafterthecommencementdateasspecifiedintherelevantgrantletterifacertainconditionissatisfied.
3.
Subjecttothesatisfactionofcertainconditions,thefirst25%ofthetotaloptionscanbeexercisedonthedatesasspecifiedintherelevantgrantletters,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
4.
InMay2018,inordertooffsetthedilutioneffectresultingfromthesharedividenddistributedinDecember2017,TMEmadecertainadjustmentspursuanttotheanti-dilutionclauseundertheshareoptionschemes,tothenumberofshareoptionsoutstanding,theapplicableexercisepriceandthenumberofsharesavailableforissuanceforfutureshareoptionsunderitsshareoptionschemes.
5.
Thefirst25%ofthetotaloptionscanbeexercised2yearsafterthecommencementdatesasspecifiedintherelevantgrantletters,andeach25%ofthetotaloptionswillbecomeexercisableineachsubsequentyear.
43SUMMARYOFTHESHAREOPTIONSCHEMESDetailsPre-IPOOptionSchemePost-IPOOptionSchemeIPost-IPOOptionSchemeIIPost-IPOOptionSchemeIIIPost-IPOOptionSchemeIV1.
PurposesTorecognisethecontributionthatcertainindividualshavemadetotheGroup,toattractthebestavailablepersonnelandtopromotethesuccessoftheGroup'sbusiness2.
QualifyingparticipantsAnyeligibleemployee,includingexecutivedirectorsoftheCompanyAnyemployee,consultantordirectorofanycompanywithintheGroupAnyemployee(whetherfulltimeorparttime),executiveorofficer,director(includingexecutive,non-executiveandindependentnon-executivedirectors)ofanymemberoftheGrouporanyinvestedentity,whichisanyentityinwhichtheGroupholdsanequityinterest,andanyconsultant,adviseroragentofanymemberoftheBoard,whohavecontributedorwillcontributetothegrowthanddevelopmentoftheGrouporanyinvestedentityAnyseniorexecutiveorseniorofficer,director(includingexecutive,non-executiveandindependentnon-executivedirectors)ofanymemberoftheGrouporanyinvestedentityandanyconsultant,adviseroragentofanymemberoftheBoard,whohavecontributedorwillcontributetothegrowthanddevelopmentoftheGrouporanyinvestedentityAnyemployee(whetherfulltimeorparttime),executiveorofficer,director(includingexecutive,non-executiveandindependentnon-executivedirectors)ofanymemberoftheGrouporanyinvestedentity,andanyconsultant,adviseroragentofanymemberoftheBoard,whohavecontributedorwillcontributetothegrowthanddevelopmentoftheGrouporanyinvestedentity44TencentHoldingsLimitedDetailsPre-IPOOptionSchemePost-IPOOptionSchemeIPost-IPOOptionSchemeIIPost-IPOOptionSchemeIIIPost-IPOOptionSchemeIV3.
MaximumnumberofsharesAsat7June2004,optionstosubscribeforanaggregateof72,386,370shareswereoutstanding.
NofurtheroptioncouldbegrantedunderthePre-IPOOptionScheme.
Asat16May2007,optionstosubscribeforanaggregateof60,413,683shareswereoutstanding.
NofurtheroptioncouldbegrantedunderthePost-IPOOptionSchemeI.
ThemaximumnumberofsharesinrespectofwhichoptionsmaybegrantedunderthePost-IPOOptionSchemeIIshallbe444,518,270shares(aftertheeffectoftheShareSubdivision),5%oftherelevantclassofsecuritiesoftheCompanyinissueasat16May2007.
ThemaximumnumberofshareswhichmaybeissueduponexerciseofalloutstandingoptionsgrantedandyettobeexercisedunderthePost-IPOOptionSchemeIIandanyothershareoptionschemes,includingthePre-IPOOptionScheme,thePost-IPOOptionSchemeI,thePost-IPOOptionSchemeIIIandthePost-IPOOptionSchemeIV,mustnotinaggregateexceed30%oftheissuedsharesoftheCompanyfromtimetotime(Note).
ThemaximumnumberofsharesinrespectofwhichoptionsmaybegrantedunderthePost-IPOOptionSchemeIIIshallbe180,093,330shares(aftertheeffectoftheShareSubdivision),2%oftherelevantclassofsecuritiesoftheCompanyinissueasat13May2009.
ThemaximumnumberofshareswhichmaybeissueduponexerciseofalloutstandingoptionsgrantedandyettobeexercisedunderthePost-IPOOptionSchemeIIIandanyothershareoptionschemes,includingthePre-IPOOptionScheme,thePost-IPOOptionSchemeI,thePost-IPOOptionSchemeIIandthePost-IPOOptionSchemeIV,mustnotinaggregateexceed30%oftheissuedsharesoftheCompanyfromtimetotime(Note).
ThemaximumnumberofsharesinrespectofwhichoptionsmaybegrantedunderthePost-IPOOptionSchemeIVshallbe379,099,339shares,4%oftherelevantclassofsecuritiesoftheCompanyinissueasat17May2017.
ThemaximumnumberofshareswhichmaybeissueduponexerciseofalloutstandingoptionsgrantedandyettobeexercisedunderthePost-IPOOptionSchemeIVandanyothershareoptionschemes,includingthePre-IPOOptionScheme,thePost-IPOOptionSchemeI,thePost-IPOOptionSchemeIIandPost-IPOOptionSchemeIII,mustnotinaggregateexceed30%oftheissuedsharesoftheCompanyfromtimetotime(Note).
45DetailsPre-IPOOptionSchemePost-IPOOptionSchemeIPost-IPOOptionSchemeIIPost-IPOOptionSchemeIIIPost-IPOOptionSchemeIV4.
MaximumentitlementofeachparticipantThenumberofordinarysharesinrespectofwhichoptionsmaybegrantedshallnotexceed10%ofthenumberofordinarysharesissuedandissuableunderthescheme.
1%oftheissuedsharesoftheCompanyfromtimetotimewithinany12-monthperioduptothedateofthelatestgrant1%oftheissuedsharesoftheCompanyfromtimetotimewithinany12-monthperioduptothedateofthelatestgrant1%oftheissuedsharesoftheCompanyfromtimetotimewithinany12-monthperioduptothedateofthelatestgrant1%oftheissuedsharesoftheCompanyfromtimetotimewithinany12-monthperioduptothedateofthelatestgrant5.
OptionperiodAlltheoptionsareexercisableininstallmentsfromthecommencementoftherelevantvestingperioduntil31December2011,butontheconditionthattheCompanyhasbeenlistedinasizeablesecuritiesmarket.
TheBoardmayattheirdiscretiondeterminethespecificvestingandexerciseperiods.
TheoptionperiodisdeterminedbytheBoardprovidedthattheperiodduringwhichtheoptionmaybeexercisedshallnotbelessthanoneyearfromthedateofgrantoftheoptions.
TheoptionperiodisdeterminedbytheBoardprovidedthatitisnotlaterthanthelastdayofthe7-yearperiodafterthedateofgrantofoption.
Thereisnominimumperiodforwhichanoptionmustbeheldbeforeitcanbeexercised.
TheoptionperiodisdeterminedbytheBoardprovidedthatitisnotlaterthanthelastdayofthe10-yearperiodafterthedateofgrantofoption.
Thereisnominimumperiodforwhichanoptionmustbeheldbeforeitcanbeexercised.
TheoptionperiodisdeterminedbytheBoardprovidedthatitisnotlaterthanthelastdayofthe7-yearperiodafterthedateofgrantofoption.
Thereisnominimumperiodforwhichanoptionmustbeheldbeforeitcanbeexercised.
46TencentHoldingsLimitedDetailsPre-IPOOptionSchemePost-IPOOptionSchemeIPost-IPOOptionSchemeIIPost-IPOOptionSchemeIIIPost-IPOOptionSchemeIV6.
AcceptanceofofferOptionsgrantedmustbeacceptedwithin15daysofthedateofgrant,uponpaymentofRMB1pergrant.
Optionsgrantedmustbeacceptedwithin28daysofthedateofgrant,uponpaymentofHKD1pergrant.
Optionsgrantedmustbeacceptedwithin28daysofthedateofgrant,uponpaymentofHKD1pergrant.
Optionsgrantedmustbeacceptedwithin28daysofthedateofgrant,uponpaymentofHKD1pergrant.
Optionsgrantedmustbeacceptedwithin28daysofthedateofgrant,uponpaymentofHKD1pergrant.
7.
ExercisepricePriceshallbedeterminedbytheBoard.
Theexercisepricemustbeatleastthehigherof:(i)theclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetonthedateofgrant,whichmustbeabusinessday;(ii)theaverageclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetsforthefivebusinessdaysimmediatelyprecedingthedateofgrant;and(iii)thenominalvalueoftheshare.
Theexercisepricemustbeatleastthehigherof:(i)theclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetonthedateofgrant,whichmustbeabusinessday;(ii)theaverageclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetsforthefivebusinessdaysimmediatelyprecedingthedateofgrant;and(iii)thenominalvalueoftheshare.
Theexercisepricemustbeatleastthehigherof:(i)theclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetonthedateofgrant,whichmustbeabusinessday;(ii)theaverageclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetsforthefivebusinessdaysimmediatelyprecedingthedateofgrant;and(iii)thenominalvalueoftheshare.
Theexercisepricemustbeatleastthehigherof:(i)theclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetonthedateofgrant,whichmustbeabusinessday;(ii)theaverageclosingpriceofthesecuritiesasstatedintheStockExchange'sdailyquotationssheetsforthefivebusinessdaysimmediatelyprecedingthedateofgrant;and(iii)thenominalvalueoftheshare.
47DetailsPre-IPOOptionSchemePost-IPOOptionSchemeIPost-IPOOptionSchemeIIPost-IPOOptionSchemeIIIPost-IPOOptionSchemeIV8.
RemaininglifeoftheschemeItexpiredon31December2011.
Itexpiredon23March2014.
Itexpiredon16May2017.
Itshallbevalidandeffectiveforaperiodoftenyearscommencingon13May2009.
Itshallbevalidandeffectiveforaperiodoftenyearscommencingon17May2017.
Note:ThetotalnumberofsharesavailableforissueunderthePost-IPOOptionSchemeII,thePost-IPOOptionSchemeIIIandPost-IPOOptionSchemeIVare200,551,970,175,093,330and342,156,454respectively,whichrepresentapproximately2.
11%,1.
84%and3.
59%respectivelyoftheissuedsharesoftheCompanyasatthedateofthisannualreport.
MOVEMENTSINTHESHAREOPTIONSDetailsofthemovementsintheshareoptionsduringtheyeararesetoutinNote33totheconsolidatedfinancialstatements.
VALUATIONOFSHAREOPTIONSDetailsofthevaluationofshareoptionsduringtheyeararesetoutinNote33totheconsolidatedfinancialstatements.
48TencentHoldingsLimitedSHAREAWARDSCHEMESTheCompanyadoptedthefollowingtwoShareAwardSchemeswithmajortermsanddetailssetoutbelow:2007ShareAwardScheme2013ShareAwardScheme1.
PurposeTorecognisethecontributionsandtoattract,motivateandretaineligibleparticipants(includinganydirector)oftheGroup2.
DurationandTerminationItshallbevalidandeffectiveforaperiodof15yearsfromtheAdoptionDateI.
Itshallbevalidandeffectiveunlessanduntilbeingterminatedontheearlierof:(i)the15thanniversarydateoftheAdoptionDateII;and(ii)suchdateofearlyterminationasdeterminedbytheBoardprovidedthatsuchterminationdoesnotaffectanysubsistingrightsofanySelectedParticipant.
3.
Maximumnumberofsharesthatcanbeawarded2%oftheissuedsharesoftheCompanyasattheAdoptionDateI(i.
e.
178,776,160shares(aftertheeffectoftheShareSubdivision))3%oftheissuedsharesoftheCompanyasattheAdoptionDateII(i.
e.
278,937,260shares(aftertheeffectoftheShareSubdivision))4.
Maximumentitlementofeachparticipant1%oftheissuedsharesoftheCompanyasattheAdoptionDateI(i.
e.
89,388,080shares(aftertheeffectoftheShareSubdivision))1%oftheissuedsharesoftheCompanyasattheAdoptionDateII(i.
e.
92,979,085shares(aftertheeffectoftheShareSubdivision))5.
OperationTheBoardshallselecttheEligiblePerson(s)anddeterminethenumberofsharestobeawarded.
TheBoardshall,inrespectofeachSelectedParticipant,causetobepaidtherelevantamountfromtheCompany'sresourcesintotheAccountIortotheTrusteetobeheldontrustfortherelevantSelectedParticipantforthepurchaseand/orsubscriptionoftheAwardedSharesassoonaspracticableaftertheReferenceDate.
TheBoardmay,fromtimetotime,atitsabsolutediscretionselectanyEligiblePersontobeaSelectedParticipantandgranttosuchSelectedParticipantAwardedShares.
TheBoardmayatanytimeatitsdiscretion,inrespectofeachSelectedParticipant,causetobepaidtherelevantamountfromtheCompany'sresourcesoranysubsidiary'sresourcesintotheAccountIIforthepurchaseand/orsubscriptionofAwardedSharesassoonaspracticableaftertheGrantDate.
492007ShareAwardScheme2013ShareAwardScheme6.
RestrictionsNoawardshallbemadebytheBoardandnoinstructionstoacquiresharesandallotnewsharesshallbegivenbytheBoardortheTrusteeunderthe2007ShareAwardSchemewhereanydirectorisinpossessionofunpublishedprice-sensitiveinformationinrelationtotheGrouporwheredealingsbydirectorsareprohibitedunderanycodeorrequirementoftheListingRulesandallapplicablelawsfromtimetotime.
NoawardmaybemadebytheBoardtoanySelectedParticipant:(i)wheretheCompanyhasinformationthatmustbedisclosedunderRule13.
09oftheListingRulesorwheretheCompanyreasonablybelievesthereisinsideinformationwhichmustbedisclosedunderPartXIVAoftheSFO,untilsuchinsideinformationhasbeenpublishedonthewebsitesoftheStockExchangeandtheCompany;(ii)afteranyinsideinformationinrelationtothesecuritiesoftheCompanyhasoccurredorhasbecomethesubjectofadecision,untilsuchinsideinformationhasbeenpublished;(iii)withintheperiodcommencing60days(inthecaseofyearlyresults),or30days(inthecaseofresultsforhalf-year,quarterlyorotherinterimperiod)immediatelyprecedingtheearlierof(1)thedateofameetingoftheBoard(assuchdateisfirstnotifiedtotheStockExchange)fortheapprovaloftheCompany'sresultsforanyyear,half-year,quarterlyorotherinterimperiod(whetherornotrequiredundertheListingRules);and(2)thedeadlinefortheCompanytopublishitsquarterly,interimorannualresultsannouncementforanysuchperiod,andendingonthedateofsuchannouncement;or(iv)inanyothercircumstanceswheredealingsbySelectedParticipant(includingdirectors)areprohibitedundertheListingRules,SFOoranyotherapplicablelaworregulationorwheretherequisiteapprovalfromanyapplicableregulatoryauthoritieshasnotbeengranted.
50TencentHoldingsLimited2007ShareAwardScheme2013ShareAwardScheme7.
VestingandLapseAwardedSharesandtherelatedincomederivedtherefromaresubjecttoavestingscaletobedeterminedbytheBoardatthedateofgrantoftheaward.
VestingoftheshareswillbeconditionalontheSelectedParticipantsatisfyingallvestingconditionsspecifiedbytheBoardatthetimeofmakingtheawarduntilandoneachoftherelevantvestingdatesandhis/herexecutionoftherelevantdocumentstoeffectthetransferfromtheTrustee.
ThevestingoftheAwardedSharesissubjecttotheSelectedParticipantremainingatalltimesaftertheGrantDateandonthedateofvesting,anEligiblePerson,subjecttotherulesofthe2013ShareAwardScheme.
Subjecttothesatisfactionofallvestingconditionsasprescribedinthe2013ShareAwardScheme,theSelectedParticipantswillbeentitledtoreceivetheAwardedShares.
8.
VotingRightsTheTrusteeshallnotexercisethevotingrightsinrespectofanysharesheldbyitpursuanttotheTrusteeDeedI(includingbutnotlimitedtotheAwardedSharesandanybonussharesandscripsharesderivedtherefrom).
TheTrusteedoesnotexerciseanyvotingrightsinrespectofanysharesheldpursuanttotheTrusteeDeedIIorasnominee.
TheCompanyshallcomplywiththerelevantListingRuleswhengrantingtheAwardedShares.
IfawardsaremadetothedirectorsorsubstantialshareholdersoftheGroup,suchawardsshallconstituteconnectedtransactionunderChapter14AoftheListingRulesandtheCompanyshallcomplywiththerelevantrequirementsundertheListingRules.
Duringtheyear,atotalof20,940,149AwardedSharesweregrantedunderthe2013ShareAwardSchemeandoutofwhich,39,500AwardedSharesweregrantedtotheindependentnon-executivedirectorsoftheCompany.
DetailsofthemovementsintheShareAwardSchemesduringtheyeararesetoutinNote33totheconsolidatedfinancialstatements.
Duringtheyear,atotalof24,098,204shareswereissuedtooptionholderswhoexercisedtheirshareoptionsgrantedunderthePost-IPOOptionSchemeII,thePost-IPOOptionSchemeIIIandthePost-IPOOptionSchemeIV,andpursuanttotheShareAwardSchemes.
51Asat31December2018,therewereatotalof158,988outstandingAwardedSharesgrantedtothedirectorsoftheCompany,detailsofwhichareasfollows:NumberofAwardedSharesNameofdirectorDateofgrantAsat1January2018GrantedduringtheyearVestedduringtheyearAsat31December2018VestingperiodIainFergusonBruce24March201420,000–10,00010,00024March2015to24March20192April201515,000–7,5007,5002April2016to2April201921March201615,000–5,00010,00021March2017to21March202024March201720,000–5,00015,00024March2018to24March20219April2018–10,000–10,0009April2019to9April2022Total:70,00010,00027,50052,500IanCharlesStone24March201420,000–10,00010,00024March2015to24March20192April201515,000–7,5007,5002April2016to2April201921March201615,000–5,00010,00021March2017to21March202024March201720,000–5,00015,00024March2018to24March20219April2018–13,000–13,0009April2019to9April2022Total:70,00013,00027,50055,50052TencentHoldingsLimitedNumberofAwardedSharesNameofdirectorDateofgrantAsat1January2018GrantedduringtheyearVestedduringtheyearAsat31December2018VestingperiodLiDongSheng24March201410,000–5,0005,00024March2015to24March20192April20157,500–3,7503,7502April2016to2April201921March20167,500–2,5005,00021March2017to21March202024March201710,000–2,5007,50024March2018to24March20219April2018–6,500–6,5009April2019to9April2022Total:35,0006,50013,75027,750YangSiuShun6July20168,606–2,8685,7386July2017to6July202024March201710,000–2,5007,50024March2018to24March20219April2018–10,000–10,0009April2019to9April2022Total:18,60610,0005,36823,238GrandTotal:193,60639,50074,118158,98853DIRECTORSANDSENIORMANAGEMENTThedirectorsandseniormanagementoftheCompanyduringtheyearanduptothedateofthisannualreportwere:ExecutiveDirectorsMaHuateng(Chairman)LauChiPingMartinNon-ExecutiveDirectorsJacobusPetrus(Koos)BekkerCharlesStLegerSearleIndependentNon-ExecutiveDirectorsLiDongShengIainFergusonBruceIanCharlesStoneYangSiuShunInaccordancewithArticle87oftheArticlesofAssociation,MrJacobusPetrus(Koos)BekkerandMrIanCharlesStonewillretireatthe2019AGMand,beingeligible,willofferthemselvesforre-election.
TheCompanyhasreceivedfromeachindependentnon-executivedirectoranannualconfirmationofhisindependencepursuanttoRule3.
13oftheListingRulesandtheBoardconsidersthemindependent.
54TencentHoldingsLimitedBIOGRAPHICALDETAILSANDOTHERINFORMATIONOFDIRECTORSMaHuateng,age47,isanexecutivedirector,ChairmanoftheBoardandChiefExecutiveOfficeroftheCompany.
MrMahasoverallresponsibilitiesforstrategicplanningandpositioningandmanagementoftheGroup.
MrMaisoneofthecorefoundersandhasbeenemployedbytheGroupsince1999.
Priortohiscurrentemployment,MrMawasinchargeofresearchanddevelopmentforInternetpagingsystemdevelopmentatChinaMotionTelecomDevelopmentLimited,asupplieroftelecommunicationsservicesandproductsinChina.
MrMaisadeputytothe13thNationalPeople'sCongress.
MrMahasaBachelorofSciencedegreespecialisinginComputeranditsApplicationobtainedin1993fromShenzhenUniversityandmorethan25yearsofexperienceinthetelecommunicationsandInternetindustries.
HeisadirectorofAdvanceDataServicesLimited,whichhasaninterestinthesharesoftheCompanywhichwouldfalltobedisclosedtotheCompanyundertheprovisionsofDivisions2and3ofPartXVoftheSFO.
MrMaalsoservesasadirectorofcertainsubsidiariesoftheCompany.
LauChiPingMartin,age45,isanexecutivedirectorandPresidentoftheCompany.
MrLaujoinedtheCompanyin2005astheChiefStrategyandInvestmentOfficerandwasresponsibleforcorporatestrategies,investments,mergerandacquisitionsandinvestorrelations.
In2006,MrLauwaspromotedtoPresidentoftheCompanytomanagetheday-to-dayoperationoftheCompany.
In2007,hewasappointedasanexecutivedirectoroftheCompany.
PriortojoiningtheCompany,MrLauwasanexecutivedirectoratGoldmanSachs(Asia)L.
L.
C.
'sinvestmentbankingdivisionandtheChiefOperatingOfficerofitsTelecom,MediaandTechnologyGroup.
Priortothat,heworkedatMcKinsey&Company,Inc.
asamanagementconsultant.
MrLaureceivedaBachelorofSciencedegreeinElectricalEngineeringfromUniversityofMichigan,aMasterofSciencedegreeinElectricalEngineeringfromStanfordUniversityandanMBAdegreefromKelloggGraduateSchoolofManagement,NorthwesternUniversity.
MrLauiscurrentlyanon-executivedirectorofKingsoftCorporationLimited,anInternetbasedsoftwaredeveloper,distributorandsoftwareserviceprovider,andMeituanDianping,aChina'sleadingeCommerceplatformforservices;bothofthesecompaniesarepubliclylistedontheStockExchange.
MrLauisalsoadirectorofLejuHoldingsLimited,anonline-to-offlinerealestateservicesproviderinChina,VipshopHoldingsLimited,anonlinediscountretailercompany,andTME,anonlinemusicentertainmentplatforminChina;allofthesecompaniesarelistedontheNewYorkStockExchange.
MrLauisalsoadirectorofJD.
com,Inc.
,anonlinedirectsalescompanyinChina,thatislistedonNASDAQ.
MrLaualsoservesasadirector/corporaterepresentativeofcertainsubsidiariesoftheCompany.
JacobusPetrus(Koos)Bekker,age66,hasbeenanon-executivedirectorsinceNovember2012.
KoosledthefoundingteamoftheM-Net/MultiChoicepay-televisionbusinessin1985.
HewasalsoafounderdirectorofMTNincellulartelephony.
KoosheadedtheMIHgroupinitsinternationalandInternetexpansionsuntil1997,whenhebecamechiefexecutiveofNaspers.
Heservesontheboardsofothercompanieswithinthegroupandassociates,aswellasotherbodies.
InApril2015,hebecamenon-executivechair.
AcademicqualificationsincludeBAHonsandhonorarydoctorateincommerce(StellenboschUniversity),LLB(UniversityoftheWitwatersrand)andMBA(ColumbiaUniversity,NewYork).
55CharlesStLegerSearle,age55,hasbeenanon-executivedirectorsinceJune2001.
MrSearleiscurrentlytheChiefExecutiveOfficerofNaspersInternetListedAssets.
HeservesontheboardofanumberofcompaniesassociatedwiththeNaspersGroup,includingMail.
ruGroupLimitedthatislistedontheLondonStockExchangeandMakeMyTripLimitedthatislistedonNASDAQ.
PriortojoiningtheNaspersGroup,heheldpositionsatCable&WirelessplcandatDeloitte&ToucheinLondonandSydney.
MrSearleisagraduateoftheUniversityofCapeTownandamemberoftheInstituteofCharteredAccountantsinAustraliaandNewZealand.
MrSearlehasmorethan25yearsofinternationalexperienceinthetelecommunicationsandInternetindustries.
MrSearlealsoservesasadirectorofcertainsubsidiariesoftheCompany.
LiDongSheng,age61,hasbeenanindependentnon-executivedirectorsinceApril2004.
MrLiistheChairmanandChiefExecutiveOfficerofTCLCorporation,whichproducesconsumerelectronicproductsandislistedontheShenzhenStockExchange.
MrLiisanon-executivedirectorofFantasiaHoldingsGroupCo.
,Limited,aleadingpropertydeveloperandpropertyrelatedserviceproviderinChinathatislistedontheStockExchange.
MrLigraduatedfromSouthChinaUniversityofTechnologyin1982withaBachelordegreeinradiotechnologyandhasmorethan24yearsofexperienceintheinformationtechnologyfield.
MrLiistheChairmanofTCLCommunicationTechnologyHoldingsLimited,whichwasdelistedforprivatisationfromtheStockExchangeon30September2016.
MrLiwastheChairmanandexecutivedirectorofTCLMultimediaTechnologyHoldingsLimited(nowknownasTCLElectronicsHoldingsLimited)thatislistedontheStockExchangeupto22September2017,andwasalsoanindependentdirectorofLegrandthatislistedontheNewYorkStockExchangeEuronextupto30May2018.
IainFergusonBruce,age78,hasbeenanindependentnon-executivedirectorsinceApril2004.
MrBrucejoinedKPMGinHongKongin1964andwaselectedtoitspartnershipin1971.
HewastheSeniorPartnerofKPMGfrom1991untilhisretirementin1996andservedasChairmanofKPMGAsiaPacificfrom1993to1997.
Since1964,MrBrucehasbeenamemberoftheInstituteofCharteredAccountantsofScotland,andisafellowoftheHongKongInstituteofCertifiedPublicAccountants,withover54yearsofinternationalexperienceinaccountingandconsulting.
HeisalsoafellowofTheHongKongInstituteofDirectorsandtheHongKongSecuritiesandInvestmentInstitute(formerlyknownasHongKongSecuritiesInstitute).
MrBruceiscurrentlyanindependentnon-executivedirectorofGoodbabyInternationalHoldingsLimited,amanufacturerofdurablejuvenileproducts,SouthShoreHoldingsLimited(formerlyknownasThe13HoldingsLimited),aconstruction,engineeringservicesandhoteldevelopmentcompany,andWingOnCompanyInternationalLimited,adepartmentstoreoperatingandrealpropertyinvestmentcompany;allofthesecompaniesarepubliclylistedontheStockExchange.
MrBruceisalsoanindependentnon-executivedirectorofYingliGreenEnergyHoldingCompanyLimited,aChina-basedverticallyintegratedphotovoltaicproductmanufacturerthatislistedontheNewYorkStockExchange.
MrBrucewasanon-executivedirectorofNobleGroupLimited,acommoditytradingcompanythatispubliclylistedonTheSingaporeExchangeSecuritiesTradingLimited,upto11May2017,andwasalsoanindependentnon-executivedirectorofCitibank(HongKong)Limited,upto2August2017.
MrBrucewasalsoanindependentnon-executivedirectorofMSIGInsurance(HongKong)Limited,upto1July2018.
56TencentHoldingsLimitedIanCharlesStone,age68,hasbeenanindependentnon-executivedirectorsinceApril2004.
MrStoneiscurrentlyanindependentadvisoronTechnology,MediaandTelecomsafterretiringfromPCCWinHongKongin2011.
Hiscareerinthelast29yearshasbeenprimarilyinleadingmobiletelecomsbusinesses,andnewwirelessandInternettechnology,duringwhichtimeheheldseniorrolesinPCCW,SmarTone,FirstPacific,HongKongTelecomandCSL,asChiefExecutiveoratDirectorlevel,primarilyinHongKong,andalsoinLondonandManila.
Since2011,MrStonehasprovidedtelecomsadvisoryservicestotelecomcompaniesandinvestorsinHongKong,China,SouthEastAsiaandtheMiddleEast.
MrStonehasmorethan48yearsofexperienceinthetelecomandmobileindustries.
MrStoneisafellowmemberofTheHongKongInstituteofDirectors.
MrStonealsoservesasanindependentnon-executivedirectorofasubsidiaryoftheCompany.
YangSiuShun,age63,hasbeenanindependentnon-executivedirectorsinceJuly2016.
MrYangiscurrentlyservingasaMemberofthe13thNationalCommitteeoftheChinesePeople'sPoliticalConsultativeConference,aJusticeofthePeaceinHongKong,aMemberoftheExchangeFundAdvisoryCommitteeoftheHongKongMonetaryAuthority,aStewardoftheHongKongJockeyClub,theDeputyChairmanoftheCounciloftheOpenUniversityofHongKong,andanindependentnon-executivedirectorofIndustrialandCommercialBankofChinaLimitedwhichispubliclylistedontheStockExchangeandtheShanghaiStockExchange.
MrYangretiredfromPricewaterhouseCoopers("PwC")on30June2015.
Beforehisretirement,heservedastheChairmanandSeniorPartnerofPwCHongKong,theExecutiveChairmanandSeniorPartnerofPwCChinaandHongKong,oneofthefivemembersoftheGlobalNetworkLeadershipTeamofPwCandthePwCAsiaPacificChairman.
MrYangalsoservedasaBoardMemberandtheAuditCommitteeChairmanoftheHangSengManagementCollege,upto30September2018,MrYanggraduatedfromtheLondonSchoolofEconomicsandPoliticalSciencein1978.
MrYangisaFellowMemberoftheInstituteofCharteredAccountantsinEnglandandWales,theHongKongInstituteofCertifiedPublicAccountantsandtheCharteredInstituteofManagementAccountants.
57BIOGRAPHICALDETAILSOFSENIORMANAGEMENTXuChenye,age47,ChiefInformationOfficer,overseesthestrategicplanninganddevelopmentforthewebsitepropertiesandcommunities,customerrelationsandpublicrelationsoftheCompany.
MrXuisoneofthecorefoundersandhasbeenemployedbytheGroupsince1999.
Priortothat,MrXuhadexperiencesinsoftwaresystemdesign,networkadministrationaswellasmarketingandsalesmanagementinhispreviouspositionatShenzhenDataTelecommunicationsBureau.
MrXureceivedaBachelorofSciencedegreeinComputerSciencefromShenzhenUniversityin1993andaMasterofSciencedegreeinComputerSciencefromNanjingUniversityin1996.
MrXucurrentlyservesasadirectororofficerofcertainsubsidiariesoftheCompany.
RenYuxin,age43,ChiefOperatingOfficerandPresidentofPlatform&ContentGroupandInteractiveEntertainmentGroup,joinedtheCompanyin2000andhadservedasGeneralManagerfortheValue-AddedServicesDevelopmentDivisionandGeneralManagerforInteractiveEntertainmentBusinessDivision.
SinceSeptember2005,MrRenhasbeenresponsiblefortheresearchanddevelopment,operations,marketingandsalesofgamingproductsfortheInteractiveEntertainmentBusiness.
SinceMay2012,MrRenhasbeenappointedasChiefOperatingOfficerandisnowinchargeoftheoveralloperationofthePlatform&ContentGroupandInteractiveEntertainmentGroup.
PriortojoiningtheCompany,MrRenhasworkedinHuaweiTechnologiesCo.
,Ltd.
MrRenreceivedaBachelorofSciencedegreeinComputerScienceandEngineeringfromUniversityofElectronicScienceandTechnologyofChinain1998andanEMBAdegreefromChinaEuropeInternationalBusinessSchool(CEIBS)in2008.
MrRencurrentlyservesasadirectororofficerofcertainsubsidiariesoftheCompany.
JamesGordonMitchell,age45,ChiefStrategyOfficerandSeniorExecutiveVicePresident,joinedtheCompanyin2011.
Heisresponsibleforvariousfunctions,includingtheCompany'sstrategicplanningandimplementation,investorrelationships,andmergers,acquisitionsandinvestmentactivity.
PriortojoiningtheCompany,MrMitchellhadworkedininvestmentbankingfor16years.
Mostrecently,MrMitchellwasamanagingdirectoratGoldmanSachsinNewYork,leadingthebank'sCommunications,MediaandEntertainmentresearchteam,whichanalysedInternet,entertainmentandmediacompaniesglobally.
MrMitchellreceivedadegreefromOxfordUniversityandholdsaCharteredFinancialAnalystCertification.
MrMitchellcurrentlyservesasadirectorofcertainsubsidiariesoftheCompany.
58TencentHoldingsLimitedLauSengYee,age52,SeniorExecutiveVicePresidentandChairmanofTencentAdvertisingandofGroupMarketingandGlobalBrandingandhasbeenaffiliatedwithTencentGroupasamemberoftheirtopmanagementsteeringcommitteesince2006.
Heservedfor11yearsasthePresidentofOnlineMediaGroupbeforeassuminghiscurrentdualchairmanshipcorporaterolesin2017.
AsChairmanofAdvertisingandofGroupMarketingandGlobalBranding,heplaysakeyleadershiproleinenhancingsynergiesofTencent'sadvertisingpropertiesacrossdifferentbusinessgroupsandinmanagingTencent'sinternationalstrategicpartnershipsonbehalfofTencent'sleadershipteam.
MrLaurepresentstheCompanyasachampionforthecauseofusingtechnologyforuniversalgood,particularlyforhowtechnologycouldbebetterutilisedforasustainabledevelopmentofhumansociety.
Professionally,MrLauwasrecognisedasthe"GlobalMediaPersonoftheYear"bytheCannesLionsin2015.
In2018,hebecameoneofthefoundingmembersoftheGlobalCMOGrowthCouncil,aboardfeaturing25topmarketingleaderswhosharethevisionandpassiontotransformtheprofessionalpracticesofmarketing.
HehasagreedtoserveasaglobalboardmemberfortheUnitedNation'sWorldFoodProgram,aninitiativetargetingtheglobaleradicationofhungerby2030.
MrLauisagraduateofUniversityofKebangsaaninMalaysiaandreceivedanEMBAdegreefromRutgersUniversityinNewJersey,whichin2017namedhimasaDistinguishedAlumnus.
HecompletedtheAdvancedManagementProgramattheHarvardBusinessSchoolandservesasaboardmemberofthatschool'sAsia-PacificAdvisoryBoard.
TongTaoSang,age45,SeniorExecutiveVicePresident,PresidentofCloudandSmartIndustriesGroupandChairmanofTME,isleadingtheIndustrialInternetstrategyandtheenterprisebusinessesforTencent.
MrTongmanagesthesecuritylabs,themulti-medialab,andYoutuAIlab,andheisoneoftheco-chairsofTencent'stechnologycouncil.
MrTongjoinedtheCompanyasatechnicalarchitectin2005,andhadpreviouslyledQQ,Qzone,QQshow,andtheiradvertisingandvalueaddedservices.
PriortojoiningtheCompany,MrTongworkedforSendmail,Inc.
onmanagingtheproductdevelopmentofoperator-scalemessagingsystems.
MrTongalsoworkedforOracleonthedevelopmentandtestingofOracleServerandOracleApplications.
MrTongreceivedaBachelorofSciencedegreeinComputerEngineeringfromUniversityofMichigan,AnnArborin1994andaMasterofSciencedegreeinElectricalEngineeringfromStanfordUniversityin1997.
MrTongcurrentlyservesasadirectorofcertainsubsidiariesoftheCompany.
ZhangXiaolong,age49,SeniorExecutiveVicePresidentandPresidentofWeixinGroup,joinedtheCompanyinMarch2005andservedastheGeneralManagerfortheGuangzhouR&DDivisionandledtheQQMailteamtobethetopmailserviceproviderinChina.
LaterhewaspromotedtoCorporateVicePresidentandsinceSeptember2012,MrZhanghasbeenappointedasSeniorVicePresidentinchargeoftheproductandteammanagementofWeixin/WeChatandQQMail.
Heisalsoresponsibleforthemanagementandreviewofmajorinnovationprojects.
InMay2014,MrZhangwaspromotedtoSeniorExecutiveVicePresident,inchargeoftheWeixinGroup.
PriortojoiningtheCompany,MrZhangdevelopedFoxmailindependentlyin1997asthefirstgenerationofInternetsoftwaredeveloperinChina.
HejoinedBodaChinaasCorporateVicePresidentin2000,responsibleforcorporatemaildeveloping.
MrZhangreceivedhisMaster'sdegreeinTelecommunicationsfromHuazhongUniversityofScienceandTechnologyin1994.
59LuShan,age44,SeniorExecutiveVicePresidentandPresidentofTechnologyandEngineeringGroup,joinedtheCompanyin2000andhadservedasGeneralManagerforIMProductDivisions,VicePresidentforPlatformResearchandDevelopmentSystemandSeniorVicePresidentforOperationsPlatformSystem.
SinceMarch2008,MrLuhasbeeninchargeofmanagementoftheOperationsPlatformSystemoftheCompany.
SinceMay2012,MrLuhasbeeninchargeofmanagementofTechnicalEngineeringGroup.
PriortojoiningtheCompany,heworkedforShenzhenLimingNetworkSystemsLimited.
MrLureceivedaBachelorofSciencedegreeinComputerScienceandTechnologyfromUniversityofScienceandTechnologyofChina(USTC)in1998.
MrLucurrentlyservesasadirectororofficerofcertainsubsidiariesoftheCompany.
DavidAMWallerstein,age44,ChiefeXplorationOfficerandSeniorExecutiveVicePresident,joinedtheCompanyin2001.
HedrivestheCompany'sactiveparticipationinemergingtechnologies,businessareas,andideas,withapassionforcontributingtoamoreresilientplanet.
PriortojoiningtheCompany,MrWallersteinworkedwithNaspersinChina.
MrWallersteincurrentlyservesasadirectorofasubsidiaryoftheCompany.
MaXiaoyi,age45,SeniorVicePresident,joinedtheCompanyin2007andhasbeenresponsibleforinternationalpublishingofTencentGames,establishingandmaintaininglong-termbusinesspartnershipsandcooperationfortheCompanysinceNovember2008.
PriortojoiningtheCompany,MrMaservedasaGeneralManagerofGamesDivisionofOPTICCommunicationCo.
,Ltd.
Priortothat,MrMaworkedasaGeneralManagerinShanghaiEasyServiceTechnologyDevelopmentLtd.
MrMagraduatedfromShanghaiJiaotongUniversityin1997,andreceivedanEMBAdegreefromFudanUniversityin2008.
MrMacurrentlyservesasadirectorofcertainsubsidiariesoftheCompany.
JohnShekHonLo,age50,ChiefFinancialOfficerandSeniorVicePresident,joinedtheCompanyin2004andservedastheCompany'sFinancialControllerfrom2004to2008.
MrLowaspromotedtotheCompany'sVicePresidentandDeputyChiefFinancialOfficerin2008andwasappointedasChiefFinancialOfficerinMay2012.
PriortojoiningtheCompany,MrLoworkedinPricewaterhouseCoopersasSeniorManager(auditservices).
HeisaFellowoftheCPAAustralia,aFellowoftheHongKongInstituteofCertifiedPublicAccountants,aFellowoftheCharteredInstituteofManagementAccountantsandaMemberoftheAssociationofCharteredCertifiedAccountants.
MrLoreceivedaBachelorofBusinessdegreeinAccountingfromCurtinUniversityandanEMBAdegreefromKelloggGraduateSchoolofManagement,NorthwesternUniversityandHKUST.
MrLocurrentlyservesasadirectorofcertainsubsidiariesoftheCompany.
60TencentHoldingsLimitedGuoKaitian,age46,SeniorVicePresident,joinedtheCompanyin2002andhasbeenresponsibleforoverseeingtheCompany'sfunctionaldivisionsoflegalaffairs,administration,infrastructure,procurement,publicstrategy,safetymanagementandcorporatesocialresponsibility.
MrGuoreceivedaBachelorofLawdegreefromZhongnanUniversityofEconomicsandLawin1996.
MrGuocurrentlyservesasadirectorofasubsidiaryoftheCompany.
XiDan,age43,SeniorVicePresident,joinedtheCompanyin2002andhasbeenresponsibleforoverseeingtheCompany'stalentdevelopmentandfunctionalmanagementsinceMay2008.
PriortojoiningtheCompany,MrXiwasresponsibleforHRmanagementinZTECorporationandhasmorethan23yearsofexperienceinITandInternetindustries.
MrXireceivedaBachelorofSciencedegreeinAppliedComputerSciencefromShenzhenUniversityin1996andanMBAdegreefromTsinghuaUniversityin2005.
MrXicurrentlyservesasadirectororofficerofcertainsubsidiariesoftheCompany.
61DIRECTORS'SERVICECONTRACTSMrMaHuatenghasenteredintoaservicecontractwiththeCompanyforatermofthreeyearsfrom1January2016to31December2018.
Thetermoftheservicecontracthasbeenextendedforanother3yearsbywayofasupplementalagreement.
ThetermoftheservicecontractcanbefurtherextendedbyagreementbetweentheCompanyandMrMa.
TheCompanymayterminatetheservicecontractbythreemonths'writtennoticeatanytime,subjecttopayinghissalaryfortheshorterofsixmonthsandaportionofhisannualbonusfortheyearinwhichterminationoccurredproratatotheportionoftheyearbeforetheterminationbecomeseffective.
MrLauChiPingMartinhasenteredintoaservicecontractwiththeCompanyforatermofthreeyearsended31December2018.
Thetermoftheservicecontracthasbeenextendedforanother3yearsbywayofasupplementalagreement.
MrLauisentitledtoanannualbonusbasedontheperformanceoftheCompanyinanamounttobedeterminedbytheRemunerationCommittee.
MrLauisentitledtoparticipateinallemployeebenefitplans,programmesandarrangementsoftheCompany.
Saveasdisclosedabove,noneofthedirectorswhoareproposedforre-electionatthe2019AGMhasaservicecontractwiththeCompanywhichisnotdeterminablebytheCompanywithinoneyearwithoutpaymentofcompensation,otherthanstatutorycompensation.
DIRECTORS'INTERESTSINTRANSACTIONS,ARRANGEMENTSORCONTRACTSSaveasdisclosedinthisannualreport,notransaction,arrangementorcontractofsignificanceinrelationtotheGroup'sbusinesstowhichtheCompanyoranyofitssubsidiarieswasapartyandinwhichadirectoroftheCompanyoranentityconnectedwithadirectoroftheCompanyhadamaterialinterest,whetherdirectlyorindirectly,subsistedattheendoftheyearoratanytimeduringtheyear.
PERMITTEDINDEMNITYPROVISIONApermittedindemnityprovisionforthebenefitofthedirectorsoftheCompanyiscurrentlyinforceandwasinforcethroughoutthefinancialyear.
TheCompanyhastakenoutandmaintaineddirectorsandofficersliabilityinsurancewhichprovidesappropriatecoverfor,amongothers,directorsoftheCompany.
DIRECTORS'RIGHTSTOACQUIRESHARESORDEBENTURESSaveasdisclosedinthisannualreport,neithertheCompanynoranyofitssubsidiarieswasapartytoanyarrangementstoenabledirectorsoftheCompanytoacquirebenefitsbymeansoftheacquisitionofsharesin,ordebenturesof,theCompanyoranyotherbodycorporateatanytimeduringtheyearorattheendoftheyear.
62TencentHoldingsLimitedDIRECTORS'INTERESTSINSECURITIESAsat31December2018,theinterestsandshortpositionsofthedirectorsandthechiefexecutiveoftheCompanyintheshares,underlyingsharesanddebenturesoftheCompanyoritsassociatedcorporations(withinthemeaningofPartXVoftheSFO)which(a)wererequiredtobenotifiedtotheCompanyandtheStockExchangepursuanttoDivisions7and8ofPartXVoftheSFO(includinginterestsandshortpositionswhichtheyhavetaken,oraredeemedtohavetaken,undersuchprovisionsoftheSFO);or(b)wererequired,pursuanttosection352oftheSFO,toberecordedintheregisterrequiredtobekeptbytheCompany;or(c)wererequired,pursuanttotheModelCode,tobenotifiedtotheCompanyandtheStockExchangewereasfollows:(A)LongpositioninthesharesandunderlyingsharesoftheCompanyNameofdirectorNatureofinterestNumberofshares/underlyingsharesheldApproximate%ofshareholdingMaHuatengCorporate(Note1)819,507,5008.
61%LauChiPingMartinPersonal*49,183,800(Note2)0.
52%LiDongShengPersonal*52,800(Note3)0.
0006%IainFergusonBrucePersonal*374,500(Note4)0.
004%IanCharlesStonePersonal*193,0000.
005%Family+240,000433,000(Note5)YangSiuShunPersonal*31,4740.
0003%(Note6)63Note:1.
AdvanceDataServicesLimited,aBritishVirginIslandscompanywholly-ownedbyMaHuateng,holds723,507,500sharesdirectlyand96,000,000sharesindirectlythroughitswholly-ownedsubsidiary,MaHuatengGlobalFoundation.
2.
Theinterestcomprises31,968,000sharesand17,215,800underlyingsharesinrespectoftheshareoptionsgrantedpursuanttothePost-IPOOptionSchemeIIandthePost-IPOOptionSchemeIII.
Detailsoftheshareoptionsgrantedtothisdirectoraresetoutaboveunder"ShareOptionSchemes".
3.
Theinterestcomprises25,050sharesand27,750underlyingsharesinrespectoftheawardedsharesgrantedpursuanttothe2007ShareAwardSchemeandthe2013ShareAwardScheme.
Detailsoftheawardedsharesgrantedtothisdirectoraresetoutaboveunder"ShareAwardSchemes".
4.
Theinterestcomprises322,000sharesand52,500underlyingsharesinrespectoftheawardedsharesgrantedpursuanttothe2007ShareAwardSchemeandthe2013ShareAwardScheme.
Detailsoftheawardedsharesgrantedtothisdirectoraresetoutaboveunder"ShareAwardSchemes".
5.
Theinterestcomprises377,500sharesand55,500underlyingsharesinrespectoftheawardedsharesgrantedpursuanttothe2007ShareAwardSchemeandthe2013ShareAwardScheme.
Detailsoftheawardedsharesgrantedtothisdirectoraresetoutaboveunder"ShareAwardSchemes".
6.
Theinterestcomprises8,236sharesand23,238underlyingsharesinrespectoftheawardedsharesgrantedpursuanttothe2013ShareAwardScheme.
Detailsoftheawardedsharesgrantedtothisdirectoraresetoutaboveunder"ShareAwardSchemes".
*Interestsofbeneficialowner+Interestsofspouseorchildunder18asbeneficialowner(B)LongpositioninthesharesofassociatedcorporationsoftheCompanyNameofdirectorNameofassociatedcorporationNatureofinterestNumberofsharesandclassofsharesheldApproximate%ofshareholdingMaHuatengTencentComputerPersonalRMB35,285,705(registeredcapital)54.
29%ShijiKaixuanPersonalRMB5,971,427(registeredcapital)54.
29%Saveasdisclosedabove,noneofthedirectorsorchiefexecutiveoftheCompanyandtheirassociates,hadinterestsorshortpositionsinanyshares,underlyingsharesordebenturesoftheCompanyanditsassociatedcorporationsasat31December2018.
64TencentHoldingsLimitedCONNECTEDTRANSACTIONSReferenceismadetothewaivergrantedbytheStockExchangeregardingthecompliancewiththeapplicabledisclosure,reportingandshareholders'approvalrequirementsunderChapter14AoftheListingRuleswhentheCompanywaslistedinJune2004.
ThereasonsforusingStructureContractsCurrentPRClawsandregulationslimitforeigninvestmentinbusinessesprovidingvalue-addedtelecommunicationsservicesinChina.
Asforeign-investedenterprises,theWFOEsdonothavelicencestoprovideInternetcontentorinformationservicesandothertelecommunicationsvalue-addedservices.
Accordingly,thevalue-addedtelecommunicationsbusinessoftheGrouphasbeenconductedthroughTencentComputer,ShijiKaixuanandthenewoperatingcompanies(the"NewOPCOs")(collectively,the"OPCOs")bythemselvesorthroughtheirsubsidiariesundertheStructureContracts(asdefinedinthesection"OurHistoryandStructure–StructureContracts"oftheIPOprospectusoftheCompany).
AsaresultoftheStructureContracts,theGroupisabletorecogniseandreceivetheeconomicbenefitofthebusinessandoperationsoftheOPCOs.
TheStructureContractsarealsodesignedtoprovidetheCompanywitheffectivecontroloverand(totheextentpermittedbyPRClaw)therighttoacquiretheequityinterestsinand/orassetsoftheOPCOs.
ForasummaryofthemajortermsoftheStructureContracts,pleaserefertothesectionsheaded"OurHistoryandStructure"and"StructureContracts"intheIPOprospectusoftheCompany.
Duringtheyearended31December2018,therewasnomaterialchangeintheStructureContractsand/orthecircumstancesunderwhichtheywereadopted,andnoneoftheStructureContractshasbeenunwoundasnoneoftherestrictionsthatledtotheadoptionofStructureContractshasbeenremoved.
65RequirementsrelatedtoStructureContracts(otherthanrelevantforeignownershiprestrictions)asat31December2018RequirementsrelatedtoStructureContracts(otherthanrelevantforeignownershiprestrictions)includetheNoticeonFurtherStrengtheningtheAdministrationofPre-examinationandApprovalofOnlineGamesandtheExaminationandApprovalofImportedOnlineGames(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網絡遊戲審批管理的通知)(the"Circular13")jointlyissuedbyPRCGeneralAdministrationofPressandPublication,theNationalCopyrightAdministrationandtheNationalOfficeofCombatingPornographyandIllegalPublicationsinSeptember2009providesthatforeigninvestorsarenotpermittedtoinvestinonlinegame-operatingbusinessesinthePRCviawholly-owned,equityjointventureorco-operativejointventureinvestmentsandfurtherexpresslyprohibitsforeigninvestorsfromgainingcontroloverorparticipatingindomesticonlinegameoperatorsthroughindirectwayssuchasestablishingotherjointventurecompaniesorenteringintocontractualortechnicalarrangementswiththeChineselicenceholders.
However,Circular13doesnotprovideanyinterpretationoftheterm"foreigninvestors"ormakeadistinctionbetweenforeignonlinegamecompaniesandcompaniesunderacorporatestructuresimilartotheGroup.
Thus,itisunclearwhethertheStateGeneralAdministrationofPress,Publication,Radio,FilmandTelevisionwilldeemtheGroup'sstructureandoperationstobeinviolationoftheseprovisions.
IntheviewoftheCompany'sPRClegaladvisers,thearrangementoftheStructureContractsdoesnotviolateapplicableexistingPRClawsandregulationsastheCompanyindirectlyoperatesthevalue-addedtelecommunicationservicebusiness,onlineandmobilegames,onlineadvertisingandotherInternetandwirelessportalsinthePRCthroughtheOPCOsthatholdthenecessarylicencesfortheexistinglinesofbusinesses.
However,theCompany'sPRClegaladvisersalsoadvisedthattherearesubstantialuncertaintiesregardingtheinterpretationandapplicationofthecurrentlyapplicablePRClaws,rulesandregulations.
Accordingly,thePRCregulatoryauthoritiesandPRCcourtsmayinthefuturetakeaviewthatiscontrarytothepositionoftheCompany'sPRClegaladvisersconcerningtheStructureContracts.
66TencentHoldingsLimitedParticularsoftheOPCOsSetoutbelowaretheregisteredownersandbusinessactivitiesoftheOPCOswhichhadenteredintotransactionswiththeGroupduringtheyearended31December2018:NameoftheoperatingcompaniesRegisteredownersasat31December2018BusinessactivitiesTencentComputer54.
29%byMaHuateng22.
85%byZhangZhidong11.
43%byXuChenye11.
43%byChenYidanProvisionofvalue-addedservicesandInternetadvertisementservicesinthePRCShijiKaixuan54.
29%byMaHuateng22.
85%byZhangZhidong11.
43%byXuChenye11.
43%byChenYidanProvisionofInternetadvertisementservicesinthePRCWangDianShijiKaixuanProvisionofvalue-addedservicesinthePRCBeijingBIZCOMTencentComputerProvisionofvalue-addedservicesinthePRCBeijingStarsinhandShijiKaixuanProvisionofvalue-addedservicesinthePRCTheaboveOPCOsaresignificanttotheGroupastheyholdrelevantlicencestoprovideInternetinformationservicesandothervalue-addedtelecommunicationsservices.
TheaggregategrossrevenueandnetassetvalueoftheaboveOPCOsthataresubjecttotheStructureContractsamountedtoapproximatelyRMB153billionfortheyearended31December2018andapproximatelyRMB32billionasat31December2018respectively.
67ReviewofthetransactionscarriedoutundertheStructureContractsduringthefinancialyearTheCompany'sindependentnon-executivedirectorshadreviewedtheStructureContracts(asdefinedinthesection"OurHistoryandStructure–StructureContracts"oftheIPOprospectusoftheCompany)andconfirmedthatthetransactionscarriedoutduringthefinancialyearhadbeenenteredintoinaccordancewiththerelevantprovisionsoftheStructureContractsand,hadbeenoperatedsoastotransferbythedateofthisannualreportTencentComputer'sandShijiKaixuan'sSurplusCash(asdefinedinthesection"OurHistoryandStructure–StructureContracts"oftheIPOprospectusoftheCompany)asat31December2018toTencentTechnology,CyberTianjin(formerlyknownasShidaiZhaoyangTechnology(Shenzhen)CompanyLimitedintheIPOprospectusoftheCompany),TencentBeijing,ShenzhenTencentInformation,TencentChengdu,ChongqingTencentInformation,ShanghaiTencentInformation,TencentShanghai,TencentWuhan,HainanNetwork,GuangzhouTencentTechnology,ShenzhenTencentNetworkandGuianNewAreaTencentCyber.
TheCompany'sindependentnon-executivedirectorshadalsoconfirmedthatnodividendsorotherdistributionshadbeenmadebytheOPCOstotheholdersoftheirequityinterestsandthetermsofanynewStructureContractsenteredinto,renewedand/orclonedduringtherelevantfinancialperiodarefairandreasonablesofarastheGroupwasconcernedandintheinterestsoftheCompany'sshareholdersasawhole.
Tothisextent,similarStructureContractswereenteredintorelatingtotheNewOPCOs.
TheAuditorhadcarriedoutproceduresonthetransactionspursuanttotheStructureContractsandhadprovidedalettertotheBoardconfirmingthatsuchtransactionshadbeenapprovedbytheBoardandhadbeenenteredinto,inallmaterialrespects,inaccordancewiththerelevantStructureContractsandhadbeenoperatedsoastotransfertheSurplusCashoftheOPCOsasat31December2018totheWFOEsandthatnodividendsorotherdistributionshadbeenmadebytheOPCOstotheholdersoftheirequityinterests.
68TencentHoldingsLimitedTransactionscarriedoutduringtheyearended31December2018,whichhavebeeneliminatedintheconsolidatedfinancialstatementsoftheGroup,aresetoutasfollows:1.
PursuanttotheTCSCFC,thepartiesshallco-operateintheprovisionofcommunicationsservices.
TencentTechnologyanditsaffiliatesshallallowTencentComputertouseitsanditsaffiliates'assetsandtoprovideservicestoTencentComputer.
TencentComputershalltransferallofitsSurplusCashtoTencentTechnologyanditsaffiliatesasconsideration.
ThepartiesalsoestablishedtheTCSCo-operationCommitteeaccordingtothisagreement.
Duringtheyear,revenuesharingamountingtoapproximatelyRMB64,288million,RMB2,932million,RMB18,901million,RMB15,638million,RMB7,600million,RMB2,197million,RMB1,996million,RMB186million,RMB5,174million,RMB1,351million,RMB111million,RMB108millionandRMB24millionwerepaidorpayablebyTencentComputertoTencentTechnology,CyberTianjin,TencentBeijing,TencentChengdu,TencentShanghai,TencentWuhan,ChongqingTencentInformation,ShanghaiTencentInformation,ShenzhenTencentInformation,HainanNetwork,GuangzhouTencentTechnology,ShenzhenTencentNetworkandGuianNewAreaTencentCyberrespectively.
2.
PursuanttotheSKTCFC,thepartiesshallco-operateintheprovisionofcommunicationsservices.
CyberTianjinanditsaffiliatesshallallowShijiKaixuantouseitsanditsaffiliates'assetsandtoprovideservicestoShijiKaixuan.
ShijiKaixuanshalltransferallofitsSurplusCashtoCyberTianjinanditsaffiliatesasconsideration.
ThepartiesalsoestablishedtheSKTCo-operationCommitteeaccordingtothisagreement.
Duringtheyear,noserviceswastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
3.
Pursuanttotheamendedandrestatedintellectualpropertytransferagreementdated28February2004enteredintobetweenTencentTechnologyandTencentComputer,TencentComputershallassigntoTencentTechnologyitsprincipalpresentandfutureintellectualpropertyrights,freefromencumbrances(exceptforlicencesgrantedintheordinarycourseofTencentComputer'sbusiness)inconsiderationofTencentTechnology'sundertakingtoprovidecertaintechnologyandinformationservicestoTencentComputer.
Duringtheyear,nointellectualpropertytransferwastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
694.
Pursuanttotheintellectualpropertytransferagreementdated28February2004enteredintobetweenCyberTianjinandShijiKaixuan,ShijiKaixuanshallassigntoCyberTianjinitsprincipalpresentandfutureintellectualpropertyrights,freefromencumbrance(exceptforlicencesgrantedintheordinarycourseofShijiKaixuan'sbusiness)inconsiderationofCyberTianjin'sundertakingtoprovidecertaintechnologyandinformationservicestoShijiKaixuan.
Duringtheyear,nointellectualpropertytransferwastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
5.
Pursuanttothedomainnamelicenceagreementdated28February2004enteredintobetweenTencentTechnology,aslicensor,andTencentComputer,aslicensee,TencentTechnologyshallgranttoTencentComputeranon-exclusivelicencetousespecifieddomainnamesagainstpaymentofannualroyaltiesdeterminedbytheTCSCo-operationCommitteewithinarangeofpercentagesofTencentComputer'sannualrevenues.
Duringtheyear,nodomainnamelicencewastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
6.
Pursuanttothedomainnamelicenceagreementdated28February2004enteredintobetweenTencentTechnology,aslicensor,andShijiKaixuan,aslicensee,TencentTechnologyshallgranttoShijiKaixuananon-exclusivelicencetousespecifieddomainnamesagainstpaymentofannualroyaltiesdeterminedasapercentageofShijiKaixuan'sannualrevenues(whichmaybeadjustedpursuanttotheagreementortheSKTCFC).
Duringtheyear,nodomainnamelicencewastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
7.
Pursuanttothetrademarklicenceagreementdated28February2004enteredintobetweenTencentTechnology,aslicensor,andTencentComputer,aslicensee,TencentTechnologyshallgranttoTencentComputeranon-exclusivelicencetousespecifiedtrademarksagainstpaymentofannualroyaltiesdeterminedasapercentageofTencentComputer'sannualrevenues(whichmaybeadjustedpursuanttotheagreementortheTCSCFC).
Duringtheyear,notrademarklicencewastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
8.
Pursuanttothetrademarklicenceagreementdated28February2004enteredintobetweenTencentTechnology,aslicensor,andShijiKaixuan,aslicensee,TencentTechnologyshallgranttoShijiKaixuananon-exclusivelicencetousespecifiedtrademarksagainstpaymentofannualroyaltiesdeterminedasapercentageofShijiKaixuan'sannualrevenues(whichmaybeadjustedpursuanttotheagreementortheSKTCFC).
Duringtheyear,notrademarklicencewastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
70TencentHoldingsLimited9.
Pursuanttotheinformationconsultancyservicesagreementdated28February2004enteredintobetweenTencentTechnology,asconsultant,andTencentComputer,TencentTechnologyshallprovidespecifiedinformationconsultancyservicestoTencentComputeragainstpaymentofanannualconsultancyservicefeedeterminedbytheTCSCo-operationCommitteewithinarangeofpercentagesofTencentComputer'sannualrevenues.
Duringtheyear,noconsultancyservicewastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
10.
Pursuanttothetechnicalconsultancyservicesagreementdated28February2004enteredintobetweenTencentTechnology,asconsultant,andShijiKaixuan,TencentTechnologyshallprovidespecifiedtechnicalconsultancyservicestoShijiKaixuanagainstpaymentofanannualconsultancyservicefeedeterminedbytheSKTCo-operationCommitteewithinarangeofpercentagesofShijiKaixuan'sannualrevenues.
Duringtheyear,noconsultancyservicewastransactedundersucharrangements,saveasdisclosedelsewhereinthissection.
11.
Pursuanttotheco-operationframeworkagreemententeredintobetweeneachoftheNewOPCOsandoneoftheWFOEs,thepartiesshallcooperateintheprovisionofcommunicationsservices.
Foreachagreement,theWFOEsshallallowtheNewOPCOstouseitsanditsaffiliates'assetsandprovideservicestotheNewOPCOs.
TheNewOPCOsshalltransferallofitsSurplusCashtotheWFOEsanditsaffiliatesasconsideration.
Co-operationcommitteeshavealsobeenestablishedaccordingtotheseagreements.
Duringtheyear,revenuesharingamountingtoapproximatelyRMB2million,RMB3millionandRMB83millionwaspaidorpayablebyWangDiantoTencentTechnology,CyberTianjinandTencentBeijingrespectively.
RevenuesharingamountingtoapproximatelyRMB3million,RMB22millionandRMB0.
012millionwaspaidorpayablebyBeijingBIZCOMtoTencentTechnology,CyberTianjinandTencentBeijingrespectively.
RevenuesharingamountingtoapproximatelyRMB3millionandRMB1millionwaspaidorpayablebyBeijingStarsinhandtoCyberTianjinandTencentBeijingrespectively.
71TherisksassociatedwithStructureContractsandtheactionstakenbytheCompanytomitigatetherisksDuetoregulatorylimitationsrestrictingforeigninvestmentinbusinessesprovidingvalue-addedtelecommunicationsservicesinChina,theCompanyconductssomeofitsbusinessinthePRCthroughtheOPCOs.
Thesecontractualarrangementsmaynotbeaseffectiveinprovidingcontrolasdirectownership.
PursuanttotheStructureContracts,thearbitrationtribunalisentitledtodecidecompensationfortheequityinterestsorpropertyownershipofOPCOs,decidetoimplementenforceableremedy(includingmandatorilyrequiringOPCOstotransfertheequityinterestsofOPCOstotheWFOEs,etc.
)ororderthebankruptcyofOPCOs.
Priortotheformationofthearbitrationtribunal,thecourtsoftheplaceswherethemajorassetsofOPCOsaresituatedareentitledtoimplementinterimremediestoensuretheenforcementofthefuturedecisionsofthearbitrationtribunals.
TheWFOEshavebeenstructuredandlocatedinordertobenefitfrompreferentialtaxtreatmentsofferedtocompanieslocatedindesignatedeconomiczonesand/oroperatingsoftware-relatedbusinesses.
AlthoughtherelevantgovernmentalauthorityhasgrantedsuchpreferentialtaxtreatmenttocertainWFOEsandOPCOs,therecanbenoassurancethattheconditionsunderwhichthesetreatmentsareprovidedwillalwaysbepresent.
TherelevantWFOEsandOPCOswouldusetheirreasonableendeavourstotakeallnecessaryactions,includingbutnotlimitedtomaintainingoracquiringtheirstatusas"HighandNewTechnologyEnterprise"or"NationalKeySoftwareEnterprise",inordertocontinuetoenjoythereducedincometaxrateandtheothertaxconcessions.
Duetothelegalconstraintsinrelationtoforeigninvestmentinthetelecommunicationsvalue-addedservicesindustryinthePRC,anumberofagreementshavebeenenteredintobetweenmembersoftheGroupwherebytheCompanyandtheWFOEsderivesubstantiallyalltheirrevenuesfromtransactionswiththeOPCOs.
TherecognitionofrevenuesoutlinedintheseintragroupcontractscouldbechallengedbytaxauthoritiesandanyadjustmentintaxtreatmentcouldhaveamaterialandadverseimpactonthetaxableprofitabilityoftheGroup.
AsadvisedbytheCompany'sPRClegaladvisers,itisunlikelythatthetaxtreatmentofrevenueswillbechallengedbythePRCtaxauthorities,providedthatthetransactionsundertheseintra-groupcontractsrepresentbonafidetransactionsconductedonanarm'slengthbasis.
TheCompanywilltakeallnecessaryactionstoensureandmonitorthatrelevanttransactionsaretobeconductedonanarm'slengthbasistominimisetherisksofadjustmentintaxtreatment.
FordetailsoftherisksassociatedwiththeStructureContracts,pleaserefertothesectionheaded"Riskfactors-Risksrelatingtoourstructure"intheIPOprospectusoftheCompany.
OtherconnectedtransactionsSaveastherelatedpartiestransactiondisclosedinNote13(a)(Seniormanagement'semoluments),Note13(b)(Fivehighestpaidindividuals),Note14(Benefitsandinterestsofdirectors),Note20(Transactionswithassociates),Note25(Loanstoinvesteesandinvestees'shareholders)andNote33(Share-basedpayments)totheconsolidatedfinancialstatements,norelatedpartytransactiondisclosedintheconsolidatedfinancialstatementsconstitutesadiscloseableconnectedtransactionasdefinedundertheListingRules.
TheCompanyhascompliedwiththedisclosurerequirementssetoutinChapter14AoftheListingRules.
72TencentHoldingsLimitedINTERESTSOFSUBSTANTIALSHAREHOLDERSAsat31December2018,thefollowingpersons,otherthanthedirectorsorchiefexecutiveoftheCompany,hadinterestsorshortpositionsinthesharesorunderlyingsharesoftheCompanywhichwouldfalltobedisclosedtotheCompanyundertheprovisionsofDivisions2and3ofPartXVoftheSFOasrecordedintheregisterrequiredtobekeptbytheCompanyundersection336oftheSFO,orwhowas,directlyorindirectly,interestedin5%ormoreofthesharesoftheCompany:Long/shortpositioninthesharesoftheCompanyNameofshareholderLong/shortpositionNatureofinterest/capacityNumberofshares/underlyingsharesheldApproximate%ofshareholdingMIHTCLongpositionCorporate(Note1)2,961,223,60031.
10%AdvanceDataServicesLimitedLongpositionCorporate(Note2)819,507,5008.
61%Note:1.
MIHTCiswholly-ownedbyNaspersLimitedindirectlythroughitswholly-ownedintermediarycompanies,MIHHoldingsProprietaryLimited,MIHMingHeHoldingsLimitedandMIHServicesFZLLC.
Assuch,NaspersLimited,MIHHoldingsProprietaryLimited,MIHMingHeHoldingsLimitedandMIHServicesFZLLCaredeemedtobeinterestedinthesameblockof2,961,223,600sharesunderPartXVoftheSFO.
2.
AdvanceDataServicesLimitedholds723,507,500sharesdirectlyand96,000,000sharesindirectlythroughitswholly-ownedsubsidiary,MaHuatengGlobalFoundation.
AsAdvanceDataServicesLimitediswholly-ownedbyMaHuateng,MrMahasaninterestinthesesharesasdisclosedunderthesectionof"Directors'InterestsinSecurities".
Saveasdisclosedabove,theCompanyhadnotbeennotifiedofanyotherpersons(otherthanthedirectorsorchiefexecutiveoftheCompany)who,asat31December2018,hadinterestsorshortpositionsinthesharesandunderlyingsharesoftheCompanyasrecordedintheregisterrequiredtobekeptundersection336oftheSFO.
73MANAGEMENTCONTRACTSNocontractsconcerningthemanagementandadministrationofthewholeoranysubstantialpartofthebusinessoftheCompanywereenteredintoorexistedduringtheyear.
MAJORCUSTOMERSANDSUPPLIERSFortheyearended31December2018,thefivelargestcustomersoftheGroupaccountedforapproximately4.
23%oftheGroup'stotalrevenueswhilethelargestcustomeroftheGroupaccountedforapproximately1.
37%oftheGroup'stotalrevenues.
Inaddition,fortheyearended31December2018,thefivelargestsuppliersoftheGroupaccountedforapproximately18.
63%oftheGroup'stotalpurchaseswhilethelargestsupplieroftheGroupaccountedforapproximately5%oftheGroup'stotalpurchases.
Noneofthedirectors,theircloseassociatesoranyshareholder(whichtotheknowledgeofthedirectorsownsmorethan5%ofthenumberofissuedsharesoftheCompany)hadaninterestinanyofthemajorcustomersorsuppliersnotedabove.
AUDITCOMMITTEETheAuditCommittee,togetherwiththeAuditor,hasreviewedtheGroup'sauditedconsolidatedfinancialstatementsfortheyearended31December2018.
TheAuditCommitteehasalsoreviewedtheaccountingprinciplesandpracticesadoptedbytheGroupanddiscussedauditing,riskmanagement,internalcontrolandfinancialreportingmatters.
ENVIRONMENTANDCOMPLIANCEWITHLAWSTheGroupiscommittedtominimisingtheimpactontheenvironmentfromourbusinessactivitiesandthedetailsofsucheffortsaresetoutinthesectionheaded"Environment"intheEnvironmental,SocialandGovernanceReportinthisannualreport.
AsfarastheBoardisaware,theGrouphascompliedwiththerelevantlawsandregulationsthathaveasignificantimpactontheGroupinallmaterialrespects.
74TencentHoldingsLimitedADOPTIONOFCODEOFCONDUCTREGARDINGDIRECTORS'SECURITIESTRANSACTIONSTheCompanyhasadoptedacodeofconductregardingdirectors'securitiestransactionsontermsnolessexactingthantherequiredstandardsetoutintheModelCode.
ThedirectorsoftheCompanyhavecompliedwithsuchcodeofconductthroughouttheaccountingyearcoveredbythisannualreport.
PRE-EMPTIVERIGHTSThereisnoprovisionforpre-emptiverightsundertheArticlesofAssociation,orthelawsofCaymanIslands,whichwouldobligetheCompanytooffernewsharesonaproratabasistoexistingshareholders.
EMPLOYEEANDREMUNERATIONPOLICIESAsat31December2018,theGrouphad54,309employees(2017:44,796).
ThenumberofemployeesemployedbytheGroupvariesfromtimetotimedependingonneedsandemployeesareremuneratedbasedonindustrypractice.
TheremunerationpolicyandpackageoftheGroup'semployeesareperiodicallyreviewed.
Apartfrompensionfundsandin-housetrainingprogrammes,discretionarybonuses,shareawardsandshareoptionsmaybeawardedtoemployeesaccordingtotheassessmentofindividualperformance.
ThetotalremunerationcostincurredbytheGroupfortheyearended31December2018wasRMB42,153million(2017:RMB34,866million).
SUFFICIENCYOFPUBLICFLOATAsatthedateofthisannualreport,basedoninformationthatispubliclyavailabletotheCompanyandwithintheknowledgeofitsdirectors,thedirectorsconfirmthattheCompanyhasmaintainedduringtheyeartheamountofpublicfloatasrequiredundertheListingRules.
75CLOSUREOFREGISTEROFMEMBERS(A)EntitlementtoAttendandVoteatthe2019AGMTheregisterofmembersoftheCompanywillbeclosedfromThursday,9May2019toWednesday,15May2019,bothdaysinclusive,duringwhichperiodnotransferofshareswillberegistered.
Inordertobeentitledtoattendandvoteatthe2019AGM,alldulycompletedtransferformsaccompaniedbytherelevantsharecertificatesmustbelodgedwiththeCompany'sbranchshareregistrar,ComputershareHongKongInvestorServicesLimited,atShops1712-1716,17thFloor,HopewellCentre,183Queen'sRoadEast,WanChai,HongKongforregistrationnotlaterthan4:30p.
m.
onWednesday,8May2019.
(B)EntitlementtotheProposedFinalDividendTheregisterofmembersoftheCompanywillbeclosedfromTuesday,21May2019toWednesday,22May2019,bothdaysinclusive,duringwhichperiodnotransferofshareswillberegistered.
Inordertoqualifyfortheproposedfinaldividend,alldulycompletedtransferformsaccompaniedbytherelevantsharecertificatesmustbelodgedwiththeCompany'sbranchshareregistrar,ComputershareHongKongInvestorServicesLimited,atShops1712-1716,17thFloor,HopewellCentre,183Queen'sRoadEast,WanChai,HongKongforregistrationnotlaterthan4:30p.
m.
onMonday,20May2019.
AUDITORThefinancialstatementshavebeenauditedbyPricewaterhouseCooperswhowillretireand,beingeligible,offerthemselvesforre-appointmentatthe2019AGM.
OnbehalfoftheBoardMaHuatengChairmanHongKong,21March201976TencentHoldingsLimitedMaintainingthehigheststandardsofcorporategovernanceandethicalbusinesspracticesarecorevaluesoftheGroup.
TheBoardviewseffectivecorporategovernancepracticesasapriorityoftheGroup,withtheaimofprovidingourinvestorswithathoroughunderstandingoftheGroup'smanagementandhowsuchmanagementoverseesandmanagesdifferentbusinessesoftheGroup.
Ourbeliefisthatinvestorswillrealisesignificantlong-termvaluewhentheGroup'sbusinessesareconductedinanopenandresponsiblemanner.
Ethicalbusinesspracticesgohandinhandwithstrongcorporategovernance,andwebelievethatrunningourbusinessesinanethicalmannerwillleadtopublictrustandwillultimatelycreateshareholdervaluefortheGroup.
CORPORATEGOVERNANCEPRACTICESTheCompany'scorporategovernancepracticesarebasedonthecodeprovisionsassetoutintheCGCode.
TheBoardbelievesthatthroughouttheyearended31December2018,theCompanycompliedwiththeapplicablecodeprovisionssetoutintheCGCode,exceptforthedeviationfromcodeprovisionsA.
2.
1regardingthesegregationoftherolesofthechairmanandchiefexecutiveandA.
4.
2regardingtheretirementandre-electionofdirectors.
TheBoardcontinuestomonitorandreviewtheCompany'scorporategovernancepracticesandmakesnecessarychangeswhenappropriate.
BOARDOFDIRECTORSResponsibilitiesTheBoard'sfundamentalresponsibilityistoexerciseitsbestjudgmentandtoactinthebestinterestsoftheCompanyanditsshareholders.
TheBoardoverseesmanagement'seffortstopromotetheCompany'ssuccesswhileoperatinginaneffectiveandresponsiblemanner.
TheBoardalsoformulatestheCompany'soverallbusinessstrategyandmonitorsmanagement'sexecutionofsuchstrategy.
TheBoardhasdefinedthebusinessandgovernanceissuesforwhichitneedstoberesponsiblefor,andthesemattersarereviewedperiodicallytoensurethattheCompanymaintainseffectiveandup-to-datecorporategovernancepractices.
Inthisregard,theBoard:determinestheGroup'smission,providesitsstrategicdirectionandisresponsiblefortheapprovalofstrategicplans;approvestheannualbusinessplanandbudgetproposedbymanagement;retainsfullandeffectivecontrolovertheGroupandmonitorsmanagementwithregardtotheimplementationoftheapprovedannualbusinessplanandbudget;appointstheChiefExecutiveOfficer,whoreportstotheBoard,andensuresthatsuccessionisplanned;approvestheCompany'sfinancialstatementsandinterimandannualreports;determinestheGroup'scommunicationpolicy;77determinesdirectorselection,orientationandevaluation;ensuresthattheGrouphasappropriateriskmanagement,internalcontrol,internalauditandregulatorycomplianceproceduresinplaceandthatitcommunicatesadequatelywithshareholdersandstakeholders;establishesBoardcommitteeswithcleartermsofreferenceandresponsibilitiesasappropriate;defineslevelsofdelegationinrespectofspecificmatters,withrequiredauthoritytoBoardcommitteesandmanagement;monitorsnon-financialaspectspertainingtothebusinessesoftheGroup;considersand,ifappropriate,declaresthepaymentofdividendstoshareholders;andregularlyevaluatesitsownperformanceandeffectiveness.
TheBoarddelegatestheresponsibilityofday-to-daybusinessandoperationstotheCompany'sseniormanagementteam,whichincludesitschiefofficers,thepresidentandexecutivevice-presidents.
TheseniormanagementteammeetsonceeverytwoweeksorasfrequentasnecessarytoformulatepoliciesandmakerecommendationstotheBoard.
Theseniormanagementteamadministers,enforces,interpretsandsupervisescompliancewiththeinternalrulesandoperationalproceduresoftheCompanyaswellasitssubsidiariesandconductsregularreviews,recommendsandadvisesonappropriateamendmentstosuchrulesandprocedures.
TheseniormanagementteamreportstotheBoardonaregularbasisandcommunicateswiththeBoardwheneverrequired.
Tobetterservethelong-terminterestsofourstakeholders,theBoarddelegatescertainmattersrequiringparticulartime,attentionandexpertisetoitscommittees.
TheBoardhasdeterminedthatthesemattersarebetterdealtwithbythecommitteesastheyrequireindependentoversightandspecialistinput.
Assuch,theBoardhasestablishedfivecommitteestoassisttheBoard:AuditCommittee,CorporateGovernanceCommittee,InvestmentCommittee,NominationCommitteeandRemunerationCommittee.
Eachofthecommitteeshasitstermsofreferencewhichclearlyspecifyitspowersandauthorities.
AllcommitteesreportbacktotheBoardandmakerecommendationstotheBoardifnecessary.
TheCompany'sgovernancestructureofthesecommitteescanbesummarisedasfollows:AuditCommitteehandlestherelationshipwiththeCompany'sexternalauditor;reviewstheCompany'sfinancialinformation;exercisesoversightoftheCompany'sfinancialreportingsystem;reviewstheworkdonebytheCompany'smanagementwithrespecttoriskmanagementandinternalcontrolsystems;andoverseestherisksundertakenbytheCompanyincludingdeterminingthelevelofrisktheCompanyexpectstoandisabletotake.
78TencentHoldingsLimitedCorporateGovernanceCommitteereviewstheCompany'scorporategovernanceandmakesrecommendationstotheBoard;reviewsandmonitorsthetrainingandcontinuousprofessionaldevelopmentofthedirectorsandseniormanagementteam;reviewsandmonitorstheCompany'spoliciesandpracticesonitscompliancewithlegalandregulatoryrequirements;develops,reviewsandmonitorsthecodeofconductandcompliancemanual(ifany)applicabletoemployeesanddirectors;reviewstheshareholderscommunicationpolicyandmakesrecommendationstotheBoardwhereappropriatetoenhanceeffectivecommunicationsbetweentheCompanyanditsshareholders;andreviewstheCompany'scompliancewiththeCGCodeanddisclosureintheCorporateGovernanceReport.
InvestmentCommitteeidentifies,considersandmakesrecommendationsonmergers,acquisitionsanddisposals;andensurescompliancewiththeListingRulesandanyotherrelevantlawsandregulationsonanymergers,acquisitionsanddisposals.
NominationCommitteereviewsandmonitorsthestructure,size,compositionanddiversityoftheBoardinlightoftheCompany'sstrategy;identifiessuitableandqualifiedindividualsandmakesrecommendationstotheBoardastonewBoardmembers,bytakingintoaccounttheindividual'sexperience,knowledge,skillsandbackground,aswellastheListingRulesrequirements;reviewsandmakesrecommendationstotheBoardonindividualsnominatedtobedirectorsbyshareholders;assessestheindependenceofindependentnon-executivedirectors;andreviewsandmonitorstheimplementationoftheboarddiversitypolicyoftheCompany.
RemunerationCommitteereviewsandapprovesproposalsaboutthepolicyandstructureofremunerationofdirectorsandseniormanagementteam;ensuresthattheseremunerationproposalsarealignedtocorporategoalsandobjectives;andensuresthatnodirectororanyofhisassociatesisinvolvedindecidinghisownremuneration.
79Themajorworkofthecommitteesduringtheyear2018issetoutonpages84to87.
AlldirectorshavefullandtimelyaccesstoallrelevantinformationaswellastheadviceandservicesoftheCompany'sgeneralcounselandthecompanysecretary,withaviewtoensuringthatBoardproceduresandallapplicablerulesandregulationsarefollowed.
AlldirectorsmayalsoobtainindependentprofessionaladviceattheCompany'sexpenseforcarryingouttheirfunctions.
WebelieveeducationandtrainingareimportantformaintaininganeffectiveBoard.
NewdirectorsundergoanorientationprogrammedesignedtoprovideathoroughunderstandingoftheGroup'soperationsandbusinesses,andalsoreceiveahandbookoutliningtheirresponsibilitiesundertheListingRulesandapplicablelaws.
Existingdirectorsareprovidedwithtailoredtrainingprogrammescoveringtopicssuchasbestpracticesincorporategovernance,legalandregulatorytrendsand,giventhenatureofourbusiness,emergingtechnologiesandproducts.
DirectorsalsoregularlymeetwiththeseniormanagementteamtounderstandtheGroup'sbusinesses,governancepoliciesandregulatoryenvironment.
Duringtheyearended31December2018,theCompanyarrangedtrainingontopicsrelatingtocorporategovernance,legalandregulatoryupdatesandproducttrendswhicharerelevanttotheGroup'sbusinesses.
Thechartbelowsummarisestheparticipationofeachofthedirectorsincontinuousprofessionaldevelopmentduringtheyearended31December2018:NameofdirectorParticipatedincontinuousprofessionaldevelopment1ExecutivedirectorsMaHuateng√LauChiPingMartin√Non-executivedirectorsJacobusPetrus(Koos)Bekker√CharlesStLegerSearle√Independentnon-executivedirectorsLiDongSheng√IainFergusonBruce√IanCharlesStone√YangSiuShun√1Attendedtraining/seminar/conferencearrangedbytheCompanyorotherexternalpartiesorreadrelevantmaterials.
AhighlevelofcorporategovernanceandintegritycannotbemaintainedonlywiththeBoard'sefforts.
EachoftheGroup'semployeesplaysaroleincontributingtosuchcause.
AcodeofconductwhichemphasisesintegrityandrespectisdistributedbytheCompanytoallemployeesanditformspartoftheemploymentagreementwitheachoftheemployees.
80TencentHoldingsLimitedInaddition,theBoardhasadoptedvariouspracticestobringtheGrouptoahighlevelofcorporategovernanceandcompliancewiththeCGCode.
Tostayabreastofthehighlevelofcorporategovernanceandmaintaintransparencyofourcorporategovernancepractices,wehavecontinuedtoadoptandfosterthefollowingcorporategovernancepractices:reviewoftheshareholderscommunicationpolicyhasbeenandwillbeconductedonaregularbasis;traininghasbeenandwillcontinuetobeprovidedtodirectorsonatimelybasis,includingbriefingthedirectorsonanyupdatestotheListingRulesandrelevantlaws;thecompanysecretaryattendstrainingincompliancewiththeListingRulesrequirements;andinformalupdatesfromtimetotimeandstructuredmonthlyupdatesontheCompany'sperformance,positionandprospectsareprovidedtothedirectors.
ChairmanandChiefExecutiveOfficerMrMaHuatengservesastheChairmanandChiefExecutiveOfficeroftheCompany.
ThisisatvariancewithcodeprovisionA.
2.
1oftheCGCode,whichprovidesthattherolesofchairmanandchiefexecutiveshouldbeseparateandshouldnotbeperformedbythesameindividual.
Thedivisionofresponsibilitiesbetweenthechairmanandchiefexecutiveshouldbeclearlyestablishedandsetoutinwriting.
Inviewoftheever-changingbusinessenvironmentinwhichourGroupoperates,theChairmanandChiefExecutiveOfficermustbetechnicallysophisticatedandsensitivetofastandrapidmarketchanges,includingchangesinusers'preferences,inordertopromotethedifferentbusinessesoftheGroup.
TheBoardthusconsidersthatasegregationoftherolesoftheChairmanandChiefExecutiveOfficermaycreateunnecessarycostsforthedailyoperationoftheGroup.
Besides,allmajordecisionshavebeenmadeinconsultationwithmembersoftheBoardandappropriatecommittees,aswellastheseniormanagementteam.
ChiefofficersandseniorexecutivesareinvitedtoattendBoardmeetingsfromtimetotimetomakepresentationsandanswerBoard'senquiries.
Inaddition,directorsareencouragedtoparticipateactivelyinallBoardandcommitteemeetingsofwhichtheyaremembers,andtheChairmanensuresthatallissuesraisedareproperlybriefedattheBoardmeetings,andheworkswiththeseniormanagementteamtoprovideadequate,accurate,clear,completeandreliableinformationtomembersoftheBoardinatimelymanner.
Further,theChairmanensuresthatadequatetimeisavailablefordiscussionforallitemsattheBoardmeetings.
Duringtheyearended31December2018,theChairmanheldameetingwiththenon-executivedirectors(includingtheindependentnon-executivedirectors)withoutthepresenceoftheexecutivedirectorsasrequiredbytheListingRules.
TheBoardisthereforeoftheviewthatthereisanadequatebalanceofpowerandthatappropriatesafeguardsareinplace.
Nevertheless,theBoardwillcontinuetoregularlymonitorandreviewtheCompany'scurrentstructureandtomakenecessarychangeswhenappropriate.
81CompositionAsatthedateofthisannualreport,theBoardiscomprisedofeightdirectors,withtwoexecutivedirectors,twonon-executivedirectorsandfourindependentnon-executivedirectors.
Duringtheyearended31December2018anduptothedateofthisannualreport,thereisnochangetothecompositionoftheBoard.
Alistofdirectorsandtheirrespectivebiographiesaresetoutonpages53to56ofthisannualreport.
Inordertotakeadvantageoftheskills,experiencesanddiversityofperspectivesofthedirectorsandinordertoensurethatthedirectorsgivesufficienttimeandattentiontotheGroup'saffairs,werequesteachofthedirectorstodisclosetotheCompany,onaquarterlybasis,thenumberandthenatureofofficesheldinpubliccompaniesororganisationsandothersignificantcommitments.
TheBoard'scompositionisincompliancewiththerequirementunderRule3.
10AoftheListingRulesthatthenumberofindependentnon-executivedirectorsmustrepresentatleastone-thirdoftheBoard.
TheBoardbelievesthatthebalancebetweentheexecutivedirectorsandthenon-executivedirectorsisreasonableandadequatetoprovidesufficientchecksandbalancesthatsafeguardtheinterestsoftheshareholdersandtheGroup.
TheBoardvaluestheimportanceofprofessionaljudgmentandadviceprovidedbynon-executivedirectorstosafeguardtheinterestsoftheshareholders.
Thenon-executivedirectorscontributediversifiedqualificationsandexperiencetotheGroupbyexpressingtheirviewsinprofessional,constructiveandinformedmanner,andactivelyparticipateinBoardandcommitteemeetingsandtobringprofessionaljudgmentandadviceonissuesrelatingtotheGroup'sstrategies,policies,performance,accountability,resources,keyappointments,standardsofconduct,conflictsofinterestsandmanagementprocess,withtheshareholders'interestsbeingtheutmostimportantfactor.
Thenon-executivedirectorsalsoexercisetheirprofessionaljudgmentandutilisetheirexpertisetoscrutinisetheCompany'sperformanceinachievingagreedcorporategoals,andmonitorperformancereporting.
Further,incompliancewithRule3.
10oftheListingRules,twoofourindependentnon-executivedirectorshavetheappropriateprofessionalqualificationsofaccountingorrelatedfinancialmanagementexpertise,andprovidevaluableadvicefromtimetotimetotheBoard.
TheCompanyhasalsoreceivedfromeachindependentnon-executivedirectoraconfirmationannuallyofhisindependenceandtheNominationCommitteehasconductedanannualreviewandconsidersthatallindependentnon-executivedirectorsareindependent,takingintoaccountoftheindependenceguidelinessetoutinRule3.
13oftheListingRulesinthecontextofthelengthofserviceofeachindependentnon-executivedirector.
AspartofourcorporategovernancepracticetoprovidetransparencytotheinvestorcommunityandincompliancewiththeListingRulesandtheCGCode,independentnon-executivedirectorsareidentifiedassuchinallcorporatecommunicationscontainingthenamesofthedirectors.
Inaddition,anupdatedlistofdirectorsidentifyingtheindependentnon-executivedirectorsandtherolesandfunctionsofthedirectorsismaintainedontheCompanyWebsiteandtheStockExchange'swebsite.
82TencentHoldingsLimitedAppointments,Re-electionandRemovalTheBoardisthecoreoftheGroup'ssuccess,andwiththeappropriatecompositionoftheBoard,wecanbenefitfromtherightsetofskills,experienceanddiversityofperspectivestotaketheCompanyforward.
Therefore,itisessentialfortheCompanytomaintainaformal,consideredandtransparentprocedurefortheappointmentofnewdirectorstotheBoard.
ItisourcorporategovernancepracticeandinaccordancewiththeArticlesofAssociationthatalldirectors(exceptfortheChairman)shouldbesubjecttore-electionatregularintervalsandtheresignationandremovalofanydirectorshouldbeexplainedwithreasons.
Inthe2018annualgeneralmeeting,MessrsLiDongShengandIainFergusonBruceretiredandwerere-elected.
CodeprovisionA.
4.
2oftheCGCodeprovidesthatalldirectorsappointedtofillacasualvacancyshouldbesubjecttoelectionbyshareholdersatthefirstgeneralmeetingafterappointment.
Everydirector,includingthoseappointedforaspecificterm,shouldbesubjecttoretirementbyrotationatleastonceeverythreeyears.
TheChairman,inaccordancewiththeArticlesofAssociation,whilstholdingsuchofficeisnotsubjecttoretirementbyrotationnortakenintoaccountindeterminingthenumberofdirectorstoretireineachyear.
Therefore,thereisadeviationfromcodeprovisionA.
4.
2oftheCGCode.
TheChairmanisoneofthefoundersoftheGroupandheplaysakeyroleinthegrowthanddevelopmentoftheGroupandhiscontinuingpresenceintheBoardisvitaltothesustainabledevelopmentoftheGroup.
GiventheimportanceoftheChairman'sroleinthedevelopmentoftheGroup,theBoardconsidersthatthedeviationfromcodeprovisionA.
4.
2oftheCGCodehasnomaterialimpactontheoperationoftheGroupasawhole.
83BoardActivityTheBoardmetsixtimesin2018.
TheattendanceofeachdirectoratBoard,committeemeetingsandannualgeneralmeeting,whetherinpersonorbymeansofelectroniccommunication,isdetailedinthetablebelow:Attendance/No.
ofBoard,CommitteeMeetingsandAnnualGeneralMeetingNameofdirectorBoardAuditCommitteeCorporateGovernanceCommitteeNominationCommitteeRemunerationCommitteeAnnualGeneralMeetingExecutivedirectorsMaHuateng6/61/11/1LauChiPingMartin6/61/1Non-executivedirectorsJacobusPetrus(Koos)Bekker6/64/41/1CharlesStLegerSearle6/68/82/21/11/1Independentnon-executivedirectorsLiDongSheng4/61/13/40/1IainFergusonBruce6/68/82/21/11/1IanCharlesStone6/68/82/21/14/41/1YangSiuShun6/68/82/21/1AttheBoardmeetings,theBoarddiscussedawiderangeofmatters,includingtheGroup'soverallstrategies,financialandoperationalperformances,approvedtheannual,interimandquarterlyresultsoftheGroup,theappointmentofdirectors,businessprospects,regulatorycomplianceandcorporategovernance,andothersignificantmatters.
Thecompanysecretary,inconsultationwiththeChairmanandtheseniormanagementteam,preparestheagendaforeachmeetingandalldirectorsaregiventheopportunitytoincludemattersfordiscussionintheagenda.
ThecompanysecretaryalsoensuresthatallapplicablerulesandregulationsinrelationtotheBoardmeetingsarefollowed.
ThecompanysecretarysendsnoticeoftheBoardmeetingtoeachofthedirectorsatleast14daysinadvanceofeachregularBoardmeeting.
Thecompanysecretaryalsosendstheagenda,boardpapersandrelevantinformationrelatingtotheGrouptoeachofthedirectorsatleast3daysinadvanceofeachregularBoardmeetingandcommitteemeeting,andkeepsthedirectorsupdatedontheGroup'sfinancialperformanceandlatestdevelopments.
Ifanydirectorraisesanyqueries,stepswillbetakentorespondtosuchqueriesaspromptlyandfullyaspossible.
Ifthereispotentialoractualconflictofinterestsinvolvingasubstantialshareholderoradirector,suchdirectorwilldeclarehisinterestandwillabstainfromvotingonsuchmatters.
ThedirectorsmayapproachtheCompany'sseniormanagementteamwhennecessary.
ThedirectorsmayalsoseekindependentprofessionaladviceattheCompany'sexpenseinappropriatecircumstances.
84TencentHoldingsLimitedThecompanysecretaryensuresthatthereisagoodandtimelyflowofinformationtotheBoard.
ThecompanysecretaryisresponsiblefortakingminutesofallBoardandcommitteemeetingsandensuringthatsufficientdetailsofthemattersconsideredanddecisionsreachedhavebeenrecorded.
Draftandfinalversionoftheminutesofmeetingsaresenttothedirectorsforcommentsandrecordsrespectivelywithinareasonabletimeaftereachmeeting,andfinalminuteswiththerelevantboardpapersandrelatedmaterialsarekeptbythecompanysecretaryandareavailableforreviewandinspectionbythedirectorsatanytime.
THECOMMITTEESAsdescribedabove,theBoardhasestablishedfivecommittees,eachofwhichhasbeendelegatedresponsibilitiesandreportsbacktotheBoard:AuditCommittee,CorporateGovernanceCommittee,InvestmentCommittee,NominationCommitteeandRemunerationCommittee.
Therolesandfunctionsofthesecommitteesaresetoutintheirrespectivetermsofreference.
ThetermsofreferenceofeachofthesecommitteeswillberevisedfromtimetotimetoensurethattheycontinuetomeettheneedsoftheCompanyandtoensurecompliancewiththeCGCode.
ThetermsofreferenceoftheAuditCommittee,theNominationCommitteeandtheRemunerationCommitteeareavailableontheCompanyWebsiteandtheStockExchange'swebsite.
AuditCommitteeTheAuditCommitteecomprisesonlynon-executivedirectors.
ItsmembersareMrYangSiuShun*,MrIainFergusonBruce*,MrIanCharlesStone(allofthemareindependentnon-executivedirectors)andMrCharlesStLegerSearle(non-executivedirector).
MrYangSiuShun,whochairstheAuditCommittee,andMrIainFergusonBruceandMrCharlesStLegerSearlehaveappropriateprofessionalqualificationsandexperiencesinfinancialmatters.
*MrYangSiuShunwasappointedastheChairmanoftheAuditCommitteeandMrIainFergusonBruceceasedtobetheChairmanoftheAuditCommitteewitheffectfromtheconclusionoftheannualgeneralmeetingoftheCompanyheldon16May2018.
TheAuditCommitteemeetsnotlessthanfourtimesayear;theAuditCommitteemeteighttimesin2018.
IndividualattendanceofeachAuditCommitteememberissetoutonpage83.
InadditiontothemembersoftheAuditCommittee,meetingswereattendedbytheChiefFinancialOfficer,theHeadofIAandtheHeadofIC,andtheexternalauditorattheinvitationoftheAuditCommittee.
TheAuditCommittee'smajorworkduringtheyear2018includesreviewing:the2017annualreport,includingtheCorporateGovernanceReport,theEnvironmental,SocialandGovernanceReport,Directors'Reportandthefinancialstatements,aswellastherelatedresultsannouncement;the2018interimreportandinterimresultsannouncement;the2018firstandthirdquartersresultsannouncements;thestatusofcompliancewiththeCGCode,theListingRulesandrelevantlawsbytheGroup;85inrelationtotheexternalauditor,theirplans,reportsandmanagementletter,fees,involvementinnon-auditservices,andtheirtermsofengagement;theplans(includingthosefor2018),resourcesandworkoftheCompany'sinternalauditors;theadequacyofresources,qualificationsandtrainingoftheGroup'sfinancedepartment;andtheeffectivenessoftheCompany'sfinancialreportingsystem,thesystemofinternalcontrolsinoperation,riskmanagementsystemandassociatedprocedureswithintheGroup.
PricewaterhouseCoopers("PwC")istheCompany'sexternalauditor.
TheAuditCommitteeannuallyreviewstherelationshipoftheCompanywithPwC.
HavingalsoreviewedtheeffectivenessoftheexternalauditprocessaswellastheindependenceandobjectivityofPwC,theAuditCommitteeissatisfiedwiththisrelationship.
Assuch,theAuditCommitteehasrecommendedtheirre-appointmentatthe2019AGM.
Inviewofthenewrequirementforextendingthecooling-offperiodto2yearsforformerprofessionaladviserstotakeupthepositionofanindependentnon-executivedirectoroflistedissuersundertherevisedCGCodewhichhasbecomeeffectivefrom1January2019,thetermsofreferenceoftheAuditCommitteewererevisedandadoptedinDecember2018toalignwiththerevisedCGCode.
CorporateGovernanceCommitteeTheCorporateGovernanceCommitteecomprisesonlynon-executivedirectors.
ItsmembersareMrCharlesStLegerSearle(non-executivedirector),MrIainFergusonBruce,MrIanCharlesStoneandMrYangSiuShun(allofthemareindependentnon-executivedirectors).
TheCorporateGovernanceCommitteeischairedbyMrCharlesStLegerSearle.
TheCorporateGovernanceCommitteemettwicein2018.
IndividualattendanceofeachCorporateGovernanceCommitteememberissetoutonpage83.
TheCorporateGovernanceCommittee'smajorworkduringtheyear2018includesthefollowing:discussedonthearrangementsmadefordirectorsandseniormanagementteamtoattendtrainingsessionsforcontinuousprofessionaldevelopment;reviewedtheCompany'scompliancewiththeCGCodeanddisclosureintheCorporateGovernanceReport;reviewedtheCompany'scompliancewiththeESGReportingGuideanddisclosureintheEnvironmental,SocialandGovernanceReport;reviewedtheCompany'spoliciesandpracticesoncorporategovernance;andreviewedlegalandregulatorycompliance,includingtheinsiderdealingpolicy,thedisclosureofinsideinformationpolicyandtheshareholderscommunicationpolicy.
86TencentHoldingsLimitedInvestmentCommitteeTheInvestmentCommitteecomprisesamajorityofexecutivedirectors.
ItsmembersareMrLauChiPingMartin,MrMaHuatengandMrCharlesStLegerSearle.
TheInvestmentCommitteeischairedbyMrLauChiPingMartin.
In2018,theInvestmentCommitteehadconsideredandpassedvariousresolutionsonitsdecisionsontheGroup'sacquisitionsanddisposals.
NominationCommitteeTheNominationCommitteecomprisesamajorityofindependentnon-executivedirectors.
ItsmembersareMrMaHuateng,MrLiDongSheng,MrIainFergusonBruce,MrIanCharlesStone(allthreeareindependentnon-executivedirectors)andMrCharlesStLegerSearle(non-executivedirector).
TheNominationCommitteeischairedbyMrMaHuateng.
TheNominationCommitteemetoncein2018.
IndividualattendanceofeachNominationCommitteememberissetoutonpage83.
During2018,theNominationCommitteereviewedboardcompositionanddirectorsuccession,andtheboarddiversitypolicy,andalsoconsideredandmaderecommendationstotheBoardonthere-designationoftheChairmanoftheAuditCommitteeandthere-appointmentoftheretiringdirectorsatthe2018annualgeneralmeeting.
TheNominationCommitteehasalsoassessedtheindependenceoftheindependentnon-executivedirectorsandconsidersallofthemtobeindependent,takingintoaccountoftheindependenceguidelinessetoutinRule3.
13oftheListingRulesinthecontextofthelengthofserviceofeachindependentnon-executivedirector.
TheCompanyrecognisesthebenefitsofhavingadiverseBoard,andviewsdiversityatBoardlevelasabusinessimperativethatwillhelptheCompanyachieveitsstrategicobjectivesandmaintainacompetitiveadvantage.
Assuch,theBoardhassetmeasurableobjectivesfortheimplementationoftheboarddiversitypolicytoensurethattheBoardhastheappropriatebalanceofskills,experienceanddiversityofperspectivesthatarerequiredtosupporttheexecutionofitsbusinessstrategyandmaintaintheeffectivenessoftheBoard.
TheNominationCommitteeissatisfiedthattheboarddiversitypolicyissuccessfullyimplementedwithreferencetothemeasurableobjectives.
TheNominationCommitteewillcontinuetomonitortheimplementationoftheboarddiversitypolicyandwillreviewtheboarddiversitypolicyperiodicallytoensureitscontinuedeffectiveness.
RemunerationCommitteeTheRemunerationCommitteecomprisesonlynon-executivedirectors.
ItsmembersareMrIanCharlesStone,MrLiDongSheng(bothareindependentnon-executivedirectors)andMrJacobusPetrus(Koos)Bekker(non-executivedirector).
TheRemunerationCommitteeischairedbyMrIanCharlesStone.
TheRemunerationCommitteemetfourtimesin2018.
IndividualattendanceofeachRemunerationCommitteememberissetoutonpage83.
TheRemunerationCommitteehasthedelegatedresponsibilitytodeterminetheremunerationpackagesofeachmemberoftheseniormanagementteamandmakerecommendationstotheBoardontheremunerationpackagesofeachdirector.
87TheRemunerationCommittee'smajorworkduringtheyear2018includesthefollowing:reviewingandrecommendingtotheBoardinrespectoftheremunerationpoliciesandstructureoftheCompanybybenchmarkingpeercompanieswithasimilarscaletoensurethattheCompany'sremunerationpackagesarecompetitivetorecruitthebesttalentsintheindustryandtoretainkeystaff;reviewingandrecommendingtotheBoardontheremunerationpackagesforthedirectors;assessingperformanceand,reviewingandapprovingadjustmentstotheremunerationpackagesforthemembersoftheseniormanagementteam;andreviewingandapprovingcompensationawardsgrantedtoseniormanagementteam,torecognisetheircontributionstotheCompanyandtoprovideincentivesforfutureperformances.
Inconductingitsworkinrelationtotheremunerationofdirectorsandseniormanagementteam,theRemunerationCommitteeensuredthatnoindividualoranyofhisassociateswasinvolvedindetermininghisownremuneration.
ItalsoensuredthatremunerationawardsweredeterminedbyreferencetotheperformanceoftheindividualandtheCompanyandwerealignedwiththemarketpracticeandconditions,theCompany'sgoalsandstrategies.
Theyaredesignedtoattract,retainandmotivatehighperformingindividuals,andreflectthespecificsofindividualroles.
Inrespectofnon-executivedirectors,theRemunerationCommitteehasreviewedthefeespayabletothemtakingintoaccounttheparticularnatureoftheirduties,relevantguidanceavailableandtherequirementsoftheListingRules.
ACCOUNTS,RISKMANAGEMENTANDINTERNALCONTROLAspartoftheBoard'sresponsibility,theBoardensuresthatabalancedandclearassessmentoftheGroup'sperformanceandprospectsispresented.
ThedirectorsacknowledgethatitistheirresponsibilitytopreparetheaccountsthatgiveatrueandfairviewoftheGroup'sfinancialpositiononagoing-concernbasisandotherannouncementsandfinancialdisclosures.
ToassisttheBoardindischargingitsresponsibilities,theseniormanagementteamprovidesupdatestotheBoardfromtimetotime,includingtheGroup'sbusinessandfinancialpositioninsufficientdetail,togivethedirectorsabalanced,understandableandclearassessmentoftheperformance,positionandprospectsoftheGroup.
TheseniormanagementteamalsoprovidesallnecessaryandrelevantinformationtotheBoard,givingthedirectorssufficientexplanationandinformationtheyneedtodischargetheirresponsibilitiesandmakeaninformedassessmentoffinancialandotherinformationputbeforethemforapproval.
TheCompanyauditor'sstatementinrespectoftheirreportingresponsibilitiesissetoutinthe"IndependentAuditor'sReport".
88TencentHoldingsLimitedAdequateandeffectiveriskmanagementandinternalcontrolsystemsarekeytosafeguardingtheachievementoftheCompany'sbusinessstrategies.
TheriskmanagementandinternalcontrolsystemsshallalsoensuretheachievementoftheCompany'sobjectivesinoperationaleffectivenessandefficiency,reliablefinancialreporting,andcompliancewithapplicablelaws,regulationsandpolicies.
TheBoardacknowledgesthatitistheBoard'sresponsibilitytoensurethattheCompanyhasestablishedandmaintainedadequateandeffectiveriskmanagementandinternalcontrolsystems.
TheBoarddelegatesitsresponsibilitytotheAuditCommitteetoreviewthepracticesofmanagementwithrespecttoriskmanagementandinternalcontrol,includingthedesign,implementationandsupervisionoftheriskmanagementandinternalcontrolsystems.
Thisreviewformallytakesplaceonaquarterlybasis.
TheAuditCommitteealsoreviewstheeffectivenessoftheriskmanagementandinternalcontrolsystemsonanannualbasis.
TheBoardisresponsibleforoverseeingtheriskappetiteoftheCompanyincludingdeterminingtheriskleveltheCompanyexpectsandisabletotake,andproactivelyconsidering,analysingandformulatingstrategiestomanagethekeyrisksthattheCompanyisexposedto.
Toensurethattheriskmanagementandinternalcontrolsystemsareeffective,theCompany,underthesupervisionandguidanceoftheBoardandfactoringtheactualneedsoftheCompany,hasadoptedthe"ThreeLinesofDefence"internalmonitoringmodelasanofficialorganisationalstructureforriskmanagementandinternalcontrol.
TheFirstLineofDefence--OperationandManagementTheFirstLineofDefenceismainlyformedbythebusinessandfunctionaldepartmentsofeachbusinessgroupoftheCompanywhoareresponsiblefortheday-to-dayoperationandmanagement.
Itisresponsiblefordesigningandimplementingcontrolstoaddresstherisks.
TheSecondLineofDefence--RiskManagementTheSecondLineofDefenceismainlytheIC.
ThislineofdefenceisresponsibleforformulatingpoliciesrelatedtotheriskmanagementandinternalcontroloftheCompanyandforplanningandimplementingtheestablishmentofintegratedriskcontrolsystems.
Forensuringeffectiveimplementationofsuchsystems,thislineofdefencealsoassistsandsupervisesthefirstlineofdefenceintheestablishmentandimprovementofriskmanagementandinternalcontrolsystems.
89TheThirdLineofDefence--IndependentAssuranceTheThirdLineofDefencemainlyconsistsoftheIAandtheanti-fraudinvestigationdepartment.
TheIAholdsahighdegreeofindependenceandisresponsibleforprovidinganindependentevaluationontheeffectivenessoftheCompany'sriskmanagementandinternalcontrolsystems,andmonitoringmanagement'scontinuousimprovementovertheriskmanagementandinternalcontrolareas.
Theanti-fraudinvestigationdepartmentisresponsibleforreceivingwhistleblowerreportsthroughvariouschannelsandforfollowingupandinvestigatingallegedfraudulentactivities.
Italsoassistsmanagementinpromotingthe"TencentSunshineCodeofConduct"(the"SunshineCode")andthevalueofintegritytoallemployeesoftheCompany.
TheIAandtheanti-fraudinvestigationdepartmenthavedirectreportinglinestotheAuditCommittee.
Thesesystemsaredesignedtomanageratherthaneliminatetheriskoffailuretoachievebusinessobjectives,andcanonlyprovidereasonablebutnotabsoluteassuranceagainstmaterialmisstatementorloss.
TheBoardandmanagementhavealwaysplacedimportanceontheCompany'sriskmanagementandinternalcontrolsystems.
In2018,theCompanyhasinvestedevenmoreresourcesinthecontinuousimprovementoftheriskmanagementandinternalcontrolsystems,whichhavealsoincreasedtheawarenessofriskmanagementamongtheemployees.
Theinternalcontrolfunctionhascontinuouslyworkedcloselywithandprovidedproactivesupportstothebusinessgroupsintheirbusinessdevelopmentandriskmanagement.
Furthermore,theIAhasalsocontinuedtopromotethedeploymentofcontinuousauditstoprovidemoreeffectiveandtimelyindependentevaluations.
Theanti-fraudinvestigationdepartmentfurtherstrengthenedthevaluesofintegrityamongtheemployees,followedupandinvestigatedtheallegedfraudulentactivitiestimely.
TheconnectionandinteractionamongthethreelinesofdefencehavebeenfurtherstrengthenedtohavemorepositivesupportstotheCompany.
RiskManagementTheCompanyiscommittedtocontinuouslyimprovingtheriskmanagementsystem,includingstructure,processandculture,throughtheenhancementofriskmanagementability,toensurelong-termgrowthandsustainabledevelopmentoftheCompany'sbusiness.
TheCompanyhasestablishedariskmanagementsystem(includingthe"ThreeLinesofDefence"internalmonitoringmodelasdetailedabove)whichsetsouttherolesandresponsibilitiesofeachrelevantpartyaswellastherelevantriskmanagementpoliciesandprocesses.
EachbusinessgroupoftheCompany,onaregularbasis,identifiesandassessesriskfactorsthatmaynegativelyimpacttheachievementofitsobjectives,andformulatesappropriateresponsemeasures.
TheCompany'sstaffalsoattendstraininginrelationtoriskmanagementandinternalcontrolonaregularbasis.
90TencentHoldingsLimitedRiskManagementProcessBeinganInternetcompanywithawidevarietyofrapidly-changingbusinesses,theCompanyhasadoptedthefollowingdynamicriskmanagementprocessinresponsetotheever-changingrisklandscape:Businessandfunctionaldepartmentsofeachbusinessgroupidentify,assessandrespondtorisksinthecourseofoperationinasystematicmanner,escalatingconcernsandcommunicatingresultstotheIC;TheICcollects,analysesandconsolidatesalistofsignificantrisksatthecompanylevel,andprovidesinputonriskresponsestrategiesandcontrolmeasuresforsuchrisks.
ThesesignificantrisksaswellasthecorrespondingriskresponsesandcontrolmeasureswillbereviewedbyseniormanagementandsubsequentlybytheAuditCommitteebeforereportingtotheBoard;TheICreviewsandevaluatestheresponsestosignificantrisksfromtimetotime,andreportstotheAuditCommitteeatleastonceayear;andTheAuditCommittee,onbehalfoftheBoard,assessesanddeterminesthenatureandleveloftherisksthattheCompanyiswillingtotakeinordertoachieveitsbusinessobjectivesandformulatesappropriateresponsestrategieswhichincludedesignatingresponsibledepartmentsforhandlingeachsignificantrisk.
TheAuditCommitteeprovidesguidancetotheCompany'smanagementtoimplementeffectiveriskmanagementsystemwithsupportsfromtheIC.
SignificantRisksoftheCompanyIn2018,managementhasidentifiedanddeterminedninesignificantrisksoftheCompanythroughtheriskmanagementprocessdetailedabove.
Comparingwith2017,"Fraudrisk"istheoneadditionalriskidentifiedanddisclosedasoneofthesignificantrisksoftheCompanyin2018.
AstheCompany'sbusinessscale,scopeandcomplexityhaveevolved,sodoesitsexternalenvironment,managementconsidersthattheCompanyisstillfacingtheeightsignificantrisksdisclosedin2017-boththe"Regulatoryandcompliancerisk"and"Socialresponsibilityrisk"havebeenelevatedindifferentdegreeswhiletheotherrisksstayatthesimilarlevelaslastyear.
OnbehalfoftheBoard,theAuditCommitteeassiststheBoardinsupervisingtheoverallriskstatusoftheCompanyandevaluatingthechangeinthenatureandseverityoftheCompany'smajorrisks.
TheAuditCommitteeconsidersthatmanagementhastakenappropriatemeasurestoaddressandmanagethesignificantrisksthattheyareresponsibleforatalevelacceptabletotheBoard.
91BelowisasummaryofthesignificantrisksoftheCompanyalongwiththeapplicableresponsestrategies.
TheCompany'sriskprofilemaychangeandthelistbelowisnotintendedtobeexhaustive.
1.
RegulatoryandcomplianceriskAlthoughtheInternetandtechnologyindustryisstillevolving,regulatoryauthoritiesinnumerousjurisdictionshavebeen,inanattempttokeepupwithsuchevolution,developingmorecomprehensiveandstringentregulationstoregulatetheindustry.
AstheCompanyiscontinuouslyexpandingitsbusinessesinthePRCandoverseas,itisrequiredtocomplywiththenewapplicablelawsandregulationsindifferentjurisdictionsthatarespecificallyrelevanttotheCompany'sbusinesses,suchaslawsrelatingtodataprotection,Internetinformationsecurity,IP,gamingandInternetfinance.
Inaddition,theuncertaintyofpolicydirectionmayhaveanimpactonthedevelopmentofdifferentindustriesindifferentregions.
TheCompanyhassetupseveralprofessionaldepartmentsandteamsthatworkcloselywithmanagementofbusinessgroupstomonitorandidentifychangesinanyrelevantlawsandregulations,soastotakeappropriateactionsormeasurestoensuretheCompanyisincompliancewithapplicablelawsandregulations.
Wehaveinvestedabundantresourcesinmanyaspectstoensurethecomplianceofregulatoryrequirements.
Inaddition,theCompanyalsoactivelyexchangesviewandinformationwithrelevantregulatoryauthoritiesonthetrendanddevelopmentofInternetindustry.
2.
MarketcompetitionandinnovationriskTheInternetindustryishighlycompetitive,innovativeandever-changing.
Thecross-sectoralexpansionofnon-Internetcompaniesaddsmorenewparticipantstothemarket.
Theusers'desireforinnovativeproductsandserviceisalsoincreasing.
Therefore,toattractnewuserswhilemaintainingitsexistingmarketshareisstilloneofthechallengesoftheCompany.
ThelackofinnovationorslowinnovationintechnologyandproductwouldimpairthecorecompetitivenessoftheCompany.
TheCompanystaysontopoftheindustrytrends,keepsupwiththetechnologicaltrendthroughinnovation.
TheCompanyfocusesonchangesinuserexperience,andcontinuouslyrecruitsmoretalents;optimisesitsorganisationalstructure;enhancestheinnovationcapabilitiesbyimprovingtalentqualityandcultivatingyoungtalents;enhancesitstechnicalcapabilitiesandinnovationenvironmenttodevelopproductsthatmeettheexpectationsofthemarket.
TheCompanyleveragesthestrengthoftheexistingplatformstoseekbetterbusinesspartnersforexploringnewbusinessopportunitiesandbetterrespondingtothemarketneeds.
TheCompanyhasestablishedanumberofopenplatformswiththeaimtopromote"mutualbenefitandwin-win"concept,andtostrengthenthecooperationwithitsbusinesspartners.
Forexample,"DoubleHundredPlan"ofTencentWestartSpace,whichincubatespotentialstartupcompanies,hasenhanceditscollaborationwithbusinesspartnersanditscompetitivenessinthemarket.
92TencentHoldingsLimited3.
BusinesscontinuityriskThestabilityofserversandnetworkinfrastructureforproductsandplatformsoftheCompanyisofvitalimportanceforthesuccessfuloperationoftheCompany'sbusinessaswellastheprovisionofhigh-qualityuserexperience.
Anymaterialfunctionaldefect,interruption,breakdownorotherissueinconnectionislikelytomateriallyadverselyimpacttheCompany'sbusinesses.
TheCompanyhasbeencontinuouslyinvestingintheinfrastructureforproductsandplatformsoftheCompanytoenhanceitsdisasterrecoverycapabilityinordertoprovidestablesupporttothebusinessdevelopment.
VariousbusinessdepartmentsarealsoengagedinemergencyprocedurestoensurethesmoothoperationoftheCompany'sbusinesses.
Inaddition,theCompanyhasestablisheddedicatedteamstodevelopbusinesscontingencyplansandperformperiodicdrillsontheplanstoensuretheireffectiveness.
4.
InformationsecurityriskProtectinguserdataisthetoppriorityoftheCompany,andtheCompanyisfullyawarethatanylossorleakageofsensitiveuserinformationcouldhaveasignificantnegativeimpactontheaffectedusersandtheCompany'sreputation,evenleadtopotentiallegalactionagainsttheCompany.
TheCompanyisobligedtoprotectsensitiveuserinformationandassuch,theCompanystrivestoprovidethehighestlevelofprotectiononsuchdata.
Inthisregard,theCompanyhasformulatedpoliciesandcontrolmeasurestoprotectuserdata.
Informationsecurityisensuredthrougheffectivemanagementsystems,encryption,accessrestrictionsandprocessprotocols.
Inaddition,theCompanyperformsreviewperiodicallyandengagesindependentspecialiststoreviewtheCompany'sdataprotectionpracticesandprovidestrainingprogrammestoemployeestoenhancetheirawarenessofinformationsecurity.
5.
2BbusinessriskTheCompanyhasactivelydevelopedvarious2BbusinessesrelatedtoIndustrialInternet.
Withtherapiddevelopmentofthe2BbusinessoftheCompany,iftheCompanyfailstooptimiseitsorganisationalstructurewithsupportfromprofessionaltalentstoquicklyexplorenewbusinessoperatingandmanagementmodels,orimproveitscooperationmechanismswithvariousbusinesspartners,itmayaffectthecontinuoushealthydevelopmentofthe2Bbusiness.
TheCompanyisaccumulatingandsolidifyingitsexperienceinthe2Bbusiness.
TheCompanyhasbeenproactivelyrespondingtothechallengesbyhavingoptimiseditsorganisationalstructureandresourceallocation,continuouslyimprovingthebusinessprocess,andrecruitingmore2Bbusinessprofessionaltalentsandsettingupappropriatemechanismstoensuretheeffectiveoperationofthe2Bbusinessforrapidandsustaineddevelopment.
936.
SocialresponsibilityriskWiththediverseproductsandplatformsoftheCompanyanditsexpandinguserbase,theproductsandplatformsoftheCompanyhavegainedconsiderableinfluenceinwidersociety.
TheCompany'sproductsandplatformsaresubjecttoincreasedscrutinyfromasocialresponsibilityperspective.
TheCompanyhaslongbeenendeavoringtopromotethehealthydevelopmentoftheInternetindustry,andeffortsarebeingmadetomaketheproductsandplatformsoftheCompanyexertapositivecommunityinfluence.
TheCompanypayscloseattentiontocontentquality,productdesignandoperationoftheplatform.
TheCompanyactivelyprovidesmoreassurancetothesocietybyusingadvancedtechnologytoprohibitanyillegalandunhealthyinformationandcontentaccesstheCompany'splatformandproducts.
TheCompanyencouragesthestudyofkeytechnologiesandbasicscience,andactivelypropagatesandenrichesChinesetraditionalculture.
Forexample,the"TencentGameGuardianPlatform"isatimemanagementtoolusedtocontrolthetimejuvenilesspendongames;"ShepherdPlan"isanon-profitplatformusedforpreventingfraud;the"XplorePrize"hasbeeninitiatedbytheCompanyincooperationwithmanywell-knownscientists;andtheCompanyhasbeencooperatingwithForbiddenCityMuseumtopropagateexcellenttraditionalculturebycreativetechnologies.
Atthesametime,theCompanyhasestablishedasoundmonitoringandreportingmechanismtodealwithillegalandviciouscontents.
7.
CrisismanagementandreputationriskAsoneoftheChina'slargesttechnologycompanieswithadiverseportfolioofbusinesses,productsandinvestments,theCompanyalwaysattractsveryhighattentionfromthepublicandmedia.
Themediaisdiverseandinformationspreadsrapidly.
IftheCompanydoesnotpaysufficientattentiontopublicopinion,publicrelationstothecrisisarenotdealtwithinatimelymanner,andfailuretodisclosecomprehensiveandproperinformationtothepublic,itwilldamagetheCompany'sreputation,brandandimage,andadverselyaffectthebusinessandprospectsoftheCompany.
TheCompanyhassetupprofessionalpublicrelationsdepartmentandteamsforcrisismanagement,withpublicrelationsmanagementmechanismestablished.
Theteamshavemaintainedcloseinteractionwithmanagementandbusinessgroups.
Theteamsgatherpublicopinions,analyseandidentifyrelevantinformationandreporttheiranalysistomanagementtomorepromptlyandappropriatelyrespondtothepublicaccordingtotheCompany'spoliciesandprocedures.
94TencentHoldingsLimited8.
AcquisitionandinvestmentmanagementriskTheCompanyhasacertainscaleofinvestmentactivitiesindiversefields.
ItisimportantfortheCompanytoadoptrobustproceduresintheformulationofinvestmentstrategiesandstrongtreasurymanagement,bothattheinvestmentevaluationstageaswellasthepost-investmentstage.
Failuretopromptlymanageinvestmentriskscouldhindertherealizationofinvestmentstrategies.
TheCompanytakesthemanagementofinvestmentrisksseriously,andhas,amongstotherthings,establishedanInvestmentCommitteeundertheBoard,dedicatedaninvestmentteamtoidentifyinvestmentopportunities,appointedfinance,legalandotherrelevantprofessionalteamstomanagerelevantrisksandputinplacetheinvestmentriskevaluationandapprovalprocess.
ThereisalsoadesignatedprofessionalteamthatregularlyreviewstheCompany'scashpositionand,continuouslyexpandsitsfinancingchannelsandcapabilitiestomeettheneedsfromtheCompany'sbusinessoperationsaswellasacquisitions.
TheCompanyhasalsodesignatedfinance,legalandotherrelevantprofessionalteamstosupportandmonitortheperformanceoftheinvesteecompanies.
TheseteamsperiodicallyanalyseandreviewrelevantoperatingandfinancialinformationoftheinvesteecompaniestoensurethattheycontinuetosatisfytheCompany'sinvestmentstrategies.
Inaddition,theCompanyhasinvestedresourcesininternalauditandinternalcontroltoempowerinvesteecompanies,andtocontinuouslysupportthemanagementofitscontrollingsubsidiariesinestablishingmoresoundriskmanagementandinternalcontrolsystems.
9.
FraudriskInrecentyears,fraudulentactivitieshaveoccurredfrequentlyinthetechnology,mediaandtelecomindustryandthereforeintegrityhasbecomeanindustrialconcern.
WiththebusinessdevelopmentoftheCompany,thebusinessscaleandcomplexityhavebeenevolved,andconsequentlythefraudriskinevitablyincreasedinacertaindegree.
Forexample,fraudulentactivitiescausedbycollusionbetweensuppliers/businesspartnersandemployeescanhaveanegativeimpactonreputationandfinanceoftheCompany.
95TheCompany,withitsbeliefinthevalueofintegrity,haszerotoleranceforfraud,andisdeterminedtofightagainstanyfraudulentactivities.
TheCompanyhasestablishedeffectiveinternalcontrolsystemsandiscontinuouslyimprovingit.
Thesesystemshavebeenstrengthenedbysystematic,transparentcontrolmethods.
Toenhancetheawarenessofintegrity,theCompanycontinuouslyconductsvarioustrainingandpropagandaforitsemployeesandsuppliers/businesspartners.
Foremployees,theCompanyhasestablishedtheSunshineCodethattheemployeesshallstrictlyfollowduringtheiremploymentandinthecourseofbusinessdealingwithsuppliers/businesspartners.
Forsuppliers/businesspartners,theCompanycooperateswiththemtocreateanecosystemwithintegrity.
Tobuildupahealthyandtransparentbusinessenvironment,thesuppliers/businesspartnersarerequiredtosigntheAnti-commercialBriberyDeclaration.
Furthermore,theCompanyhassetuptheanti-fraudinvestigationdepartmentforyearstocollectwhistleblowingcasesfrommultiplechannels,andtofollowupandinvestigateallegedfraudulentcasesonatimelybasis.
TheCompanywillterminatetheemploymentimmediatelywithanyemployeewhohasbeenfoundinvolvedinanyfraudulentactivities.
TheCompanymayalsopasstherelevantcaseforjuridicalprocessaccordingtotherelevantlawsundermoreseriouscircumstances.
Anysupplier/businesspartnerfoundtobeinvolvedinanyfraudulentactivitieswillbeblacklistedanddeprivedoftheopportunitytoworkwiththeCompanypermanently.
InternalControlTheCompanyhasalwaysvaluedtheimportanceoftheinternalcontrolsystems,andhasbeenimplementingtheCOSOFramework.
ManagementoftheCompanyisresponsibleforthedesign,implementationandmaintenanceoftheeffectivenessofinternalcontrolsystems.
TheBoardandtheAuditCommitteeareresponsibleformonitoringandoverseeingtheperformanceofmanagementovertheinternalcontrolsystemstoensuretheirappropriatenessandeffectiveness.
TheCompany'sinternalcontrolsystemsclearlydefinerolesandresponsibilitiesofeachpartyaswellasauthorisationsandapprovalsrequiredforkeyactionsoftheCompany.
Policiesandproceduresareinplaceforthekeybusinessprocesses.
Thisinformationisalsoclearlyconveyedtoemployeesinpracticeandplaysanimportantroleininternalcontrolsystems.
Allemployeesmuststrictlyfollowthepolicieswhichcover,amongstotherthings,financial,legalandoperationalissuesthatsetthecontrolstandardsforthemanagementofeachbusinessprocess.
96TencentHoldingsLimitedInordertofurtherstrengthentheaccountabilityofthemanagementteamintheinternalcontrolsystemsoftheCompanyandtoassistindeterminingtheeffectivenessofsuchinternalcontrolsystems,themanagementteamofeachbusinessgroupconductsself-assessmentandconfirmstheinternalcontrolstatusofthebusinessgroupforwhichitisresponsible.
TheICassiststhemanagementinpreparingaself-assessmentquestionnaireaccordingtotheCOSOFrameworkandguidesthemanagementofeachbusinessgrouptocarryouttheself-assessment.
TheICisalsoresponsibleforcollectingandsummarisingtheresultsofself-assessment.
TheChiefExecutiveOfficeroftheCompanyreviewsthissummarisedself-assessmentofeachbusinessgroup,assessesthegeneraleffectivenessoftheinternalcontrolsystemsoftheCompanyandsubmitsthewrittenconfirmationthereofonbehalfoftheseniormanagementteamoftheCompanytotheAuditCommitteeandtheBoard.
Inaddition,theICsupervisestheestablishmentoftheriskmanagementandinternalcontrolsystemssetupbymanagement,ensuresthatmanagementhasimplementedappropriatemeasuresandreportsthegeneralsituationofriskmanagementandinternalcontroloftheCompanytotheAuditCommitteeonaquarterlybasis.
TheIA,servingastheindependentthirdlineofdefence,conductsobjectiveevaluationontheeffectivenessoftheCompany'sriskmanagementandinternalcontrolsystemsandreportstheresultstotheAuditCommittee.
EffectivenessofRiskManagementandInternalControlTheAuditCommittee,onbehalfoftheBoard,continuouslyreviewstheriskmanagementandinternalcontrolsystems.
Thereviewprocesscomprises,amongotherthings,ofmeetingswithmanagementofbusinessgroups,IA,IC,legalteam,andtheexternalauditor,reviewingtherelevantworkreportsandinformationofkeyperformanceindicators,themanagementself-assessmentoninternalcontrolasdetailedaboveanddiscussingthemajorriskswiththeseniormanagementoftheCompany.
TheBoardisoftheviewthatthroughouttheyearended31December2018,theriskmanagementandinternalcontrolsystemsoftheCompanyareeffectiveandadequate.
Inaddition,theBoardbelievesthattheCompany'saccountingandfinancialreportingfunctionshavebeenperformedbystaffoftheappropriatequalificationsandexperienceandthatsuchstaffreceivesappropriateandsufficienttraininganddevelopment.
BasedontheauditreportoftheAuditCommittee,theBoardalsobelievesthatsufficientresourceshavebeenobtainedfortheCompany'sinternalauditfunctionandthatitsstaffqualificationsandexperience,trainingprogrammesandbudgetsaresufficient.
97SHAREHOLDERSTheCompanystrivestoprovideready,equal,regularandtimelydisclosureofinformationthatismaterialtotheinvestorcommunity.
Therefore,theCompanyworkstomaintaineffectiveandon-goingcommunicationwithshareholderssothatthey,alongwithprospectiveinvestors,canexercisetheirrightsinaninformedmannerbasedonagoodunderstandingoftheGroup'soperations,businessesandfinancialinformation.
TheCompanyalsoencouragesshareholders'activeparticipationinannualgeneralmeetingsandothergeneralmeetingsorotherpropermeans.
Assuch,theCompanysendsnoticestoshareholdersforannualgeneralmeetingsatleast20clearbusinessdaysbeforethemeetingandatleast10clearbusinessdaysforallothergeneralmeetings.
Inaddition,theCompanyhasdevelopedandmaintainstheshareholderscommunicationpolicy,whichisavailableontheCompanyWebsite.
TheCompany'sgeneralmeetingsprovideatransparentandopenplatformfortheCompany'sshareholderstocommunicatewiththeBoardandtheseniormanagementteam.
TheChairman,othermembersoftheBoardandrelevantmembersoftheseniormanagementteam,undernormalcircumstances,attendtoanswerquestionsraisedanddiscussmattersinrelationtotheCompanyinanopenmanner.
SaveasMrLiDongSheng,alldirectorsattendedthe2018annualgeneralmeetingheldon16May2018,withaviewtounderstandingtheviewsoftheCompany'sshareholders.
Thecompanysecretaryprovidedtheminutesof2018annualgeneralmeetingtoalldirectorstohaveathoroughunderstandingoftheviewsoftheCompany'sshareholders.
TheCompany'sexternalauditorwillalsoattendtheannualgeneralmeetingtoanswerquestionsrelatingtotheconductoftheaudit,theauditor'sreportandauditorindependence.
TheCompany'sshareholdersmayalsoproposecandidatesforelectionasadirectoroftheCompanyaccordingtothefollowingprocedures,detailsofwhicharealsosetoutontheCompanyWebsite.
PursuanttotheArticlesofAssociation,anyoneormoreshareholder(s)oftheCompanyholdingatthedateofdepositoftherequisitionnotlessthanone-tenthofthepaidupcapitaloftheCompanycarryingtherightofvotingatgeneralmeetingsoftheCompanyshallatalltimeshavetheright,bywrittenrequisitiontotheBoardorthecompanysecretary,torequireanextraordinarygeneralmeetingtobecalledbytheBoardforthetransactionofanybusinessspecifiedinsuchrequisition;andsuchmeetingshallbeheldwithintwomonthsafterthedepositofsuchrequisition.
Inordertoensurethatshareholders'interestsandrightsareadequatelyprotected,aseparateresolutionwillbeproposedforeachsubstantiallyseparateissueatthegeneralmeetings,andallresolutionswillbevotedbypollpursuanttotheArticlesofAssociationandtheListingRules.
Toensurethattheshareholdersarefamiliarwiththedetailedproceduresforconductingapoll,detailedproceduresforconductingapollareexplainedatthecommencementofthegeneralmeetings,andallquestionsfromshareholdersonthevotingprocedureswillbeansweredbeforethepollvotingstarts.
Anexternalscrutineerwillbeappointedtomonitorandcountthevotescastbypoll.
PollresultswillbepostedontheCompanyWebsiteandtheStockExchange'swebsiteaftereachgeneralmeeting.
ApartfromparticipatingintheCompany'sgeneralmeetings,theCompany'sshareholdersareprovidedwithcontactdetailsoftheCompanysuchastelephonenumberandemailaddresswhichareavailableontheCompanyWebsite,inordertoenablethemtomakeanyquerythattheymayhave.
ShareholdersmaysendtheirenquiriestotheBoarddirectlythroughthesemeans.
ShareholdersmayalsocontacttheCompany'sHongKongbranchshareregistrar,ComputershareHongKongInvestorServicesLimited,iftheyhaveanyenquiriesabouttheirshareholdingsandentitlementstodividends.
98TencentHoldingsLimitedDISCLOSUREOFOTHERINFORMATIONTheCompanyisrequiredtodisclosecertaininformationpursuanttotheListingRulesandtheCGCode.
Wesetoutthisinformationbelowwhichhasnotbeencoveredabove.
ModelCodeforSecuritiesTransactionsbyDirectorsofListedIssuersTheCompanyhasadoptedtheModelCode.
TheCompanyhasalsoadoptedaninsiderdealingpolicyforemployeesforsecuritiestransactionsbyemployeeswhoarelikelytobeinpossessionofinsideinformationrelatingtotheCompany,thetermsofwhicharenolessexactingthanthoseoftheModelCode.
TheCompanyhasmadespecificenquirieswiththedirectorsandthedirectorshaveconfirmedtheyhavecompliedwiththeModelCodethroughout2018.
AppointmentTermsofNon-ExecutiveDirectorsEachnon-executivedirector,whetherindependentornot,isappointedforatermofoneyearandissubjecttoretirementbyrotationatleastonceeverythreeyears.
AdirectorappointedtofillacasualvacancyorasanadditiontotheBoardwillbesubjecttore-electionbyshareholdersatthefirstgeneralmeetingafterhisappointment.
DirectorsandOfficersLiabilityInsuranceTheCompanyhasarrangedappropriatedirectorsandofficersliabilityinsuranceinrespectoflegalactionagainstthedirectorsandofficers.
ExternalAuditorandAuditor'sRemunerationThestatementoftheexternalauditoroftheCompanyabouttheirreportingresponsibilitiesforthefinancialstatementsissetoutinthe"IndependentAuditor'sReport"onpages123to131.
Duringtheyearended31December2018,theremunerationpaid/payabletotheCompany'sexternalauditor,PwC,wasdisclosedinNote8totheconsolidatedfinancialstatements.
Theauditandaudit-relatedservicesconductedbytheexternalauditormainlycompriseofstatutoryauditsandreviewsfortheGroupanditscertainsubsidiaries.
Theamountsofauditandaudit-relatedservicesfortheyearended31December2018alsoincludedtheservicesfeesinconnectionwiththeinitialpublicofferingofasubsidiaryoftheCompanyandotherM&Atransactions.
Thenon-auditservicesconductedbytheexternalauditormainlyincludeprofessionalservicesonriskmanagementandinternalcontrolreview,M&Aadvisoryserviceandtaxadvisoryservice.
99FrameworkforDisclosureofInsideInformationTheCompanyhasinplaceaframeworkforthehandlinganddisclosureofinsideinformationincompliancewiththeSFO.
TheframeworksetsouttheproceduresandinternalcontrolsforthehandlinganddisseminationofinsideinformationinatimelymannersoastoallowalltheshareholdersandstakeholderstoassessthelatestpositionoftheGroup.
Undertheframework,ifanemployeeisawareofanyproject,transaction,informationorsituationwhichhethinkscouldpotentiallybeinsideinformation,heshouldcontacttheHeadofCompliance,theGeneralCounselandtheCompanySecretaryassoonaspossible.
LegalanalysisandconsultationswiththeCompany'sdirectorsandseniorexecutiveswillbemadesoastoidentifywhetheranysuchinformationconstitutesinsideinformationandisrequiredtobedisclosedtothepublicpursuanttotheSFO.
Theframeworkanditseffectivenessaresubjecttoreviewonaregularbasisaccordingtoestablishedprocedures.
100TencentHoldingsLimitedOVERVIEWThisreportprovidesinformationontheGroup'senvironmental,socialandgovernance("ESG")performancefortheyearof2018.
Itshouldbereadinconjunctionwiththisannualreport,inparticulartheCorporateGovernanceReportcontainedinthisannualreport,aswellasthesectionsheaded"CorporateGovernance"and"Culture"ontheCompanyWebsite.
SCOPEOFTHISREPORTThisreportaimstoprovideabalancedrepresentationoftheGroup'sESGperformanceintermsofenvironment,workplace,community,supplychainmanagementandproductresponsibility.
Wewillfocusoneachoftheseareasinturninthisreport,inparticularthoseeconomic,environmentalandsocialissuesthatcouldhaveamaterialimpactonthesustainabilityofouroperationsandthatareofinteresttostakeholders.
ESGSTRATEGY,MANAGEMENTAPPROACH,PRIORITIESANDOBJECTIVESWebelievethatitisimportanttoformulateeffectivestrategiestobalancetheeconomic,environmentalandsocialbenefitsofouractivitieswithourotherbusinesstargets.
WehavefullyintegratedESGconsiderationsintoouroperationsaspartofourcorporatedevelopmentstrategy,withaparticularfocusonfosteringcloserconnectionswithourstakeholders,listeningtothevoicesofourusers,workingopenlywithpartnerstoovercomechallenges,caringforandgrowingwithemployees,andtakingonmoreresponsibilitieswithinsociety.
ThecoreofourESGstrategyisourvisiontobecomethemostrespectedInternetcompany.
Inpursuitofthisvision,weembracetheprincipleofsustainability,upholdintegrityandpromotesharedgrowthanddevelopmentwithintheindustry,andputenvironmentalprotection,staffdevelopmentandcommunitywelfareattheforefront.
WeconductandreviewourESGstrategyinfivedimensionsasdetailedbelow.
FiveDimensionsofourESGStrategy1.
BusinessoperationsOperateincompliancewithapplicablelawsandregulationsOperatewithintegrityandprotectshareholders'interestsCareforemployeesandprovidethemwithtraininganddevelopmentopportunitiesEstablishadiversecorporateculture1012.
UsersConsistentlylistentothevoicesofourusers,concurrentlyenhancingproductandservicequalityBehonesttousersandprotecttheirinterestsPrioritiseusers'interestsinbusinessdecision-making3.
Businesspartners(includingsuppliersandinvesteecompanies)EnsureourpartnersreceivefairtreatmentandbenefitfromtheircollaborationwithusAllowinvesteecompaniestomaintainautonomyfortheirbusinessdevelopmentandmeetthemonaregularbasisforexchangeofindustryknowledgeandknow-howHoldregularmeetingswithourpartnerstoreviewtheirperformanceandexplorepossiblecollaborationopportunitiesCombatbehaviourswhichareharmfultotheinterestofourpartnersbysettingupanindependentsteeringgrouponbusinessethicsandanti-briberypracticeEncourageourpartnerstoreflecttheethicsandvaluesofourbusinesspractice4.
CommunityEstablishaplatformforcharitydonationsPromoteinnovationandtheestablishmentofalegalframeworktoprotectIPrightsContributetotheindustryandcontinuetoprovideanopenplatform5.
EnvironmentMakeprotectionoftheenvironmentoneofourprioritiesAdoptasustainableinvestmentstrategyRemaincommittedtoenvironmentalsustainabilityThroughthisapproachweareabletocreateafavourableenvironmentthatwillenableustoprovidequalityservicestoInternetusersandpromotethepositivedevelopmentofthewidersociety.
102TencentHoldingsLimitedStakeholderanalysisWeunderstandtheimportanceofthefeedbackfromourstakeholders(includingourusers,investors,employeesandbusinesspartners)onourESGperformance.
Therefore,wehaveestablishedeffectivecommunicationchannelswithourstakeholders(inalphabeticalorder)asfollows:StakeholdersKeytopicsKeycommunicationchannelsCommunityandpublicCharityVolunteeringEnvironmentalprotectionTencentFoundation,fundraisingplatformEmployeesEmployeebenefitsCareerdevelopmentHealthyworkenvironmentEmployeesatisfactionsurvey,employeetraining,annualemployeerally,face-to-facediscussionforum,featuredmagazines,socialmediaplatformGovernmentandregulatorybodiesComplianceCorporategovernanceMeetings,policyconsultation,incidentreporting,officialvisit,informationdisclosureNon-governmentorganisationsandmediaProductandservicequalityEnvironmentalprotectionComplianceCharitySocialmediaplatform,industryevents,pressconferenceShareholdersandinvestorsInvestmentreturnBusinessstrategyInformationtransparencyCorporateannouncements,investorconference,officialwebsite,regularmeetingsSuppliersFaircooperationIntegrityRegularmeetings,supplierassessment,sitevisitUsersProductandservicequalityPrivacyprotectionUserexperienceresearch,customerservicehotline,onlinecustomerservice,Weixin/WeChatandface-to-facecustomersupport103AssessmentonthematerialityoftheESGtopicsIn2018,wehadnotonlydiscussedthematerialityoftheESGtopicswithourstakeholdersthroughtheabovementionedcommunicationchannelsbutalsoconductedanonlinesurveytounderstandthetopicsthatourstakeholdersbelievetobematerialtotheGroup'sbusiness.
Theresultsofthesurveyareasfollows:MaterialitytoStakeholdersMaterialitytoTencent'sESGmanagementSupplychainmanagementAnti-corruptionProductinnovationCustomersatisfactionHealthyenvironmentforusersDatasecurityUserprivacyIntellectualpropertyrightsCharitabledonationVolunteeringserviceResponsetoclimatechangeEnergymanagementPollutionreductionWastemanagementWaterresourcesDiversityTalentattraction&retentionEmployeehealth&safetyEmployeebenetsEmployeetraining&developmentOurESGDirectionOurESGstrategyrequirestheparticipationofallofourproductlinesandplatforms,andparticipationfromacrossthewiderInternetindustry.
WewillcontinuetoplacemoreemphasisonESG,andencourageeveryindividual,enterpriseandorganisationtotakepartintheimplementationofourESGstrategy.
"Internet+"hassignificantimplicationsforourESGinitiatives.
ImportantchangescanbeachievedthroughconnectingmillionsofInternetusersaswellasdevelopingtheirmodesofcommunicationandliving,andcreatingmoreexcitingopportunitiesforsociety.
Inaddition,throughthe"smartliving"systeminQQandWeixin/WeChat,peopleandpublicservicescanbedigitallyconnected,whichineffectfacilitatedevelopmentsintransport,healthcare,environmentalprotection,publicsafetyandothersocialarenas.
Thisisimportantforoptimisingthedistributionofsocietalresources,drivinginnovationinpublicservices,improvingservicequality,breakingdowncommunicationbarriersandultimatelybenefitingthewidercommunity.
WewillleverageourcorecapabilityintheInternet,technologyandcommunicationspherestodevelopinnovativeapproachestoresolvingsocialissues,promotingsocialdevelopmentandprotectingtheinterestsofthepublic.
WealsoaimtodriveESGawarenessinsociety,throughcollaboratingwithourstakeholdersandotherindustryplayers.
Goingforward,wewillcontinuetoenhanceourcorporatemanagementsystemandintegrateESGconsiderationsintoouroperations.
Wewillcloselycooperatewithourstakeholderswiththeaimofcreatingabetterfuture.
104TencentHoldingsLimitedENVIRONMENTWerecognisetheimportanceofenvironmentalprotectionandconservationofnaturalresourcesinourbusinessoperations.
StartingfromourofficebuildingsinShenzhen,wehaveimplementedanumberofenergy-savingmeasuresandweplantoadoptthesameinourofficespacesinotherlocations.
Wehavealsostrivedtobuildourdatacentreswithenvironmentalconsiderationsasoneofourkeypriorities.
EnergySavingMeasurestakeninourNewOfficeBuildingWehavetakenenvironmentalprotectionasoneofourprioritieswhendesigningournewofficebuilding,TencentBinhaiBuilding,inShenzhen.
TheconstructionhasbeencertifiedasattainingLEED-NCGoldStandardandthebuildinghasbeenunderoperationinaccordancewithLEED-EBstandards.
ThepropertymanagementcompanyoftheShenzhenheadquartershasobtainedISO14001(environmentalmanagement)certification,ISO9001(qualitymanagement)certificationandGB/T23331(energymanagementsystem)certification.
Wehavealsoimplementedvariousmeasurestoenhanceefficiencyofenergyuseandreducewaterconsumptionandemissions.
Wehaveoptimisedtheairconditioningsystemandtheintegratedbuildingmanagementsysteminordertoautomatetheenergysavingandmonitoringprocess.
Theairconditioningsystemusespumpscontrolledbyfrequency-conversiontechnologyfortheenhancementofenergyefficiency.
Wehavealsoreducedenergyconsumptionoftheairconditioningsystembypartiallydeployingnaturalventilationinautumnandwinter.
Wehavealsoadoptedasmartlightingsystemwhichallowsremoteautomaticcontroloverthelightingintheofficeareaforthepurposeofenergyconservation.
Ournewofficebuildinghasadoptedacentralisedsystemtocollect,purifyandrecyclecondensedwaterfromtheairconditioningsystem,andwaterfromdrinkingwatersystem,showersandcoolingtowers,forthepurposesofflushing,wateringplantsandcleaningtheparkinglot.
Inaddition,wehaveinstalledadirectdrinkingwatersysteminreplacementofbottledwater.
ItreducestheuseofplasticpackagingmaterialsandindirectlyreducestheCO2emissionsgeneratedfromthedeliveryofbottledwater.
WemonitorthelevelsofairpollutantssuchasPM2.
5,PM10,carbondioxide,carbonmonoxide,sulfurdioxide,nitrodioxideinsideandoutsideTencentBuildingwithanonlinemonitoringsystemanddisplaythedataonareal-timebasis.
Toensuretheairqualityinthebuilding,wehaveinstalledinducedventilationsystem(whichregulatestheventilationautomaticallyinresponsetothelevelofcarbonmonoxide)intheundergroundparkinggarageandfreshairventilationsystem(whichregulatestheventilationautomaticallyinresponsetothelevelofcarbondioxide)intheofficearea.
Wehaveupgradedthekitchenventilationunitsinthekitchensinourofficebuilding.
Theunitscomprisefire-resistantenvironmentalfriendlyexhausthoodstoremoveoilandpurifyairwithphotolysispurificationfunctionandtheactivatedcarbonfilterandairionisertoneutraliseodors.
TheemissionofcookingfumesisincompliancewiththePRCnationalstandardsGB18483-2001.
105EnergySavingMeasurestakeninourDataCentresWeendeavourtofulfilourresponsibilitytoprotecttheenvironmentbyapplyinginnovativetechnologytoourdatacentresandbetheexemplarofgreendatacentresinthePRCindustry.
T-blocktechnology(comprising(i)photovoltaic+HighVoltageDirectCurrent("HVDC")technologyforelectricaldesign;(ii)indirectevaporativecoolingunits;(iii)Tnebulasmartcontrolsystem;and(iv)fullycommercialisedprojectdeliverysolution)hasbeenusedinthefourthgenerationofourdatacentres,includingthenewdatacentreinShenzhen,Gui'anandChongqing.
WehaveadoptedtheT-baselarge-scaledatacentrecampusconstructionmodelwhichhasplacedusattheleadingpositionintermsoftheefficientuseofspaceandthestandardisationoftheconstructionprocess.
Itdoesnotonlyshortentheconstructioncyclebutalsominimisetheimpactontheenvironmentandincreasethepowerusageeffectiveness("PUE")ofourdatacentres.
TheannualaveragePUEofourdatacentreswhicharelocatedinalow-altitudeclimatezone(includingtheoneinShenzhen)isbelow1.
25.
OurnewdatacentreinGui'anisanadvanceddatacentrewithahighlevelofprivacy,defenceandsecurity.
ItcompletedthetestrunduringwhichthePUEwas1.
12.
WeexpectthatitwillserveasahighlyreliableandenvironmentallyfriendlydatacentreforourGroupandourbusinesspartners.
WehaveachievedstandardisedapplicationoftheT-blocktechnologyinthisproject.
WehavesharedourexperienceandtechnologyinbuildinggreendatacentreswithotherindustryplayerssothatHVDC,micromoduleandindirectevaporativecoolingtechnologieshavebeenwidelyadoptedinthePRCdatacentrebusiness.
WehavealsohelpedtoestablishtheindustrystandardsforHVDCandmicromoduletechnologiesinordertoenhanceenergysavingeffortsamongtheindustryplayers.
Inthefuture,wewillfurtherpromoteT-blocktechnology.
Wewillstrivetoenhancethepowerusageeffectivenesswhileimprovingtheefficiencyofthedatacentreconstructionprocess.
106TencentHoldingsLimitedTableofEnvironmentalKeyPerformanceIndicatorsBelowaretheenvironmentalkeyperformanceindicators("KPIs")oftheGroupfortheyearended31December2018.
Unlessotherwisespecified,thefollowingdatacoverstheGroup'soperation,includingofficebuildingsanddatacentres,inMainlandChina.
FordataofGHGemissionsaswellasenergyandresourcesconsumption,onlythemajorofficebuildingsandthemaindatacentres(wherewerebuiltinthepastfouryears)arewithinthescope.
In2018,twonewofficebuildings(namelyTencentBinhaiBuildingandWuhanR&DCentre)wereaddedtothereportingscope.
Pleaserefertothenotesforthedetailedscopeofthedatacollected.
1.
EmissionsKPIsTotalGHGemissions(Scopes1and2)(tonnes)715,352.
89DirectGHGemissions(Scope1)(tonnes)2,591.
07Including:Gasoline(tonnes)191.
00Diesel(tonnes)47.
83Naturalgas(tonnes)2,352.
24IndirectGHGemissions(Scope2)(tonnes)712,761.
82Including:Electricity(tonnes)712,761.
82TotalGHGemissionsintheofficebuildingsperemployee(tonnesperemployee)2.
01TotalGHGemissionsintheofficebuildingsperfloorarea(tonnespersquaremetre)0.
09Hazardouswaste(tonnes)2.
51Hazardouswasteperemployee(tonnesperemployee)0.
00005Non-hazardouswaste(tonnes)5,917.
28Non-hazardouswasteperemployee(tonnesperemployee)0.
12Note:1Duetoitsbusinessnature,thesignificantairemissionsoftheGroupareGHGemissions,arisingmainlyfromfuelsandelectricityderivedfromfossilfuels.
2TheGroup'sGHGinventoryincludescarbondioxide,methaneandnitrousoxide.
GHGemissionsdataispresentedincarbondioxideequivalentandisbasedonthe"2015BaselineEmissionFactorsforRegionalPowerGridsinChina"issuedbytheNationalDevelopmentandReformCommissionofChina,andthe"2006IPCCGuidelinesforNationalGreenhouseGasInventories"issuedbytheIntergovernmentalPanelonClimateChange(IPCC).
ThescopeofGHGemissiondatacoverstheGroup'sofficebuildingslocatedinShenzhen,Guangzhou,Shanghai,Beijing,ChengduandWuhan,andthemaindatacentreswhichwerebuiltoverthepastfouryearsinMainlandChina.
3Dieselwasconsumedforbackupgenerators.
4HazardouswasteproducedbytheGroup'soperationmainlyincludeswastetonercartridgeandwasteinkcartridgefromprintingequipmentatofficebuildings,aswellaswastelead-acidaccumulatorsatdatacentres.
Wastetonercartridgeandwasteinkcartridgearecollectedanddisposedofbyprintingsuppliers,whereaslead-acidaccumulatorsaredisposedofbyqualifiedwasterecyclingvendors.
In2018,therewerenowastelead-acidaccumulators.
5Non-hazardouswasteproducedbytheGroup'soperationmainlyincludesdomesticwasteandnon-hazardousofficewaste.
Domesticwasteisdisposedofbythepropertymanagementcompanyandkitchenwasterecyclingvendors,anditsdataisnotavailableforstatistics,sowemadeestimationofdomesticwasteproducedattheGroup'sofficebuildingslocatedinShenzhen,Guangzhou,Shanghai,Beijing,ChengduandWuhanwithreferenceto"HandbookonDomesticDischargeCoefficienciesforTownsintheFirstNationwideCensusonContaminantDischarge"publishedbytheStateCouncil.
Non-hazardousofficewasteisrecycledbywasterecyclingvendors.
1072.
Energyandresourcesconsumption2.
1OfficeBuildingsKPIsTotalenergyconsumption(MWh)167,488.
48Directenergyconsumption(MWh)12,852.
04Including:Gasoline(MWh)780.
24Diesel(MWh)42.
10Naturalgas(MWh)12,029.
70Indirectenergyconsumption(MWh)154,636.
44Including:Electricity(MWh)154,636.
44Totalenergyconsumptionperemployee(MWhperemployee)3.
28Totalenergyconsumptionperfloorarea(MWhpersquaremetre)0.
14Runningwaterconsumption(tonnes)973,413.
06Runningwaterconsumptionperemployee(tonnesperemployee)19.
07Recycledwaterconsumption(tonnes)5,4612.
2DataCentresKPIsTotalenergyconsumption(MWh)938,988.
70Directenergyconsumption(MWh)139.
82Including:Diesel(MWh)139.
82Indirectenergyconsumption(MWh)938,848.
88Including:Electricity(MWh)938,848.
88AveragePUE1.
27~1.
47Runningwaterconsumption(tonnes)933,813108TencentHoldingsLimitedNote:1ThescopeofenergyandresourcesconsumptiondatarelatingtoofficebuildingscoversthoselocatedinShenzhen,Guangzhou,Shanghai,Beijing,ChengduandWuhan,whereasthatofdatacentrescoversthemaindatacentreswhichwerebuiltoverthepastfouryearsinMainlandChina.
2TotalenergyconsumptionisworkedoutbythedataofelectricityandfuelwithreferencetothecoefficientsintheNationalStandardsofthePRC"GeneralPrinciplesforCalculationoftheComprehensiveEnergyConsumption(GB/T2589-2008)".
3TheGroup'swaterresourcescomefrommunicipalwatersupply.
4RecycledwaterconsumptionistherecycleddomesticwatertreatedbythewastewatertreatmentsystemequippedatTencentTowerAandTowerBinChengdu.
5Feesfordieselinsomedatacentresarebornebytheoperatorsandthereforesuchdieseldataisnotavailable.
DataofdieselconsumedbyourdatacentresreportedhereonlycoversthedatacentreswhosedieselfeesarebornebytheGroup.
6AveragePUE(PowerUsageEffectiveness)isyearlyaveragedataofPUEoftheGroup'sdatacentres.
PUE,anindicatorofthepowerefficiencyofadatacentre,istheratiooftotalamountofenergyusedbyadatacentretotheenergydeliveredtothecomputingequipment.
7Waterfeesinsomedatacentresarebornebytheoperatorsandthereforesuchrunningwaterconsumptiondataisnotavailable.
DataofrunningwaterconsumedinourdatacentresreportedhereonlycoversthedatacentreswhosewaterfeesarebornebytheGroup.
8DataofpackagingmaterialsisnotapplicabletotheGroup.
109WORKPLACEEmployeeDevelopmentandTrainingWehaveawell-establishedperformancemanagementsystem.
Aperformanceassessmentforeachemployeeisconductedbythatemployee'ssupervisoreverysixmonthsandemployeesarerequiredtoworkwiththeirsupervisorstosetaperformancetargetaftereachassessment.
Supervisorsareencouragedtoprovideconstructivefeedbackfromtimetotimetoassistthepersonalgrowthofeachemployee.
Asourstaffisoneofourmostimportantassets,weinvestheavilyinemployeedevelopmentandtraining.
Weencourageemployeestoattendexternalandinternaltrainings.
Wehaveadoptedrelevantpoliciestoensurethatemployeetrainingsareprovidedandmanagedinasystematicmanner.
Forexample,supervisorsarerequiredtoassistindesigningtheprofessionaldevelopmentplansfortheemployeesandevaluatetheeffectivenessofthetrainingsreceivedbytheemployees.
Toensurethequalityofthetrainings,wehavealsodevelopedpolicieswhichsetoutrequirementsforthequalificationsandexperienceoftheinstructorsandtheobjectivesoftheprogrammesandworkedwithexternaleducationalinstitutionsfromtimetotimetojointlydeveloptrainingprogrammes.
In2007,wefoundedourowncorporateuniversity,TencentAcademy.
Itoffersdifferenttrainingprogrammesforeachstageofanemployee'scareer,includinganinduction,on-the-jobtrainingandleadershiptraining.
Ithasalsosetupanonlinelearningplatformandamobilelearningsysteminordertoallowemployeestolearnanytimeandanywhere.
In2017,oneofourtrainingprogrammeswontheATDExcellenceinPracticeAwardbytheAssociationforTalentDevelopment.
Asat31December2018,therewereapproximately700face-to-facecourses,7,400onlinecoursesandover1,000internalpart-timeinstructors.
Overthepastdecade,weranface-to-facecoursesover8,000timesperyearandover1,500courseswerelivestreamedperyear.
Theaggregatenumberoftraininghoursofouremployeesinthepast10yearsexceeds5million.
Throughout2018,thenumberoftheaveragein-housetraininghoursperemployeewas37.
1andthepercentageofemployeeswhoreceivedtrainingis99%.
Wealsointendtoopenupourtrainingresourcestoourbusinesspartnersandindustryplayersinordertoenhancethemarketstandard.
110TencentHoldingsLimitedEqualOpportunitiesandDiversityWehad54,309employeesasat31December2018.
Ouremploymentpracticeisincompliancewithapplicablelawsandregulations(includingbutnotlimitedtothosewhichprohibitchildandforcedlabour)anddoesnotdiscriminateonthegroundsofgender,ethnicity,race,disability,age,religiousbelief,sexualorientationorfamilystatus.
Diversityiswellsupportedinourcorporateculture.
TherecruitmentprocessstrictlyabidesbytheguidelinesoftheGroup'sHumanResourcesDepartment.
Everyjobapplicantisrequiredtoprovideinformationonhis/hereducationbackground,qualificationandjobexperienceinarecruitmentquestionnaire,whichisreviewedbyHumanResourcesDepartmentandverifiedbyprofessionalbackgroundcheckagency.
ThisallowstheGrouptohiresuitablecandidateinaccordancewiththejobrequirementsand,totheextentpossible,avoidchildandforcedlabour.
CompensationandBenefitsCompensationWeoffercompetitivepayandemployeebenefitstoattractandretaintalent.
Theremunerationandbonussystemisperformance-basedanddesignedtorewardemployeeswithhighperformanceandgreatpotential.
BenefitsThebasicbenefitssystemwasbuiltandismaintainedinaccordancewithrelevantlaws,regulationsandmarketpractice.
Inaddition,certainspecialbenefitsarecreatedtomotivateemployeesandimplementourstrategy.
Wewereawardedbyzhaopin.
comasthebestemployerinthePRCin2018.
WehavealsobeenvotedasoneofthebestemployersinthePRCfor13consecutiveyearssince2006inasurveyjointlyconductedbyzhaopin.
comandtheInstituteofSocialScienceSurvey,PekingUniversity.
WecareforthegrowthofouremployeesandprovidebenefitswithTencentcharacteristicstoouremployees.
Forexample,wecelebratespecialoccasionsofouremployees(e.
g.
workanniversary,weddingandfestivities).
Westrivetocreatework-lifebalanceandasafeandcomfortableworkenvironmentforemployees.
Employeeshavetheflexibilitytochoosethemostsuitableinsuranceplansandbenefitsforthemselvesandtheirfamilies.
PromotionEmployeesmayapplyforpromotionduringtheirinterimandyear-endperformancereviews,providedthattheysatisfytherequirementswithregardtothelengthofserviceandperformance.
Dependingonthepracticearea,thepromotionwillbereviewedandconsideredbydifferentinternalcommittees.
Thepromotionreviewprocessisfairandopen–thereisaformalchannelforouremployeestoprovideandreceivefeedback.
Thepromotionreviewisconductedincompliancewithapplicablelawsandregulations.
111EmployeeDepartureAllofouremployeesenterintowrittenemploymentcontractswhichdetail,amongotherthings,thegroundsforterminationoftheemployment.
Wevalueourrelationshipwithouremployeesandhandleemployeedeparture(whetherbyresignationordismissal)strictlyinaccordancewithapplicablelawsandregulations.
Wearrangeanexitinterviewwitheachofthedepartingemployeestounderstandthereasonsforhis/herdepartureandwelcomeanysuggestionsforimprovement.
Work-LifeBalanceWehaveimplementedvariousinitiativessuchasflexi-timearrangementsandvolunteerserviceleavetohelpemployeesstrikeagoodwork-lifebalance.
Theleaveschemeallowsemployeestoenjoyannualleave,fully-paidsickleave,half-paidleaveofabsenceandfully-paidspecialChineseNewYearleavewhichareabovethestatutorystandard.
Also,femaleemployeesareentitledtotakefully-paidmaternityleave,whilemaleemployeesarealsoentitledtotakefully-paidpaternityleave.
Employeescanalsoapplyforonedayoffully-paidvolunteerserviceleaveperyear.
Wealsoorganiseawidevarietyofrecreationalandleisureactivities(e.
g.
running,photography,music,dance,languageclasses)foremployees.
OccupationalHealthandSafetyWestrivetoprovideasafeandcomfortableworkenvironmentforouremployees.
Therearewell-establishedsecurityandfireservicesystemsandfoodsafetymonitoringsystem.
Wehaveadesignatedteaminchargeofthephysicalandmentalhealthofemployees.
Wearrangeannualmedicalcheckupsforemployeesandorganisehealthseminars,fitnesssessions,on-sitemedicalconsultationsaswellasface-to-faceandtelephonecounsellingfromtimetotime.
OurcontributiontosocialinsuranceinthePRCisincompliancewithapplicablelawsandregulationsandweoffervarioussupplementalinsurancebenefitstoemployeesandtheirfamilies(includingmedicalinsurance,criticalillnessinsurance,accidentinsuranceandlifeinsurance).
CommunicationWestrivetocreatecasualyetsophisticatedcommunicationchannelswithcustomisedcontentsforouremployees.
Thereareannualralliesforemployeesandmanagement,face-to-facediscussionforums,featuredmagazinesandsocialmediaplatforms.
Thecorporatestrategyandculturearecommunicatedandreinforcedthroughtheseproductsandcommunicationchannels.
112TencentHoldingsLimitedCOMMUNITYCommunityInvestmentWesetuptheTencentCharityFoundation(the"TencentFoundation")on26June2007.
Itisanon-publicfundraisingfoundationincorporatedinthePRCandaseparatelegalentity.
WecommittodonatingcertainportionofourprofitstotheTencentFoundationeveryyearforthepurposeofsupportingcharitableworks.
Asof31December2018,ourGroupandouremployeesdonatedapproximatelyRMB3.
5billionandRMB68millionintotaltotheTencentFoundationrespectivelysinceitsestablishment.
Duringtheyear2018,ourGroupandouremployeesdonatedRMB730millionandRMB840,000totheTencentFoundationrespectively.
TheTencentFoundationbelievesthateveryonecanparticipateincharityworkanytimeandanywherethroughtechnology.
InJune2007,theTencentFoundationleveragedonourInternettechnicalcapabilitiesandonlineplatformstobuildthefirstonlinepublicfundraisingplatform.
Itisdesigned,developedandoperatedbytheTencentFoundationwhileweprovideserver,broadbandandothertechnicalsupportforfree.
Theplatformisopenforeligiblecharitableorganisationsfreeofcharge.
Itallowscharitableworkstobeperformedmoreconveniently,smoothlyandtransparently.
Thisisagoodexampleoftheapplicationoftheconceptof"Internet+".
Asof31December2018,therehadbeenover6,000activecharitableorganisationsandcloseto16,000charityprojectsindifferentlocationswithdifferentfocuses.
TheTencentFoundationhasalsoappliedtechnologytovariouscharitableinitiativessuchasWeCountryforruraldevelopmentandTencentThree-dimensionalDisasterReliefProgrammeinresponsetorecentnaturaldisastersinChinaviatheonlineplatform.
In2018,thetotalnumberofdonationsmadebytheInternetuserswasapproximately69millionandthetotalamountofthefundsraisedwasoverRMB1.
7billion.
ThehighlightoftheTencentFoundation'scharityeffortsistheannual"99CharityDay"campaignwhereitmatchesthedonationsmadebytheInternetusersbetween7Septemberand9Septemberviaitsonlineplatform.
In2018,theTencentFoundationdonatedRMB300millionforthecampaign,ofwhich35.
2%wasforeducationinitiatives,34.
5%formedicalcare,26.
1%forpovertyreliefandtheremaining4.
2%wasforenvironmentalprotectioninitiativesandothers.
Inadditiontopromotingphilanthropythroughtheonlinecharityplatform,theTencentFoundationmakesdirectdonationinthefollowingareas:(i)disasterrelief;(ii)ruraldevelopment;(iii)education;(iv)ecologicalconservationandculturalpreservation;(v)communitydevelopment;and(vi)povertyrelief.
DisasterreliefInresponsetotherecentnaturaldisastersinthePRCaswellasglobally,theTencentFoundationhascreatedamultifaceteddisasterreliefmodelbycombiningourvariousproductsincludingonlineplatforms,instantmessengers,onlinepaymentandInternetsearchtohelpthepublicfollowthelatestnews,participateinrescueeffortsandmakedonations.
Inaddition,theTencentFoundationhasmadedonationstosupporttherescuemissionsandpost-disasterreconstructions.
In2018,itdonatedanaggregateofapproximatelyRMB4.
5milliontotheChinaFoundationforPovertyAlleviation,theChinaChildrenandTeenagers'FundandothercharitableorganisationsinresponsetotheearthquakeinXinjiangandthelandslidesinSichuanandforthepost-disasterchildcareprogrammefollowingtheearthquakeinYa'ancity.
113RuraldevelopmentIn2015,WeCountry,ouropenplatformbuiltonthe"Internet+Village"model,waslaunchedtooffervillagersaccesstodigitaltechnologywhichwouldbenefittheircommunities.
Asof31December2018,28provincialadministrativeareaswithapproximately10,000villages(orcommunities)joinedWeCountryplatform.
Thenumberofverifiedvillagerswasapproximately2.
34millionasof31December2018.
EducationTheTencentFoundationhassetupscholarshipstopromoteeducationinthePRCandothercountriesthroughouttheyears.
Therearealsospecificdonationsfordifferenteducationinitiatives.
In2018,theTencentFoundationdonatedapproximatelyRMB119millionineducationrelatedprojects.
Forexample,ithadcooperationswiththefundssetupbyuniversities(includingPekingUniversity,ShenzhenUniversityandNanjingUniversity)onhighereducationandwithUNICEFoncybersecurityeducation.
ItalsosponsoredtheprojectsledbyBeijingHefengArtFoundationinrelationtoonlinearteducation.
EcologicalconservationandculturalpreservationTheTencentFoundationiskeenonenvironmentalprotectionandculturalpreservation.
In2018,theTencentFoundationdonatedapproximatelyRMB5.
8milliontotheChinaFoundationForCulturalHeritageConservation,theParadiseInternationalFoundationandotherecologicalconservationorganisationstocontinuetopreserveandrepairtheGreatWallandfortheecologicalconservationprojectinthePRC.
CommunitydevelopmentIn2018,theTencentFoundationraisedapproximatelyRMB120milliononthe"99CharityDay"topromotephilanthropyandinnovationincharitywork.
PovertyreliefIn2018,theTencentFoundationdonatedapproximatelyRMB125milliontosupportpovertyreliefinitiativesthroughvariouscharitableorganisations,inadditiontothematchingdonationmadebytheTencentFoundationonthe"99CharityDay"onthesamearea.
114TencentHoldingsLimitedVolunteeringIn2006,someofouremployeesfoundedtheTencentVolunteers'Associationontheirowninitiativeinresponsetoourcorporatevisionofbeing"themostrespectedInternetcompany".
Sincethen,theTencentVolunteers'Associationhascontributedmorethan120,000hoursofvoluntaryservicesandthetotalnumberofparticipantsismorethan60,000.
Therearemorethan20sub-divisionsatthecitylevel(suchasBeijing,Shanghai,Chengdu,Shenzhen,Wuhan,GuangzhouandHefei)andattheregionallevel(suchasHebei,Guangdong,Guizhou,GansuandYunnan).
Overthelastdecade,theTencentVolunteer'sAssociationhasbeeninvolvedandcontributedintheareasofonlinecharity,promotionofunhinderedInternetaccess,informationtechnologypopularisation,cybersecurity,emergencysupport,povertyrelief,scholarship,environmentalprotection,careforelderlyandchildrenwithspecialneedsandanimalprotection.
Ithaslaunchedmorethan200volunteeringactivities.
In2016,itwasawardedaspotinthelistofTop10BestVolunteerOrganisationsinGuangdongProvince.
TheTencentVolunteers'Associationcombinesitsexpertiseintechnologytohelpthecommunity.
Forexample,ithasbeenbroadcastinginformationonmissingpersonsviaWeixin/WeChatandQQandwiththelatestfacialrecognitionandblockchaintechnologies,thenumberofsuccessfulcasesincreasedyearbyyear.
TheTencentVolunteers'AssociationalsoestablishedtheChinaIT-PhilanthropyUnionwhichpromotesthe"Internet+Charity"modelbyholdingsummitsandpublishingwhitepapersonthesuccessfulexamplesofhowtheinformationtechnologyhaschangedthelandscapeofcharitywork.
Inordertoencourageemployeestoparticipateinvolunteerservice,employees,sinceApril2012,havebeengrantedonedayoffully-paidvolunteerserviceleaveperyear.
Anti-CorruptionTencentembracesthevalueofintegrity,proactivity,collaborationandinnovation.
Topromoteintegrity,wehavedevelopedrobustsystemsandmeasurestoprevent,detectanddetercorruptionoranyotherfraudulentactivities.
InternalauditisconductedandriskmanagementandriskcontrolhavebeenfurtherstrengthenedtoensuretheGroup'scompliancewithethicalstandardswhichwepromoteandstrivetouphold.
115RiskManagementandInternalControlPolicyIn2016,weupdatedtheRiskManagementandInternalControlPolicy(the"Policy")withasystemcomprisingthreelinesofdefence.
Thefirstlineisbusinessandfunctionaldepartments.
Theriskmanagementandinternalcontroldepartmentsserveasthesecondlinewhiletheinternalauditdepartmentandanti-fraudinvestigationdepartmentactasthethirdlineofdefence.
ThePolicysetsouttherolesandresponsibilitiesofdifferentstakeholdersinriskmanagementandcontrol(includingthoseinrelationtofrauds).
ItisemphasisedinthePolicythatthemanagementofeachbusinessgroupisprimarilyresponsiblefortheriskmanagementandinternalcontrolsofitsdepartment.
Ifanyfraudulentactivityisdetected,themanagementoftherelevantdepartmentshallimprovethecontrolprocedurespromptlytopreventrecurrenceofsimilarincidents.
Theriskmanagementandinternalcontroldepartmentshavededicatedateamtoeachbusinessgrouptoprovideinternalcontrolandriskmanagementsupport.
Wealsoapplycontinuousauditingtokeybusinessesinordertodetectirregularitiesandidentifyrisksinatimelyandsystematicmannerandtoimprovetheeffectivenessoffraudriskmanagementandcontrol.
TencentSunshineCodeofConductAllemployeesoftheentireGrouparerequiredtofollowandtostrictlycomplywiththeTencentSunshineCodeofConduct(the"SunshineCode").
Itexpresslyprohibitsallkindsoffraudulentactivities,bribery,embezzlement,misappropriation,extortion,falsificationofinformationandanyotheractivitieswhicharenotincompliancewithapplicablelawsandregulations.
TheSunshineCodeshallbereviewedannuallyagainstthechangingneedsoftheGroupandrevisedwhenappropriate,inordertoensurethatitcatersforourbusinessdevelopment,reflectsthepositionsunderapplicablelawsandregulationsandcapturesallkindsoffraudulentactivities.
In2018,wehaverevisedtheSunshineCodetoincludemorespecificstipulationsinrelationtoeachcategoryoffraudulentactivitiessothatouremployeescanunderstandbetterourexpectationsundertheSunshineCode.
TherevisedSunshineCodeemphasisestheresponsibilitiesofthemanagement.
Theimmediatesupervisorwillbedemotedifanemployeeunderhismanagementhascommittedafraudulentactasaresultofdeficiencyinthemanagementprocess,uncleardelineationofresponsibilitiesorloopholesinthebusinessoperation.
Theimmediatesupervisorwillalsoberequiredtocomeupwitharemedialplanwiththeriskmanagementandinternalcontroldepartmentsandimplementsuchplanwithinthreemonths.
TheInternalAuditCommitteehasthediscretiontomakethefinaldecisiononwhethersuchimmediatesupervisorcanberesumedtohisoriginalroleaftertheimplementationoftheremedialplan.
In2018,inordertoensureouremployeescomplywiththerequirementsandethicalstandardsstipulatedintheSunshineCode,wehaverequestedallemployeestocompletethee-learningprogrammewithaviewtounderstandingtheupdatedrulesandstandardsoftheSunshineCode.
Forpositionswithhighriskoffraud,theyarerequiredtoattendface-to-facetrainingcourseatleastonceayear.
Wealsopromotejobrotationfortheseemployeesonaregularbasisinordertominimisetheriskoffraud.
116TencentHoldingsLimitedAnti-fraudandWhistleblowingPolicyWehavepublishedanAnti-fraudandWhistleblowingPolicy(the"WhistleblowingPolicy"),whichclearlyconveysthemessageofzerotoleranceinrelationtofraudulentactivitytoalltheemployeesandsuppliers/businesspartners.
Allemployeesandsuppliers/businesspartnersareencouragedtoreportgenuineconcernsaboutanyexistingorpotentialfraudulentactivitiesandnon-compliance.
TheWhistleblowingPolicyexpresslyoutlinesthemultiplewhistleblowingchannelsandhowtheGroupshoulddealwithsuchconcerns,sothatemployeesandsuppliers/businesspartnerscanreporttheirgoodfaithconcernswithoutfearofreprisalorpotentialretaliation.
Since2016,wehavemaintainedanOfficialAccountunderthenameof"SunshineTencent"onWeixintopromoteouranti-fraudpolicyandwhistleblowingchannelswithafunctiontoallowourbusinesspartnerstoreportdirectlytous.
FraudDetectionandCorruptionPreventionWhenareportofsuspectedfraudulentactivitiesisreceived,theanti-fraudinvestigationdepartment,whichconsistsofprofessionalswhousedtobepartoftheanti-corruptionfunctionatagovernmentalauthorityorprivateenterpriseandhaveprofoundknowledgeinfraudriskmanagementandsolidfraudinvestigationexperiences,isassignedtohandletheinvestigationindependently.
Afteraninvestigationhasbeencompleted,theemployeefoundandproventohavecommittedsuchfraudshallbesubjecttoimmediatedismissal.
Atthesametime,thedepartmentinquestionmust,withtheassistanceoftheriskmanagementandinternalcontroldepartments,takecorrectiveactionsinresponsetothebusinessriskorloopholeidentifiedduringtheinvestigation.
Ifwefindanysupplierorbusinesspartnerengagingincorruptionoranyotherfraudulentactivities,wewillterminatethecontractswiththemimmediatelyandneverworkwiththemagain.
Intheeventthatanyfraudulentactivityviolatesanyrelevantlawsorregulations,suchcasesshallbereportedtogovernmentauthoritiesinaccordancewithapplicablelawsandregulations.
Inordertoconveyamessageregardingourdeterminationtofightagainstfraudandtointroduceourwhistleblowingsystemexternally,wesendalettertooursuppliersandbusinesspartnersandrequestthemtocompleteaquestionnaireannually.
Thequestionnairesetsoutourcorporatevalues,theWhistleblowingPolicyandthevariousreportingchannels.
Wewillunderstandfromeachofoursuppliersandourbusinesspartnerswhetherouremployeeshaverequestedforanygift,cashorbenefitduringthecourseofbusinessandwhetherithasbeentreatedunfairly.
Uponreceiptofthefeedback,wewillensurethatthequestionsorconcernsraisedbyoursuppliersandourbusinesspartnerswillbeaddressedpromptly.
Ifnecessary,theanti-fraudinvestigationdepartmentwillcommenceaninvestigationformally.
OurriskmanagementandinternalcontroldepartmentshaveestablishedaprocurementmanagementcontrolunittooptimisetheGroup'ssuppliermanagementsystem.
Anewsuppliersynergysystemhasbeenlaunchedfortheonlinemanagementoftheentireprocurementlifecycle,fromsourcing,selectionandonboardingofsuppliers,performanceassessmenttoretiringsuppliers.
Thesystemservesasanopenplatformwherethesupplierscanprovideitscorporateinformationtousandwecanmanagetheentirebiddingprocessonline.
Throughacentralisedsystem,thebiddingprocesscanbestandardisedandbecomemoretransparent.
Thesuppliermanagementsystemalsoprovidesthesupplierswithacommunicationchannelsothatwecancollecttheirfeedbackorcomplaints.
Complaintsinrelationtofraudulentactivitieswillbepassedtotheanti-fraudinvestigationdepartmentdirectlyforfollow-upandthosenon-fraudrelatedcomplaints(suchasunfairtreatment)willbehandledbytheprocurementriskmanagementunit.
Thegoalistoensurethatthecomplaintsandconcernsofoursupplierscanbeaddressedpromptlyandtheriskoffraudcanbeminimised.
117Anti-MoneyLaunderingTheGroupissubjecttoandstrictlyabidesbyapplicablelawsandregulationsinrelationtocross-borderanddomesticmoneytransmission,anti-moneylaundering("AML")aswellascounter-terroristfinancing("CFT")inthePRCandothercountrieswhereweprovidepaymentprocessingservices.
Wehavefulfillednotonlyourlegalobligationsbutalsooursocialresponsibilities.
Asaresultofthecomplexityoflegalandregulatorycomplianceinmultiplejurisdictions,wehavededicatedmoreresources(includingbutnotlimitedtohumanresourcesandsystemcapabilities)tothecomplianceworkinthefollowingareas:(i)recruitingmoreAML/CFTprofessionalsfortheknow-your-customerprocess,suspicioustransactionreviewandanalysis,andsysteminfrastructureenhancementinordertoenhancetheeffectivenessandprofessionalismofAML/CFTmeasures;(ii)strengtheningtheimplementationofinternalcontrolmeasuresinrelationtosanctionscomplianceinordertominimisetherelevantrisks;(iii)enhancingthecooperationwithregulatorsandlawenforcementbodiesonAMLinvestigations;(iv)activelyparticipatinginthecombatsagainstmoneylaundering,terrorism,taxevasionandcorruptionactivitiesinternationally,inordertopreventmoneylaunderingandupstreamcriminalactivities;and(v)carryingoutvariousformsoftraining,education,andpublicrelationactivitiesonAMLforourexecutives,employeesandusers.
In2018,TencenthasestablishedanAnti-MoneyLaunderingProgramme(the"AMLProgramme")toensurethatmoneylaunderingrisksidentifiedbyTencentareappropriatelymitigatedandtoprotectTencent,itsemployees,shareholdersandusersfrommoneylaunderingrisks.
TheAMLProgrammeprovidesguidancetoallTencentemployees,requiringthemtoconductbusinessinaccordancewithapplicableAMLlaws,rulesandregulations.
ThekeyaspectsoftheAMLProgrammeincludebutarenotlimitedtothefollowing:AppointingAMLspecialistsatglobalandcountrylevels;EstablishingacomprehensiveCustomerDueDiligenceProgramme;Establishingprocessesandsystemswhicharedesignedtomonitorcustomertransactionsforthepurposeofidentifyingsuspiciousactivities;Investigatingandsubsequentlyreportingsuspiciousactivitiestotheapplicableregulatorybodies;ConductingregularindependenttestingonourAMLsystemandprovidingregularAMLtrainingstoouremployeesandcounterparties;andProhibitingtheonboardingofanyanonymoususersorusersusinganobviouslyfictitiousnameforourservices.
118TencentHoldingsLimitedSUPPLYCHAINMANAGEMENTOursupplychainmanagementprogrammeattachessupremeimportancetomanagingtheethicsriskassociatedwiththerelationshipbetweenourprocurementemployeesandourbusinesspartners.
Italsofocusesonteachingthoseemployeeswhoareinvolvedinprocurementtorecogniseandmitigatetheinherentrisks.
Toenhancethesocialresponsibilityawarenessofouremployees,wehaveformulatedacodeofconductwhichthoseemployeesengaginginprocurementactivitiesmustadhereto.
Tominimisetheethicsrisks,suchemployeesarealsorequiredtodeclareanyrelationshiptheymayhavewithoursuppliersinwriting.
Inthecourseofsupplierengagement,potentialsuppliersarerequiredtoconductself-assessmentontheircommitment,amongstotherthings,toenvironmentalprotection,socialresponsibility,andhealthandsafetyatwork(the"Self-Assessment").
Supplierswhichareformallyengagedbyusarealsorequiredtoagreetothetermsofadeclarationandundertakinginrelationtoanti-commercialbriberyindoingbusinesswithourGroup(the"Anti-commercialBriberyDeclaration").
Duringtheyearended31December2018,allsupplierswhichwereformallyengagedhadcompletedtheSelf-AssessmentandsignedtheAnti-commercialBriberyDeclaration.
Wewerenotawareofanymaterialcommercialbriberyengagedbyoursuppliers.
Theprocurementdepartmentlooksforqualifiedsuppliersinthemarketandconductsstandardorsimplifiedverificationonthesuppliersdependingonthedurationofthecooperation,theordervolumeandthenatureoftherequest.
Wehavemaintainedadatabaseofqualifiedsupplierswhicharereadytotakeordersfromus.
Wehaveaninternalpolicywhichsetsouttheproceduresforsupplieronboarding.
Beforeengagingasupplier,wewillformasupplierassessmentteamtoconductthebackgroundcheck(includingsitevisit)onthesupplier.
Theteamwillconsistofmembersfromtheprocurementdepartment,therequestingdepartment,thetechnologydepartment(ifapplicable)andtheriskmanagementdepartment.
Theassessmentresultswillbereportedtotheprocurementdepartmentforafinaldetermination.
Wenormallyaskforpricequotationsfromatleastthreevendors.
Otherfactorsincludingdeliverytimeandtechnicalcapabilitiesofthevendorswillbetakenintoconsiderationwhenselectingvendors.
Ifthereisonlyonevendoravailableforselectionasitdominatestherelevantmarketoritistheonlyvendorwithaccesstotherequiredgoods/services,theexclusiveprocurementarrangementwithsuchvendorwillrequirespecialapprovalwithasatisfactoryjustificationprovidedbythetechnologydepartmentortherequestingdepartment.
Weevaluatetheperformanceofoursuppliersfromtimetotimeandtakeappropriatestepstoaddressanyissueswiththequalityofthesuppliersaspartofoursupplychainmanagement.
Forsupplierswithunsatisfactoryperformance,subjecttoapplicablecontractualarrangements,wemay(i)discusswiththemontheremedialstepstobetakenbythem;(ii)suspendthecooperation;(iii)reducetheordervolume;(iv)imposepenalties;or(v)suspendpayment.
Theprocurementdepartmentmaydisqualifyasupplierforthefollowingevents:(i)wesufferfrommaterialeconomiclossesasaresultofthedelayeddelivery,qualityissueorbreachofcontractbythesupplier;(ii)thesupplierhasreceivedthelowestratingintheratingscalefortwoconsecutivequarters;and(iii)thesupplierhasinseriousbreachofbusinessethics.
119PRODUCTRESPONSIBILITYWestrivetoprovidethebestuserexperienceandpayhighattentiontothequalityofourproductsandservices.
Weconductstrictreviewsofourproductandserviceofferingsandrelatedsales,marketingandadvertisingstrategiesandmaterialstoensuretheircompliancewithapplicablelawsandregulations.
Wealsobuildinsafeguardsonuserprivacy,productsafetyandIPrightsasdescribedbelow.
UserPrivacyToupholdourdedicationtovaluecreationforourusers,amongstotheruserspecificaims,oneofourimportantmissionsistoprotecttheprivacyofuserdataandothersensitiveinformation.
Wecomplywithallapplicablelawsonprivacyprotection,andincorporateapplicablelegalandregulatoryrequirementsonprivacyprotectionintoourinternalcompliancepoliciestakingintoaccountthespecificfeaturesofourproductsandservices.
Wehavealsodevisedspecificprocedurestocollectandprocessuserdatatoensurethatourproductsandservicesareincompliancewithapplicablelegalrequirements.
WehaveadedicatedprivacyteamwithintheLegalDepartmentwhichisresponsibleforhandlingdataprotectionmatters.
Weevaluatespecificproductsfromtheperspectiveofprivacyprotectiononaregularbasisandperformprivacyriskassessmentsbeforethelaunchofnewproductstoensurethatourproductsarenotexposedtotheriskofprivacyinfringementorleakageofuserdata.
Weprovidetrainingtoouremployeestoenhancetheirprivacyprotectionawarenessandbuilduptheculturalawarenessoftheimportanceofprivacyprotection.
Toensurethatourusersunderstandhowweprotecttheirpersonalinformationandenhancethetransparencyofhowwecollectandprocessthedata,wepromotetheconceptof"DataforSocialGood".
WehavepublishedtheTencentPrivacyProtectionWhitepaperandlaunchedtheTencentPrivacyPlatform(https://www.
qq.
com/privacy.
htm)togiveourusersacomprehensiveunderstandingoftheprivacyprotectionmeasurestakenbyTencent.
Wealsomakeourprivacyprotectionpoliciesavailableonourproductwebsitesandin-appproducts,andprovidecommunicationchannelsforouruserstofilecomplaintsandraiseenquirieswhenevertheyareindoubt.
Theprivacypoliciesofourvariousapplicationshavebeenconsideredtop-rankedinthejointreviewbytheCyberspaceAdministrationofChina,theMinistryofIndustryandInformationTechnologyofthePRC,theMinistryofPublicSecurityofthePRCandtheStandardisationAdministrationofthePRCandinthereviewbyChinaConsumersAssociationamong100selectedapplications.
Furthermore,weactivelyparticipateinshapingthedevelopmentoftheindustryframeworkonprivacyprotection.
Forexample,weareamemberoftheInternationalAssociationofPrivacyProfessionals.
ManyofourproductshavebeenaccreditedwithprivacycertificationsfromTrustArc.
OurnetworkanddatasecuritymanagementshavebeenrecognisedinthePRCandinternationallyandISOcertified.
120TencentHoldingsLimitedCustomerServiceTheTencentCustomerServiceCentreconsistsofmorethan2,500staffmembersandisresponsibleforhandlingcomplaintsandrespondingtoenquiriesfromcustomersforourbusinesses.
Wecommittoprovidingsolutionstoourcustomersinatimelymannerthroughdifferentmeansincludingcustomerservicehotline,onlinecustomersupport,intelligentcustomerservice,Weixin/WeChatandface-to-facemeeting.
Wehaveestablishedthefollowingmanagementsystemtohandlecomplaintsfromourcustomerseffectively:1.
Thereisadesignatedteamwithinthecustomerservicedepartmenttohandlecomplaintsanddealwithcompensationrequests.
Theteamisresponsibleforconductinginvestigationbasedontheinformationprovidedbythecomplainant,explainingtherelevantprocedurestothecomplainantandnotifyingthecomplainantoftheinvestigationresultswiththeaimofprovidinghimwithasatisfactorysolution.
2.
Forbetteruserexperience,wehaveestablishedasetofcomplainthandlingprocedureswhichsetoutclearlytheresponsibilitieswithinthecustomerservicedepartmentandthetimeframewithinwhichacomplaintneedstoberesolved.
3.
Wehavestrengthenedoursysteminfrastructurewhichallowsclassificationofcomplaintsbyurgencyandrisklevelsothatthecustomerservicestaffcanbetterprioritisethecasesanddealwiththecomplaintsinatimelymanner.
4.
Wehaveadesignatedteamofstaffwhoisresponsibleforhandlingcomplaintsfromcustomerswhovisitourofficesandforbetterriskcontrol,wehavedesignedasetofprotocolsfordifferenttypesofincidents.
HealthyEnvironmentforourUsersOneofourimportantbusinessesisouronlinegamingbusiness.
Weneedtocomplywiththelaws,regulationsandpolicyrequirementsinrelationtoonlinegaminginthePRC.
TheauthoritiesinthePRCwhichregulateonlinegamingmainlyinclude:(i)theStateAdministrationofPressandPublication;(ii)theMinistryofCultureandTourism;(iii)theMinistryofIndustryandInformationTechnology;and(iv)theStateAdministrationforMarketRegulation.
Thelaws,regulationsandpoliciesrelatingtoonlinegamingmainlyinclude:(i)"TheRegulationonInternetInformationServiceofthePeople'sRepublicofChina"promulgatedbytheStateCouncil;(ii)"TheProvisionsontheAdministrationofOnlinePublishingServices"promulgatedbytheformerStateAdministrationofPress,Publication,Radio,FilmandTelevisionandtheMinistryofIndustryandInformationTechnology;and(iii)"TheInterimProvisionsontheAdministrationofInternetCulture","TheInterimMeasuresfortheAdministrationofOnlineGames"and"TheNoticeonRegulatingOnlineGameOperationandStrengtheningConcurrentandEx-PostSupervisions"promulgatedbytheformerMinistryofCulture.
Theaimsofsuchlawsincludetheregulationofthequalificationsofoperatingentitiesofonlinegames,theregulationoftheoperationofonlinegames,theprotectionforthephysicalandmentalhealthofonlinegameusersandadolescentsandtheprivacyprotectionofthepersonaldataofusers.
121Wehavebeenactivelyimplementingvariousmeasurestoensurecompliancewiththerelevantlaws,regulationsandpolicies.
Forinstance,wehavealreadyobtainedtherelevantcredentialsforoperatingonlinegames,suchastheTelecommunicationBusinessOperationPermit,theOnlinePublishingServiceLicenceandtheInternetCultureBusinessPermit.
Tosafeguardthephysicalandmentalhealthofonlinegameusersandadolescents,wehaveimplementedtherealnamesystemandanti-addictionsysteminaccordancewiththeregulatoryrequirementsofthePRCandstrengthenedthepromotionofhealthygamingandanti-addictionthroughvariouschannels.
InFebruary2017,welaunchedaseriesofserviceson"TencentGameGuardianPlatform"(http://jiazhang.
qq.
com)whichassistsparentstomonitorthegaminghabitsoftheirunderagechildren.
Thisistheplatformdedicatedtohealthygamingofunderagechildrenintheonlinegameindustry.
InJuly2017,weimplementedtheHealthyGameplaySystemonHonourofKings,whichsendsreminderstoplayersorforceslogoutfromthegameifplayersspendtoomuchtimeonthegameinoneday.
In2018,wehaveupgradedtheHealthyGameplaySystem,tightenedtherequirementsforidentityverificationandmadethesystemavailableformoregames.
Wehavealsolaunchedacustomerservicewhichsendsreminderswhenagameplayermayhaveengagedinoverspendingandprovidessubsequentcounselling.
Inaddition,wehaveworkedwithSchoolofBrainandCognitiveScienceofBeijingNormalUniversityandDataCentreoftheChinaInternet(DCCI)topublish"GuideonHealthyUseoftheInternetforTeenagers"and"ResearchonOnlineGamingBehavioursofandOnlineProtectionsforTeenagers".
Parents,educationinstitutionsandindustryplayerscandownloadthesedocumentsfreeofchargefortheirreference.
MonitoringofandProtectionforOriginalUser-generatedContentEachofWeixin/WeChatandQQprovidesamechanismforuserstoreportanyfakeorinappropriatecontentcirculatedonitsplatform.
Toprotecttheoriginaluser-generatedcontent,Weixin/WeChathaslaunchedanewfeatureinDecember2017fortheWeixin/WeChatofficialaccountholderstodeclaretheoriginalityofthecontentgeneratedbythemonWeixin/WeChatsoastohelpidentifyanddetercopyrightinfringementmoreeffectively.
IntellectualPropertyRightsWeareatechnology-orientedcompanyandwestresstheimportanceoftheobservationandprotectionofintellectualproperty("IP")rights.
WehaveestablishedadedicatedIPteamwithapproximately80employeesasof31December2018thatisresponsiblefortheday-to-daymanagementoflegalmattersinvolvingtrademark,patent,copyright,domainnamesandotherIPrights.
122TencentHoldingsLimitedWebeganacomprehensiveprogrammeforthemanagementofIPatanearlystage.
WehaveconsistentlyappliedfortheregistrationofIPrightssincetheearlystagesofitsestablishment.
Withthesuccessfuldevelopmentofourbusiness,wehaveexpandedourglobalIPportfoliotocovermorethan100countriesandregions.
Asof31December2018,wehadobtainedover19,000officiallyregisteredtrademarksandover9,000issuedpatents.
Coupledwithourcreationofavastamountofcopyrightedcontent,wehaveaccumulatedIPassetsofconsiderablevalue.
OurIPteamhasdevelopedacomprehensivedatabaseforourpatents,trademarksandcopyrightsandourstrongdataanalyticalskillsenableustomanageandmonitorourIPrightsinameticulousandefficientmanner.
TocombatinfringementofIPrights,ourIPteamhasalsoestablishedacomprehensiveandefficientmonitoringandmaintenancesystem,andhasdevisedvariouscivil,criminalandadministrativeenforcementmeasurestoprotectourIPrights.
PleaseseefurtherdetailsontheCompanyWebsite(https://www.
tencent.
com/legal/html/en-us/property.
html).
WeactivelyparticipateinpublicaffairsandstrivetopromotetheawarenessofIPprotectionintheInternetindustry.
AsmembersoftheChinaNationalInformationTechnologyStandardisationCommittee,theChinaIntellectualPropertySociety,thePatentProtectionAssociationofChina,theWorldWideWebConsortium,theInternationalTrademarkAssociationandtheChinaTrademarkAssociation,wehaveparticipatedintheconsultationsonlegislativeamendmentstothePRClawsandregulationsrelatingtopatents,trademarksandanti-competitionandhavemaderecommendationsinthedevelopmentofindustrystandards.
Withinthepastdecade,wehadseveraltimesbeenawarded"ChinaPatentGoldAwards"bytheStateIntellectualPropertyOfficeofthePRC,"ChinaTrademarkGoldAwards"jointlybyWorldIntellectualPropertyOrganisationandtheStateAdministrationforIndustry&CommerceofthePRCand"ChinaCopyrightGoldAwards"bytheNationalCopyrightAdministrationofthePRCandtheWorldIntellectualPropertyOrganisation,signifyingourcontributiontothedevelopmentofindependentinnovationofthePRC.
Wehavealsoseveraltimesbeenawarded"NationalCopyrightDemonstrationUnit",recognisingouroutstandingperformanceinmanagementandprotectionofcopyright.
InDecember2018,twoofourpatentswereawarded"ChinaPatentSilverAward"bytheStateIntellectualPropertyOfficeofthePRCandthisisthefirsttimewhereanInternetsecurityserviceproviderinChinawonsuchtitleinthecategoryof"filescanningmethodandsystem,clientandserver".
In2018,wehavealsoenteredintoapatentcrosslicenceagreementwithGoogle.
Lookingforward,wewillcontinuetodevotegreateffortsandresourcestoobserveandprotectIPrights.
123TOTHESHAREHOLDERSOFTENCENTHOLDINGSLIMITED(incorporatedintheCaymanIslandswithlimitedliability)OPINIONWhatwehaveauditedTheconsolidatedfinancialstatementsofTencentHoldingsLimited(the"Company")anditssubsidiaries(the"Group")setoutonpages132to264,whichcomprise:theconsolidatedstatementoffinancialpositionasat31December2018;theconsolidatedincomestatementfortheyearthenended;theconsolidatedstatementofcomprehensiveincomefortheyearthenended;theconsolidatedstatementofchangesinequityfortheyearthenended;theconsolidatedstatementofcashflowsfortheyearthenended;andthenotestotheconsolidatedfinancialstatements,whichincludeasummaryofsignificantaccountingpolicies.
OuropinionInouropinion,theconsolidatedfinancialstatementsgiveatrueandfairviewoftheconsolidatedfinancialpositionoftheGroupasat31December2018,andofitsconsolidatedfinancialperformanceanditsconsolidatedcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards("IFRSs")andhavebeenproperlypreparedincompliancewiththedisclosurerequirementsoftheHongKongCompaniesOrdinance.
124TencentHoldingsLimitedBASISFOROPINIONWeconductedourauditinaccordancewithInternationalStandardsonAuditing("ISAs").
OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor'sResponsibilitiesfortheAuditoftheConsolidatedFinancialStatementssectionofourreport.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
IndependenceWeareindependentoftheGroupinaccordancewiththeInternationalEthicsStandardsBoardforAccountants'CodeofEthicsforProfessionalAccountants("IESBACode"),andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeIESBACode.
KEYAUDITMATTERSKeyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditoftheconsolidatedfinancialstatementsofthecurrentperiod.
Thesematterswereaddressedinthecontextofourauditoftheconsolidatedfinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.
Keyauditmattersidentifiedinourauditaresummarisedasfollows:Revenuerecognitiononprovisionofonlinegamesvalue-addedservices–estimatesofthelifespansofvirtualproducts/itemsImpairmentassessmentsofgoodwill,investmentsinassociatesandjointventuresFairvaluemeasurementoffinancialinstruments,includingfinancialassetsatfairvaluethroughprofitorloss,financialassetsatfairvaluethroughothercomprehensiveincomeandotherfinancialliabilities125KeyAuditMatterHowourauditaddressedtheKeyAuditMatterRevenuerecognitiononprovisionofonlinegamesvalue-addedservices–estimatesofthelifespansofvirtualproducts/itemsRefertoNote2.
30(a),4(a)and5(b)totheconsolidatedfinancialstatementsTheGrouphasrecognisedrevenuefromsalesofvirtualproducts/itemstotheusersinrespectofvalue-addedservicesrenderedontheGroup'sonlineplatforms.
Therelevantrevenueisrecognisedoverthelifespansofrespectivevirtualproducts/itemswhichwasdeterminedbythemanagement,onanitembyitembasis,withreferencetotheexpectedusers'relationshipperiodsorthestipulatedperiodofvalidityoftherelevantvirtualproducts/items,dependingonthetermsofthevirtualproducts/items.
Duringtheyearended31December2018,amajorityoftheGroup'srevenuefromvalue-addedserviceswascontributedfromonlinegamesandwaspredominatelyderivedfromthesalesofvirtualproducts/items.
Wefocusedonthisareaduetothefactthatmanagementappliedsignificantjudgmentindeterminingtheexpectedusers'relationshipperiodsforcertainvirtualproducts/items.
Thesejudgmentincluded(i)thedeterminationofkeyassumptionsappliedintheexpectedusers'relationshipperiods,includingbutnotlimitedtohistoricalusers'consumptionpatterns,churnratesandreactivityonmarketingactivities,gameslife-cycle,andtheGroup'smarketingstrategy;and(ii)theidentificationofeventsthatmaytriggerchangesintheexpectedusers'relationshipperiods.
Wediscussedwithmanagementandevaluatedtheirjudgmentonkeyassumptionsindeterminingtheestimatedlifespansofthevirtualproducts/itemsthatwerebasedontheexpectedusers'relationshipperiods.
Wetested,onasamplebasis,keycontrolsinrespectoftherecognitionofrevenuefromsalesofvirtualproducts/items,includingmanagement'sreviewandapprovalof(i)determinationoftheestimatedlifespansofnewvirtualproducts/itemspriortotheirlaunches;and(ii)changesintheestimatedlifespansofexistingvirtualproducts/itemsbasedonperiodicreassessmentonanyindicationstriggeringsuchchanges.
WealsoassessedthedatageneratedfromtheGroup'sinformationsystemsupportingthemanagement'sreview,includingtestedtheinformationsystemlogicforgenerationofreports,andchecked,onasamplebasis,themonthlycomputationofrevenuerecognisedonselectedvirtualproducts/itemsgenerateddirectlyfromtheGroup'sinformationsystem.
Weassessed,onasamplebasis,theexpectedusers'relationshipperiodsadoptedbymanagementbytestingthedataintegrityofhistoricalusers'consumptionpatternsandcalculationofthechurnrates.
Wealsoevaluatedtheconsiderationmadebymanagementindeterminingtheunderlyingassumptionsforexpectedusers'relationshipperiodswithreferencetohistoricaloperatingandmarketingdataoftherelevantgames.
Wealsoassessed,onasamplebasis,thehistoricalaccuracyofthemanagement'sestimationprocessbycomparingtheactualusers'relationshipperiodsfortheyearagainsttheoriginalestimationforselectedvirtualproducts/items.
Wefoundthattheresultsofourproceduresperformedtobemateriallyconsistentwithmanagement'ssupportingdocumentation.
126TencentHoldingsLimitedKeyAuditMatterHowourauditaddressedtheKeyAuditMatterImpairmentassessmentsofgoodwill,investmentsinassociatesandjointventuresRefertoNotes2.
13(a),2.
15,4(b),19,20and21totheconsolidatedfinancialstatementsAsat31December2018,theGroupheldsignificantamountsofgoodwill,investmentsinassociatesandjointventuresamountingtoRMB32,605million,RMB219,215millionandRMB8,575million,respectively.
ImpairmentprovisionofRMB784million,RMB14,069millionandRMB2,328millionhadbeenrecognisedduringtheyearended31December2018againstthecarryingamounts,respectively.
Wefocusedonthisareaduetothemagnitudeofthecarryingamountsoftheseassetsandthefactthatsignificantjudgmentwererequiredbymanagement(i)toidentifywhetheranyimpairmentindicatorsexistedforanyoftheseassetsduringtheyear;(ii)todeterminetheappropriateimpairmentapproaches,i.
e.
fairvaluelesscostsofdisposalorvalueinuse;and(iii)toselectkeyassumptionstobeadoptedinthevaluationmodels,includingdiscountedcashflowsandmarketapproach,fortheimpairmentassessments.
Wetestedmanagement'sassessmentincludingperiodicimpairmentindicationsevaluationastowhetherindicatorsofimpairmentexistbycorroboratingwithmanagementandmarketinformation.
Wealsotested,onasamplebasis,keycontrolsinrespectoftheimpairmentassessments,includingthedeterminationofappropriateimpairmentapproaches,valuationmodelsandassumptionsandthecalculationofimpairmentprovisions,whichwefoundnomaterialexceptions.
Managementadopteddifferentvaluationmodels,onacasebycasebasis,incarryingouttheimpairmentassessments,mainlyincludingdiscountedcashflowsandmarketapproach.
Weassessed,onasamplebasis,thebasismanagementusedtoidentifyseparategroupsofcashgeneratingunitsthatcontaingoodwill,theimpairmentapproachesandthevaluationmodelsusedinmanagement'simpairmentassessments,whichwefoundthemtobeappropriate.
Inrespectoftheimpairmentassessmentsofcashgeneratingunitsthatcontaingoodwill,investmentsinassociatesandinvestmentsinjointventuresusingdiscountedcashflows,weassessedthekeyassumptionsadoptedincludingrevenuegrowthrates,profitmargins,discountratesandotherassumptionsbyexaminingtheapprovedfinancial/businessforecastmodels,andcomparingactualresultsfortheyearagainstthepreviousperiod'sforecastsandtheapplicableindustry/businessdataexternaltotheGroup.
Weassessedcertainofthesekeyassumptionswiththeinvolvementofourinternalvaluationexperts.
Weconsideredthatthekeyassumptionsadoptedbymanagementareinlinewithourexpectationandevidenceobtained.
127KeyAuditMatterHowourauditaddressedtheKeyAuditMatterImpairmentassessmentsofgoodwill,investmentsinassociatesandjointventures(Cont'd)Inrespectoftheimpairmentassessmentsofcashgeneratingunitsthatcontaingoodwill,investmentsinassociatesandinvestmentsinjointventuresusingmarketapproach,weassessedthevaluationassumptionsincludingtheselectionofcomparablecompanies,recentmarkettransactions,andliquiditydiscountforlackofmarketability,etc.
Weassessedthesekeyassumptionsadoptedbymanagementwiththeinvolvementofourinternalvaluationexpertsbasedonourindustryknowledgeandindependentresearchperformedbyus.
Weconsideredthatthekeyassumptionsadoptedbymanagementareinlinewithourexpectationandevidenceobtained.
Weindependentlytested,onasamplebasis,theaccuracyofmathematicalcalculationappliedinthevaluationmodelsandthecalculationofimpairmentcharges.
Wedidnotidentifyanymaterialexceptionsfromourtesting.
128TencentHoldingsLimitedKeyAuditMatterHowourauditaddressedtheKeyAuditMatterFairvaluemeasurementoffinancialinstruments,includingfinancialassetsatfairvaluethroughprofitorloss,financialassetsatfairvaluethroughothercomprehensiveincomeandotherfinancialliabilitiesRefertoNotes3.
3,4(c),23,24,37totheconsolidatedfinancialstatementsAsat31December2018,theGroup'sfinancialassetsandfinancialliabilitieswhichwerecarriedatfairvaluecomprisedfinancialassetsatfairvaluethroughprofitorloss,financialassetsatfairvaluethroughothercomprehensiveincomeandotherfinancialliabilitiesofapproximatelyRMB97,877million,RMB43,519millionandRMB4,506million,respectively,ofwhichapproximatelyRMB83,934millionofthesefinancialassetsandapproximatelyRMB4,466millionofthesefinancialliabilitiesweremeasuredbasedonsignificantunobservableinputsandclassifiedas"Level3financialinstruments".
WefocusedonthisareaduetothehighdegreeofjudgmentrequiredindeterminingtherespectivefairvaluesofLevel3financialinstruments,whichdonothavedirectopenmarketquotedvalues,withrespecttotheadoptionofapplicablevaluationmethodologyandtheapplicationofappropriateassumptionsinthevaluation.
InrespectofthefairvaluemeasurementofLevel3financialinstruments,wetestedthekeycontrols,onasamplebasis,inrelationtothevaluationprocessincludingtheadoptionofapplicablevaluationmethodologyandtheapplicationofappropriateassumptionsindifferentcircumstances,byinspectionoftheevidenceofmanagement'sreview,whichwefoundnomaterialexceptions.
Weinvolvedourinternalvaluationexpertstodiscusswithmanagementandassesstheappropriatenessofvaluationmethodologyandassumptionsused.
Wetested,onasamplebasis,valuationofLevel3financialinstrumentsasat31December2018byevaluatingtheunderlyingassumptionsandinputsincludingrisk-freerates,expectedvolatility,relevantunderlyingfinancialprojections,andmarketinformationofrecenttransactions(suchasrecentfundraisingtransactionsundertakenbytheinvestees)aswellasunderlyingsupportingdocumentation.
Wealsotested,onasamplebasis,thearithmeticalaccuracyofthevaluationcomputation.
WefoundthatthevaluationmethodologyofLevel3financialinstrumentsisacceptableandtheassumptionsmadebymanagementaresupportedbyavailableevidence.
129OTHERINFORMATIONThedirectorsoftheCompanyareresponsiblefortheotherinformation.
Theotherinformationcomprisesalloftheinformationincludedintheannualreportotherthantheconsolidatedfinancialstatementsandourauditor'sreportthereon.
Ouropinionontheconsolidatedfinancialstatementsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusionthereon.
Inconnectionwithourauditoftheconsolidatedfinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeconsolidatedfinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.
If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.
Wehavenothingtoreportinthisregard.
RESPONSIBILITIESOFDIRECTORSANDTHOSECHARGEDWITHGOVERNANCEFORTHECONSOLIDATEDFINANCIALSTATEMENTSThedirectorsoftheCompanyareresponsibleforthepreparationoftheconsolidatedfinancialstatementsthatgiveatrueandfairviewinaccordancewithIFRSsandthedisclosurerequirementsoftheHongKongCompaniesOrdinance,andforsuchinternalcontrolasthedirectorsdetermineisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Inpreparingtheconsolidatedfinancialstatements,thedirectorsareresponsibleforassessingtheGroup'sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessthedirectorseitherintendtoliquidatetheGrouportoceaseoperations,orhavenorealisticalternativebuttodoso.
ThosechargedwithgovernanceareresponsibleforoverseeingtheGroup'sfinancialreportingprocess.
AUDITOR'SRESPONSIBILITIESFORTHEAUDITOFTHECONSOLIDATEDFINANCIALSTATEMENTSOurobjectivesaretoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor'sreportthatincludesouropinion.
Wereportouropinionsolelytoyou,asabody,andfornootherpurpose.
Wedonotassumeresponsibilitytowardsoracceptliabilitytoanyotherpersonforthecontentsofthisreport.
Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAswillalwaysdetectamaterialmisstatementwhenitexists.
Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedfinancialstatements.
130TencentHoldingsLimitedAspartofanauditinaccordancewithISAs,weexerciseprofessionaljudgmentandmaintainprofessionalscepticismthroughouttheaudit.
Wealso:Identifyandassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.
Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.
Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheGroup'sinternalcontrol.
Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebythedirectors.
Concludeontheappropriatenessofthedirectors'useofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheGroup'sabilitytocontinueasagoingconcern.
Ifweconcludethatamaterialuncertaintyexists,wearerequiredtodrawattentioninourauditor'sreporttotherelateddisclosuresintheconsolidatedfinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.
Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditor'sreport.
However,futureeventsorconditionsmaycausetheGrouptoceasetocontinueasagoingconcern.
Evaluatetheoverallpresentation,structureandcontentoftheconsolidatedfinancialstatements,includingthedisclosures,andwhethertheconsolidatedfinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.
ObtainsufficientappropriateauditevidenceregardingthefinancialinformationoftheentitiesorbusinessactivitieswithintheGrouptoexpressanopinionontheconsolidatedfinancialstatements.
Weareresponsibleforthedirection,supervisionandperformanceofthegroupaudit.
Weremainsolelyresponsibleforourauditopinion.
Wecommunicatewiththosechargedwithgovernanceregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.
131Wealsoprovidethosechargedwithgovernancewithastatementthatwehavecompliedwithrelevantethicalrequirementsregardingindependence,andtocommunicatewiththemallrelationshipsandothermattersthatmayreasonablybethoughttobearonourindependence,andwhereapplicable,relatedsafeguards.
Fromthematterscommunicatedwiththosechargedwithgovernance,wedeterminethosemattersthatwereofmostsignificanceintheauditoftheconsolidatedfinancialstatementsofthecurrentperiodandarethereforethekeyauditmatters.
Wedescribethesemattersinourauditor'sreportunlesslaworregulationprecludespublicdisclosureaboutthematterorwhen,inextremelyrarecircumstances,wedeterminethatamattershouldnotbecommunicatedinourreportbecausetheadverseconsequencesofdoingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.
Theengagementpartnerontheauditresultinginthisindependentauditor'sreportisTongYuKeung.
PricewaterhouseCoopersCertifiedPublicAccountantsHongKong,21March2019132TencentHoldingsLimitedYearended31December20182017NoteRMB'MillionRMB'MillionRevenuesValue-addedservices176,646153,983Onlineadvertising58,07940,439Others77,96943,3385312,694237,760Costofrevenues8(170,574)(120,835)Grossprofit142,120116,925Interestincome64,5693,940Othergains,net716,71420,140Sellingandmarketingexpenses8(24,233)(17,652)Generalandadministrativeexpenses8(41,522)(33,051)Operatingprofit97,64890,302Financecosts,net9(4,669)(2,908)Shareofprofitofassociatesandjointventures101,487821Profitbeforeincometax94,46688,215Incometaxexpense11(14,482)(15,744)Profitfortheyear79,98472,471Attributableto:EquityholdersoftheCompany78,71971,510Non-controllinginterests1,26596179,98472,471EarningspershareforprofitattributabletoequityholdersoftheCompany(inRMBpershare)–basic12(a)8.
3367.
598–diluted12(b)8.
2287.
499Thenotesonpages143to264areanintegralpartoftheseconsolidatedfinancialstatements.
133Yearended31December20182017RMB'MillionRMB'MillionProfitfortheyear79,98472,471Othercomprehensiveincome,netoftax:ItemsthatmaybesubsequentlyreclassifiedtoprofitorlossShareofothercomprehensiveincomeofassociatesandjointventures23907Netgainsfromchangesinfairvalueofavailable-for-salefinancialassets–16,854Transfertoprofitorlossupondisposalofavailable-for-salefinancialassets–(2,561)Currencytranslationdifferences4,133(9,316)Otherfairvaluegains181756ItemsthatwillnotbesubsequentlyreclassifiedtoprofitorlossNetlossesfromchangesinfairvalueoffinancialassetsatfairvaluethroughothercomprehensiveincome(16,391)–Otherfairvaluelosses(170)(50)(12,224)6,590Totalcomprehensiveincomefortheyear67,76079,061Attributableto:EquityholdersoftheCompany66,33978,218Non-controllinginterests1,42184367,76079,061Thenotesonpages143to264areanintegralpartoftheseconsolidatedfinancialstatements.
134TencentHoldingsLimitedAsat31December20182017NoteRMB'MillionRMB'MillionASSETSNon-currentassetsProperty,plantandequipment1635,09123,597Constructioninprogress174,8793,163Investmentproperties725800Landuserights187,1065,111Intangibleassets1956,65040,266Investmentsinassociates20219,215113,779Investmentsinredeemableinstrumentsofassociates2.
2(a)–22,976Investmentsinjointventures218,5757,826Financialassetsatfairvaluethroughprofitorloss2.
2(a),2391,702–Financialassetsatfairvaluethroughothercomprehensiveincome2.
2(a),2443,519–Available-for-salefinancialassets2.
2(a)–127,218Prepayments,depositsandotherassets2521,53111,173Otherfinancialassets2.
2(a),261,6935,159Deferredincometaxassets2715,7559,793Termdeposits28–5,365506,441376,226CurrentassetsInventories324295Accountsreceivable2928,42716,549Prepayments,depositsandotherassets2518,49317,110Otherfinancialassets2.
2(a),26339465Financialassetsatfairvaluethroughprofitorloss2.
2(a),236,175–Termdeposits2862,91836,724Restrictedcash302,5901,606Cashandcashequivalents3097,814105,697217,080178,446Totalassets723,521554,672135Asat31December20182017NoteRMB'MillionRMB'MillionEQUITYEquityattributabletoequityholdersoftheCompanySharecapital31––Sharepremium3127,29422,204Sharesheldforshareawardschemes31(4,173)(3,970)Otherreserves2.
2(a),3272935,158Retainedearnings2.
2(a)299,660202,682323,510256,074Non-controllinginterests32,69721,019Totalequity356,207277,093LIABILITIESNon-currentliabilitiesBorrowings3487,43782,094Notespayable3551,29829,363Long-termpayables364,7973,862Otherfinancialliabilities373,3062,154Deferredincometaxliabilities2710,9645,975Deferredrevenue5(c)(i)7,0772,391164,879125,839136TencentHoldingsLimitedAsat31December20182017NoteRMB'MillionRMB'MillionCurrentliabilitiesAccountspayable3873,73550,085Otherpayablesandaccruals3933,31229,433Borrowings3426,83415,696Notespayable3513,7204,752Currentincometaxliabilities10,2108,708Otherfinancialliabilities371,200–Othertaxliabilities1,049934Deferredrevenue5(c)(i)42,37542,132202,435151,740Totalliabilities367,314277,579Totalequityandliabilities723,521554,672Thenotesonpages143to264areanintegralpartoftheseconsolidatedfinancialstatements.
Theconsolidatedfinancialstatementsonpages132to264wereapprovedbytheBoardofDirectorson21March2019andweresignedonitsbehalf:MaHuatengLauChiPingMartinDirectorDirector137AttributabletoequityholdersoftheCompanySharecapitalSharepremiumSharesheldforshareawardschemesOtherreservesRetainedearningsTotalNon-controllinginterestsTotalequityRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionBalanceat31December2017,aspreviouslyreported–22,204(3,970)35,158202,682256,07421,019277,093AdjustmentonadoptionofIFRS9(Note2.
2(a)16,210)16,210–––Balanceat1January2018–22,204(3,970)18,948218,892256,07421,019277,093ComprehensiveincomeProfitfortheyear––––78,71978,7191,26579,984Othercomprehensiveincome,netoftax:–shareofothercomprehensiveincomeofassociatesandjointventures–––23–23–23–netlossesfromchangesinfairvalueoffinancialassetsatfairvaluethroughothercomprehensiveincome–––(16,095)–(16,095)(296)(16,391)–currencytranslationdifferences–––3,681–3,6814524,133–otherfairvaluegains,net–––11–11–11Totalcomprehensiveincomefortheyear–––(12,380)78,71966,3391,42167,760Transferofgainsondisposaloffinancialassetsatfairvaluethroughothercomprehensiveincometoretainedearnings–––(9,561)9,561–––Shareofotherchangesinnetassetsofassociates–––2,861–2,861–2,861138TencentHoldingsLimitedAttributabletoequityholdersoftheCompanySharecapitalSharepremiumSharesheldforshareawardschemesOtherreservesRetainedearningsTotalNon-controllinginterestsTotalequityRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionTransactionswithequityholdersCapitalinjection140140Employeeshareoptionschemes:–valueofemployeeservices–1,983–63–2,046572,103–proceedsfromsharesissued–525–––525–525Employeeshareawardschemes:–valueofemployeeservices–5,022–466–5,4882775,765–shareswithheldforshareawardschemes––(2,187)––(2,187)–(2,187)–vestingofawardedshares–(1,984)1,984Repurchaseandcancellationofshares–(783)783)–(783)Taxbenefitfromshare-basedpaymentsofasubsidiary–––148–148–148Profitappropriationstostatutoryreserves–––517(517)–––Dividends(Note15)6,995)(6,995)(618)(7,613)Non-controllinginterestsarisingfrombusinesscombinations1,0031,003Acquisitionofadditionalequityinterestsinnon-whollyownedsubsidiaries–327–(877)–(550)1,6641,114Partialdisposalofsubsidiaries31)(31)Dilutionofinterestsinsubsidiaries–––2,836–2,8365,8798,715Transferofequityinterestsofsubsidiariestonon-controllinginterests–––(1,886)–(1,886)1,886–Recognitionoffinancialliabilitiesinrespectoftheputoptionfrombusinesscombination–––(406)–(406)–(406)Totaltransactionswithequityholdersattheircapacityasequityholdersfortheyear–5,090(203)861(7,512)(1,764)10,2578,493Balanceat31December2018–27,294(4,173)729299,660323,51032,697356,207139AttributabletoequityholdersoftheCompanySharecapitalSharepremiumSharesheldforshareawardschemesOtherreservesRetainedearningsTotalNon-controllinginterestsTotalequityRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionBalanceat1January2017–17,324(3,136)23,693136,743174,62411,623186,247ComprehensiveincomeProfitfortheyear––––71,51071,51096172,471Othercomprehensiveincome,netoftax:–shareofothercomprehensiveincomeofassociatesandjointventures–––907–907–907–netgainsfromchangesinfairvalueofavailable-for-salefinancialassets–––16,854–16,854–16,854–transfertoprofitorlossupondisposalofavailable-for-salefinancialassets–––(2,561)–(2,561)–(2,561)–currencytranslationdifferences–––(9,198)–(9,198)(118)(9,316)–otherfairvaluegains,net–––706–706–706Totalcomprehensiveincomefortheyear–––6,70871,51078,21884379,061TransactionswithequityholdersCapitalinjection6060Employeeshareoptionschemes:–valueofemployeeservices–1,125–156–1,281981,379–proceedsfromsharesissued–171–––171–171Employeeshareawardschemes:–valueofemployeeservices–4,254–407–4,6611064,767–shareswithheldforshareawardschemes––(2,232)––(2,232)–(2,232)–vestingofawardedshares–(1,398)1,398Taxbenefitfromshare-basedpaymentsofasubsidiary–––244–244–244Profitappropriationstostatutoryreserves–––519(519)–––Dividends(Note15)5,052)(5,052)(943)(5,995)Acquisitionofadditionalequityinterestsinnon-whollyownedsubsidiaries–728–(952)–(224)(69)(293)Disposalofsubsidiaries133)(133)Dilutionofinterestsinsubsidiaries–––6,378–6,3787,36313,741Transferofequityinterestsofsubsidiariestonon-controllinginterests–––(2,045)–(2,045)2,045–Lapseofputoptiongrantedtonon-controllinginterests–––50–502676Totaltransactionswithequityholdersattheircapacityasequityholdersfortheyear–4,880(834)4,757(5,571)3,2328,55311,785Balanceat31December2017–22,204(3,970)35,158202,682256,07421,019277,093Thenotesonpages143to264areanintegralpartoftheseconsolidatedfinancialstatements.
140TencentHoldingsLimitedYearended31December20182017NoteRMB'MillionRMB'MillionCashflowsfromoperatingactivitiesCashgeneratedfromoperations41(a)120,964120,002Incometaxpaid(14,521)(13,862)Netcashflowsgeneratedfromoperatingactivities106,443106,140CashflowsfrominvestingactivitiesPaymentsforbusinesscombinations,netofcashacquired(3,206)(21)Netoutflowofcashinrespectofdisposalsanddeemeddisposalsofsubsidiaries(201)(3)Purchaseofproperty,plantandequipment,constructioninprogressandinvestmentproperties(19,743)(12,108)Proceedsfromdisposalsofproperty,plantandequipment3328Purchaseof/prepaymentforintangibleassets(31,877)(19,850)Purchaseof/prepaymentforlanduserights(2,441)(46)Paymentsforacquisitionofinvestmentsinassociates(37,776)(17,528)Proceedsfromdisposalsofinvestmentsinassociates429608Paymentsforacquisitionofinvestmentsinredeemableinstrumentsofassociates–(16,384)Proceedsfromdisposalsofinvestmentsinredeemableinstrumentsofassociates–507Paymentsforacquisitionofinvestmentsinjointventures(2,352)(7,091)Proceedsfromdisposalsofinvestmentsinjointventures–9Paymentsforacquisitionoffinancialassetsatfairvaluethroughothercomprehensiveincome(17,669)–Proceedsfromdisposalsoffinancialassetsatfairvaluethroughothercomprehensiveincome22,224–Paymentsforacquisitionoffinancialassetsatfairvaluethroughprofitorloss(54,141)–Proceedsfromdisposalsoffinancialassetsatfairvaluethroughprofitorloss11,254–Paymentsforavailable-for-salefinancialassetsandrelatedderivativefinancialinstruments–(47,716)Proceedsfromdisposalsofavailable-for-salefinancialassets–4,705141Yearended31December20182017RMB'MillionRMB'MillionPaymentsforloanstoinvesteesandothers(2,523)(2,219)Loansrepaymentsfrominvesteesandothers7451,533Paymentsforotherfinancialassets–(995)Proceedsfromsettlementofotherfinancialassets–995Receiptfrommaturityoftermdepositswithinitialtermsofoverthreemonths46,22786,166Placementoftermdepositswithinitialtermsofoverthreemonths(67,055)(72,520)Interestreceived4,4353,529Dividendsreceived1,7242,009Netcashflowsusedininvestingactivities(151,913)(96,392)CashflowsfromfinancingactivitiesProceedsfromshort-termborrowings26,46316,676Repaymentsofshort-termborrowings(23,545)(12,450)Proceedsfromlong-termborrowings7,23733,517Repaymentsoflong-termborrowings(194)(5,281)Netproceedsfromissuanceofnotespayable32,547–Repaymentsofnotespayable(4,666)(3,450)Proceedsfromissuanceofordinaryshares525171Shareswithheldforshareawardschemes(1,967)(2,232)Paymentsforrepurchaseofshares(783)–Proceedsfromissuanceofadditionalequityofnon-whollyownedsubsidiaries7,2386,466Proceedsfromdisposalsofnon-controllinginterestsinnon-whollyownedsubsidiaries157106Paymentsforacquisitionofnon-controllinginterestsinnon-whollyownedsubsidiaries(236)(927)DividendspaidtotheCompany'sshareholders(6,776)(5,052)Dividendspaidtonon-controllinginterests(620)(946)Netcashflowsgeneratedfromfinancingactivities35,38026,598142TencentHoldingsLimitedYearended31December20182017RMB'MillionRMB'MillionNet(decrease)/increaseincashandcashequivalents(10,090)36,346Cashandcashequivalentsatbeginningoftheyear105,69771,902Exchangegains/(losses)oncashandcashequivalents2,207(2,551)Cashandcashequivalentsatendoftheyear97,814105,697Thenotesonpages143to264areanintegralpartoftheseconsolidatedfinancialstatements.
1431GENERALINFORMATIONTencentHoldingsLimited(the"Company")wasincorporatedintheCaymanIslandswithlimitedliability.
TheaddressofitsregisteredofficeisCricketSquare,HutchinsDrive,P.
O.
Box2681,GrandCaymanKY1-1111,CaymanIslands.
ThesharesoftheCompanyhavebeenlistedontheMainBoardoftheStockExchangeofHongKongLimited(the"StockExchange")since16June2004.
TheCompanyisaninvestmentholdingcompany.
TheCompanyanditssubsidiaries(collectively,the"Group")areprincipallyengagedintheprovisionofvalue-addedservices("VAS")andonlineadvertisingservicestousersinthePeople'sRepublicofChina(the"PRC").
TheoperationsoftheGroupwereinitiallyconductedthroughShenzhenTencentComputerSystemsCompanyLimited("TencentComputer"),alimitedliabilitycompanyestablishedinthePRCbycertainshareholdersoftheCompanyon11November1998.
TencentComputerislegallyownedbythecorefoundersoftheCompanywhoarePRCcitizens(the"RegisteredShareholders").
ThePRCregulationsrestrictforeignownershipofcompaniesthatprovidevalue-addedtelecommunicationsservices,whichincludeactivitiesandservicesoperatedbyTencentComputer.
InordertoenablecertainforeigncompaniestomakeinvestmentsintothebusinessoftheGroup,theCompanyestablishedasubsidiary,TencentTechnology(Shenzhen)CompanyLimited("TencentTechnology"),whichisawhollyforeignownedenterpriseincorporatedinthePRC,on24February2000.
TheforeigninvestorsoftheCompanythensubscribedtoadditionalequityinterestsintheCompany.
Underaseriesofcontractualarrangements(collectively,"StructureContracts")enteredintoamongtheCompany,TencentTechnology,TencentComputerandtheRegisteredShareholders,theCompanyisabletoeffectivelycontrol,recogniseandreceivesubstantiallyalltheeconomicbenefitofthebusinessandoperationsofTencentComputer.
Insummary,theStructureContractsprovidetheCompanythroughTencentTechnologywith,amongotherthings:therighttoreceivethecashreceivedbyTencentComputerfromitsoperationswhichissurplustoitsrequirements,havingregardtoitsforecastworkingcapitalneeds,capitalexpenditure,andothershort-termanticipatedexpenditurethroughvariouscommercialarrangements;therighttoensurethatTencentTechnologyownsthevaluableassetsofthebusinessthroughtheassignmenttoTencentTechnologyoftheprincipalpresentandfutureintellectualpropertyrightsofTencentComputer;andtherighttocontrolthemanagement,financialandoperatingpoliciesofTencentComputer.
144TencentHoldingsLimited1GENERALINFORMATION(Cont'd)Asaresult,TencentComputerisaccountedforasacontrolledstructuredentity(seealsoNote2.
3(a)andNote46)andtheformationoftheGroupin2000wasaccountedforasabusinesscombinationbetweenentitiesundercommoncontrolunderamethodsimilartotheunitingofinterestsmethodforrecordingallassetsandliabilitiesatpredecessorcarryingamounts.
Thisapproachwasadoptedbecauseinmanagement'sbeliefitbestreflectedthesubstanceoftheformation.
SimilarStructureContractswerealsoexecutedforotherPRCoperatingcompaniesestablishedbytheGroupsimilartoTencentComputersubsequentto2000.
AllthesePRCoperatingcompaniesaretreatedascontrolledstructuredentitiesoftheCompanyandtheirfinancialstatementshavealsobeenconsolidatedbytheCompany.
SeedetailsinNote46.
2SUMMARYOFPRINCIPALACCOUNTINGPOLICIESTheprincipalaccountingpoliciesappliedinthepreparationoftheseconsolidatedfinancialstatementsaresetoutbelow.
Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.
2.
1BasisofpreparationTheconsolidatedfinancialstatementsoftheGrouphavebeenpreparedinaccordancewithallapplicableInternationalFinancialReportingStandards("IFRSs").
Theconsolidatedfinancialstatementshavebeenpreparedunderthehistoricalcostconvention,asmodifiedbytherevaluationoffinancialassetsatfairvaluethroughprofitorloss,financialassetsatfairvaluethroughothercomprehensiveincome,otherfinancialliabilitiesandderivativefinancialinstruments,whicharecarriedatfairvalue.
ThepreparationoffinancialstatementsinconformitywithIFRSsrequirestheuseofcertaincriticalaccountingestimates.
ItalsorequiresmanagementtoexerciseitsjudgmentintheprocessofapplyingtheGroup'saccountingpolicies.
Theareasinvolvingahigherdegreeofjudgmentorcomplexity,orareaswhereassumptionsandestimatesaresignificanttotheconsolidatedfinancialstatementsaredisclosedinNote4.
1452SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
1Basisofpreparation(Cont'd)(a)NewandamendedstandardsadoptedbytheGroupThefollowingstandardsandamendmentshavebeenadoptedbytheGroupforthefirsttimeforthefinancialyearbeginningon1January2018:IFRS9FinancialinstrumentsIFRS15RevenuefromcontractswithcustomersIFRS2(amendment)Classificationandmeasurementofshare-basedpaymenttransactionsIAS40(amendment)TransfersofinvestmentpropertyIFRIC22ForeigncurrencytransactionsandadvanceconsiderationTheGrouphaschangeditsaccountingpoliciesfollowingtheadoptionofIFRS9andIFRS15.
ExceptIFRS9,theadoptionofthesenewandamendedstandardsdoesnothavesignificantimpactontheconsolidatedfinancialstatementsoftheGroup,detailsofwhicharedisclosedinNote2.
2.
(b)NewstandardsandinterpretationsissuedbutnotyeteffectiveAnumberofnewstandardsandinterpretationshavenotcomeintoeffectforthefinancialyearbeginning1January2018,andhavenotbeenearlyadoptedbytheGroupinpreparingtheconsolidatedfinancialstatements.
NoneoftheseisexpectedtohaveasignificanteffectontheconsolidatedfinancialstatementsoftheGroup,exceptIFRS16"Lease"assetoutbelow:NatureofchangeIFRS16wasissuedinJanuary2016.
Itwillresultinalmostallleasesbeingrecognisedonthestatementoffinancialpositionbylessees,asthedistinctionbetweenoperatingandfinanceleasesisremoved.
Underthenewstandard,anasset(therighttousetheleaseditem)andafinancialliabilitytopayrentalsarerecognised.
Theonlyexceptionsareshort-termandlow-valueleases.
ImpactTheGrouphassetupaprojectteamwhichhasreviewedalloftheGroup'sleasingarrangementseffectiveasoftheyearofended31December2018inlightofthenewleaseaccountingrulesinIFRS16.
ThestandardwillaffectprimarilytheaccountingfortheGroup'soperatingleases.
Asatthereportingdate,theGrouphasnon-cancellableoperatingleasecommitmentsofRMB12,294million,seeNote42.
Ofthesecommitments,approximatelyRMB189millionrelatetoshort-termleaseswhichwillberecognisedonastraight-linebasisasexpenseinprofitorloss.
146TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
1Basisofpreparation(Cont'd)(b)Newstandardsandinterpretationsissuedbutnotyeteffective(Cont'd)Fortheremainingleasecommitments,basedonmanagement'spreliminaryassessment,theGroupexpectstorecogniseright-of-useassetsofapproximatelyRMB10billionandleaseliabilitiesofapproximatelyRMB10billionon1January2019.
TheGroupexpectsthatnetprofitwillnotbemateriallychangedasaresultofadoptingthenewrules.
Itwillresultinreclassificationofoperatingcashflowsandfinancingcashflowsrelatingtothepaymentsofleaseliabilities.
TheGroup'sactivitiesasalessorarenotmaterialandhencetheGroupdoesnotexpectanysignificantimpactontheconsolidatedfinancialstatements.
However,someadditionaldisclosureswillberequiredfromthefinancialyearbeginningon1January2019.
DateofadoptionbyGroupTheGroupwillapplythestandardfromitsmandatoryadoptiondateof1January2019.
TheGroupintendstoapplythesimplifiedtransitionapproachandwillnotrestatecomparativeamountsfortheyearpriortofirstadoption.
Allright-of-useassetswillbemeasuredattheamountoftheleaseliabilitiesonadoption(adjustedforanyprepaidoraccruedleaseexpenses).
2.
2ChangesinaccountingpoliciesThisnoteexplainstheimpactoftheadoptionofIFRS9"FinancialInstruments"andIFRS15"RevenuefromContractswithCustomers"ontheGroup'sconsolidatedfinancialstatements.
(a)IFRS9FinancialInstrumentsIFRS9replacestheprovisionsofIAS39thatrelatetotherecognition,classificationandmeasurementoffinancialassetsandfinancialliabilities,derecognitionoffinancialinstruments,impairmentoffinancialassetsandhedgeaccounting.
TheGroup'sadoptionofIFRS9from1January2018resultedinchangesinaccountingpoliciesandadjustmentstotheamountsrecognisedintheconsolidatedfinancialstatements.
ThenewaccountingpoliciesaresetoutinNote2.
16and2.
17below.
InaccordancewiththetransitionalprovisionsinIFRS9,comparativefigureshavenotbeenrestated.
Asaresult,anyadjustmentstocarryingamountsoffinancialassetsorfinancialliabilitieswererecognisedatthebeginningofthecurrentyear,withthedifferencerecognisedinopeningretainedearnings.
1472SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
2Changesinaccountingpolicies(Cont'd)(a)IFRS9FinancialInstruments(Cont'd)ClassificationandmeasurementManagementhasassessedthebusinessmodelandthetermsrelatingtothecollectionofcontractualcashflowsapplicabletothefinancialassetsheldbytheGroupatthedateofinitialapplicationofIFRS9(1January2018)andhasclassifieditsfinancialinstrumentsintotheappropriateIFRS9categories,whicharethosetobemeasuredsubsequentlyatfairvalue(eitherthroughothercomprehensiveincomeorthroughprofitorloss),andthosetobemeasuredatamortisedcost.
Themaineffectsresultingfromthisreclassificationareasfollows:At1January2018AFSRCPSOFAFVPLFVOCITotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionOpeningbalance–IAS39127,21822,9765,624––155,818Reclassificationofavailable-for-salefinancialassets("AFS")tofinancialassetsatfairvaluethroughprofitorloss("FVPL")(68,703)––68,703––ReclassificationofAFStofinancialassetsatfairvaluethroughothercomprehensiveincome("FVOCI")(58,515)–––58,515–Reclassificationofinvestmentsinredeemableinstrumentsofassociates("RCPS")toFVPL–(22,976)–22,976––Reclassificationofotherfinancialassets("OFA")toFVPL––(3,818)3,818––Openingbalance–IFRS9––1,80695,49758,515155,818148TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
2Changesinaccountingpolicies(Cont'd)(a)IFRS9FinancialInstruments(Cont'd)Classificationandmeasurement(Cont'd)ThemaineffectsresultingfromthisreclassificationontheGroup'sequityareasfollows:At1January2018EffectonAFSreservesEffectonFVOCIreservesEffectonretainedearningsRMB'MillionRMB'MillionRMB'MillionOpeningbalance–IAS3931,152–202,682ReclassificationofAFStoFVPL(16,210)–16,210ReclassificationofAFStoFVOCI(14,942)14,942–Totalimpact(31,152)14,94216,210Openingbalance–IFRS9–14,942218,892CertainequityinvestmentsanddebtinstrumentspreviouslyclassifiedasAFSatanaggregatedamountofRMB68,703millionwerereclassifiedfromAFStoFVPLon1January2018,andaccumulatedfairvaluegainsofRMB16,210millionweretransferredfromtheAFSreservestoretainedearningson1January2018.
CertainequityinvestmentsofRMB58,515millionwerereclassifiedfromAFStoFVOCIon1January2018,becausetheseinvestmentsarenotheldfortradingandmeetthedefinitionofequityinstrumentsfromtheperspectiveoftheissuer.
TheGroupelectedtoclassifythemasFVOCI.
Asaresult,accumulatedfairvaluegainsofRMB14,942millionweretransferredfromtheAFSreservestoFVOCIreserveson1January2018.
InvestmentsinRCPSofRMB22,976millionwithembeddedderivativesofRMB3,818millionpreviouslyrecordedinOFAwereconsideredintheirentiretyasasingleinstrumentandwerereclassifiedtoFVPLasat1January2018.
TheydonotmeetthedefinitionofequityinstrumentsfromtheperspectiveoftheissuerandtheyarenoteligibletobeclassifiedasatamortisedcostinaccordancewithIFRS9,becausetheircashflowsdonotrepresentsolelypaymentsofprincipalandinterest.
TherewasnoimpactontheamountspreviouslyrecognisedinprofitorlossinrelationtotheseassetsfromtheadoptionofIFRS9.
1492SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
2Changesinaccountingpolicies(Cont'd)(a)IFRS9FinancialInstruments(Cont'd)Classificationandmeasurement(Cont'd)TherewasnoimpactontheGroup'saccountingforfinancialliabilities,asthenewrequirementsonlyaffecttheaccountingforfinancialliabilitiesthataredesignatedatfairvaluethroughprofitorloss,whiletheGroupdidnothaveanysuchliabilities.
DerivativeandhedgingactivitiesInprioryears,theGroupenteredintocertaininterestrateswapcontractstohedgeitsexposurearisingfromitsborrowingscarriedatfloatingrates,whichwerequalifiedashedgeaccounting.
Theinterestrateswapsinplaceasat31December2017qualifiedascashflowhedgesunderIFRS9andhavebeenthustreatedascontinuinghedgesupontheadoptionofthestandard.
ImpairmentoffinancialassetsTheGrouphasthefollowingtypesoffinancialassetssubjecttothenewexpectedcreditlossmodelunderIFRS9:Accountsreceivable;andDepositsandotherreceivables.
Foraccountsreceivable,theGroupappliesthesimplifiedapproachforexpectedcreditlossesprescribedbyIFRS9.
Basedontheassessmentsperformedbymanagement,thechangesinthelossallowanceforaccountsreceivablewerenotsignificant.
Impairmentondepositsandotherreceivablesismeasuredaseither12-monthexpectedcreditlossesorlifetimeexpectedcreditloss,dependingonwhethertherehasbeenasignificantincreaseincreditrisksincetheinitialrecognition.
Basedontheassessmentsperformedbymanagement,thechangesinthelossallowancefordepositsandotherreceivableswereinsignificant.
(b)IFRS15RevenuefromContractswithCustomersTheGrouphasadoptedIFRS15from1January2018whichresultedinchangesinaccountingpoliciesandadjustmentstotheamountsrecognisedintheconsolidatedfinancialstatements.
IFRS15establishesacomprehensiveframeworkfordeterminingwhentorecogniserevenueandhowmuchrevenuetorecognisethroughafive-stepapproach,providesspecificguidanceoncontractcostsandlicensearrangements,andalsoincludesacohesivesetofdisclosurerequirementsaboutrevenueandcashflowsarisingfromthecontractswithcustomersofwhichdetailsaredisclosedinNote5.
InaccordancewiththetransitionprovisionsinIFRS15,theGrouphasadoptedthenewrulesretrospectively,andsincetheimpactisnotmaterialtotheconsolidatedfinancialstatementsoftheGroup,comparativefigureshavenotbeenrestated.
150TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
3Subsidiaries(a)ConsolidationSubsidiariesareallentities(includingstructuredentities)overwhichtheGrouphascontrol.
TheGroupcontrolsanentitywhentheGroupisexposedto,orhasrightsto,variablereturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.
SubsidiariesareconsolidatedfromthedateonwhichcontrolistransferredtotheGroup.
Theyaredeconsolidatedfromthedatethatcontrolceases.
Intra-grouptransactions,balancesandunrealisedgainsontransactionsbetweengroupcompaniesareeliminated.
Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentofthetransferredasset.
Whennecessary,amountsreportedbysubsidiarieshavebeenadjustedtoconformwiththeGroup'saccountingpolicies.
(i)BusinesscombinationsTheGroupappliestheacquisitionmethodtoaccountforbusinesscombinations.
Theconsiderationtransferredfortheacquisitionofasubsidiaryisthefairvaluesoftheassetstransferred,theliabilitiesincurredtotheformerownersoftheacquireeandtheequityinterestsissuedbytheGroup.
Theconsiderationtransferredalsoincludesthefairvalueofanyassetorliabilityresultingfromacontingentconsiderationarrangement.
Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate.
TheGrouprecognisesanynon-controllinginterestintheacquireeonanacquisition-by-acquisitionbasis.
Non-controllinginterestsintheacquireethatarepresentownershipinterestsandentitletheirholderstoaproportionateshareoftheentity'snetassetsintheeventofliquidationaremeasuredateitherfairvalueorthepresentownershipinterests'proportionateshareintherecognisedamountsoftheacquiree'sidentifiablenetassets.
Acquisition-relatedcostsareexpensedasincurred.
Ifthebusinesscombinationisachievedinstages,theacquisitiondatecarryingvalueoftheacquirer'spreviouslyheldequityinterestintheacquireeisre-measuredtofairvalueattheacquisitiondate;anygainsorlossesarisingfromsuchre-measurementarerecognisedinprofitorloss.
1512SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
3Subsidiaries(Cont'd)(a)Consolidation(Cont'd)(i)Businesscombinations(Cont'd)AnycontingentconsiderationtobetransferredbytheGroupisrecognisedatfairvalueattheacquisitiondate.
Subsequentchangestothefairvalueofthecontingentconsiderationthatisdeemedtobeanassetorliabilityisrecognisedinprofitorloss.
Contingentconsiderationthatisclassifiedasequityisnotre-measured,anditssubsequentsettlementisaccountedforwithinequity.
Theexcessoftheconsiderationtransferred,theamountofanynon-controllinginterestintheacquireeandtheacquisition-datefairvalueofanypreviousequityinterestintheacquireeoverthefairvalueoftheidentifiablenetassetsacquiredisrecordedasgoodwill.
Ifthetotalofconsiderationtransferred,non-controllinginterestrecognisedandpreviouslyheldinterestmeasuredislessthanthefairvalueofthenetassetsofthesubsidiaryacquiredinthecaseofabargainpurchase,thedifferenceisrecogniseddirectlyintheconsolidatedincomestatement.
(ii)ChangesinownershipinterestsinsubsidiarieswithoutchangeofcontrolTransactionswithnon-controllingintereststhatdonotresultinalossofcontrolareaccountedforasequitytransactions–thatis,astransactionswiththeownersofthesubsidiaryintheircapacityasowners.
Thedifferencebetweenfairvalueofanyconsiderationpaidandtherelevantshareacquiredofthecarryingamountofnetassetsofthesubsidiaryisrecordedinequity.
Gainsorlossesondisposalstonon-controllinginterestsarealsorecordedinequity.
(iii)DisposalofsubsidiariesWhentheGroupceasestohavecontrol,anyretainedinterestintheentityisre-measuredtoitsfairvalueatthedatewhencontrolislost,withthechangeincarryingamountrecognisedintheconsolidatedincomestatement.
Thefairvalueistheinitialcarryingamountforthepurposesofsubsequentlyaccountingfortheretainedinterestasanassociate,ajointventureorfinancialasset.
Inaddition,anyamountspreviouslyrecognisedinothercomprehensiveincomeinrespectofthatentityareaccountedforasiftheGrouphaddirectlydisposedoftherelatedassetsorliabilities.
Itmeansthatamountspreviouslyrecognisedinothercomprehensiveincomearereclassifiedtotheconsolidatedincomestatementortransferredtoanothercategoryofequityasspecified/permittedbyapplicableIFRSs.
152TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
3Subsidiaries(Cont'd)(b)SeparatefinancialstatementsInvestmentsinsubsidiariesareaccountedforatcostlessimpairment.
Costincludesdirectattributablecostsofinvestment.
TheresultsofsubsidiariesareaccountedforbytheCompanyonthebasisofdividendsreceivedandreceivable.
Inaddition,thecontributiontotheCompany'sShareSchemeTrust(asdefinedinNote46(e)),acontrolledstructuredentity,isstatedatcostin"ContributiontoShareSchemeTrust",andwillbetransferredtothe"Sharesheldforshareawardschemes"underequitywhenthecontributionisusedfortheacquisitionoftheCompany'sshares.
Impairmenttestingoftheinvestmentsinsubsidiariesisrequireduponreceivingdividendsfromtheseinvestmentsifthedividendsexceedthetotalcomprehensiveincomeofthesubsidiariesintheperiodthedividendsaredeclaredorifthecarryingamountoftheinvestmentsintheseparatefinancialstatementsexceedsthecarryingamountintheconsolidatedfinancialstatementsoftheinvestee'snetassetsincludinggoodwill.
2.
4AssociatesAssociatesareallentitiesoverwhichtheGrouphassignificantinfluencebutnotcontrolorjointcontrol,generallybutnotnecessarilyaccompanyingashareholdingofbetween20%and50%ofthevotingrights.
Investmentsinassociatesareaccountedforusingtheequitymethodofaccountingandareinitiallyrecognisedatcost.
TheGroup'sinvestmentsinassociatesincludeunderlyinggoodwillidentifiedonacquisition,netofanyaccumulatedimpairmentloss.
TheGroup'sshareofitsassociates'post-acquisitionprofitorlossisrecognisedintheconsolidatedincomestatement,anditsshareofpost-acquisitionmovementsinothercomprehensiveincomeisrecognisedinothercomprehensiveincome.
Dividendsreceivedorreceivablefromassociatesarerecognisedasareductioninthecarryingamountoftheinvestment.
WhentheGroup'sshareoflossesinanassociateequalsorexceedsitsinterestsintheassociate,includinganyotherunsecuredlong-termreceivables,theGroupdoesnotrecognisefurtherlosses,unlessithasincurredlegalorconstructiveobligationsormadepaymentsonbehalfoftheassociate.
TheGroupdeterminesateachreportingdatewhetherthereisanyobjectiveevidencethatinvestmentsaccountedforusingtheequitymethod,includinginvestmentsinassociatesandjointarrangements(Note2.
5),areimpaired.
Ifthisisthecase,theGroupcalculatestheamountofimpairmentasthedifferencebetweentherecoverableamountoftheinvestmentanditscarryingvalueandrecognisestheamountin"Othergains/(losses),net"intheconsolidatedincomestatement.
1532SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
4Associates(Cont'd)UnrealisedgainsontransactionsbetweentheGroupanditsassociatesareeliminatedtotheextentoftheGroup'sinterestsintheassociates.
Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentoftheassettransferred.
AccountingpoliciesofassociateshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.
Gainsorlossesondilutionofequityinterestinassociatesarerecognisedintheconsolidatedincomestatement.
Iftheownershipinterestinanassociateisreducedbutsignificantinfluenceisretained,onlyaproportionateshareoftheamountspreviouslyrecognisedinothercomprehensiveincomeisreclassifiedtoconsolidatedincomestatementwhereappropriate.
2.
5JointarrangementsUnderIFRS11investmentsinjointarrangementsareclassifiedaseitherjointoperationsorjointventuresdependingonthecontractualrightsandobligationsofeachinvestor.
TheGrouphasassessedthenatureofitsjointarrangementsanddeterminedthemtobejointventures.
Jointventuresareaccountedforusingtheequitymethod.
Undertheequitymethodofaccounting,interestsinjointventuresareinitiallyrecognisedatcostandadjustedthereaftertorecognisetheGroup'sshareofthepost-acquisitionprofitorlossandmovementsinothercomprehensiveincome.
WhentheGroup'sshareoflossesinajointventureequalsorexceedsitsinterestsinthejointventure(whichincludesanylong-termreceivablesthat,insubstance,formpartoftheGroup'snetinvestmentinthejointventure),theGroupdoesnotrecognisefurtherlosses,unlessithasincurredobligationsormadepaymentsonbehalfofthejointventure.
UnrealisedgainsontransactionsbetweentheGroupanditsjointventuresareeliminatedtotheextentoftheGroup'sinterestsinthejointventures.
Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentoftheassettransferred.
AccountingpoliciesofthejointventureshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.
154TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
6Investmentsinassociates/jointventuresachievedinstagesThecostofassociates/jointventuresacquiredinstages,exceptforthechangefromanassociatetoajointventure,ismeasuredasthesumofthefairvalueoftheinterestspreviouslyheldplusthefairvalueofanyadditionalconsiderationtransferredasofthedatewhenitbecomesassociate/jointventure.
Againorlossonre-measurementofthepreviouslyheldinterestsistakentotheconsolidatedincomestatement.
Anyothercomprehensiveincomerecognisedinpriorperiodsinrelationtothepreviouslyheldinterestsisalsotakentotheconsolidatedincomestatement.
Anyacquisition-relatedcostsareexpensedintheperiodinwhichthecostsareincurred.
2.
7DisposalofassociatesWhentheGrouplosessignificantinfluenceoveranassociate,itmeasuresanyretainedinvestmentatfairvalue.
Againorlossisrecognisedatanydifferencebetweenthefairvalueofanyretainedinterestplusanyproceedsfromdisposingpartoftheinterestsintheassociateandthecarryingamountoftheinvestmentatthedatetheequitymethodofaccountingwasdiscontinued.
TheamountspreviouslyrecognisedinothercomprehensiveincomebyanassociateshouldbereclassifiedtotheconsolidatedincomestatementortransferredtoanothercategoryofequityasspecifiedandpermittedbyapplicableIFRSswhentheGrouplosessignificantinfluenceovertheassociate.
2.
8SegmentreportingOperatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-makers,whoareresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegmentsandmakingstrategicdecisions.
Thechiefoperatingdecision-makersmainlyincludetheexecutivedirectors.
2.
9Foreigncurrencytranslation(a)FunctionalandpresentationcurrencyItemsincludedinthefinancialstatementsofeachoftheGroup'sentitiesaremeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(the"functionalcurrency").
ThefunctionalcurrencyoftheCompanyandcertainofitsoverseassubsidiariesisUnitedStatesDollars("USD").
AsthemajoroperationsoftheGrouparewithinthePRC,theGrouppresentsitsconsolidatedfinancialstatementsinRenminbi("RMB"),unlessotherwisestated.
1552SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
9Foreigncurrencytranslation(Cont'd)(b)TransactionsandbalancesForeigncurrencytransactionsaretranslatedintothefunctionalcurrencyusingtheexchangeratesprevailingatthedatesofthetransactions.
Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesarerecognisedintheconsolidatedincomestatement.
Non-monetaryitemsthataremeasuredatfairvalueinforeigncurrencyaretranslatedusingtheexchangeratesatthedatewhenthefairvaluewasdetermined.
Translationdifferencesonassetsandliabilitiescarriedatfairvaluearereportedaspartofthefairvaluegainorloss.
Forexample,translationdifferencesonnon-monetaryfinancialassetsandliabilitiessuchasequityinstrumentsheldatfairvaluethroughprofitorlossarerecognisedintheconsolidatedincomestatementaspartofthefairvaluegainorlossandtranslationdifferencesonnon-monetaryfinancialassets,suchasequityinstrumentsclassifiedasFVOCI,areincludedinothercomprehensiveincome.
(c)GroupcompaniesTheresultsandfinancialpositionofallthegroupentities(noneofwhichhasthecurrencyofahyper-inflationaryeconomy)thathaveafunctionalcurrencydifferentfromthepresentationcurrencyofRMBaretranslatedintothepresentationcurrencyasfollows:(i)Assetsandliabilitiesforeachstatementoffinancialpositionpresentedaretranslatedattheclosingrateatthedateofthatstatementoffinancialposition;(ii)Incomeandexpensesforeachincomestatementaretranslatedataverageexchangerates(unlessthisaverageisnotareasonableapproximationofthecumulativeeffectoftheratesprevailingonthetransactiondates,inwhichcaseincomeandexpensesaretranslatedattherateonthedatesofthetransactions);and(iii)Allresultingcurrencytranslationdifferencesarerecognisedasaseparatecomponentofothercomprehensiveincome.
Onconsolidation,exchangedifferencesarisingfromthetranslationofthenetinvestmentinforeignoperations,andofborrowingsandotherfinancialinstrumentsdesignatedashedgesofsuchinvestments,aretakentoothercomprehensiveincome.
Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.
Currencytranslationdifferencesarisingarerecognisedinothercomprehensiveincome.
156TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
10Property,plantandequipmentAllproperty,plantandequipmentarestatedathistoricalcostslessaccumulateddepreciationandaccumulatedimpairmentcharges.
Historicalcostsincludeexpendituresthataredirectlyattributabletotheacquisitionoftheitems.
Subsequentcostsareincludedintheasset'scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheGroupandthecostoftheitemcanbemeasuredreliably.
Thecarryingamountofthereplacedpartisderecognised.
Allotherrepairsandmaintenancearechargedtotheconsolidatedincomestatementduringthereportingperiodinwhichtheyareincurred.
Depreciationiscalculatedusingthestraight-linemethodtoallocatetheircostnetoftheirresidualvaluesovertheirestimatedusefullives,asfollows:Buildings20~50yearsComputerequipment2~5yearsFurnitureandofficeequipment2~5yearsMotorvehicles5yearsLeaseholdimprovementsShorteroftheirusefullivesandtheleasetermTheassets'residualvaluesandusefullivesarereviewed,andadjustedifappropriate,attheendofeachreportingperiod.
Constructioninprogressrepresentsbuildingsunderconstruction,whichisstatedatactualconstructioncostslessanyimpairmentloss.
Constructioninprogressistransferredtoproperty,plantandequipmentwhencompletedandreadyforuse.
Anasset'scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset'scarryingamountisgreaterthanitsestimatedrecoverableamount(Note2.
15).
Gainsandlossesondisposalsaredeterminedbycomparingtheproceedswiththecarryingamountandarerecognisedin"Othergains/(losses),net"intheconsolidatedincomestatement.
1572SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
11InvestmentpropertiesInvestmentpropertiesareheldforlong-termrentalyieldsandarenotoccupiedbytheGroup.
Investmentpropertiesarecarriedathistoricalcostslessaccumulateddepreciationandaccumulatedimpairmentcharges.
Historicalcostsincludeexpendituresthataredirectlyattributabletotheacquisitionoftheitems.
Depreciationiscalculatedonthestraight-linemethodtoallocatetheircostsnetoftheirresidualvaluesovertheirestimatedusefullivesof20-50years.
Investmentproperties'residualvaluesandusefullivesarereviewed,andadjustedifappropriate,attheendofeachreportingperiod.
Investmentproperties'carryingamountsarewrittendownimmediatelytotheirrecoverableamountsiftheircarryingamountsaregreaterthantheirestimatedrecoverableamounts.
2.
12LanduserightsLanduserightsareup-frontpaymentstoacquirelong-terminterestinland.
Thesepaymentsarestatedatcostandchargedtotheconsolidatedincomestatementonastraight-linebasisovertheremainingperiodofthelease.
2.
13Intangibleassets(a)GoodwillGoodwillarisingontheacquisitionofsubsidiariesrepresentstheexcessoftheconsiderationtransferredplusacquisition-datefairvalueoftheequityinterestspreviouslyheldbytheGroupandthenon-controllinginterestsintheacquiredentityoverthefairvalueofthenetidentifiableassetsoftheacquiree.
Forthepurposeofimpairmenttesting,goodwillacquiredinabusinesscombinationisallocatedtoeachofthecash-generatingunits("CGUs"),orgroupsofCGUs,thatisexpectedtobenefitfromthesynergiesofthecombination.
Eachunitorgroupofunitstowhichthegoodwillisallocatedrepresentsthelowestlevelwithintheentityatwhichthegoodwillismonitoredforinternalmanagementpurposes.
Goodwillimpairmentreviewsareundertakenannuallyormorefrequentlyifeventsorchangesincircumstancesindicateapotentialimpairment.
Thecarryingvalueofgoodwilliscomparedtotherecoverableamount,whichisthehigherofvalueinuseandthefairvaluelesscoststosell.
Anyimpairmentisrecognisedimmediatelyunder"Othergains/(losses),net"andisnotsubsequentlyreversed.
158TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
13Intangibleassets(Cont'd)(b)LicensedonlinecontentsLicensedonlinecontentsmainlyincludevideoandmusiccontents.
Theyareinitiallyrecognisedandmeasuredatcostorestimatedfairvalueasacquiredthroughbusinesscombinations.
Licensedonlinecontentsareamortisedusingastraight-linemethodoranacceleratedmethodwhichreflectstheestimatedconsumptionpatterns.
(c)OtherintangibleassetsOtherintangibleassetsmainlyincludegamelicences,copyrights,computersoftwareandtechnologyandnon-competeagreements.
Theyareinitiallyrecognisedandmeasuredatcostorestimatedfairvalueofintangibleassetsacquiredthroughbusinesscombinations.
Otherintangibleassetsareamortisedovertheirestimatedusefullives(generallyonetotenyears)usingthestraight-linemethodwhichreflectsthepatterninwhichtheintangibleasset'sfutureeconomicbenefitsareexpectedtobeconsumed.
2.
14SharesheldforshareawardschemesTheconsiderationpaidbytheShareSchemeTrust(seeNote46(e))forpurchasingtheCompany'ssharesfromthemarket,includinganydirectlyattributableincrementalcost,ispresentedas"Sharesheldforshareawardschemes"andtheamountisdeductedfromtotalequity.
WhentheShareSchemeTrusttransferstheCompany'ssharestotheawardeesuponvesting,therelatedcostsoftheawardedsharesvestedarecreditedto"Sharesheldforshareawardschemes",withacorrespondingadjustmentmadeto"Sharepremium".
2.
15Impairmentofnon-financialassetsAssetsthathaveanindefiniteusefullifeorarenotyetavailableforusearenotsubjecttoamortisationandaretestedannuallyforimpairment,ormorefrequentlyifeventsorchangesincircumstancesindicatethattheymightbeimpaired.
Otherassetsarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.
Animpairmentlossisrecognisedfortheamountbywhichtheasset'scarryingamountexceedsitsrecoverableamount.
Therecoverableamountisthehigherofanasset'sfairvaluelesscoststosellandvalueinuse.
Forthepurposeofassessingimpairment,assetsaregroupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashflows(cash-generatingunits).
Non-financialassetsotherthangoodwillthatsufferedimpairmentarereviewedforpossiblereversaloftheimpairmentateachreportingdate.
1592SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
16Investmentsandotherfinancialassets(a)ClassificationandmeasurementFrom1January2018,theGroupclassifiesitsfinancialassetsinthefollowingmeasurementcategories:thosetobemeasuredsubsequentlyatfairvalue(eitherthroughothercomprehensiveincome,orthroughprofitorloss),andthosetobemeasuredatamortisedcost.
Theclassificationdependsontheentity'sbusinessmodelformanagingthefinancialassetsandthecontractualtermsofthecashflows.
Atinitialrecognition,theGroupmeasuresafinancialassetatitsfairvalueplus,inthecaseofafinancialassetnotatfairvaluethroughprofitorloss,transactioncoststhataredirectlyattributabletotheacquisitionofthefinancialasset.
Transactioncostsoffinancialassetscarriedatfairvaluethroughprofitorlossareexpensedinprofitorloss.
Financialassetswithembeddedderivativesareconsideredintheirentiretywhendeterminingwhethertheircashflowsaresolelypaymentsofprincipalandinterest.
DebtinstrumentsInitialrecognitionandsubsequentmeasurementofdebtinstrumentsdependontheGroup'sbusinessmodelformanagingtheassetandthecontractualcashflowcharacteristicsoftheasset.
TherearethreecategoriesintowhichtheGroupclassifiesitsdebtinstruments:Amortisedcost:Financialassetsthatareheldforcollectionofcontractualcashflowswherethosecashflowsrepresentsolelypaymentsofprincipalandinterestareclassifiedasandmeasuredatamortisedcost.
Againorlossonadebtinvestmentmeasuredatamortisedcostwhichisnotpartofahedgingrelationshipisrecognisedinprofitorlosswhentheassetisderecognisedorimpaired.
Interestincomefromthesefinancialassetsisrecognisedusingtheeffectiveinterestratemethod.
160TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
16Investmentsandotherfinancialassets(Cont'd)(a)Classificationandmeasurement(Cont'd)FVOCI:Financialassetsthatareheldforcollectionofcontractualcashflowsandforsellingthefinancialassets,wheretheassets'cashflowsrepresentsolelypaymentsofprincipalandinterest,areclassifiedasandmeasuredatFVOCI.
Movementsinthecarryingamountofthesefinancialassetsaretakenthroughothercomprehensiveincome,exceptfortherecognitionofimpairmentlossesorreversals,interestincomeandforeignexchangegainsandlosseswhicharerecognisedinprofitorloss.
Whenthefinancialassetisderecognised,thecumulativegainorlosspreviouslyrecognisedinothercomprehensiveincomeisreclassifiedfromequitytoprofitorlossandrecognisedin"Othergains/(losses),net"intheconsolidatedincomestatement.
Interestincomefromthesefinancialassetsisrecognisedusingtheeffectiveinterestratemethod.
Foreignexchangegainsandlossesarepresentedin"financecosts,net"andimpairmentlossesorreversalsfor"Othergains/(losses),net".
FVPL:FinancialassetsthatdonotmeetthecriteriaforamortisedcostorFVOCIareclassifiedasandmeasuredatfairvaluethroughprofitorloss.
Againorlossonadebtinvestmentmeasuredatfairvaluethroughprofitorlosswhichisnotpartofahedgingrelationshipisrecognisedinprofitorlossandpresentedin"Othergains/(losses),net"fortheperiodinwhichitarises.
TheGroupreclassifiesdebtinvestmentswhenandonlywhenitsbusinessmodelformanagingthoseassetschanges.
EquityinstrumentsTheGroupinitiallyrecognisesandsubsequentlymeasuresallequityinvestmentsatfairvalue.
Uponinitialrecognition,theGroup'smanagementcanelecttoclassifyirrevocablyitsequityinvestmentsasfinancialassetsatFVOCIwhentheymeetthedefinitionofequityinstrumentunderIAS32andarenotheldfortrading.
Theclassificationisdeterminedonaninstrument-by-instrumentbasis.
WheretheGrouphasmadeanirrevocableelectiontopresentfairvaluegainsandlossesonequityinvestmentsinothercomprehensiveincome,thereisnosubsequentreclassificationoffairvaluegainsandlossestoprofitorlossfollowingthederecognitionoftheinvestments.
Dividendsfromsuchinvestmentscontinuetoberecognisedinprofitorlossas"Othergains/(losses),net"whentheGroup'srighttoreceivepaymentsisestablished.
EquityinstrumentsdesignatedasFVOCIarenotsubjecttoimpairmentassessment.
FVPLincludefinancialassetsdesignateduponinitialrecognitionatfairvaluethroughprofitorlossandfinancialassetsthatdonotmeetthecriteriaforamortisedcostorFVOCI.
ChangesinthefairvalueofFVPLarerecognisedin"Othergains/(losses),net"intheconsolidatedincomestatement.
1612SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
16Investmentsandotherfinancialassets(Cont'd)(b)ImpairmentFrom1January2018,theGroupassessesonaforward-lookingbasistheexpectedcreditlossesassociatedwithitsdebtinstrumentscarriedatamortisedcostandFVOCI.
Theimpairmentmethodologyapplieddependsonwhethertherehasbeenasignificantincreaseincreditrisk.
Foraccountsreceivableandcontractassets,theGroupappliesthesimplifiedapproachpermittedbyIFRS9,whichrequiresexpectedlifetimelossestoberecognisedsinceinitialrecognition.
Impairmentondepositsandotherreceivablesismeasuredaseither12-monthexpectedcreditlossesorlifetimeexpectedcreditlosses,dependingonwhethertherehasbeenasignificantincreaseincreditrisksinceinitialrecognition.
Ifasignificantincreaseincreditriskofadepositorreceivablehasoccurredsinceinitialrecognition,theimpairmentismeasuredaslifetimeexpectedcreditlosses.
(c)Accountingpoliciesapplieduntil31December2017TheGrouphasappliedIFRS9retrospectively,buthaselectednottorestatecomparativeinformation.
Asaresult,thecomparativeinformationprovidedcontinuestobeaccountedforinaccordancewiththeGroup'spreviousaccountingpolicy.
ClassificationUntil31December2017,theGroupclassifieditsfinancialassetsinthefollowingcategories:FVPL,loansandreceivablesandAFS.
Theclassificationdependedonthepurposeforwhichthefinancialassetswereacquired,management'sintentionsandwhethertheassetsarequotedinanactivemarket.
Managementdeterminedtheclassificationofitsfinancialassetsatinitialrecognition.
(i)FVPLFVPLarefinancialassetsheldfortrading.
Afinancialassetisclassifiedinthiscategoryifacquiredprincipallyforthepurposeofsellingintheshortterm.
Derivativesareclassifiedasheldfortradingunlesstheyaredesignatedashedges.
Assetsinthiscategoryareclassifiedascurrentassetsifexpectedtobesettledwithin12months,otherwisetheyareclassifiedasnon-current.
162TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
16Investmentsandotherfinancialassets(Cont'd)(c)Accountingpoliciesapplieduntil31December2017(Cont'd)Classification(Cont'd)(ii)LoansandreceivablesLoansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.
Theyareincludedincurrentassets,exceptforthosewithmaturitiesgreaterthan12monthsaftertheendofthereportingperiodwhichareclassifiedasnon-currentassets.
TheGroup'sloansandreceivablescomprise"Accountsreceivable","Depositsandotherreceivables","Termdeposits","Restrictedcash"and"Cashandcashequivalents"intheconsolidatedstatementoffinancialposition.
(iii)AFSInvestmentsaredesignatedasAFSiftheydonothavefixedmaturitiesandfixedordeterminablepayments,andmanagementintendstoholdthemforthemediumtolong-term.
Financialassetsthatarenotclassifiedintoanyoftheothercategoriesarealsoincludedintheavailable-for-salecategory.
Theyareincludedinnon-currentassetsunlessmanagementintendstodisposeoftheinvestmentwithin12monthsaftertheendofthereportingperiod.
SubsequentmeasurementThemeasurementatinitialrecognitiondidnotchangeonadoptionofIFRS9,seedescriptionabove.
Subsequenttotheinitialrecognition,AFSandFVPLaresubsequentlycarriedatfairvalue.
Loansandreceivablesaresubsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod.
ChangesinthefairvalueofAFSarerecognisedinothercomprehensiveincome.
FinancialassetsarederecognisedwhentherightstoreceivecashflowsfromtheinvestmentshaveexpiredorhavebeentransferredandtheGrouphastransferredsubstantiallyallrisksandrewardsofownership.
WhenAFSaresoldorimpaired,theaccumulatedfairvalueadjustmentsrecognisedinothercomprehensiveincomeareincludedintheconsolidatedincomestatementas"Othergains/(losses),net".
Interestonloansandreceivablescalculatedusingtheeffectiveinterestmethodisrecognisedintheconsolidatedincomestatementaspartofinterestincome.
DividendsonAFSequityinstrumentsarerecognisedintheconsolidatedincomestatementwhentheGroup'srighttoreceivepaymentsisestablished.
1632SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
16Investmentsandotherfinancialassets(Cont'd)(c)Accountingpoliciesapplieduntil31December2017(Cont'd)ImpairmentTheGroupassessesattheendofeachreportingperiodwhetherthereisobjectiveevidencethatafinancialassetoragroupoffinancialassetsisimpaired.
Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentlossesareincurredonlyifthereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset(a"lossevent")andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.
AssetscarriedatamortisedcostEvidenceofimpairmentmayincludeindicationsthatthedebtororagroupofdebtorsisexperiencingsignificantfinancialdifficulty,defaultordelinquencyininterestorprincipalpayments,theprobabilitythattheywillenterbankruptcyorotherfinancialreorganisation,andwhereobservabledataindicatethatthereisameasurabledecreaseintheestimatedfuturecashflows,suchaschangesinarrearsoreconomicconditionsthatcorrelatewithdefaults.
Forloansandreceivablescategory,theamountoftheimpairmentlossismeasuredasthedifferencebetweentheasset'scarryingamountandthepresentvalueofestimatedfuturecashflows(excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset'soriginaleffectiveinterestrate.
Thecarryingamountoftheassetisreducedandtheamountoftheimpairmentlossisrecognisedintheconsolidatedincomestatement.
Ifaloanhasavariableinterestrate,thediscountrateformeasuringanyimpairmentlossisthecurrenteffectiveinterestratedeterminedunderthecontract.
Asapracticalexpedient,theGroupmaymeasureimpairmentonthebasisofaninstrument'sfairvalueusinganobservablemarketprice.
If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised(suchasanimprovementinthedebtor'screditrating),thereversalofthepreviouslyrecognisedimpairmentlossisrecognisedintheconsolidatedincomestatement.
164TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
16Investmentsandotherfinancialassets(Cont'd)(c)Accountingpoliciesapplieduntil31December2017(Cont'd)Impairment(Cont'd)AssetsclassifiedasAFSForequityinvestments,asignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscostisalsoconsideredasanindicationthattheassetsareimpaired.
Ifanysuchevidenceofimpairmentexists,thecumulativeloss-measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedintheconsolidatedincomestatement-isremovedfromequityandrecognisedintheconsolidatedincomestatement.
Impairmentlossesrecognisedintheconsolidatedincomestatementonequityinstrumentsarenotreversedthroughtheconsolidatedincomestatement.
Fordebtsecurities,ifanysuchevidenceexists,thecumulativeloss-measuredasthedifferencebetweentheacquisitioncost(netofanyprincipalrepaymentandamortisation)andthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedintheconsolidatedincomestatement-isreclassifiedfromequityandrecognisedintheconsolidatedincomestatement.
If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailableforsaleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedintheconsolidatedincomestatement,theimpairmentlossisreversedthroughtheconsolidatedincomestatement.
HybridfinancialinstrumentsHybridfinancialinstrumentsheldbytheGroupcompriseinstrumentswithredemptionfeaturesofassociatesthatcanbeconvertedtoordinarysharesattheoptionoftheholder.
TheGroupeither(i)accountsfordifferentcomponentsofthehybridfinancialinstrumentsseparatelyor(ii)designatestheentirefinancialinstrumentsasfinancialassets/liabilitiesatfairvaluethroughprofitorloss.
Thehostcomponentisrecognisedinitiallyatthedifferencebetweenthefairvalueofthehybridfinancialinstrumentasawholeandthefairvalueoftheembeddedderivatives.
ThesubsequentmeasurementofthehostcomponentandembeddedderivativesfollowtherespectiveaccountingpolicyoffinancialinstrumentsasstatedinNotes2.
16(c)aboveand2.
17.
1652SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
17DerivativeandhedgingactivitiesDerivativesareinitiallyrecognisedatfairvalueonthedateaderivativecontractisenteredintoandaresubsequentlyre-measuredatfairvalue.
Derivativesarecarriedasfinancialassetswhenthefairvalueispositiveandasfinancialliabilitieswhenthefairvalueisnegative.
Themethodofrecognisingtheresultinggainorlossdependsonwhetherthederivativeisdesignatedasahedginginstrument,andifso,thenatureoftheitembeinghedged.
TheGroupdesignatescertainderivativesashedgesofaparticularriskassociatedwiththecashflowsofarecognisedassetorliabilityorahighlyprobableforecasttransaction(cashflowhedges).
TheGroupdocumentsattheinceptionofthehedgingrelationshiptheeconomicrelationshipbetweenhedginginstrumentsandhedgeditemsincludingwhetherthehedginginstrumentisexpectedtooffsetchangesincashflowsofhedgeditems.
TheGroupdocumentsitsriskmanagementobjectiveandstrategyforundertakingvarioushedgetransactionsattheinceptionofeachhedgerelationship.
AhedgingrelationshipqualifiesforhedgeaccountingifitmeetsallofthehedgeeffectivenessrequirementsunderIFRS9.
Theeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesisrecognisedthroughothercomprehensiveincomewithinequity,whileanyineffectiveportionisrecognisedimmediatelyinprofitorloss,within"Othergains/(losses),net".
Gainsorlossesrelatingtotheeffectiveportionofthechangeinintrinsicvalueoftheoptionsarerecognisedinthecashflowhedgereservewithinequity.
Thechangesinthetimevalueoftheoptionsthatrelatetothehedgeditem('alignedtimevalue')arerecognisedwithinothercomprehensiveincomeinthecostsofhedgingreservewithinequity.
Amountsaccumulatedinequityareaccountedfor,dependingonthenatureoftheunderlyinghedgedtransaction,asfollows:Wherethehedgeditemsubsequentlyresultsintherecognitionofanon-financialasset,theamountsaccumulatedinequityareremovedfromotherreservesandincludedwithintheinitialcostoftheasset.
Thesedeferredamountsareultimatelyrecognisedinprofitorlossasthehedgeditemaffectsprofitorloss.
Foranyothercashflowhedges,thegainorlossrelatingtotheeffectiveportionofthederivativesisreclassifiedtoprofitorlossatthesametimewhenthehedgedcashflowsaffectsprofitorloss.
Whenahedginginstrumentexpires,orissoldorterminated,orwhenahedgenolongermeetsthecriteriaforhedgeaccounting,anycumulativedeferredgainorlossanddeferredcostsofhedginginequityatthattimeremaininequityuntiltheforecasttransactionoccurs.
Whentheforecasttransactionisnolongerexpectedtooccur,thecumulativegainorlossanddeferredcostsofhedgingincludedinequityareimmediatelyreclassifiedtoprofitorloss.
166TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
18OffsettingfinancialinstrumentsFinancialassetsandliabilitiesareoffsetandthenetamountisreportedintheconsolidatedstatementoffinancialpositionwhenthereisalegallyenforceablerighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,orrealisetheassetsandsettletheliabilitiessimultaneously.
Thelegallyenforceablerightmustnotbecontingentonfutureeventsandmustbeenforceableinthenormalcourseofbusinessandincertaincircumstances,suchasdefault,insolvency,bankruptcyortheterminationofacontract.
2.
19InventoriesInventories,mainlyconsistingofmerchandiseforsale,areprimarilyaccountedforusingtheweightedaveragemethodandarestatedatthelowerofcostandnetrealisablevalue.
2.
20AccountsreceivableAccountsreceivableareamountsduefromcustomersoragentsforservicesperformedormerchandisesoldintheordinarycourseofbusiness.
Ifcollectionofaccountsreceivableisexpectedinoneyearorless,theyareclassifiedascurrentassets.
Otherwise,theyarepresentedasnon-currentassets.
Accountsreceivablearerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessprovisionforimpairment.
2.
21CashandcashequivalentsandrestrictedcashCashandcashequivalentsincludecashinhand,depositsheldatcallwithbanks,moneymarketfundsandothershort-termhighlyliquidinvestmentswithinitialmaturitiesofthreemonthsorless.
TheGroupdoesnotrecognisecashamountsdepositedwithbanks(whicharereceivedunderitspaymentbusiness)underusers'entrustmentintheconsolidatedstatementoffinancialpositionastheGroupholdsthesecashamountsasacustodianaccordingtotherelevantusers'agreements.
2.
22SharecapitalOrdinarysharesareclassifiedasequity.
Incrementalcostsdirectlyattributabletotheissueofnewsharesorshareoptionsareshowninequityasadeductionfromtheproceeds.
WhereanyGroupcompanypurchasestheCompany'sequityinstruments,theconsiderationpaid,includinganydirectlyattributableincrementalcosts,isdeductedfromequityattributabletotheCompany'sequityholdersastreasurysharesuntilthesharesarecancelledorreissued.
Wheresuchsharesaresubsequentlyreissued,anyconsiderationreceived(netofanydirectlyattributableincrementaltransactioncosts)isincludedinequityattributabletotheCompany'sequityholders.
1672SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
23AccountspayableAccountspayableareobligationstopayforservicesorgoodsthathavebeenacquiredintheordinarycourseofbusinessfromsuppliers.
Accountspayableareclassifiedascurrentliabilitiesifpaymentisduewithinoneyearorless.
Ifnot,theyarepresentedasnon-currentliabilities.
Accountspayablearerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.
2.
24PutoptionarrangementsPutoptionsarefinancialinstrumentsgrantedbytheGroupwhichpermittheholderstoputbacktotheGrouptheirsharesincertainsubsidiariesforcashorotherfinancialassetswhencertainconditionsaremet.
IftheGroupdoesnothavetheunconditionalrighttoavoiddeliveringcashorotherfinancialassetsundertheputoption,afinancialliabilityisinitiallyrecognisedatthepresentvalueoftheestimatedfuturecashoutflowsonexerciseundertheputoption.
Subsequently,iftheGrouprevisesitsestimatesofpayments,theGroupwilladjustthecarryingamountofthefinancialliabilitytoreflectactualandrevisedestimatedcashoutflows.
TheGroupwillrecalculatethecarryingamountbasedonthepresentvalueofrevisedestimatedfuturecashoutflowsatthefinancialinstrument'soriginaleffectiveinterestrateandtheadjustmentwillberecognisedas"Othergains/(losses),net"intheconsolidatedincomestatement.
Intheeventthattheputoptionexpiresunexercised,theliabilityisderecognisedwithacorrespondingadjustmenttoequity.
Theputoptionliabilitiesarecurrentliabilitiesunlesstheputoptionfirstbecomesexercisable12monthsaftertheendofthereportingperiod.
2.
25FinancialguaranteecontractsTheGrouphasafinancialguaranteecontractthatrepresentsguaranteeprovidedbytheGroupinrespectofaputarrangementgrantedbyaninvesteetotheemployeesofitssubsidiary.
Thefinancialguaranteecontractsareinitiallyrecognisedasafinancialliabilityatfairvalueonthedatetheguaranteeisgiven.
Theliabilityissubsequentlymeasuredatthehigherof:theamountdeterminedinaccordancewiththeexpectedcreditlossmodelunderIFRS9andtheamountinitiallyrecognisedless,whereappropriate,thecumulativeamountofincomerecognisedinaccordancewiththeprinciplesofIFRS15.
168TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
25Financialguaranteecontracts(Cont'd)Thefairvalueoffinancialguaranteesisdeterminedbasedonthepresentvalueofthedifferenceincashflowsbetweenthecontractualpaymentsrequiredunderthedebtinstrumentandthepaymentsthatwouldberequiredwithouttheguarantee,ortheestimatedamountthatwouldbepayabletoathirdpartyforassumingtheobligations.
Whereguaranteesinrelationtoloansorotherpayablesoftheinvesteesareprovidedfornocompensation,thefairvalueisaccountedforascontributionsandrecognisedaspartofthecostoftheinvestment.
2.
26Borrowings,notespayableandborrowingcostsBorrowingsandnotespayableissuedbytheGrouparerecognisedinitiallyatfairvalue,netoftransactioncostsincurred.
Theyaresubsequentlycarriedatamortisedcost.
Anydifferencebetweenproceeds(netoftransactioncosts)andtheredemptionvalueisrecognisedintheconsolidatedincomestatementovertheirtermsusingtheeffectiveinterestmethod.
Feespaidontheestablishmentofloanfacilitiesarerecognisedastransactioncostsoftheloanfacilitiestotheextentthatitisprobablethatsomeorallofthefacilitywillbedrawndown.
Inthiscase,thefeeisdeferreduntilthedraw-downoccurs.
Totheextentthereisnoevidencethatitisprobablethatsomeorallofthefacilitywillbedrawndown,thefeeiscapitalisedasaprepaymentforliquidityservicesandamortisedoverthetermofthefacilitytowhichitrelates.
BorrowingsareclassifiedascurrentliabilitiesunlesstheGrouphasanunconditionalrighttodefersettlementoftheliabilityforatleast12monthsaftertheendofthereportingperiod.
Notespayableareclassifiedasnon-currentliabilitiesunlesstheGrouphasanunconditionalobligationtosettletheliabilitywithin12monthsaftertheendofthereportingperiod.
Generalandspecificfinancecostsdirectlyattributabletotheacquisitionandconstructionofqualifyingassets,whichareassetsthatnecessarilytakeasubstantialperiodoftimetogetreadyfortheirintendeduseorsale,areaddedtothecostofthoseassets,untilsuchtimeastheassetsaresubstantiallyreadyfortheirintendeduseorsale.
Duringtheyearended31December2018,financecostcapitalisedwasinsignificanttotheGroup.
1692SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
27CurrentanddeferredincometaxTheincometaxexpensefortheyearcomprisescurrentanddeferredtax,whichisrecognisedintheconsolidatedincomestatement,excepttotheextentthatitrelatestoitemsrecognisedinothercomprehensiveincomeordirectlyinequity.
Inthiscase,theincometaxisalsorecognisedinothercomprehensiveincomeorinequity,respectively.
ThecurrentincometaxchargeiscalculatedonthebasisofthetaxlawsenactedorsubstantivelyenactedattheendofthereportingperiodinthecountrieswheretheCompany'ssubsidiariesoperateandgeneratetaxableincome.
Managementperiodicallyevaluatespositionstakenintaxreturnswithrespecttosituationsinwhichapplicabletaxregulationissubjecttointerpretation.
Itestablishesprovisionswhereappropriateonthebasisofamountsexpectedtobepaidtothetaxauthorities.
Deferredincometaxisrecognised,usingtheliabilitymethod,ontemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsintheconsolidatedfinancialstatements.
However,deferredincometaxisnotaccountedforifitarisesfrominitialrecognitionofgoodwillorofanassetorliabilityinatransactionotherthanabusinesscombinationthatatthetimeofthetransactionneitheraccountingnortaxableprofitorlossisaffected.
Deferredincometaxisdeterminedusingtaxrates(andlaws)thathavebeenenactedorsubstantivelyenactedbytheendofthereportingperiodandareexpectedtoapplywhentherelateddeferredtaxassetisrealisedorthedeferredtaxliabilityissettled.
Deferredtaxassetsarerecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitwillbeavailabletoutilisethosetemporarydifferencesandtaxlosses.
Deferredincometaxisprovidedontemporarydifferencesarisingfrominvestmentsinsubsidiariesandassociates,exceptfordeferredtaxliabilitywherethetimingofthereversalofthetemporarydifferencesiscontrolledbytheGroupanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.
Generally,theGroupisunabletocontrolthereversalofthetemporarydifferenceforassociates.
OnlywhenthereisanagreementinplacethatgivestheGrouptheabilitytocontrolthereversalofthetemporarydifferenceintheforeseeablefuture,deferredtaxliabilityinrelationtotaxabletemporarydifferencesarisingfromtheassociate'sundistributedprofitisnotrecognised.
Deferredincometaxassetsarerecognisedondeductibletemporarydifferencesarisingfrominvestmentsinsubsidiaries,associatesandjointarrangementsonlytotheextentthatitisprobablethetemporarydifferencewillreverseinthefutureandthereissufficienttaxableprofitavailableagainstwhichthetemporarydifferencecanbeutilised.
Deferredincometaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetcurrenttaxassetsagainstcurrenttaxliabilitiesandwhenthedeferredtaxassetsandliabilitiesrelatetoincometaxesleviedbythesametaxationauthorityoneitherthetaxableentityordifferenttaxableentitieswherethereisanintentiontosettlethebalancesonanetbasis.
170TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
28Employeebenefits(a)EmployeeleaveentitlementsEmployeeentitlementstoannualleavearerecognisedwhentheyaccruetoemployees.
Aprovisionismadefortheestimatedliabilityforannualleaveasaresultofservicesrenderedbyemployeesuptotheendofthereportingperiod.
Employeeentitlementstosickandmaternityleavearenotrecogniseduntilthetimeofleave.
(b)PensionobligationsTheGroupparticipatesinvariousdefinedcontributionretirementbenefitplanswhichareavailabletoallrelevantemployees.
Theseplansaregenerallyfundedthroughpaymentstoschemesestablishedbygovernmentsortrustee-administeredfunds.
AdefinedcontributionplanisapensionplanunderwhichtheGrouppayscontributionsonamandatory,contractualorvoluntarybasisintoaseparatefund.
TheGrouphasnolegalorconstructiveobligationstopayfurthercontributionsifthefunddoesnotholdsufficientassetstopayallemployeesthebenefitsrelatingtoemployeeservicesinthecurrentandprioryears.
TheGroup'scontributionstothedefinedcontributionplansareexpensedasincurredandnotreducedbycontributionsforfeitedbythoseemployeeswholeavetheplanspriortovestingfullyinthecontributions.
(c)Share-basedcompensationbenefitsTheGroupoperatesanumberofshare-basedcompensationplans(includingshareoptionschemesandshareawardschemes),underwhichtheGroupreceivesservicesfromemployeesandotherqualifyingparticipantsasconsiderationforequityinstruments(includingshareoptionsandawardedshares)oftheGroup.
Thefairvalueoftheemployeeservicesandotherqualifyingparticipants'servicesreceivedinexchangeforthegrantofequityinstrumentsoftheGroupisrecognisedasanexpenseoverthevestingperiod,i.
e.
theperiodoverwhichallofthespecifiedvestingconditionsaretobesatisfied,andcreditedtoequity.
Forgrantofshareoptions,thetotalamounttobeexpensedisdeterminedbyreferencetothefairvalueoftheoptionsgrantedbyusingoption-pricingmodel,"EnhancedFAS123"binomialmodel(the"BinomialModel"),whichincludestheimpactofmarketperformanceconditions(suchastheCompany'sshareprice)butexcludestheimpactofserviceconditionandnon-marketperformanceconditions.
Forgrantofawardshares,thetotalamounttobeexpensedisdeterminedbyreferencetothemarketpriceoftheCompany'ssharesatthegrantdate.
TheGroupalsoadoptsvaluationtechniquestoassessthefairvalueofotherequityinstrumentsoftheGroupgrantedundertheshare-basedcompensationplansasappropriate.
1712SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
28Employeebenefits(Cont'd)(c)Share-basedcompensationbenefits(Cont'd)Non-marketperformanceandserviceconditionsareincludedinassumptionsaboutthenumberofoptionsthatareexpectedtobecomevested.
FromtheperspectiveoftheCompany,thegrantsofitsequityinstrumentstoemployeesofitssubsidiariesaremadeinexchangefortheirservicesrelatedtothesubsidiaries.
Accordingly,theshare-basedcompensationexpensesaretreatedaspartofthe"Investmentsinsubsidiaries"intheCompany'sstatementoffinancialposition.
Ateachreportingperiodend,theGrouprevisestheestimatesofthenumberofoptionsandawardedsharesthatareexpectedtoultimatelyvest.
Itrecognisestheimpactoftherevisiontooriginalestimates,ifany,intheconsolidatedincomestatementoftheGroup,withacorrespondingadjustmenttoequity.
Whentheoptionsareexercised,theproceedsreceivednetofanydirectlyattributabletransactioncostsarecreditedtosharecapital(nominalvalue)andsharepremium.
IftheGrouprepurchasesvestedequityinstruments,thepaymentsmadetotheemployeesandotherqualifyingparticipantsshallbeaccountedforasadeductionfromequity,excepttotheextentthatthepaymentexceedsthefairvalueoftheequityinstrumentsrepurchased,measuredattherepurchasedate.
Anysuchexcessshallberecognisedasanexpense.
Ifthetermsofanequity-settledawardaremodified,ataminimumanexpenseisrecognisedasifthetermshadnotbeenmodified.
Anadditionalexpenseisrecognisedforanymodificationthatincreasesthetotalfairvalueoftheshare-basedpaymentarrangement,orisotherwisebeneficialtotheemployeesandotherqualifyingparticipants,asmeasuredatthedateofmodification.
2.
29ProvisionsProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itisprobablethatanoutflowofresourceswillberequiredtosettletheobligation;andtheamountcanbereliablyestimated.
Provisionsarenotrecognisedforfutureoperatinglosses.
Wherethereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequiredinsettlementisdeterminedbyconsideringtheclassofobligationsasawhole.
Aprovisionisrecognisedevenifthelikelihoodofanoutflowwithrespecttoanyoneitemincludedinthesameclassofobligationsmaybesmall.
172TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
29Provisions(Cont'd)Provisionsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettletheobligationusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation.
Theincreaseintheprovisionduetopassageoftimeisrecognisedasinterestexpense.
2.
30RevenuerecognitionTheGroupgeneratesrevenuesprimarilyfromprovisionofVAS,onlineadvertisingservicesandotheronlinerelatedservicesinthePRC.
Revenueisrecognisedwhenthecontrolofthegoodsorservicesistransferredtoacustomer.
Dependingonthetermsofthecontractandthelawsthatapplytothecontract,controlofthegoodsandservicesmaybetransferredovertimeoratapointintime.
(a)VASRevenuesfromVASprimarilyincluderevenuesfromtheprovisionofonlinegamesandsocialnetworksservices.
Onlinegamesrevenuesaremainlyderivedfromsalesofin-gamevirtualitems,andsocialnetworksrevenuesaremainlyderivedfromsalesofvirtualproductssuchasVASsubscriptionsacrossvariousonlineplatforms,andgamesrevenuesattributabletosocialnetworksbusiness.
TheGroupoffersvirtualproducts/itemstousersontheGroup'sonlineplatforms.
TheVASfeesarepaiddirectlybyendusersmainlyviaonlinepaymentchannels.
RevenuefromVASisrecognisedwhentheGroupsatisfiesitsperformanceobligationsbyrenderingservices.
GivingthereisanexplicitorimplicitobligationoftheGrouptomaintainthevirtualproducts/itemsoperatedontheGroup'splatformsandallowuserstogainaccesstothem,revenueisrecognisedovertheestimatedlifespansoftherespectivevirtualproducts/items.
Theestimatedlifespansofdifferentvirtualproducts/itemsaredeterminedbythemanagementbasedoneithertheexpecteduserrelationshipperiodsorthestipulatedperiodofvalidityoftherelevantvirtualproducts/itemsdependingontherespectivetermofvirtualproducts/items.
Wherethecontractsincludemultipleperformanceobligations,theGroupallocatesthetransactionpricetoeachperformanceobligationonarelativestand-alonesellingpricebasis,whichisdeterminedbasedonthepriceschargedtoorexpectedtorecoverfromcustomers.
1732SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
30Revenuerecognition(Cont'd)(a)VAS(Cont'd)InrespectoftheGroup'sVASservicesdirectlydeliveredtotheGroup'scustomersandpaidthroughvariousthirdpartiesplatforms,thesethirdpartyplatformscollecttherelevantservicefees(the"OnlineServiceFees")onbehalfoftheGroupandtheyareentitledtoapre-determinedpercentageofplatformproviderfees(aspartof"Channelanddistributioncosts").
SuchChannelanddistributioncostsarewithheldanddeductedfromthegrossOnlineServiceFeescollectedbytheseplatformsfromtheusers,withthenetamountsremittedtotheGroup.
TheGrouprecognisestheOnlineServiceFeesasrevenueonagrossbasis,givenitactsastheprincipalinthesetransactionsbasedontheassessmentaccordingtothecriteriastatedin(d)below,andrecognisessuchChannelanddistributioncostsascostofrevenues.
TheGroupalsoopensitsonlineplatformstothird-partygame/applicationdevelopersundercertainco-operationagreements,ofwhichtheGrouppaystothethird-partygame/applicationdevelopersapre-determinedpercentageofthefeespaidbyandcollectedfromtheusersoftheGroup'sonlineplatformsforthevirtualproducts/itemspurchased.
TheGrouprecognisestherelatedrevenueonagrossornetbasisdependingonwhethertheGroupisactingasaprincipaloranagentinthetransaction.
TheGroupadoptsdifferentrevenuerecognitionmethodsbasedonitsspecificresponsibilities/obligationsindifferentVASofferings.
(b)OnlineadvertisingOnlineadvertisingrevenuesmainlycompriserevenuesderivedfrommediaadvertisementsandfromsocialandothersadvertisements,dependingontheplacementofadvertisingpropertiesandinventories.
Advertisingcontractsaresignedtoestablishthepricesandadvertisingservicestobeprovidedbasedondifferentarrangements,includingdisplay-basedadvertisingthataredisplayofadsforanagreedperiodoftime,andperformance-basedadvertising.
174TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
30Revenuerecognition(Cont'd)(b)Onlineadvertising(Cont'd)Revenuefromdisplay-basedadvertisingarerecognisedonnumberofdisplay/impressionbasisorratablyovertherespectivecontractualtermwiththeadvertisersortheiradvertisingagenciesdependingonthecontractualmeasures.
Revenuefromperformance-basedadvertisingarerecognisedwhenrelevantspecificperformancemeasuresarefulfilled.
Wherethecontractsincludemultipleperformanceobligations,theGroupallocatesthetransactionpricetoeachperformanceobligationonarelativestand-alonesellingpricebasis,whichisdeterminedbasedonthepriceschargedtoorexpectedtorecoverfromcustomers.
(c)OtherrevenuesTheGroup'sotherrevenuesareprimarilyderivedfromprovisionofFinTechservices,cloudservices,televisionseriesandfilmproductionservicesandotherbusinesses.
TheGrouprecognisesotherrevenueswhentherespectiveservicesarerendered,orwhenthecontroloftheproductsaretransferredtocustomers.
(d)PrincipalagentconsiderationTheGroupreportsrevenueonagrossornetbasisdependingonwhethertheGroupisactingasaprincipaloranagentinatransaction.
TheGroupisaprincipalifitcontrolsthespecifiedproductorservicebeforethatproductorserviceistransferredtoacustomerorithasarighttodirectotherstoprovidetheproductorservicetothecustomerontheGroup'sbehalf.
IndicatorsthattheGroupisaprincipalincludebutnotlimitedtowhethertheGroup(i)istheprimaryobligorinthearrangement;(ii)haslatitudeinestablishingthesellingprice;(iii)hasdiscretioninsupplierselection;(iv)changestheproductorperformspartoftheservice,and(v)hasinvolvementinthedeterminationofproductorservicespecifications.
1752SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
30Revenuerecognition(Cont'd)(e)ContractliabilitiesandcontractcostsAcontractliabilityistheGroup'sobligationtotransfergoodsorservicestoacustomerforwhichtheGrouphasreceivedconsideration(oranamountofconsiderationisdue)fromthecustomer.
TheGroup'scontractliabilitiesmainlycompriseofunamortisedpre-paidtokensorcards,virtualitems,Internettrafficandothersupporttobeofferedtocertaininvesteecompaniesinthefutureperiodsmeasuredattheirfairvalueontheinceptiondates(Note5(c)),andcustomerloyaltyincentivesofferedtothecustomers.
Contractcostsincludeincrementalcostsofobtainingacontractandcoststofulfilacontractwiththecustomers.
Thecontractcostsareamortisedusingamethodwhichisconsistentwiththepatternofrecognitionoftherespectiverevenues.
(f)PracticalexpedientsandexemptionsThetransactionpriceallocatedtotheperformanceobligationsthatareunsatisfied,orpartiallyunsatisfied,hasnotbeendisclosed,assubstantiallyalloftheGroup'scontractshaveadurationofoneyearorless.
Theunsatisfiedperformanceobligationrelatedtocooperationarrangementswithcertaininvesteeshavebeenincludedindeferredrevenue.
2.
31InterestincomeInterestincomeiscalculatedbyapplyingtheeffectiveinterestratetothegrosscarryingamountofafinancialassetexceptforfinancialassetsthatsubsequentlybecomecredit-impaired.
Forcredit-impairedfinancialassetstheeffectiveinterestrateisappliedtothenetcarryingamountofthefinancialasset(afterdeductionofthelossallowance).
Interestincomeispresentedas"Interestincome"whereitismainlyearnedfromfinancialassetsthatareheldforcashmanagementpurposes.
Accountingpoliciesapplieduntil31December2017Interestincomeisrecognisedonatimeproportionbasis,takingintoaccountoftheprincipaloutstandingandtheeffectiveinterestrateovertheperiodtomaturity,whenitisdeterminedthatsuchincomewillaccruetotheGroup.
176TencentHoldingsLimited2SUMMARYOFPRINCIPALACCOUNTINGPOLICIES(Cont'd)2.
32DividendincomeDividendsarereceivedfromFVPLandFVOCI(2017:fromAFS).
Dividendsarerecognisedin"Othergains/(losses),net"intheconsolidatedincomestatementwhentherighttoreceivepaymentisestablished.
Thisapplieseveniftheyarepaidoutofpre-acquisitionprofits,unlessthedividendclearlyrepresentsarecoveryofpartofthecostofaninvestment.
Inthiscase,thedividendisrecognisedinothercomprehensiveincomeifitrelatestoaninvestmentmeasuredatFVOCI.
However,theinvestmentmayneedtobetestedforimpairmentasaconsequence.
2.
33Governmentgrants/subsidiesGrants/Subsidiesfromgovernmentarerecognisedattheirfairvaluewherethereisareasonableassurancethatthegrants/subsidieswillbereceivedandtheGroupwillcomplywithallattachedconditions.
Underthesecircumstances,thegrants/subsidiesarerecognisedasincomeormatchedwiththeassociatedcostsandexpenseswhichthegrants/subsidiesareintendedtocompensate.
2.
34LeasesLeasesinwhichasignificantportionoftherisksandrewardsofownershipareretainedbylessorsareclassifiedasoperatingleases.
Paymentsmadeunderoperatingleases(netofanyincentivesreceivedfromthelessor)arechargedtotheconsolidatedincomestatementonastraight-linebasisovertheperiodofthelease.
2.
35DividendsdistributionDividendsdistributiontotheCompany'sshareholdersisrecognisedasaliabilityintheGroup'sandCompany'sfinancialstatementsintheperiodinwhichthedividendisapprovedbytheCompany'sshareholdersorboardofdirectorswhereappropriate.
2.
36ResearchanddevelopmentexpensesResearchexpenditureisrecognisedasanexpenseasincurred.
Costsincurredondevelopmentprojects(relatingtothedesignandtestingofneworimprovedproducts)arecapitalisedasintangibleassetswhenrecognitioncriteriaarefulfilledandtestsforimpairmentareperformedannually.
Otherdevelopmentexpendituresthatdonotmeetthosecriteriaarerecognisedasexpensesasincurred.
Developmentcostspreviouslyrecognisedasexpensesarenotrecognisedasassetsinsubsequentperiods.
1773FINANCIALRISKMANAGEMENT3.
1FinancialriskfactorsTheGroup'sactivitiesexposeittoavarietyoffinancialrisks:marketrisk(includingforeignexchangerisk,priceriskandinterestraterisk),creditriskandliquidityrisk.
TheGroup'soverallriskmanagementstrategyseekstominimisethepotentialadverseeffectsonthefinancialperformanceoftheGroup.
RiskmanagementiscarriedoutbytheseniormanagementoftheGroup.
(a)Marketrisk(i)ForeignexchangeriskTheGroupoperatesinternationallyandisexposedtoforeignexchangeriskarisingfromvariouscurrencyexposures,primarilywithrespecttoHongKongDollars("HKD"),USDandEuro("EUR").
ForeignexchangeriskariseswhenfuturecommercialtransactionsorrecognisedassetsandliabilitiesaredenominatedinacurrencythatisnottherespectivefunctionalcurrencyoftheGroup'ssubsidiaries.
ThefunctionalcurrencyoftheCompanyandmajorityofitsoverseassubsidiariesisUSDwhereasthefunctionalcurrencyofthesubsidiarieswhichoperateinthePRCisRMB.
TheGroupmanagesitsforeignexchangeriskbyperformingregularreviewsoftheGroup'snetforeignexchangeexposuresandtriestominimisetheseexposuresbyusingforeigncurrencyforwards.
Duringtheyearended31December2018,theGroupenteredintoforeigncurrencyforwardcontractsinrelationtoprojectedpurchasesthatqualifyas"highprobable"forecasttransactionsandhencesatisfytherequirementsforhedgeaccounting.
UndertheGroup'spolicythecriticaltermsoftheforwardsmustalignwiththehedgeditems.
TheGrouponlydesignatesthespotcomponentofforeigncurrencyforwardsinhedgerelationships.
Thespotcomponentisdeterminedwithreferencetorelevantspotmarketexchangerates.
Thedifferentialbetweenthecontractedforwardrateandthespotmarketexchangerateisdefinedastheforwardpoints.
Itisdiscounted,wherematerial.
Thechangesintheforwardelementoftheforeigncurrencyforwardsthatrelatetohedgeditemsaredeferredinthecostsofhedgingreserve.
TheeffectsoftheforeigncurrencyrelatedhedginginstrumentsarenotmaterialtotheGroup'sconsolidatedfinancialstatements.
178TencentHoldingsLimited3FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(a)Marketrisk(Cont'd)(i)Foreignexchangerisk(Cont'd)Asat31December2018,theGroup'smajormonetaryassetsandliabilitiesexposedtoforeignexchangeriskarelistedbelow:USDdenominatedNon-USDdenominatedRMB'MillionRMB'MillionAsat31December2018Monetaryassets,current18,0411,994Monetaryassets,non-current2,642–Monetaryliabilities,current(3,434)(4,587)Monetaryliabilities,non-current(3,733)(9,430)13,516(12,023)Asat31December2017Monetaryassets,current13,7951,563Monetaryassets,non-current1,309–Monetaryliabilities,current(2,747)(15,744)Monetaryliabilities,non-current(1,833)(5,115)10,524(19,296)Duringtheyearended31December2018,theGroupreportedexchangegainsofapproximatelyRMB229million(2017:RMB152million)within"Financecosts,net"intheconsolidatedincomestatement.
Asat31December2018,managementconsidersthatanyreasonablechangesinforeignexchangeratesoftheabovecurrenciesagainstthetwomajorfunctionalcurrencieswouldnotresultinasignificantchangeintheGroup'sresults,asthenetcarryingamountsoffinancialassetsandliabilitiesdenominatedinacurrencyotherthantherespectivesubsidiaries'functionalcurrencyareconsideredtobenotsignificant,giventheexchangeratepegbetweenHKDandUSD.
Accordingly,nosensitivityanalysisispresentedforforeignexchangerisk.
1793FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(a)Marketrisk(Cont'd)(ii)PriceriskTheGroupisexposedtoequitypriceriskmainlyarisingfrominvestmentsheldbytheGroupthatareclassifiedeitherasFVPL(Note23)orFVOCI(Note24).
Tomanageitspriceriskarisingfromtheinvestments,theGroupdiversifiesitsinvestmentportfolio.
Theinvestmentsaremadeeitherforstrategicpurposes,orforthepurposeofachievinginvestmentyieldandbalancingtheGroup'sliquiditylevelsimultaneously.
Eachinvestmentismanagedbyseniormanagementonacasebycasebasis.
SensitivityanalysisisperformedbymanagementtoassesstheexposureoftheGroup'sfinancialresultstoequitypriceriskofFVPLandFVOCI(2017:AFS)attheendofeachreportingperiod.
IfpricesoftherespectiveinstrumentsheldbytheGrouphadbeen5%(31December2017:5%)higher/lowerasat31December2018,profitfortheyearwouldhavebeenapproximatelyRMB4,794millionhigher/lowerasaresultofgains/lossesonfinancialinstrumentsclassifiedasatFVPL,othercomprehensiveincomewouldhavebeenapproximatelyRMB2,147millionhigher/lowerasaresultofgains/lossesonfinancialinstrumentsclassifiedasatFVOCI(2017:RMB4,069million).
(iii)InterestrateriskTheGroup'sincomeandoperatingcashflowsaresubstantiallyindependentfromchangesinmarketinterestratesandtheGrouphasnosignificantinterest-bearingassetsexceptforloanstoinvesteesandinvestees'shareholders,termdepositswithinitialtermsofoverthreemonths,restrictedcashandcashandcashequivalents,detailsofwhichhavebeendisclosedinNotes25,28and30.
TheGroup'sexposuretochangesininterestratesisalsoattributabletoitsborrowingsandnotespayable,detailsofwhichhavebeendisclosedinNotes34and35,representingasubstantialportionoftheGroup'sdebts.
BorrowingsandnotespayablecarriedatfloatingratesexposetheGrouptocashflowinterest-rateriskwhereasthosecarriedatfixedratesexposetheGrouptofairvalueinterest-raterisk.
TheGroupregularlymonitorsitsinterestraterisktoidentifyifthereareanyundueexposurestosignificantinterestratemovementsandmanagesitscashflowinterestrateriskbyusinginterestrateswaps,wheneverconsiderednecessary.
180TencentHoldingsLimited3FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(a)Marketrisk(Cont'd)(iii)Interestraterisk(Cont'd)Duringtheyearended31December2018,theGroupenteredintocertaininterestrateswapcontractstohedgeitsexposurearisingfromborrowingscarriedatfloatingrates.
Undertheseinterestrateswapcontracts,theGroupagreedwiththecounterpartiestoexchange,atspecifiedinterval,thedifferencebetweenfixedcontractratesandfloating-rateinterestamountscalculatedbyreferencetotheagreednotionalamounts.
Theseinterestrateswapcontractshadtheeconomiceffectofconvertingborrowingsfromfloatingratestofixedratesandwerequalifiedforhedgeaccounting.
DetailsoftheGroup'soutstandinginterestrateswapcontractsasat31December2018havebeendisclosedinNote26.
TheeffectsoftheinterestrateswapsontheGroup'sfinancialpositionandperformanceareasfollows:20182017RMB'MillionRMB'MillionInterestrateswapsCarryingamount1,6631,300Notionalamount77,63070,184Maturitydate2019/6/28~2023/12/82019/6/28~2023/12/8Hedgeratio1:11:1Changeinfairvalueofoutstandinghedginginstrumentssince1January181756Changeinvalueofhedgeditemusedtodeterminehedgeeffectiveness181756Weightedaveragehedgedratefortheyear1.
60%1.
52%Swapscurrentlyinplacecovermajorityofthefloating-rateborrowingandnotespayableprincipaloutstanding.
Asat31December2018and2017,managementconsideredthatanyreasonablechangesintheinterestrateswouldnotresultinasignificantchangeintheGroup'sresultsastheGroup'sexposuretocashflowinterest-rateriskarisingfromitsborrowingsandnotespayablecarriedatfloatingratesafterconsideringtheeffectofhedgingisconsideredtobeinsignificant.
Accordingly,nosensitivityanalysisispresentedforinterestraterisk.
1813FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(b)CreditriskTheGroupisexposedtocreditriskinrelationtoitscashanddepositsplacedwithbanksandfinancialinstitutions,accountsreceivable,otherreceivables,aswellasshort-terminvestmentsmeasuredatamortisedcostandatFVPL.
ThecarryingamountofeachclassofthesefinancialassetsrepresentstheGroup'smaximumexposuretocreditriskinrelationtothecorrespondingclassoffinancialassets.
(i)Creditriskofcashanddepositsandshort-terminvestmentsTomanagethisrisk,theGrouponlymakestransactionswithstate-ownedbanksandfinancialinstitutionsinthePRCandreputableinternationalbanksandfinancialinstitutionsoutsideofthePRC.
Therehasbeennorecenthistoryofdefaultinrelationtothesebanksandfinancialinstitutions.
Theexpectedcreditlossisclosetozero.
(ii)CreditriskofaccountsreceivableTomanagethisrisk,theGrouphaspoliciesinplacetoensurethatrevenuesofcredittermsaremadetocounterpartieswithanappropriatecredithistoryandthemanagementperformsongoingcreditevaluationsofitscounterparties.
Inaddition,theGrouphasalargenumberofcustomersandthereisnoconcentrationofcreditrisk.
TheGroup'sonlineadvertisingthataresalesto/throughadvertisingagenciesordirectlytotheadvertisersareattermoffulladvances,partialadvancesorsalesoncreditaccordingtotheGroup'screditpolicies.
Thecreditperiodgrantedtothecustomersisusuallynotmorethan90daysandthecreditqualityofthesecustomersareassessed,whichtakesintoaccounttheirfinancialposition,pastexperienceandotherfactors.
TheGroup'srevenuesfromVASaregenerallypaidbyendusersmainlyviaonlinepaymentchannels,whereastherevenuesfromVASdeliveredtoitsendusersthroughthirdpartyplatformsarecollectedbythesethirdpartyplatformprovidersandremittedtotheGroupunderacreditperiodwithin60days.
Inaddition,theGroupalsosellsprepaidcreditsthroughvariouschannelssuchassalesagents,telecommunicationoperators,thirdpartyplatformprovidersandInternetcafes,etc.
Apartfromcertaincreditperiodsgrantedtothetelecommunicationoperatorsandthirdpartyplatformproviders,fulladvancesarerequiredfromotherchannels.
182TencentHoldingsLimited3FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(b)Creditrisk(Cont'd)(ii)Creditriskofaccountsreceivable(Cont'd)TheGroupappliesthesimplifiedapproachtoprovideforexpectedcreditlossesprescribedbyIFRS9,whichpermitstheuseofthelifetimeexpectedlossprovisionforallaccountsreceivable.
Inviewofthesoundfinancialpositionandcollectionhistoryofreceivablesduefromthesecounterpartiesandinsignificantriskofdefault,tomeasuretheexpectedcreditlosses,accountsreceivablehavebeengroupedbasedonsharedcreditriskcharacteristicsandthedayspastdue.
Adefaultonaccountsreceivableiswhenthecounterpartyfailstomakecontractualpaymentswithin90daysofwhentheyfalldue.
Accountsreceivablearewrittenoff,inwholeorinpart,whenithasexhaustedallpracticalrecoveryeffortsandhasconcludedthatthereisnoreasonableexpectationofrecovery.
Indicatorsthatthereisnoreasonableexpectationofrecoveryinclude,amongstothers,thefailureofadebtortoengageinarepaymentplanwithintheGroup,anditsfailuretomakecontractualpaymentsforaperiodofgreaterthan3yearspastdue.
Impairmentlossesonaccountsreceivablesarepresentedasnetimpairmentlosseswithinoperatingprofit.
Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainstthesameitem.
ManagementbelievesthattheexpectedcreditlossisimmaterialandthecreditriskinherentintheGroup'soutstandingaccountsreceivablebalancesduefromthesecounterpartiesisnotsignificant.
(iii)CreditriskofotherreceivablesOtherreceivablesattheendofeachoftheyearsaremainlycomprisedofloanstoinvesteesandinvestees'shareholders,rentaldepositsandotherreceivables.
TheGroupconsiderstheprobabilityofdefaultuponinitialrecognitionofassetandwhethertherehasbeensignificantincreaseincreditriskonanongoingbasisthroughouteachoftheyears.
Toassesswhetherthereisasignificantincreaseincreditrisk,theGroupcomparesriskofdefaultoccurringontheassetsasatthereportingdatewiththeriskofdefaultasatthedateofinitialrecognition.
Especiallythefollowingindicatorsareincorporated:–actualorexpectedsignificantadversechangesinbusiness,financialoreconomicconditionsthatareexpectedtocauseasignificantchangetothedebtor'sabilitytomeetitsobligations;–actualorexpectedsignificantchangesintheoperatingresultsofthedebtor;–significantchangesintheexpectedperformanceandbehaviorofthedebtor,includingchangesinthepaymentstatusofthedebtor.
1833FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(b)Creditrisk(Cont'd)(iii)Creditriskofotherreceivables(Cont'd)Managementconsidersthecreditriskofotherreceivablesisinsignificantwhentheyhavealowriskofdefaultandtheissuerhasastrongcapacitytomeetitscontractualcashflowobligationsinthenearterm,andthelossallowancerecognisedisthereforelimitedto12monthsexpectedlosses.
Inviewofinsignificantriskofdefaultandcreditrisksinceinitialrecognition,managementbelievesthattheexpectedcreditlossunderthe12monthsexpectedlossesmethodisimmaterial.
Previousaccountingpolicyforimpairmentofaccountsreceivableandotherreceivablesisdescribedinnote2.
16(c).
(c)LiquidityriskTheGroupaimstomaintainsufficientcashandcashequivalentsandmarketablesecurities.
Duetothedynamicnatureoftheunderlyingbusinesses,theGroupmaintainsflexibilityinfundingbymaintainingadequatecashandcashequivalentsandmarketablesecurities.
184TencentHoldingsLimited3FINANCIALRISKMANAGEMENT(Cont'd)3.
1Financialriskfactors(Cont'd)(c)Liquidityrisk(Cont'd)ThetablebelowanalysestheGroup'sfinancialliabilitiesbyrelevantmaturitygroupingsbasedontheremainingperiodsincetheendofthereportingperiodtothecontractualmaturitydate(ortheearliestdateafinancialliabilitymaybecomepayableintheabsenceofafixedmaturitydate).
Theamountsdisclosedinthetablearethecontractualundiscountedcashflows.
Lessthan1yearBetween1and2yearsBetween2and5yearsOver5yearsTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt31December2018Non-derivatives:Notespayable15,78012,01014,62938,30580,724Long-termpayables–3,1131,0183434,474Borrowings30,40221,30972,626–124,337Otherfinancialliabilities1,1919421,615–3,748Accountspayable,otherpayablesandaccruals(excludingprepaymentsreceivedfromcustomersandothers,staffcostsandwelfareaccruals)90,310–––90,310Derivatives:Otherfinancialliabilities9–31–40137,69237,37489,91938,648303,633At31December2017Non-derivatives:Notespayable5,89213,83210,7577,49237,973Long-termpayables–2,3459057343,984Borrowings18,19010,12771,6636,109106,089Otherfinancialliabilities––2,068–2,068Accountspayable,otherpayablesandaccruals(excludingprepaymentsreceivedfromcustomersandothers,staffcostsandwelfareaccruals)65,651–––65,651Derivatives:Otherfinancialliabilities––86–8689,73326,30485,47914,335215,8511853FINANCIALRISKMANAGEMENT(Cont'd)3.
2CapitalriskmanagementTheGroup'sobjectivesonmanagingcapitalaretosafeguardtheGroup'sabilitytocontinueasagoingconcernandsupportthesustainablegrowthoftheGroupinordertoprovidereturnsforshareholdersandbenefitsforotherstakeholdersandtomaintainanoptimalcapitalstructuretoenhanceshareholders'valueinthelongterm.
Capitalreferstoequityandexternaldebts(includingborrowingsandnotespayable).
Inordertomaintainoradjustthecapitalstructure,theGroupmayadjusttheamountofdividendspaidtoshareholders,returncapitaltoshareholders,issuenewshares,repurchasetheCompany'ssharesorraise/repaydebts.
TheGroupmonitorscapitalbyregularlyreviewingdebtstoadjustedearningsbeforeinterest,tax,depreciationandamortisation("EBITDA")(Note)ratio,beingthemeasureoftheGroup'sabilitytopayoffalldebtsthatreflectsfinancialhealthandliquidityposition.
Thetotaldebts/adjustedEBITDAratiocalculatedbydividingthetotaldebtsbyadjustedEBITDAisasfollows:Asat31December20182017RMB'MillionRMB'MillionBorrowings(Note34)114,27197,790Notespayable(Note35)65,01834,115Totaldebts179,289131,905AdjustedEBITDA(Note)118,27395,861Totaldebts/AdjustedEBITDAratio1.
521.
38Note:AdjustedEBITDArepresentsoperatingprofitlessinterestincomeandothergains/(losses),net,andplusdepreciationofproperty,plantandequipmentandinvestmentproperties,amortisationofintangibleassetsandequity-settledshare-basedcompensationexpenses.
186TencentHoldingsLimited3FINANCIALRISKMANAGEMENT(Cont'd)3.
3FairvalueestimationThetablebelowanalysestheGroup'sfinancialinstrumentscarriedatfairvalueasat31December2018byleveloftheinputstovaluationtechniquesusedtomeasurefairvalue.
Suchinputsarecategorisedintothreelevelswithinafairvaluehierarchyasfollows:Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1);Inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliability,eitherdirectly(thatis,asprices)orindirectly(thatis,derivedfromprices)(level2);andInputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis,unobservableinputs)(level3).
Level1Level2Level3TotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionAsat31December2018FVPL10,8755,00981,99397,877FVOCI41,578–1,94143,519OFA–2,032–2,032Otherfinancialliabilities–404,4664,506Asat31December2017AFS53,57433173,313127,218OFA–1,8063,8185,624Otherfinancialliabilities––2,1542,154Thefairvalueoffinancialinstrumentstradedinactivemarketsisdeterminedwithreferencetoquotedmarketpricesattheendofthereportingperiod.
Amarketisregardedasactiveifquotedpricesarereadilyandregularlyavailablefromanexchange,dealer,broker,industrygroup,pricingservice,orregulatoryagency,andthosepricesrepresentactualandregularlyoccurringmarkettransactionsonanarm'slengthbasis.
Theseinstrumentsareincludedinlevel1.
Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarketisdeterminedbyusingvaluationtechniques.
Thesevaluationtechniquesmaximisetheuseofobservablemarketdatawhereitisavailableandrelyaslittleaspossibleonentityspecificestimates.
Ifallsignificantinputsrequiredforevaluatingthefairvalueofafinancialinstrumentareobservable,theinstrumentisincludedinlevel2.
Ifoneormoreofthesignificantinputsarenotbasedonobservablemarketdata,theinstrumentisincludedinlevel3.
1873FINANCIALRISKMANAGEMENT(Cont'd)3.
3Fairvalueestimation(Cont'd)Specificvaluationtechniquesusedtovaluefinancialinstrumentsmainlyinclude:Dealerquotesforsimilarinstruments;Thefairvalueofinterestrateswapsiscalculatedasthepresentvalueoftheestimatedfuturecashflowsbasedonobservableyieldcurves;andOthertechniques,suchasdiscountedcashflowanalysis,areusedtodeterminefairvalueforfinancialinstruments.
Duringtheyearended31December2018,therewasnotransferbetweenlevel1and2forrecurringfairvaluemeasurements.
Fortransfersinandoutoflevel3measurementsseethefollowingtable,whichpresentsthechangesoffinancialinstrumentsinlevel3instrumentsfortheyearsended31December2018and2017:FinancialassetsFinancialliabilities2018201720182017RMB'MillionRMB'MillionRMB'MillionRMB'MillionOpeningbalance-IAS3977,13165,5992,1542,576AdjustmentonadoptionofIFRS9(Note2.
2(a))22,976–Openingbalance-IFRS9100,1072,154Additions51,18531,7953,301–Disposals/Settlement(9,899)(7,006)––Transfers(93,151)(18,641)––Changesinfairvaluerecognisedinothercomprehensiveincome2616,220––Changesinfairvaluerecognisedinprofitorloss*30,4854,027(1,063)(271)Impairmentprovision–(581)––Currencytranslationdifferences4,946(4,282)74(151)Closingbalance83,93477,1314,4662,154*Includesunrealisedgainsor(losses)recognisedinprofitorlossattributabletobalancesheldattheendofthereportingperiod6,8613,954(1,063)(271)188TencentHoldingsLimited3FINANCIALRISKMANAGEMENT(Cont'd)3.
3Fairvalueestimation(Cont'd)Valuationprocessesinputsandrelationshipstofairvalue(Level3)TheGrouphasateamofpersonnelwhoperformsvaluationontheselevel3instrumentsforfinancialreportingpurposes.
Theteamperformsvaluation,ornecessaryupdates,atleastonceeveryquarter,whichcoincideswiththeGroup'squarterlyreportingdates.
Onanannualbasis,theteamadoptsvariousvaluationtechniquestodeterminethefairvalueoftheGroup'slevel3instruments.
Externalvaluationexpertsmayalsobeinvolvedandconsultedwhenitisnecessary.
Thecomponentsofthelevel3instrumentsmainlyincludeinvestmentsinunlistedcompaniesclassifiedasFVPLorFVOCI,andotherfinancialliabilities.
Otherfinancialliabilitiesmainlyinclude:(i)contingentconsiderationpayablerelatedtobusinesscombinationoftheGroup;and(ii)guaranteeprovidedbytheGrouponcertainputarrangementsofanassociateandputoptionsissuedbytheGrouptocertaininvestorsoftheassociate,atapre-determinedpricingformula.
Astheseinvestmentsandinstrumentsarenottradedinanactivemarket,majorityoftheirfairvalueshavebeendeterminedusingapplicablevaluationtechniquesincludingcomparabletransactionsapproachandotheroptionpricingapproach.
Thesevaluationapproachesrequiresignificantjudgment,assumptionsandinputs,includingrisk-freerates,expectedvolatility,relevantunderlyingfinancialprojections,andmarketinformationofrecenttransactions(suchasrecentfundraisingtransactionsundertakenbytheinvestees)andotherexposure,etc.
Thefollowingtablesummarisesthequantitativeinformationaboutthesignificantunobservableinputsusedinlevel3fairvaluemeasurements.
DescriptionFairvalueasat31DecemberSignificantunobservableinputsRangeofinputsat31DecemberRelationshipofunobservableinputstofairvalue2018201720182017RMB'MillionRMB'MillionInvestmentsinunlistedcompanies83,93477,131Expectedvolatility28%~76%31%~59%Thehighertheexpectedvolatility,thelowerthefairvalueContingentconsiderationrelatedtobusiness3,145–Growthrateofnetprofit50%N/AThehigherthegrowthrate,thehigherthefairvaluecombinationExpectedvolatility15%N/AThehighertheexpectedvolatility,thelowerthefairvalue1893FINANCIALRISKMANAGEMENT(Cont'd)3.
3Fairvalueestimation(Cont'd)ForthefairvalueoftheGroup'sinvestmentsinunlistedcompanies,thesensitivityanalysisisperformedbymanagement,seeNote3.
1(a)(ii)fordetails.
Forthefairvalueofcontingentconsiderationrelatedtobusinesscombination,ifgrowthrateofnetprofithadbeen5%higherorlowerasat31December2018,thefairvaluewouldhaveincreasedapproximatelyRMB150millionordecreasedapproximatelyRMB171million.
Iftheexpectedvolatilityhadbeen5%higherorlowerasat31December2018,thefairvaluewouldhavedecreasedapproximatelyRMB90millionorincreasedapproximatelyRMB92million.
4CRITICALACCOUNTINGESTIMATESANDJUDGMENTSEstimatesandjudgmentsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.
TheGroupmakesestimatesandassumptionsconcerningthefuture.
Theresultingaccountingestimateswill,bydefinition,seldomequaltotherelatedactualresults.
Theestimatesandassumptionsthathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyearareaddressedbelow:(a)Theestimatesofthelifespansofvirtualproducts/itemsprovidedontheGroup'sonlineplatformsAsmentionedinNote2.
30(a),theenduserspurchasecertainvirtualproducts/itemsprovidedontheGroup'sonlineplatformsandtherelevantrevenueisrecognisedbasedontheestimatedlifespansofthevirtualproducts/items.
Theestimatedlifespansofdifferentvirtualproducts/itemsaredeterminedbythemanagementbasedoneithertheexpectedusers'relationshipperiodsorthestipulatedperiodofvalidityoftherelevantvirtualproducts/itemsdependingontherespectivetermsofvirtualproducts/items.
Significantjudgmentsarerequiredindeterminingtheexpectedusers'relationshipperiods,includingbutnotlimitedtohistoricalusers'consumptionpatterns,churnoutrateandreactivityonmarketingactivities,gameslife-cycle,andtheGroup'smarketingstrategy.
TheGrouphasadoptedapolicyofassessingtheestimatedlifespansofvirtualproducts/itemsonaregularbasiswheneverthereisanyindicationofchangeintheexpectedusers'relationshipperiods.
TheGroupwillcontinuetomonitortheaveragelifespansofthevirtualproducts/items.
Theresultsmaydifferfromthehistoricalperiod,andanychangeintheestimatesmayresultintherevenuebeingrecognisedonadifferentbasisfromthatinpriorperiods.
190TencentHoldingsLimited4CRITICALACCOUNTINGESTIMATESANDJUDGMENTS(Cont'd)(b)Recoverabilityofnon-financialassetsTheGrouptestsannuallywhethergoodwillhassufferedanyimpairment.
Goodwillandothernon-financialassets,mainlyincludingproperty,plantandequipment,constructioninprogress,otherintangibleassets,investmentproperties,landuserights,aswellasinvestmentsinassociatesandjointventuresarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.
Therecoverableamountshavebeendeterminedbasedonvalue-in-usecalculationsorfairvaluelesscoststosell.
Thesecalculationsrequiretheuseofjudgmentsandestimates.
JudgmentisrequiredtoidentifyanyimpairmentindicatorsexistingforanyoftheGroup'sgoodwill,othernon-financialassetstodetermineappropriateimpairmentapproaches,i.
e.
,fairvaluelesscostsofdisposalorvalueinuse,forimpairmentreviewpurposes,andtoselectkeyassumptionsappliedintheadoptedvaluationmodels,includingdiscountedcashflowsandmarketapproach.
ChangingtheassumptionsselectedbymanagementinassessingimpairmentcouldmateriallyaffecttheresultoftheimpairmenttestandinturnaffecttheGroup'sfinancialconditionandresultsofoperations.
Ifthereisasignificantadversechangeinthekeyassumptionsapplied,itmaybenecessarytotakeadditionalimpairmentchargetotheconsolidatedincomestatement.
(c)FairvaluemeasurementofFVPL,FVOCIandotherfinancialliabilitiesThefairvalueassessmentofFVPL,FVOCIandotherfinancialliabilitiesthataremeasuredatlevel3fairvaluehierarchyrequiressignificantestimates,whichincluderisk-freerates,expectedvolatility,relevantunderlyingfinancialprojections,marketinformationofrecenttransactions(suchasrecentfundraisingtransactionsundertakenbytheinvestees)andotherassumptions.
Changesintheseassumptionsandestimatescouldmateriallyaffecttherespectivefairvalueoftheseinvestments.
(d)Share-basedcompensationarrangementsAsmentionedinNote2.
28(c),theGrouphasgrantedshareoptionstoitsemployeesandotherqualifyingparticipants.
ThedirectorshaveadoptedtheBinomialModeltodeterminethetotalfairvalueoftheoptionsgranted,whichistobeexpensedovertherespectivevestingperiods.
Significantjudgmentonparameters,suchasriskfreerate,dividendyieldandexpectedvolatility,isrequiredtobemadebythedirectorsinapplyingtheBinomialModel(Note33).
ThefairvalueofshareoptionsgrantedtoemployeesandotherqualifyingparticipantsdeterminedusingtheBinomialModelwasapproximatelyHKD3,533million(equivalenttoapproximatelyRMB2,868million)in2018(2017:HKD2,691million(equivalenttoapproximatelyRMB2,373million)).
1914CRITICALACCOUNTINGESTIMATESANDJUDGMENTS(Cont'd)(d)Share-basedcompensationarrangements(Cont'd)TheGrouphastoestimatetheexpectedyearlypercentageofgranteesthatwillstaywithintheGroupattheendofvestingperiodsoftheoptionsandawardedshares(the"ExpectedRetentionRate")inordertodeterminetheamountofshare-basedcompensationexpenseschargedtotheconsolidatedincomestatement.
Asat31December2018,theExpectedRetentionRateoftheGroupanditswholly-ownedsubsidiarieswasassessedtobe88%-97%(31December2017:88%-97%).
(e)IncometaxesTheGroupissubjecttoincometaxesinnumerousjurisdictions.
Significantjudgmentisrequiredindeterminingtheworldwideprovisionforincometaxes.
Wherethefinaltaxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactcurrentincometaxanddeferredincometaxintheperiodinwhichsuchdeterminationismade.
5SEGMENTINFORMATIONANDREVENUES(a)DescriptionofsegmentsandprincipalactivitiesThechiefoperatingdecision-makersmainlyincludeexecutivedirectorsoftheCompany.
TheyreviewtheGroup'sinternalreportinginordertoassessperformance,allocateresources,anddeterminetheoperatingsegmentsbasedonthesereports.
TheGrouphasfollowingreportablesegmentsfortheyearsended31December2018and2017:–VAS;–Onlineadvertising;and–Others.
"Others"segmentprimarilycomprisesFinTechservices,cloudservices,televisionseriesandfilmproductionservicesandotherservices.
Thechiefoperatingdecision-makersassesstheperformanceoftheoperatingsegmentsmainlybasedonsegmentrevenueandgrossprofitofeachoperatingsegment.
Thesellingandmarketingexpensesandgeneralandadministrativeexpensesarecommoncostsincurredfortheseoperatingsegmentsasawholeandtherefore,theyarenotincludedinthemeasureofthesegments'performancewhichisusedbythechiefoperatingdecision-makersasabasisforthepurposeofresourceallocationandassessmentofsegmentperformance.
Interestincome,othergains/(losses),net,financeincome/(costs),net,shareofprofit/(loss)ofassociatesandjointventuresandincometaxexpensearealsonotallocatedtoindividualoperatingsegment.
192TencentHoldingsLimited5SEGMENTINFORMATIONANDREVENUES(a)Descriptionofsegmentsandprincipalactivities(Cont'd)Therewerenomaterialinter-segmentsalesduringtheyearsended31December2018and2017.
Therevenuesfromexternalcustomersreportedtothechiefoperatingdecision-makersaremeasuredinamannerconsistentwiththatappliedintheconsolidatedincomestatement.
Otherinformation,togetherwiththesegmentinformation,providedtothechiefoperatingdecision-makers,ismeasuredinamannerconsistentwiththatappliedintheseconsolidatedfinancialstatements.
Therewerenosegmentassetsandsegmentliabilitiesinformationprovidedtothechiefoperatingdecision-makers.
Thesegmentinformationprovidedtothechiefoperatingdecision-makersforthereportablesegmentsfortheyearsended31December2018and2017isasfollows:Yearended31December2018VASOnlineadvertisingOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionSegmentrevenues176,64658,07977,969312,694Grossprofit102,68520,80618,629142,120Depreciation1,9961,3763,6587,030Amortisation11,66312,46257324,698Yearended31December2017VASOnlineadvertisingOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionSegmentrevenues153,98340,43943,338237,760Grossprofit92,59414,8539,478116,925Depreciation1,8585611,4733,892Amortisation7,83610,001–17,8371935SEGMENTINFORMATIONANDREVENUES(Cont'd)(a)Descriptionofsegmentsandprincipalactivities(Cont'd)Thereconciliationofgrossprofittoprofitbeforeincometaxisshownintheconsolidatedincomestatement.
TheCompanyisdomiciledintheCaymanIslandswhiletheGroupmainlyoperatesitsbusinessesinMainlandChina.
Duringtheyearsended31December2018and2017,theplaceofincorporationonthetotalrevenuesisasfollows:20182017RMB'MillionRMB'MillionRevenues–MainlandChina303,657229,767–Others9,0377,993312,694237,760TheGroupalsoconductsoperationsintheUnitedStatesofAmerica("UnitedStates"),Europeandotherregions,andholdsinvestments(includinginvestmentsinassociates,investmentsinjointventures,FVPL,FVOCI(31December2017:investmentsinassociates,RCPstogetherwithembeddedderiativesrecordedinOFA,investmentsinjointventures,andAFS))invariousterritories.
Thegeographicalinformationonthetotalassetsisasfollows:Asat31December20182017RMB'MillionRMB'MillionOperatingassets–MainlandChina270,373219,285–Others83,96259,770Investments–MainlandChinaandHongKong254,992161,903–NorthAmerica44,83552,542–Europe37,45134,515–AsiaexcludingMainlandChinaandHongKong30,14826,407–Others1,760250723,521554,672194TencentHoldingsLimited5SEGMENTINFORMATIONANDREVENUES(Cont'd)(a)Descriptionofsegmentsandprincipalactivities(Cont'd)Asat31December2018,thetotalnon-currentassetsotherthanfinancialinstrumentsanddeferredtaxassetslocatedinMainlandChinaandotherregionsamountedtoRMB282,774million(31December2017:RMB159,563million)andRMB65,057million(31December2017:RMB42,421million),respectively.
Alltherevenuesderivedfromanysingleexternalcustomerwerelessthan10%oftheGroup'stotalrevenuesduringtheyearsended31December2018and2017.
(b)DisaggregationofrevenuefromcontractswithcustomersInthefollowingtable,revenueoftheGroupfromcontractswithcustomersisdisaggregatedbyrevenuesource.
Thetablealsoincludesareconciliationtothesegmentinformation(Note5(a)).
20182017RMB'MillionRMB'MillionRevenuefromcontractswithcustomers–VAS176,646153,983Onlinegames103,99297,883Socialnetworks72,65456,100–Onlineadvertising58,07940,439Mediaadvertising18,30614,829Socialandothersadvertising39,77325,610–Others77,96943,338312,694237,7601955SEGMENTINFORMATIONANDREVENUES(Cont'd)(c)AssetsandliabilitiesrelatedtocontractswithcustomersTheGrouphasrecognisedthefollowingliabilitiesrelatedtocontractswithcustomersunder"Deferredrevenue":Asat31December20182017RMB'MillionRMB'MillionContractliabilities:VAS31,78734,360Onlineadvertising9,1455,238Others1,10523242,03739,830Note:(i)ContractliabilitiesContractliabilitiesmainlycomprisesofunamortisedpre-paidtokensorcards,virtualitems,Internettrafficandothersupporttobeofferedtocertaininvesteecompaniesinthefutureperiodsmeasuredattheirfairvalueontheinceptiondates(Note20),andcustomerloyaltyincentivesofferedtothecustomers.
(ii)RevenuerecognisedinrelationtocontractliabilitiesThefollowingtableshowshowmuchoftherevenuerecognisedinthecurrentreportingperiodrelatestocarried-forwardcontractliabilities:20182017RMB'MillionRMB'MillionRevenuerecognisedthatwasincludedinthecontractliabilitybalanceatthebeginningoftheyear:VAS34,36020,444Onlineadvertising2,6811,597Others23214337,27322,184Asat31December2018,totalcapitalisedcoststoobtainorfulfillacontractwithcustomerwereimmaterial.
196TencentHoldingsLimited6INTERESTINCOMEInterestincomemainlyrepresentsinterestincomefrombankdeposits,includingbankbalanceandtermdeposits.
7OTHERGAINS,NET20182017RMB'MillionRMB'MillionNetfairvaluegainsonFVPL(Note(a))28,738–Impairmentprovisionforinvesteecompaniesandintangibleassetsarisingfromacquisitions(Note(b))(17,577)(2,794)Subsidiesandtaxrebates3,4563,971Netgainsondisposalsanddeemeddisposalsofinvesteecompanies(Note(a),(c))2,93213,518Netfairvaluegainsonotherfinancialinstruments(Note26,37)1,0194,298DonationstoTencentCharityFunds(730)(820)Dividendincome6861,713Others(Note(d))(1,810)25416,71420,140Note:(a)NetfairvaluegainsonFVPLincludedaggregategainsofapproximatelyRMB22,215million,arisingfromreclassificationofseveralinvestmentsprincipallyengagedinInternet-relatedbusinessfromFVPLtoinvestmentsinassociatesduetotheconversionofredeemableinstrumentsorpreferredsharesintoordinaryshareswithboardrepresentativeupontheirrespectiveinitialpublicoffering("IPO").
In2017,aggregategainsofapproximatelyRMB3,663millionarisingfromthesimilartransactionswererecognisedinnetgainsondisposalsanddeemeddisposalsofinvesteecompanies.
(b)Theimpairmentprovisionforinvesteecompaniesandintangibleassetsarisingfromacquisitionsmainlycomprisedthefollowing:20182017RMB'MillionRMB'MillionInvestmentsinassociates(Note20)14,0691,277Investmentsinjointventures(Note21)2,328–Intangibleassetsarisingfromacquisitions1,180239RCPS–607AFS–67117,5772,7941977OTHERGAINS,NET(Cont'd)Note:(Cont'd)(c)Thedisposalanddeemeddisposalgainsduringtheyearended31December2018mainlycomprisedthefollowing:–netgainsofapproximatelyRMB1,661million(2017:RMB6,229million)ondilutionoftheGroup'sequityinterestsincertainassociatesduetonewequityinterestsbeingissuedbytheseassociates(Note20).
TheseinvesteecompaniesareprincipallyengagedinInternet-relatedbusiness;–aggregatenetgainsofapproximatelyRMB1,271million(2017:RMB3,626million)ondisposals,acquisitionachievedinstagesorpartialdisposalsofvariousinvestmentsoftheGroup.
(d)Includedone-offexpensesofRMB1,519millionrecognisedbyanon-whollyownedsubsidiaryoftheGrouparisingfromtheissuanceofordinarysharestostrategicpartners.
8EXPENSESBYNATURE20182017RMB'MillionRMB'MillionEmployeebenefitsexpenses(Note(a)andNote13)42,15334,866Contentcosts(excludingamortisationofintangibleassets)39,06128,177Channelanddistributioncosts32,82125,109Bandwidthandservercustodyfees15,81811,203Promotionandadvertisingexpenses19,80613,661Operatingleaserentalsinrespectofofficebuildings1,6141,335Travellingandentertainmentexpenses1,4501,040Amortisationofintangibleassets(Note(b)andNote19)25,61618,622Depreciationofproperty,plantandequipment(Note16)8,3964,850Auditor'sremuneration–Auditservices8376–Audit-relatedservices2715–Non-auditservices2621Note:(a)Duringtheyearended31December2018,theGroupincurredexpensesforthepurposeofresearchanddevelopmentofapproximatelyRMB22,936million(2017:RMB17,456million),whichcomprisedemployeebenefitsexpensesofRMB19,088million(2017:RMB14,766million).
Nosignificantdevelopmentexpenseshadbeencapitalisedfortheyearsended31December2018and2017.
(b)Mainlyincludedtheamortisationchargesofintangibleassetsinrespectofmediacontentsandgamelicences.
198TencentHoldingsLimited9FINANCECOSTS,NET20182017RMB'MillionRMB'MillionInterestandrelatedexpenses4,8983,060Exchangegains(229)(152)4,6692,908InterestandrelatedexpensesmainlyarosefromtheborrowingsandnotespayabledisclosedinNotes34and35.
10SHAREOFPROFITOFASSOCIATESANDJOINTVENTURES20182017RMB'MillionRMB'MillionShareofprofitofassociates(Note20)1,301730Shareofprofitofjointventures(Note21)186911,48782111TAXATION(a)IncometaxexpenseIncometaxexpenseisrecognisedbasedonmanagement'sbestknowledgeoftheincometaxratesexpectedforthefinancialyear.
(i)CaymanIslandsandBritishVirginIslandscorporateincometaxTheGroupwasnotsubjecttoanytaxationintheCaymanIslandsandtheBritishVirginIslandsfortheyearsended31December2018and2017.
(ii)HongKongprofittaxHongKongprofittaxhasbeenprovidedforattherateof16.
5%ontheestimatedassessableprofitfortheyearsended31December2018and2017.
19911TAXATION(Cont'd)(a)Incometaxexpense(Cont'd)(iii)PRCcorporateincometaxPRCcorporateincometaxhasbeenprovidedforattheapplicabletaxratesundertherelevantregulationsofthePRCafterconsideringtheavailablepreferentialtaxbenefitsfromrefundsandallowances,andontheestimatedassessableprofitofentitieswithintheGroupestablishedinthePRCfortheyearsended31December2018and2017.
ThegeneralPRCcorporateincometaxrateis25%in2018and2017.
CertainsubsidiariesoftheGroupinthePRCwereapprovedasHighandNewTechnologyEnterprise,andaccordingly,theyweresubjecttoapreferentialcorporateincometaxrateof15%fortheyearsended31December2018and2017.
Moreover,accordingtotheannouncementandcircularissuedbyrelevantgovernmentauthorities,fortheyearof2015andbeyond,asoftwareenterprisethatqualifiesasanationalkeysoftwareenterpriseissubjecttoapreferentialcorporateincometaxrateof10%.
Inaddition,accordingtorelevanttaxcircularsissuedbythePRCtaxauthorities,certainsubsidiariesoftheCompanyareentitledtoothertaxconcessionsandtheyareexemptfromcorporateincometaxfortwoyears,followedbya50%reductionintheapplicabletaxratesforthenextthreeyears,commencingfromthefirstyearofprofitableoperation,afteroffsettingtaxlossesgeneratedinprioryears.
(iv)CorporateincometaxinothercountriesIncometaxonprofitarisingfromotherjurisdictions,includingtheUnitedStates,Europe,EastAsiaandSouthAmerica,hasbeencalculatedontheestimatedassessableprofitfortheyearattherespectiveratesprevailingintherelevantjurisdictions,rangingfrom12.
5%to35%.
(v)WithholdingtaxAccordingtoapplicabletaxregulationsprevailinginthePRC,dividendsdistributedbyacompanyestablishedinthePRCtoaforeigninvestorwithrespecttoprofitderivedafter1January2008aregenerallysubjecttoa10%withholdingtax.
IfaforeigninvestorisincorporatedinHongKong,underthedoubletaxationarrangementbetweenMainlandChinaandHongKong,therelevantwithholdingtaxrateapplicabletotheGroupwillbereducedfrom10%to5%subjecttothefulfilmentofcertainconditions.
DividendsdistributedfromcertainjurisdictionsthattheGroup'sentitiesoperateinarealsosubjecttowithholdingtaxatrespectiveapplicabletaxrates.
200TencentHoldingsLimited11TAXATION(Cont'd)(a)Incometaxexpense(Cont'd)TheincometaxexpenseoftheGroupisanalysedasfollows:20182017RMB'MillionRMB'MillionCurrentincometax15,09115,154Deferredincometax(Note27)(609)59014,48215,744ThetaxationontheGroup'sprofitbeforeincometaxdiffersfromthetheoreticalamountthatwouldariseusingthetaxrateof25%fortheyear(2017:25%),beingthetaxrateofthemajorsubsidiariesoftheGroupbeforeenjoyingpreferentialtaxtreatments,asfollows:20182017RMB'MillionRMB'MillionProfitbeforeincometax94,46688,215Shareofprofitofassociatesandjointventures(1,487)(821)92,97987,394Taxcalculatedatataxrateof25%23,24521,848EffectsofdifferenttaxratesapplicabletodifferentsubsidiariesoftheGroup(14,668)(10,442)Effectsoftaxholidayonassessableprofitofcertainsubsidiaries(958)(715)Incomenotsubjecttotax(43)(25)Expensesnotdeductiblefortaxpurposes1,4341,087Withholdingtaxonearningsexpectedtoberemittedbysubsidiaries(Note27)3,3603,150Unrecogniseddeferredincometaxassets2,3781,004Others(266)(163)Incometaxexpense14,48215,74420111TAXATION(Cont'd)(b)Value-addedtaxandothertaxesTheoperationsoftheGrouparealsomainlysubjecttothefollowingtaxesinthePRC:CategoryTaxrateBasisoflevyValue-addedtax("VAT")6~17%(Note)Salesvalueofgoodssoldandservicesfeeincome,offsettingbyVATonpurchasesConstructionfeeforculturalundertakings3%TaxableadvertisingincomeCityconstructiontax7%NetVATpayableamountEducationalsurcharge5%NetVATpayableamountNote:Effectivefrom1May2018,the17%and11%VATratesapplicabletocertaingoodsandserviceshavebeenreducedto16%and10%,respectively.
12EARNINGSPERSHARE(a)BasicBasicearningspershare("EPS")iscalculatedbydividingtheprofitattributabletoequityholdersoftheCompanybytheweightedaveragenumberofordinarysharesinissueduringtheyear.
20182017ProfitattributabletoequityholdersoftheCompany(RMB'Million)78,71971,510Weightedaveragenumberofordinarysharesinissue(millionshares)9,4449,411BasicEPS(RMBpershare)8.
3367.
598(b)DilutedTheshareoptionsandawardedsharesgrantedbytheCompanyhavepotentialdilutiveeffectontheEPS.
DilutedEPSiscalculatedbyadjustingtheweightedaveragenumberofordinarysharesoutstandingbytheassumptionoftheconversionofallpotentialdilutiveordinarysharesarisingfromshareoptionsandawardedsharesgrantedbytheCompany(collectivelyformingthedenominatorforcomputingthedilutedEPS).
Noadjustmentismadetoearnings(numerator).
202TencentHoldingsLimited12EARNINGSPERSHARE(Cont'd)(b)Diluted(Cont'd)Inaddition,theshareoptionsandrestrictedsharesgrantedbytheCompany'snon-whollyownedsubsidiariesandassociatesshouldalsohavepotentialdilutiveeffectontheEPS.
Duringtheyearsended31December2018and2017,theseshareoptionsandrestrictedshareshadeitheranti-dilutiveeffectorinsignificantdilutiveeffecttotheGroup'sdilutedEPS.
20182017ProfitattributabletoequityholdersoftheCompany(RMB'Million)78,71971,510Weightedaveragenumberofordinarysharesinissue(millionshares)9,4449,411Adjustmentsforshareoptionsandawardedshares(millionshares)124125WeightedaveragenumberofordinarysharesforthecalculationofdilutedEPS(millionshares)9,5689,536DilutedEPS(RMBpershare)8.
2287.
49913EMPLOYEEBENEFITSEXPENSES20182017RMB'MillionRMB'MillionWages,salariesandbonuses28,23624,194Contributionstopensionplans(Note)2,5531,934Share-basedcompensationexpenses7,9006,253Welfare,medicalandotherexpenses(Note)3,3552,400Trainingexpenses1098542,15334,86620313EMPLOYEEBENEFITSEXPENSES(Cont'd)Note:MajorityoftheGroup'scontributionstopensionplansarerelatedtothelocalemployeesinthePRC.
AlllocalemployeesofthesubsidiariesinthePRCparticipateinemployeesocialsecurityplansestablishedinthePRC,whichcoverpension,medicalandotherwelfarebenefits.
Theplansareorganisedandadministeredbythegovernmentalauthorities.
Exceptforthecontributionsmadetothesesocialsecurityplans,theGrouphasnoothermaterialcommitmentsowingtotheemployees.
Accordingtotherelevantregulations,theportionofpremiumandwelfarebenefitcontributionsthatshouldbebornebythecompanieswithintheGroupasrequiredbytheabovesocialsecurityplansareprincipallydeterminedbasedonpercentagesofthebasicsalariesofemployees,subjecttocertainceilingsimposed.
Thesecontributionsarepaidtotherespectivelabourandsocialwelfareauthoritiesandareexpensedasincurred.
Theapplicablepercentagesusedtoprovideforthesesocialsecurityplansfortheyearsended31December2018and2017arelistedbelow:PercentagePensioninsurance12.
0~20.
0%Medicalinsurance5.
2~11.
5%Unemploymentinsurance0.
5~1.
5%Housingfund10.
0~12.
0%(a)Seniormanagement'semolumentsSeniormanagementincludesdirectors,chiefexecutiveofficer("CEO"),presidentandotherseniorexecutives.
Theaggregatecompensationpaid/payabletoseniormanagementforemployeeservicesexcludingthedirectorsandtheCEO,whosedetailshavebeenreflectedinNote14(a),isasfollows:20182017RMB'000RMB'000Salaries,bonuses,allowancesandbenefitsinkind329,721285,322Contributionstopensionplans874891Share-basedcompensationexpenses1,555,6711,174,3161,886,2661,460,529204TencentHoldingsLimited13EMPLOYEEBENEFITSEXPENSES(Cont'd)(a)Seniormanagement'semoluments(Cont'd)Theemolumentsoftheseniormanagementfellwithinthefollowingbands:Numberofindividuals20182017EmolumentbandsHKD800,000~HKD15,000,00011HKD40,000,001~HKD65,000,00012HKD65,000,001~HKD115,000,00045HKD115,000,001~HKD165,000,00042HKD215,000,001~HKD815,000,00022(b)FivehighestpaidindividualsThefiveindividualswhoseemolumentswerethehighestintheGroupincludeonedirectorduringtheyear2018(2017:one).
Alloftheseindividualsincludingthatonedirector(Note14(a))havenotreceivedanyemolumentfromtheGroupasaninducementtojointheGroupduringtheyearsended31December2018and2017.
Theemolumentspaid/payabletotheremainingfour(2017:four)individualsduringtheyearwereasfollows:20182017RMB'000RMB'000Salariesandbonuses393,071325,416Contributionstopensionplans11,87210,909Share-basedcompensationexpenses968,642805,807Allowancesandbenefitsinkind84391,373,6691,142,17120513EMPLOYEEBENEFITSEXPENSES(Cont'd)(b)Fivehighestpaidindividuals(Cont'd)Theemolumentsoftheabovefourindividuals(2017:four)fellwithinthefollowingbands:Numberofindividuals20182017EmolumentbandsHKD196,500,001~HKD197,000,0002–HKD228,500,001~HKD229,000,000–2HKD430,000,001~HKD430,500,000–1HKD477,500,001~HKD478,000,000–1HKD545,500,001~HKD546,000,0001–HKD628,000,001~HKD628,500,0001–206TencentHoldingsLimited14BENEFITSANDINTERESTSOFDIRECTORS(a)Directors'andthechiefexecutive'semolumentsTheremunerationofeverydirectorandtheCEOissetoutbelow:Duringtheyearended31December2018:NameofdirectorFeesSalariesandbonusesContributionstopensionplansShare-basedcompensationexpensesAllowancesandbenefitsinkindTotalRMB'000RMB'000RMB'000RMB'000RMB'000RMB'000(Note(i))MaHuateng(CEO)1,23537,469118–2038,842LauChiPingMartin1,23528,214–283,899125313,473IainFergusonBruce964––3,892–4,856IanCharlesStone964––4,262–5,226LiDongSheng701––2,131–2,832JacobusPetrus(Koos)BekkerCharlesStLegerSearleYangSiuShun876––2,325–3,2015,97565,683118296,509145368,43020714BENEFITSANDINTERESTSOFDIRECTORS(Cont'd)(a)Directors'andthechiefexecutive'semoluments(Cont'd)Duringtheyearended31December2017:NameofdirectorFeesSalariesandbonusesContributionstopensionplansShare-basedcompensationexpensesAllowancesandbenefitsinkindTotalRMB'000RMB'000RMB'000RMB'000RMB'000RMB'000(Note(i))MaHuateng(CEO)1,17644,656105––45,937LauChiPingMartin1,17631,580–204,44165237,262IainFergusonBruce920––3,811–4,731IanCharlesStone836––3,811–4,647LiDongSheng627––1,905–2,532JacobusPetrus(Koos)BekkerCharlesStLegerSearleYangSiuShun627––1,406–2,0335,36276,236105215,37465297,142Note:(i)Allowancesandbenefitsinkindincludeleavepay,insurancepremiumandclubmembership.
(ii)Duringtheyearended31December2018,3,215,800optionsweregrantedtooneexecutivedirectoroftheCompany(2017:5,250,000optionsweregrantedtooneexecutivedirectoroftheCompany),and39,500awardedsharesweregrantedtofourindependentnon-executivedirectorsoftheCompany(2017:60,000awardedsharesweregrantedtofourindependentnon-executivedirectorsoftheCompany).
(iii)NodirectorreceivedanyemolumentfromtheGroupasaninducementtojoinorleavetheGrouporcompensationforlossofoffice.
Nodirectorwaivedorhasagreedtowaiveanyemolumentsduringtheyearsended31December2018and2017.
208TencentHoldingsLimited14BENEFITSANDINTERESTSOFDIRECTORS(Cont'd)(b)Directors'terminationbenefitsNodirector'sterminationbenefitsubsistedattheendoftheyearoratanytimeduringtheyear.
(c)Considerationprovidedtothirdpartiesformakingavailabledirectors'servicesNoconsiderationprovidedtoorreceivablebythirdpartiesformakingavailabledirectors'servicessubsistedattheendoftheyearoratanytimeduringtheyear.
(d)Informationaboutloans,quasi-loansandotherdealingsinfavourofdirectors,theircontrolledbodiescorporateandconnectedentitiesNoloans,quasi-loansandotherdealingsinfavourofdirectors,theircontrolledbodiescorporateandconnectedentitiessubsistedattheendoftheyearoratanytimeduringtheyear.
(e)Directors'materialinterestsintransactions,arrangementsorcontractsNosignificanttransactions,arrangementsandcontractsinrelationtotheGroup'sbusinesstowhichtheCompanywasapartyandinwhichadirectoroftheCompanyhadamaterialinterest,whetherdirectlyorindirectly,subsistedattheendoftheyearoratanytimeduringtheyear.
15DIVIDENDSThedividendsamountingtoRMB6,776million(2017:RMB5,052million)werepaidduringtheyearended31December2018.
AspecialdividendofapproximatelyHKD250million(equivalenttoapproximatelyRMB219million)wasdeclaredinDecember2018totheshareholdersoftheCompanybywayofadistributioninrespectoftheseparatelistingofanon-whollyownedsubsidiaryontheNewYorkStockExchange.
SuchdividendwassubsequentlypaidbytheGroupinFebruary2019.
Afinaldividendinrespectoftheyearended31December2018ofHKD1.
00pershare(2017:HKD0.
88pershare)wasproposedpursuanttoaresolutionpassedbytheBoardon21March2019andsubjecttotheapprovaloftheshareholdersattheannualgeneralmeetingoftheCompanytobeheldon15May2019oranyadjournmentthereof.
Thisproposeddividendisnotreflectedasdividendpayableintheconsolidatedfinancialstatements.
20916PROPERTY,PLANTANDEQUIPMENTBuildingsComputerequipmentFurnitureandofficeequipmentMotorvehiclesLeaseholdimprovementsTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt1January2018Cost8,85228,5041,136412,09040,623Accumulateddepreciationandimpairment(1,021)(14,337)(659)(24)(1,023)(17,064)Currencytranslationdifferences–(26)16–4838Netbookamount7,83114,141493171,11523,597Yearended31December2018Openingnetbookamount7,83114,141493171,11523,597Businesscombinations–23139Additions45718,716255338319,814Disposals(2)(25)(1)–(2)(30)Depreciation(650)(7,322)(172)(3)(249)(8,396)Currencytranslationdifferences(1)69(3)–3297Closingnetbookamount7,63525,581575181,28235,091At31December2018Cost9,31344,8351,370442,44358,005Accumulateddepreciationandimpairment(1,677)(19,297)(808)(26)(1,241)(23,049)Currencytranslationdifferences(1)4313–80135Netbookamount7,63525,581575181,28235,091210TencentHoldingsLimited16PROPERTY,PLANTANDEQUIPMENT(Cont'd)BuildingsComputerequipmentFurnitureandofficeequipmentMotorvehiclesLeaseholdimprovementsTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt1January2017Cost4,50120,374902311,78727,595Accumulateddepreciationandimpairment(807)(11,610)(544)(18)(807)(13,786)Currencytranslationdifferences–419–6891Netbookamount3,6948,768377131,04813,900Yearended31December2017Openingnetbookamount3,6948,768377131,04813,900Businesscombinations––2–24Additions4,3729,6782601032314,643Disposals(7)(32)(5)–(3)(47)Depreciation(228)(4,243)(138)(6)(235)(4,850)Currencytranslationdifferences–(30)(3)–(20)(53)Closingnetbookamount7,83114,141493171,11523,597At31December2017Cost8,85228,5041,136412,09040,623Accumulateddepreciationandimpairment(1,021)(14,337)(659)(24)(1,023)(17,064)Currencytranslationdifferences–(26)16–4838Netbookamount7,83114,141493171,11523,597Duringtheyearended31December2018,depreciationofRMB7,030million(2017:RMB3,892million),RMB153million(2017:RMB134million)andRMB1,213million(2017:RMB824million)werechargedtocostofrevenues,sellingandmarketingexpensesandgeneralandadministrativeexpenses,respectively.
21117CONSTRUCTIONINPROGRESS20182017RMB'MillionRMB'MillionOpeningnetbookamount3,1634,674Additions2,8093,204Transfertoproperty,plantandequipment(1,094)(4,682)Transfertoinvestmentproperties–(31)Currencytranslationdifferences1(2)Closingnetbookamount4,8793,163Asat31December2018,constructioninprogressmainlycomprisedofficebuildingsanddatacentresunderconstructionlocatedinthePRC.
18LANDUSERIGHTS20182017RMB'MillionRMB'MillionOpeningnetbookamount5,1115,174Additions2,34846Amortisation(353)(109)Closingnetbookamount7,1065,111ThelanduserightsrepresentprepaidoperatingleasepaymentsinrespectoflandinthePRCwithremainingleaseperiodof37to50years.
212TencentHoldingsLimited19INTANGIBLEASSETSGoodwillComputersoftwareandtechnologyGamelicencesLicensedonlinecontentsCopyrightsOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt1January2018Cost24,1432,9472,75933,5491,0663,22567,689Accumulatedamortisationandimpairment(564)(1,437)(1,441)(21,961)(747)(1,277)(27,427)Currencytranslationdifferences29(6)16(18)8(25)4Netbookamount23,6081,5041,33411,5703271,92340,266Yearended31December2018Openingnetbookamount23,6081,5041,33411,5703271,92340,266Businesscombinations9,587454–420–1,44011,901Additions–52216530,80834539232,232Disposals––(44)(1,156)(21)(29)(1,250)Amortisation–(457)(402)(24,112)(155)(490)(25,616)Impairmentprovision(784)(187)––(1)(209)(1,181)Currencytranslationdifferences19414174213298Closingnetbookamount32,6051,8501,05417,6044973,04056,650At31December2018Cost33,7303,9021,49651,2541,3704,97196,723Accumulatedamortisationandimpairment(1,348)(2,060)(459)(33,706)(883)(1,919)(40,375)Currencytranslationdifferences2238175610(12)302Netbookamount32,6051,8501,05417,6044973,04056,65021319INTANGIBLEASSETS(Cont'd)GoodwillComputersoftwareandtechnologyGamelicencesLicensedonlinecontentsCopyrightsOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt1January2017Cost23,1572,6433,51520,8808693,14754,211Accumulatedamortisationandimpairment(439)(1,118)(1,900)(13,121)(630)(796)(18,004)Currencytranslationdifferences20910201731260Netbookamount22,9271,5351,6357,7762422,35236,467Yearended31December2017Openingnetbookamount22,9271,5351,6357,7762422,35236,467Businesscombinations998––45–381,081Additions–32017021,01720717221,886Disposals(13)(3)(19)(12)(3)(1)(51)Amortisation–(332)(448)(17,221)(124)(497)(18,622)Impairmentprovision(124)115)(239)Currencytranslationdifferences(180)(16)(4)(35)5(26)(256)Closingnetbookamount23,6081,5041,33411,5703271,92340,266At31December2017Cost24,1432,9472,75933,5491,0663,22567,689Accumulatedamortisationandimpairment(564)(1,437)(1,441)(21,961)(747)(1,277)(27,427)Currencytranslationdifferences29(6)16(18)8(25)4Netbookamount23,6081,5041,33411,5703271,92340,266214TencentHoldingsLimited19INTANGIBLEASSETS(Cont'd)Duringtheyearended31December2018,amortisationofRMB24,698million(2017:RMB17,837million)andRMB918million(2017:RMB785million)werechargedtocostofrevenuesandgeneralandadministrativeexpenses,respectively.
Duringtheyearended31December2018,impairmentlossesofRMB1,181million(2017:RMB239million)ongoodwillandotherintangibleassetswerechargedtotheconsolidatedincomestatementunder"Othergains/(losses),net",resultingfromrevisionsoffinancial/businessoutlookandchangesinthemarketenvironmentoftheunderlyingbusiness.
ImpairmenttestsforgoodwillGoodwillwasallocatedtoVASsegmentwithRMB25,672million(31December2017:RMB23,608million)andOtherssegmentwithRMB6,933million(31December2017:Nil).
TheGroupcarriesoutitsimpairmenttestingongoodwillbycomparingtherecoverableamountsofCGUsorgroupsofCGUstotheircarryingamounts.
Forthepurposeofgoodwillimpairmentreview,therecoverableamountofaCGU(groupofCGUs)isthehigherofitsvalueinuseandfairvaluelesscostsofdisposal.
ThekeyassumptionsusedforthecalculationoftherecoverableamountsoftheCGUsunderimpairmenttestingwereasfollows:ForgoodwillattributabletotheGroup'sonlinemusicbusiness,onlineliteraturebusinessandtelevisionseriesandfilmproductionbusiness,valueinusewasdeterminedusingdiscountedcashflowscalculationswhichderivedfromthefive-yearfinancialprojectionsplusaterminalvaluerelatedtocashflowsbeyondtheprojectionperiodextrapolatedusinganestimatedterminalgrowthrateofnotmorethan5%(2017:notmorethan5%).
Managementleveragedtheirexperiencesintheindustriesandprovidedforecastbasedonpastperformanceandtheiranticipationoffuturebusinessandmarketdevelopments.
Pre-taxdiscountratesrangingfrom15%to25%(2017:20%to25%)wereappliedinthediscountedcashflowscalculations,whichreflectedassessmentsoftimevalueandthespecificrisksrelatingtotherespectiveindustries.
ForgoodwillattributabletotheGroup'sonlinegamebusiness,fairvaluelesscostsofdisposalwasdeterminedbasedonratiosofEV(enterprisevalue)dividedbyEBITDA(earningsbeforeinterest,tax,depreciationandamortization)ofseveralcomparablepubliccompanies(rangingwith11-21x)(2017:rangingwith16-23x)multipliedbytheEBITDAoftherelatedCGU(groupofCGUs)anddiscountedforthelackofmarketabilityatarangeof10%to20%(2017:10%to20%).
Thecomparablepubliccompanieswerechosenbasedonfactorssuchasindustrysimilarity,companysize,profitabilityandfinancialrisks.
Whendeterminingtherecoverableamounts,managementhasnotidentifiedreasonablypossiblechangeinkeyassumptionsthatcouldcausetheCGU's(groupofCGUs')carryingamounttoexceedtherecoverableamount.
21520INVESTMENTSINASSOCIATESAsat31December20182017RMB'MillionRMB'MillionInvestmentsinassociates–Listedentities130,63360,935–Unlistedentities88,58252,844219,215113,77920182017RMB'MillionRMB'MillionAtbeginningoftheyear113,77970,042Additions(Note(a))40,91819,122Transfers(Note(b))71,59320,825Deemeddisposalgains(Note7(c))1,6619,892Shareofprofitofassociates(Note10)1,301730Shareofothercomprehensiveincomeofassociates24907Shareofotherchangesinnetassetsofassociates2,861–Impairmentprovision(Note(c))(14,069)(1,277)Dividends(908)(312)Disposals(725)(253)Currencytranslationdifferences2,780(5,897)Atendoftheyear219,215113,779216TencentHoldingsLimited20INVESTMENTSINASSOCIATES(Cont'd)Note:(a)Duringtheyearended31December2018,theGroup'sadditionstoinvestmentsinassociatesmainlycomprisedthefollowing:(i)anadditionalinvestmentinaneCommercecompanyinthePRCofapproximatelyRMB7,456million.
Asat31December2018,theGroup'sequityinterestsinthisinvesteecompanyareapproximately17%onanoutstandingbasis;(ii)anadditionalinvestmentinamediaandentertainmentcompanyinthePRCofapproximatelyRMB4,800millionwhichwaspreviouslyrecognisedasFVPL.
Subsequently,suchinvestmentofapproximatelyRMB3,461millionwastransferredtoinvestmentinasubsidiarythroughanacquisitionmadebyanon-whollyownedsubsidiary(Note40(a));(iii)anadditionalinvestmentinamediaandentertainmentcompanyinthePRCofapproximatelyRMB3,998million.
Asat31December2018,theGroup'sequityinterestsinthisinvesteecompanyareapproximately43%onanoutstandingbasis;(iv)annewinvestmentinanonlinegamecompanyinthePRCofapproximatelyRMB2,985milliontosubscribeforapproximately12%ofitsequityinterestsonanoutstandingbasis;(v)subscriptionofcertainadditionalsharesofaleadingeCommerceplatformforservicesinthePRCuponitsIPOofapproximatelyRMB2,757million.
ImmediatelybeforeitsIPO,theGroup'sinvestmentinthisinvesteecompanyofapproximatelyRMB48,173millionwasclassifiedasFVPL(Note20(b)),andsubsequentlytransferredtoinvestmentinanassociateduetotheconversionofpreferredsharesheldbytheGrouptoordinaryshareswithboardrepresentationuponitsIPO.
Asat31December2018,theGroup'sequityinterestsinthisinvesteecompanyareapproximately19%onanoutstandingbasis;(vi)aninvestmentinaninvestmentbankinthePRCofapproximatelyRMB2,316milliontosubscribeforapproximately5%ofitsequityinterestsonanoutstandingbasis;and(vii)newinvestmentsinotherassociatesandadditionalinvestmentsinexistingassociates,withanaggregateamountofapproximatelyRMB16,606million.
Theseassociatesareprincipallyengagedinonlinegames,smartretails,technologyandotherInternet-relatedbusiness.
21720INVESTMENTSINASSOCIATES(Cont'd)Note:(Cont'd)(b)Duringtheyearended31December2018,transferscomprisedofassociatesachievedinstagesofanaggregateamountofapproximatelyRMB75,931million,andassociatestransferredtofinancialinstrumentsorsubsidiariesofanaggregateamountofapproximatelyRMB4,338million.
InadditiontothetransferdescribedinNote20(a)(v)andNote23(a)(iii),thetransfersinrelationtoassociatesachievedinstagesmainlyinclude:(i)anacquisitionofapproximately4%inacommercialpropertycompanyinthePRCataconsiderationofapproximatelyRMB10,266millionwascarriedoutincertaintranchesandcompletedinSeptember2018.
TheboardrepresentationwaseffectiveuponthecompletionoffinaltrancheandtheinvestmentwastransferredfromFVPLaccordingly;(ii)aninvestmentinanIndianeCommercecompanyofapproximatelyRMB5,386millionwastransferredfromFVPL,duetocertaincontractualrightsattachedtothisinvestmenthavingbeenchanged;(iii)theGrouptransferredseveralinvestmentsfromFVPLtoinvestmentsinassociatesatanaggregateamountofapproximatelyRMB5,426millionupontheconversionoftheredeemableinstrumentsorpreferredsharesintoordinarysharesupontheirIPOs,mainlycomprisinginvesteecompaniesthatareprincipallyengagedinautomotiveindustry;and(iv)theGroupalsotransferredseveralotherinvestmentsfromFVPLtoinvestmentsinassociatesatanaggregateamountofapproximatelyRMB2,009millionasaresultofobtainingboardrepresentation.
(c)Bothexternalandinternalsourcesofinformationofassociatesareconsideredinassessingwhetherthereisanyindicationthattheinvestmentmaybeimpaired,includingbutnotlimitedtofinancialposition,businessperformanceandmarketcapitalisation.
TheGroupcarriesoutimpairmentassessmentonthoseinvestmentswithimpairmentindications,andtherespectiverecoverableamountsofinvestmentsaredeterminedwithreferencetothehigheroffairvaluelesscostsofdisposalandvalueinuse.
Inrespectoftherecoverableamountusingvalueinuse,thediscountedcashflowscalculationswerebasedoncashflowprojectionsestimatedbymanagementandthekeyassumptionsadoptedinthesecashflowprojectionsincluderevenuegrowthrate,profitmarginsanddiscountrate.
Thepre-taxdiscountratesadoptedrangefrom15%to20%.
Inrespectoftherecoverableamountbasedonfairvaluelesscostsofdisposal,exceptforthoselistedassociatesusingtheirrespectivemarketprices,thefairvaluelesscostsofdisposalwascalculatedusingcertainkeyvaluationassumptionsincludingtheselectionofcomparablecompanies,recentmarkettransactionsandliquiditydiscountforlackofmarketability.
Asaresult,theGroupmadeanaggregateimpairmentprovisionofRMB14,069million(2017:RMB1,277million)againstthecarryingamountsofcertaininvestmentsinassociatesduringtheyearended31December2018,whichincludesimpairmentlossofapproximatelyRMB15,684millionrecognisedandapproximatelyRMB1,615millionreversed.
Theimpairmentlossesmainlyresultedfromrevisionsoffinancial/businessoutlookoftheassociatesandchangesinthemarketenvironmentoftheunderlyingbusiness.
(d)TheassociatesoftheGrouphavebeenaccountedforbyusingequitymethodbasedonthefinancialinformationoftheassociatespreparedundertheaccountingpoliciesgenerallyconsistentwiththeGroup.
218TencentHoldingsLimited20INVESTMENTSINASSOCIATES(Cont'd)TheGroup'sshareoftheresults,therevenues,theaggregatedassets(includinggoodwill)andliabilitiesofitsassociates,aswellasthefairvalueofourstakesintheassociateswhicharelistedentities,areshowninaggregateasfollows:AssetsLiabilitiesRevenuesProfit/(loss)fromcontinuingoperationOthercom-prehensiveincomeTotalcom-prehensiveincome/(loss)Fairvalueofstakesinlistedassociatesasat31DecemberRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'Million2018Listedentities210,31179,678126,027(3,337)25(3,312)187,339Non-listedentities225,799137,21747,0814,638(1)4,637436,110216,895173,1081,301241,3252017Listedentities103,99943,06484,0225058451,350156,968Non-listedentities128,02875,18425,65922562287232,027118,248109,6817309071,637ManagementhasassessedthelevelofinfluencethattheGroupexercisesoncertainassociateswiththerespectiveshareholdingbelow20%andassociateswithshareholdingover50%,withtotalcarryingamountsofRMB149,175millionandRMB24,948millionasat31December2018,respectively(31December2017:RMB56,768millionandRMB18,836million,respectively).
Managementdeterminedthatithassignificantinfluencethereonthroughtheboardrepresentationorotherarrangementsmade,andithasnocontrolorjointcontroloversuchinvesteesastheGrouphasnopowertodirectrelevantactivitiesduetootherarrangementsmade.
Consequently,theseinvestmentshavebeenclassifiedasassociates.
21920INVESTMENTSINASSOCIATES(Cont'd)ParticularsofamaterialassociateoftheGroup,asdeterminedbythedirectors,aresetoutbelow:NameofentityPlaceofincorporationInterestheldindirectlyPrincipalactivities/placeofoperationMeituanDianpingPRC19.
06%eCommerceplatformforservices/thePRCExceptMeituanDianping,thedirectorsoftheCompanyconsideredthatthereisnootherindividualinvestmentwhichwasdeterminedasamaterialassociate.
SetoutbelowarethesummarisedfinancialinformationofMeituanDianpingextractedfromitsfinancialstatementspreparedunderIFRS.
Asat31December2018RMB'MillionSummarisedconsolidatedbalancesheetCurrentassets73,150Non-currentassets47,512Currentliabilities31,825Non-currentliabilities2,327Totalequity86,510Reconciliationtocarryingamounts:Netassets86,510Group'ssharein%19.
06%Group'sshareinRMB16,489Goodwillandothers33,756Carryingamount50,245220TencentHoldingsLimited20INVESTMENTSINASSOCIATES(Cont'd)Asat31December2018,thefairvalueoftheinvestmentinMeituanDianpingwhichisalistedentitywasRMB40,261million.
TherewerenomaterialcontingentliabilitiesrelatingtotheGroup'sinterestsintheassociates.
TransactionswithassociatesDuringtheyearended31December2018,theGrouphadundertakentransactionsrelatingtoprovisionofFinTechservices,onlinetraffic,onlineadvertisingandotheronlineservicestocertainassociates(includingMeituanDianping),underbutnotlimitedtocertainco-operationarrangements.
TherevenuesrecordedbytheGroupfromtheaforesaidco-operationarrangementsduringtheyearsended31December2018and2017wereconsideredtobeinsignificant.
21INVESTMENTSINJOINTVENTURESAsat31December2018,theGroup'sinvestmentsinjointventuresofRMB8,575million(31December2017:RMB7,826million)mainlycomprisedaspecialpurposevehicleofwhichwehaveamajoritystakethereinfortheinvestmentinoneofthetelecommunicationcarriersinthePRCandotherjointventureinitiativesinnewretailandentertainment-relatedbusinesses.
ShareofprofitamountingtoRMB186millionwasrecognisedduringtheyearended31December2018(2017:RMB91million)(Note10).
Duringtheyearended31December2018,theGroupmadeanaggregateimpairmentprovisionofRMB2,328million(2017:Nil)againstthecarryingamountsoftheinvestmentsinjointventures,basedontherespectiveassessedrecoverableamount.
22122FINANCIALINSTRUMENTSBYCATEGORYAsat31December2018,thefinancialinstrumentsoftheGroupisanalysedasfollows:Asat31December20182017FinancialassetsRMB'MillionRMB'MillionFinancialassetsatamortisedcost:Depositsandotherreceivables(Note25)10,7579,486Termdeposits(Note28)62,91842,089Accountsreceivable(Note29)28,42716,549Cashandcashequivalents(Note30(a))97,814105,697Restrictedcash(Note30(b))2,5901,606RCPS–22,976FVPL(Note23)97,877–FVOCI(Note24)43,519–OFA(Note26)2,0325,624AFS–127,218345,934331,245FinancialliabilitiesFinancialliabilitiesatamortisedcost:Borrowings(Note34)114,27197,790Notespayable(Note35)65,01834,115Long-termpayables(Note36)4,7973,862Accountspayable(Note38)73,73550,085Otherpayablesandaccruals(excludingprepaymentsreceivedfromcustomersandothers,staffcostsandwelfareaccruals)(Note39)16,84115,566Otherfinancialliabilities4,5062,154279,168203,572TheGroup'sexposuretovariousrisksassociatedwiththefinancialinstrumentsisdiscussedinNote3.
Themaximumexposuretocreditriskattheendofthereportingperiodisthecarryingamountofeachclassoffinancialassetsmentionedabove.
222TencentHoldingsLimited23FINANCIALASSETSATFAIRVALUETHROUGHPROFITORLOSSFVPLincludethefollowing:Asat31December2018RMB'MillionIncludedinnon-currentassets:Investmentsinlistedentities–Japan3,360–UnitedKingdom2,613–UnitedStates1,442–Sweden539–MainlandChina537–HongKong398–SouthKorea2349,123Investmentsinunlistedentities78,234Others4,34591,702Includedincurrentassets:Treasuryinvestmentsandothers6,17597,87722323FINANCIALASSETSATFAIRVALUETHROUGHPROFITORLOSS(Cont'd)MovementofFVPLisanalysedasfollows:2018RMB'MillionAtbeginningoftheyear–AdjustmentonadoptionofIFRS9(Note2.
2(a))95,497Additions(Note(a))60,807Transfers(Note(b))(78,816)Changesinfairvalue(Note7(a))28,738Disposals(Note(c))(14,805)Currencytranslationdifferences6,456Atendoftheyear97,877Note:(a)Duringtheyearended31December2018,theGroup'sadditionstoFVPLmainlycomprisedthefollowing:(i)aninvestmentinacommercialpropertycompanyinthePRCwhichwascarriedoutincertaintranchesandcompletedinSeptember2018asdetailedinNote20(b)(i);(ii)anadditionalinvestmentinarealestateO2OplatformofapproximatelyRMB3,478million.
Asat31December2018,theGroup'sequityinterestsinthisinvesteecompanyareapproximately7%onanoutstandingbasis;(iii)aninvestmentinamediaandentertainmentcompanyofapproximatelyRMB2,922milliontosubscribeforapproximately35%ofitsequityinterestsinformofpreferredshares,onanoutstandingbasis.
ImmediatelybeforeitsIPO,theGroup'sinvestmentinthisinvesteecompanyofapproximatelyRMB4,671millionwasclassifiedasFVPLandsubsequentlytransferredtoinvestmentinanassociateduetotheconversionofpreferredsharesheldbytheGrouptoordinarysharesuponitsIPO.
Asat31December2018,theGroup'sequityinterestsinthisinvesteecompanyareapproximately32%onanoutstandingbasis;(iv)additionalequityinterestsobtainedinadisposaloftheequityinterestsinaninvesteecompany,toanotherinvesteecompanyoftheGroupatatotalconsiderationofapproximatelyUSD551million(equivalenttoapproximatelyRMB3,481million)comprisedofcashanditsequityinterests.
TheacquirerisprincipallyengagedintheprovisionofInternet-relatedservices,andtheinvestmentinthisacquirerwasreclassifiedtoinvestmentinanassociateduetotheconversionofpreferredsharesheldbytheGrouptoordinaryshareswithboardrepresentationuponitsIPOasdescribedinNote20(a)(v)above;224TencentHoldingsLimited23FINANCIALASSETSATFAIRVALUETHROUGHPROFITORLOSS(Cont'd)Note:(Cont'd)(a)(Cont'd)(v)anadditionalinvestmentinanAsianonlinegamecompanyofapproximatelyRMB2,799million.
Subsequenttotheadditionalinvestment,theGroupobtainedtheboardrepresentationandtheinvestmentwastransferredtoinvestmentinanassociateaccordingly;(vi)anadditionalinvestmentinamediaandentertainmentcompanyofapproximatelyRMB2,536million.
Asat31December2018,theGroup'sequityinterestsinthisinvesteecompanyareapproximately14%onanoutstandingbasis;and(vii)newinvestmentsandadditionalinvestmentswithanaggregateamountsofapproximatelyRMB36,263millioninlistedandunlistedentitiesmainlyoperatedintheUnitedStates,thePRCandotherAsiancountries.
Thesecompaniesareprincipallyengagedinonlinegames,entertainment,technologyandotherInternet-relatedbusiness.
(b)Duringtheyearended31December2018,inadditiontothetransfersofFVPLtoinvestmentsinassociateswithanaggregateamountofapproximatelyRMB75,931milliondescribedinNote20(b)above,thetransfersmainlyinclude:(i)theGroupdesignatedcertaininvestmentswithanaggregateamountofapproximatelyRMB3,577millionasFVOCIupontheirIPOs,andtheseinvestmentswerepreviouslyrecordedasFVPLduetotheformofredeemableinstrumentsorpreferredshares;and(ii)theGroupalsotransferredcertaininvestmentswithanaggregateamountofapproximatelyRMB692millionfrominvestmentsinassociatestoFVPLasaresultofchangesinnatureoftheseinvestments.
(c)Duringtheyearended31December2018,theGroupdisposedofcertaininvestmentswithanaggregateamountofRMB14,805million,whicharemainlyengagedintheprovisionofInternet-relatedservices.
(d)Duringtheyearended31December2018,theGroupmadealargenumberofindividualinvestmentsrecognisedasFVPL,butnoneofthemwassignificantenoughtotriggerthedisclosurerequirementspursuanttoChapter14oftheListingRulesatthetimewhentheGroupmadesuchinvestments.
(e)ManagementhasassessedthelevelofinfluencethattheGroupexercisesoncertainFVPLwithshareholdingexceeding20%.
Sincetheseinvestmentsareeitherheldinformofredeemableinstrumentsorinterestsinlimitedlifepartnershipwithoutsignificantinfluence,theseinvestmentshavebeenclassifiedasFVPL.
22524FINANCIALASSETSATFAIRVALUETHROUGHOTHERCOMPREHENSIVEINCOMEFVOCIincludethefollowing:Asat31December2018RMB'MillionEquityinvestmentsinlistedentities–UnitedStates33,120–MainlandChina5,365–France3,09341,578Others1,94143,519MovementofFVOCIisanalysedasfollows:2018RMB'MillionAtbeginningoftheyear–AdjustmentonadoptionofIFRS9(Note2.
2(a))58,515Additions(Note(a))17,689Transfers(Note23(b))3,577Changesinfairvalue(16,578)Disposals(Note(b))(22,200)Currencytranslationdifferences2,516Atendoftheyear43,519226TencentHoldingsLimited24FINANCIALASSETSATFAIRVALUETHROUGHOTHERCOMPREHENSIVEINCOME(Cont'd)Note:(a)Duringtheyearended31December2018,theGroup'sadditionstoFVOCImainlycomprisedthefollowing:(i)anewinvestmentinaretailcompanyinthePRCofapproximatelyRMB4,216milliontoacquireapproximately5%ofitsequityinterestsonanoutstandingbasis;(ii)anadditionalinvestmentinanInternet-relatedcompanyintheUnitedStatesofapproximatelyRMB3,712milliontofurtheracquireapproximately3%ofitsequityinterestsonanoutstandingbasis;(iii)anewinvestmentinanonlinegamecompanyinFranceofapproximatelyRMB2,900million,toacquireapproximately5%ofitsequityinterestsonanoutstandingbasis;(iv)anadditionalinvestmentinamediaandentertainmentcompanylistedontheNewYorkStockExchangeofapproximatelyRMB2,508million,tofurtheracquirecertainequityinterests;(v)anadditionalinvestmentinamediaandentertainmentcompanyinthePRCofapproximatelyRMB2,191million,toacquireapproximately7%ofitsequityinterestsonanoutstandingbasis;and(vi)certainnewinvestmentsandadditionalinvestmentswithanaggregateamountofapproximatelyRMB2,162million,mostofwhichareprincipallyengagedintechnologyservicesandoperateinthePRC.
(b)Duringtheyearended31December2018,theGrouppartiallydisposedofcertainlistedinvestments,withtotalgainsofapproximatelyRMB9,561millionondisposalsofFVOCItransferredfromotherreservestoretainedearnings.
22725PREPAYMENTS,DEPOSITSANDOTHERASSETSAsat31December20182017RMB'MillionRMB'MillionIncludedinnon-currentassets:Prepaymentsformediacontentsandgamelicences13,6527,031Loanstoinvesteesandinvestees'shareholders(Note(a))3,8642,058Runningroyaltyfeesforonlinegames(Note(b))99149Prepaymentsforcapitalinvestmentsininvestees61934Others3,2971,90121,53111,173Includedincurrentassets:Prepaymentsandprepaidexpenses7,5326,681Runningroyaltyfeesforonlinegames(Note(b))5,2304,095Interestreceivables1,6972,703Refundablevalue-addedtax915579Loanstoinvesteesandinvestees'shareholders(Note(a))225521Rentaldepositsandotherdeposits693220Dividendandotherinvestment-relatedreceivables338222Others1,8632,08918,49317,11040,02428,283Note:(a)Asat31December2018,thebalancesofloanstoinvesteesandinvestees'shareholdersaremainlyrepayablewithinaperiodofonetofiveyears(includedinnon-currentassets),orwithinoneyear(includedincurrentassets),andareinterest-bearingatratesofnothigherthan12.
0%perannum(31December2017:nothigherthan8.
0%perannum).
(b)Runningroyaltyfeesforonlinegamescomprisesofprepaidroyaltyfees,unamortisedrunningroyaltyfeesanddeferredOnlineServiceFees.
Asat31December2018,thecarryingamountsofdepositsandotherassets(excludesprepaymentsandrefundablevalue-addedtax),wereapproximatetotheirfairvalues.
Depositsandotherassetswereneitherpastduenorimpaired.
228TencentHoldingsLimited26OTHERFINANCIALASSETSOtherfinancialassetsweremeasuredattheirfairvalues.
Includedinnon-currentassets:Asat31December2018,theGroup'snon-currentotherfinancialassetscomprisedinterestrateswapcontractsofRMB1,693millionforinterestratehedgingpurpose,whichswapthefloatinginterestratesintofixedinterestrates.
TheaggregatenotionalprincipalamountsoftheGroup'soutstandinginterestrateswapcontractswereUSD11,311million(equivalenttoapproximatelyRMB77,630million)(31December2017:USD10,741million(equivalenttoapproximatelyRMB70,184million)).
Theseinterestrateswapcontractswerequalifiedforhedgeaccounting.
(31December2017:theGroup'snon-currentotherfinancialassetsalsoincludedtheembeddedderivativesbifurcatedfromtheirhostcontractswhichmainlycomprisedtheconversionoptionsbifurcatedfromtheircorrespondinghostcomponentsthatwereclassifiedasAFSandinvestmentsinredeemableinstrumentsofassociatesofRMB3,818million.
)Includedincurrentassets:Asat31December2018,theGroup'scurrentotherfinancialassetsmainlycomprisedcalloptionrightsheldbytheGrouptoacquireadditionalequityinterestsinaninvesteecompanyoftheGroup,amountingtoRMB312million(31December2017:RMB465million).
22927DEFERREDINCOMETAXESDeferredincometaxesarecalculatedinfullontemporarydifferencesundertheliabilitymethodusingthetaxrateswhichareexpectedtoapplyatthetimeofreversalofthetemporarydifferences.
Therewasnooffsettingofdeferredincometaxassetsandliabilitiesin2018and2017.
Asat31December20182017RMB'MillionRMB'MillionDeferredincometaxassets:–toberecoveredaftermorethan12months7,2164,510–toberecoveredwithin12months8,5395,28315,7559,793Deferredincometaxliabilities:–toberecoveredaftermorethan12months(9,834)(5,583)–toberecoveredwithin12months(1,130)(392)(10,964)(5,975)Themovementsofthedeferredincometaxassets/liabilitiesaccountwereasfollows:20182017RMB'MillionRMB'MillionAtbeginningoftheyear3,8181,880Credited/(charged)toconsolidatedincomestatement(Note11)609(590)Withholdingtaxpaid1,7732,451Creditedtoconsolidatedstatementofchangesinequity187164Businesscombinations(501)(21)Otheradditions(986)–Currencytranslationdifferences(109)(66)Atendoftheyear4,7913,818230TencentHoldingsLimited27DEFERREDINCOMETAXES(Cont'd)Themovementsofdeferredincometaxassetswereasfollows:DeferredincometaxassetsontemporarydifferencesarisingfromAcceleratedamortisationofintangibleassetsTaxlossesAccruedexpensesShare-basedpaymentsandothersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'Million(Note)At1January20181,902965,5652,2309,793Businesscombinations–––6262Credited/(charged)toconsolidatedincomestatement2,502(5)2,5137035,713Creditedtoconsolidatedstatementofchangesinequity–––170170Currencytranslationdifferences–––1717At31December20184,404918,0783,18215,755At1January20176421893,6612,5417,033Credited/(charged)toconsolidatedincomestatement1,260(93)1,904(275)2,796Creditedtoconsolidatedstatementofchangesinequity–––4646Currencytranslationdifferences–––(82)(82)At31December20171,902965,5652,2309,793Note:TheGrouponlyrecognisesdeferredincometaxassetsforcumulativetaxlossesifitisprobablethatfuturetaxableamountswillbeavailabletoutilisethosetaxlosses.
Managementwillcontinuetoassesstherecognitionofdeferredincometaxassetsinfuturereportingperiods.
Asat31December2018,theGroupdidnotrecognisedeferredincometaxassetsofRMB1,351million(31December2017:RMB1,129million)inrespectofcumulativetaxlossesamountingtoRMB6,277million(31December2017:RMB4,997million).
Thesetaxlosseswillexpirefrom2019to2023.
23127DEFERREDINCOMETAXES(Cont'd)Themovementsofdeferredincometaxliabilitieswereasfollows:DeferredincometaxliabilitiesontemporarydifferencesarisingfromIntangibleassetsacquiredinbusinesscombinationsWithholdingtaxontheearningsanticipatedtoberemittedbysubsidiariesChangeinfairvalueofFVPLandFVOCI(2017:AFS)DeemeddisposalsofinvesteesAcceleratedtaxdepreciationOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt1January2018(506)(4,075)(151)(779)–(464)(5,975)Businesscombinations(563)563)Credited/(charged)toconsolidatedincomestatement178(3,360)(75)(139)(1,634)(74)(5,104)Withholdingtaxpaid–1,773––––1,773Creditedtoconsolidatedstatementofchangesinequity––17–––17Otheradditions––(986)986)Currencytranslationdifferences(1)(6)(104)(1)–(14)(126)At31December2018(892)(5,668)(1,299)(919)(1,634)(552)(10,964)At1January2017(607)(3,391)(269)(425)–(461)(5,153)Businesscombinations(21)21)Credited/(charged)toconsolidatedincomestatement121(3,150)–(354)–(3)(3,386)Withholdingtaxpaid–2,451––––2,451Creditedtoconsolidatedstatementofchangesinequity––118–––118Currencytranslationdifferences115––––16At31December2017(506)(4,075)(151)(779)–(464)(5,975)Asat31December2018,theGrouprecognisedtherelevantdeferredincometaxliabilitiesofRMB5,668million(31December2017:RMB4,075million)onearningsanticipatedtoberemittedbycertainsubsidiariesintheforeseeablefuture.
NowithholdingtaxhadbeenprovidedfortheearningsofapproximatelyRMB13,685million(31December2017:RMB32,213million)expectedtoberetainedbythePRCsubsidiariesandnottoberemittedtoaforeigninvestorintheforeseeablefuturebasedonseveralfactors,includingmanagement'sestimationofoverseasfundingrequirements.
232TencentHoldingsLimited28TERMDEPOSITSAnanalysisoftheGroup'stermdepositsbycurrenciesareasfollows:Asat31December20182017RMB'MillionRMB'MillionIncludedinnon-currentassets:RMBtermdeposits–5,358Othercurrencies–7–5,365Includedincurrentassets:RMBtermdeposits55,18030,701USDtermdeposits6,3494,187Othercurrencies1,3891,83662,91836,72462,91842,089TheeffectiveinterestrateforthetermdepositsoftheGroupwithinitialtermsofoverthreemonthsduringtheyearended31December2018was4.
08%(2017:3.
86%).
Termdepositswithinitialtermsofoverthreemonthswereneitherpastduenorimpaired.
Asat31December2018,thecarryingamountsofthetermdepositswithinitialtermsofoverthreemonthsapproximatedtheirfairvalues.
23329ACCOUNTSRECEIVABLEAsat31December20182017RMB'MillionRMB'MillionAccountsreceivable29,78417,429Lossallowance(1,357)(880)28,42716,549Accountsreceivableandtheirageinganalysis,basedonrecognitiondate,areasfollows:Asat31December20182017RMB'MillionRMB'Million0~30days11,2004,39931~60days7,6956,39461~90days4,2012,259Over90days5,3313,49728,42716,549MajorityoftheGroup'saccountsreceivableweredenominatedinRMB.
ThecarryingamountsofaccountsreceivableoftheGroup'smajoragents/customersareasfollows:Asat31December20182017RMB'MillionRMB'MillionOnlineadvertisingcustomersandagencies11,9448,076Contentproductionrelatedcustomers5,4002,162FinTechandcloudcustomers4,2601,716Thirdpartyplatformproviders3,8773,140Others2,9461,45528,42716,549234TencentHoldingsLimited29ACCOUNTSRECEIVABLE(Cont'd)Someonlineadvertisingcustomersandagenciesareusuallygrantedwithacreditperiodwithin90daysafterfullexecutionofthecontractedadvertisementorders.
Thirdpartyplatformprovidersusuallysettletheamountsduebythemwithin60days.
Othercustomers,mainlyincludingcontentproductionrelatedcustomersandFinTechandcloudcustomers,areusuallygrantedwithacreditperiodwithin90days.
Asof31December2017,impairmentprovisionwasrecognisedafterassessmentofthefinancialconditionandcreditqualitywithreferencetothepasthistory.
Beginningfrom1January2018,theGroupappliesthesimplifiedapproachpermittedbyIFRS9,whichrequiresexpectedlifetimelossestoberecognisedfrominitialrecognitionoftheassets.
Theprovisionmatrixisdeterminedbasedonhistoricalobserveddefaultratesovertheexpectedlifeofthereceivableswithsimilarcreditriskcharacteristicsandisadjustedforforward-lookingestimates.
Thehistoricalobserveddefaultratesareupdatedandchangesintheforward-lookingestimatesareanalysedatyearend.
Fortheyearended31December2018and2017,lossallowancemadeagainstthegrossamountsofaccountsreceivablewerenotsignificant,andprovisionmatrixisnotpresented.
Asat31December2018,thecarryingamountsofaccountsreceivableapproximatedtheirfairvalues.
30BANKBALANCESANDCASH(a)CashandcashequivalentsAsat31December20182017RMB'MillionRMB'MillionBankbalancesandcash38,69648,278Termdepositsandhighlyliquidinvestmentswithinitialtermswithinthreemonths59,11857,41997,814105,697TheeffectiveinterestrateofthetermdepositsoftheGroupwithinitialtermswithinthreemonthsduringtheyearended31December2018was3.
59%(2017:2.
42%).
ApproximatelyRMB31,015million(31December2017:RMB54,894million)andRMB3,349million(31December2017:RMB11,740million)ofthetotalbalanceoftheGroup'scashandcashequivalentswasdenominatedinRMBandplacedwithbanksinMainlandChinaandHongKong,respectively.
(b)RestrictedcashAsat31December2018,restricteddepositsheldatbankofRMB2,590million(31December2017:RMB1,606million)weremainlydenominatedinRMB.
23531SHARECAPITAL,SHAREPREMIUMANDSHARESHELDFORSHAREAWARDSCHEMESAsat31December2018and2017,theauthorisedsharecapitaloftheCompanycomprises50,000,000,000ordinaryshareswithparvalueofHKD0.
00002pershare.
Numberofissuedandfullypaidordinaryshares*SharecapitalSharepremiumSharesheldforshareawardschemesTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionAt1January20189,499,056,887–22,204(3,970)18,234Employeeshareoptionschemes:–valueofemployeeservices––1,983–1,983–sharesissued(Note(a))6,891,249–525–525Employeeshareawardschemes:–valueofemployeeservices––5,022–5,022–shareswithheldforshareawardschemes(Note(b)2,187)(2,187)–sharesallottedforshareawardschemes(Note(c))17,206,955–––––sharesvestedfromshareawardschemesandtransferredtothegrantees(Note(d))––(1,984)1,984–Repurchaseandcancellationofshares(Note(e))(2,848,000)–(783)–(783)Acquisitionofadditionalequityinterestsinnon-whollyownedsubsidiaries––327–327At31December20189,520,307,091–27,294(4,173)23,121At1January20179,477,083,480–17,324(3,136)14,188Employeeshareoptionschemes:–valueofemployeeservices––1,125–1,125–sharesissued(Note(a))4,102,812–171–171Employeeshareawardschemes:–valueofemployeeservices––4,254–4,254–shareswithheldforshareawardschemes(Note(b)2,232)(2,232)–sharesallottedforshareawardschemes(Note(c))17,870,595–––––sharesvestedfromshareawardschemesandtransferredtothegrantees(Note(d))––(1,398)1,398–Acquisitionofadditionalequityinterestsinnon-whollyownedsubsidiaries––728–728At31December20179,499,056,887–22,204(3,970)18,234236TencentHoldingsLimited31SHARECAPITAL,SHAREPREMIUMANDSHARESHELDFORSHAREAWARDSCHEMES(Cont'd)*Asat31December2018,thetotalnumberofissuedordinarysharesoftheCompanyincluded63,275,620shares(31December2017:70,675,181shares)heldundertheShareAwardSchemes.
Note:(a)Duringtheyearended31December2018,6,891,249Post-IPOoptions(2017:4,102,812Post-IPOoptions)withexercisepricesrangingfromHKD31.
70toHKD272.
36(2017:HKD26.
08toHKD174.
86)wereexercised.
(b)Duringtheyearended31December2018,theShareSchemeTrustwithheld6,839,643ordinaryshares(2017:9,303,028ordinaryshares)oftheCompanyforanamountofapproximatelyHKD2,550million(equivalenttoapproximatelyRMB2,187million)(2017:HKD2,606million(equivalenttoapproximatelyRMB2,232million)),whichhadbeendeductedfromtheequity.
(c)Duringtheyearended31December2018,theCompanyallotted17,206,955ordinaryshares(2017:17,870,595ordinaryshares)totheShareSchemeTrustforthepurposeofgrantingawardedsharestotheparticipantsundertheShareAwardSchemes.
(d)Duringtheyearended31December2018,theShareSchemeTrusttransferred31,446,159ordinarysharesoftheCompany(2017:38,573,979ordinaryshares)totheshareawardeesuponvestingoftheawardedshares(Note33(b)).
(e)Duringtheyearended31December2018,theCompanyrepurchased2,848,000ofitsownsharesfromthemarketwhichweresubsequentlycancelled.
TheshareswereacquiredatpricesrangingfromHKD265.
20toHKD333.
40,withanaveragepriceofHKD311.
38pershare.
23732OTHERRESERVESCapitalreservesAFSFVOCIInvestmentsinassociatesandjointventuresCurrencytranslationdifferencesPRCstatutoryreservesShare-basedcompensationreservesOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'Million(Note(a))(Note(b))(Note(c))Balanceat31December2017,aspreviouslyreported(2,999)31,152–2,228(3,464)2,2734,1701,79835,158AdjustmentonadoptionofIFRS9(Note2.
2(a))–(31,152)14,94216,210)Balanceat1January2018(2,999)–14,9422,228(3,464)2,2734,1701,79818,948TransferofgainsondisposalofFVOCItoretainedearnings(Note(d))––(9,561)9,561)Shareofotherchangesinnetassetsofassociates–––2,861––––2,861Valueofemployeeservices:–Employeeshareoptionschemes63–63–Employeeshareawardschemes466–466Taxbenefitfromshare-basedpaymentsofasubsidiary148–148Acquisitionofadditionalequityinterestsinnon-whollyownedsubsidiaries(877)877)Transferofequityinterestsofsubsidiariestonon-controllinginterests(1,886)1,886)Recognitionofthefinancialliabilitiesinrespectoftheputoptionfrombusinesscombination(406)406)Dilutionofinterestsinsubsidiaries(Note(e))2,8362,836ProfitappropriationstoPRCstatutoryreserves517––517NetlossesfromchangesinfairvalueofFVOCI––(16,095)16,095)Shareofothercomprehensiveincomeofassociatesandjointventures–––23––––23Currencytranslationdifferences––––3,681–––3,681Otherfairvaluegains,net1111Balanceat31December2018(3,332)–(10,714)5,1122172,7904,8471,809729238TencentHoldingsLimited32OTHERRESERVES(Cont'd)CapitalreservesAFSInvestmentsinassociatesandjointventuresCurrencytranslationdifferencesPRCstatutoryreservesShare-basedcompensationreservesOthersTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'Million(Note(a))(Note(b))(Note(c))Balanceat1January2017(6,430)16,8591,3215,7341,7543,3631,09223,693Valueofemployeeservices:–Employeeshareoptionschemes156–156–Employeeshareawardschemes407–407Taxbenefitfromshare-basedpaymentsofasubsidiary244–244Acquisitionofadditionalequityinterestsinnon-whollyownedsubsidiaries(952)952)Transferofequityinterestsofsubsidiariestonon-controllinginterests(2,045)2,045)Lapseofputoptiongrantedtonon-controllinginterests5050Dilutionofinterestsinsubsidiaries6,3786,378ProfitappropriationstoPRCstatutoryreserves––––519––519NetgainsfromchangesinfairvalueofAFS–16,85416,854TransfertoprofitorlossupondisposalofAFS–(2,561)2,561)Shareofothercomprehensiveincomeofassociatesandjointventures––907––––907Currencytranslationdifferences–––(9,198)9,198)Otherfairvaluegains,net706706Balanceat31December2017(2,999)31,1522,228(3,464)2,2734,1701,79835,15823932OTHERRESERVES(Cont'd)Note:(a)Thecapitalreservemainlyarisesfromtransactionsundertakenwithnon-controllinginterests.
(b)InaccordancewiththeCompaniesLawsofthePRCandthestipulatedprovisionsofthearticlesofassociationofsubsidiarieswithlimitedliabilitiesinthePRC,appropriationofnetprofit(afteroffsettingaccumulatedlossesfromprioryears)shouldbemadebythesecompaniestotheirrespectiveStatutorySurplusReserveFundsandtheDiscretionaryReserveFundsbeforedistributionsaremadetotheowners.
ThepercentageofappropriationtoStatutorySurplusReserveFundis10%.
TheamounttobetransferredtotheDiscretionaryReserveFundisdeterminedbytheequityownersofthesecompanies.
WhenthebalanceoftheStatutorySurplusReserveFundreaches50%oftheregisteredcapital,suchtransferneedsnottobemade.
BoththeStatutorySurplusReserveFundandDiscretionaryReservesFundcanbecapitalisedascapitalofanenterprise,providedthattheremainingStatutorySurplusReserveFundshallnotbelessthan25%oftheregisteredcapital.
Inaddition,inaccordancewiththeLawofthePRConEnterpriseswithForeignInvestmentsandthestipulatedprovisionsofthearticlesofassociationofwhollyownedforeignsubsidiariesinthePRC,appropriationfromnetprofit(afteroffsettingaccumulatedlossesbroughtforwardfromprioryears)shouldbemadebythesecompaniestotheirrespectiveReserveFund.
ThepercentageofnetprofittobeappropriatedtotheReserveFundisnotlessthan10%ofthenetprofit.
WhenthebalanceoftheReserveFundreaches50%oftheregisteredcapital,suchtransferneedsnotbemade.
Withapprovalsobtainedfromrespectiveboardsofdirectorsofthesecompanies,theReserveFundcanbeusedtooffsetaccumulateddeficitortoincreasecapital.
(c)Share-basedcompensationreservearisesfromshareoptionschemesandshareawardschemesadoptedbythesubsidiariesoftheGroup(Note33(d)).
(d)TheGrouphaselectedtorecognisechangesinthefairvalueofcertaininvestmentinequityinstrumentsinothercomprehensiveincome,asexplainedinNote2.
16.
ThesechangesareaccumulatedwithFVOCIreservewithequity.
TheGrouptransfersamountsfromthisreservetoretainedearningswhentherelevantequityinstrumentsarederecognised.
(e)Duringtheyearended31December2018,thedilutionofinterestsinsubsidiariesmainlycomprisedthefollowing:(i)anon-whollyownedsubsidiaryoftheGroup,TencentMusicEntertainmentGroup("TME"),haveundergoneinitialpublicofferingbylistingofcertainofitsnewsharesontheNewYorkStockExchangewithproceedsofapproximatelyRMB3,520million,andthustheGroup'sequityinterestinTMEwasdiluted.
GivenTMEremainsasubsidiaryoftheGroupfollowingthesaidinitialpublicoffering,thistransactionwasaccountedforastransactionwithnon-controllinginterestwithagainofRMB1,312milliondirectlyrecognisedinequity;and(ii)anequitytransactionofanon-whollyownedsubsidiarydescribedinNote7(d),whichresultsinthetransactionwithnon-controllinginterestsofapproximatelyRMB1,121million.
240TencentHoldingsLimited33SHARE-BASEDPAYMENTS(a)ShareoptionschemesTheCompanyhasadoptedfiveshareoptionschemes,namely,thePre-IPOOptionScheme,thePost-IPOOptionSchemeI,thePost-IPOOptionSchemeII,thePost-IPOOptionSchemeIIIandthePost-IPOOptionSchemeIV.
ThePre-IPOOptionScheme,thePost-IPOOptionSchemeIandthePost-IPOOptionSchemeIIexpiredon31December2011,23March2014and16May2017,respectively.
Upontheexpiryoftheseschemes,nofurtheroptionswouldbegrantedundertheseschemes,buttheoptionsgrantedpriortosuchexpirycontinuedtobevalidandexercisableinaccordancewithprovisionsoftheschemes.
InrespectofthePost-IPOOptionSchemeIIIandthePost-IPOOptionSchemeIVwhichcontinuetobeinforce,theBoardmay,atitsdiscretion,grantoptionstoanyqualifyingparticipantstosubscribeforsharesintheCompany,subjecttothetermsandconditionsstipulatedtherein.
TheexercisepricemustbeincompliancewiththerequirementundertheRulesGoverningtheListingofSecuritiesontheStockExchange.
Inaddition,theoptionvestingperiodisdeterminedbytheBoardprovidedthatitisnotlaterthanthelastdayofa10-yearperiodforthePost-IPOOptionSchemeIIIanda7-yearperiodforthePost-IPOOptionSchemeIVafterthedateofgrantofoption.
24133SHARE-BASEDPAYMENTS(Cont'd)(a)Shareoptionschemes(Cont'd)(i)MovementsinshareoptionsMovementsinthenumberofshareoptionsoutstandingandtheirrelatedweightedaverageexercisepricesareasfollows:Post-IPOOptionSchemeIIPost-IPOOptionSchemeIIIPost-IPOOptionSchemeIVTotalAverageexercisepriceNo.
ofoptionsAverageexercisepriceNo.
ofoptionsAverageexercisepriceNo.
ofoptionsNo.
ofoptionsAt1January2018HKD179.
9055,510,248HKD31.
702,500,000HKD273.
809,155,86067,166,108Granted––––HKD405.
7327,723,85027,723,850ExercisedHKD110.
85(3,966,835)HKD31.
70(2,500,000)HKD272.
36(424,414)(6,891,249)Lapsed/forfeitedHKD136.
67(44,403)––HKD298.
36(178,062)(222,465)At31December2018HKD185.
2551,499,010––HKD374.
5236,277,23487,776,244Exercisableasat31December2018HKD160.
5022,419,156––HKD274.
861,760,02524,179,181At1January2017HKD120.
9531,247,436HKD31.
702,500,000––33,747,436GrantedHKD225.
4428,526,215––HKD273.
799,219,03537,745,250ExercisedHKD49.
05(4,102,812)4,102,812)Lapsed/forfeitedHKD142.
65(160,591)––HKD272.
36(63,175)(223,766)At31December2017HKD179.
9055,510,248HKD31.
702,500,000HKD273.
809,155,86067,166,108Exercisableasat31December2017HKD118.
7013,152,006HKD31.
701,250,000––14,402,006Duringtheyearended31December2018,3,215,800optionsweregrantedtoanexecutivedirectoroftheCompany(2017:5,250,000optionsweregrantedtoanexecutivedirectoroftheCompany).
Asaresultoftheoptionsexercisedduringtheyearended31December2018,6,891,249ordinaryshares(2017:4,102,812ordinaryshares)wereissuedbytheCompany(Note31).
TheweightedaveragepriceofthesharesatthetimetheseoptionswereexercisedwasHKD399.
37pershare(equivalenttoapproximatelyRMB325.
67pershare)(2017:HKD286.
46pershare(equivalenttoapproximatelyRMB248.
41pershare)).
242TencentHoldingsLimited33SHARE-BASEDPAYMENTS(Cont'd)(a)Shareoptionschemes(Cont'd)(ii)OutstandingshareoptionsDetailsoftheexpirydates,exercisepricesandtherespectivenumbersofshareoptionswhichremainedoutstandingasat31December2018and2017areasfollows:NumberofshareoptionsExpiryDateRangeofexerciseprice31December201831December20177yearscommencingfromthedateofHKD37.
80~HKD49.
7622,8751,633,050grantofoptionsHKD112.
30~HKD174.
8623,504,53525,386,768(Post-IPOOptionSchemeIIandHKD225.
44~HKD272.
3636,475,94937,556,725Post-IPOOptionSchemeIV)HKD354.
00~HKD386.
605,191,480–HKD403.
16~HKD444.
2022,581,40589,56587,776,24464,666,10810yearscommencingfromthedateofgrantofoptions(Post-IPOOptionSchemeIII)HKD31.
70–2,500,00087,776,24467,166,108Theoutstandingshareoptionsasof31December2018weredividedintotwotofivetranchesonanequalbasisasattheirgrantdates.
Thefirsttranchecanbeexercisedafteraspecifiedperiodrangingfromtenmonthstothreeyearsfromthegrantdate,andthentheremainingtrancheswillbecomeexercisableineachsubsequentyear.
(iii)FairvalueofoptionsThedirectorsoftheCompanyhaveusedtheBinomialModeltodeterminethefairvalueoftheoptionsasattherespectivegrantdates,whichistobeexpensedovertherelevantvestingperiod.
Theweightedaveragefairvalueofoptionsgrantedduringtheyearended31December2018wasHKD127.
43pershare(equivalenttoapproximatelyRMB103.
46pershare)(2017:HKD71.
30pershare(equivalenttoapproximatelyRMB62.
86pershare)).
Otherthantheexercisepricementionedabove,significantjudgmentonparameters,suchasriskfreerate,dividendyieldandexpectedvolatility,arerequiredtobemadebythedirectorsinapplyingtheBinomialModel,whicharesummarisedasbelow.
24333SHARE-BASEDPAYMENTS(Cont'd)(a)Shareoptionschemes(Cont'd)(iii)Fairvalueofoptions(Cont'd)20182017WeightedaveragesharepriceatthegrantdateHKD405.
00HKD236.
88Riskfreerate1.
77%~2.
27%1.
39%~1.
68%Dividendyield0.
24%~0.
25%0.
26%~0.
34%Expectedvolatility(Note)30.
00%30.
00%Note:Theexpectedvolatility,measuredasthestandarddeviationofexpectedsharepricereturns,isdeterminedbasedontheaveragedailytradingpricevolatilityofthesharesoftheCompany.
(b)ShareawardschemesTheCompanyhasadoptedtwoshareawardschemes(the"ShareAwardSchemes")asof31December2018,whichareadministeredbyanindependenttrusteeappointedbytheGroup.
ThevestingperiodoftheawardedsharesisdeterminedbytheBoard.
Movementsinthenumberofawardedsharesfortheyearsended31December2018and2017areasfollows:Numberofawardedshares20182017Atbeginningoftheyear63,636,25486,365,812Granted20,940,14919,071,975Lapsed/forfeited(2,882,349)(3,227,554)Vestedandtransferred(31,446,159)(38,573,979)Atendoftheyear50,247,89563,636,254Vestedbutnottransferredasattheendoftheyear45,432159,893244TencentHoldingsLimited33SHARE-BASEDPAYMENTS(Cont'd)(b)Shareawardschemes(Cont'd)Duringtheyearended31December2018,39,500awardedsharesweregrantedtofourindependentnon-executivedirectorsoftheCompany(2017:60,000awardedsharesweregrantedtofourindependentnon-executivedirectorsoftheCompany).
ThefairvalueoftheawardedshareswascalculatedbasedonthemarketpriceoftheCompany'ssharesattherespectivegrantdate.
Theexpecteddividendsduringthevestingperiodhavebeentakenintoaccountwhenassessingthefairvalueoftheseawardedshares.
Theweightedaveragefairvalueofawardedsharesgrantedduringtheyearended31December2018wasHKD374.
32pershare(equivalenttoapproximatelyRMB316.
30pershare)(2017:HKD274.
02pershare(equivalenttoapproximatelyRMB238.
37pershare)).
Theoutstandingawardedsharesasof31December2018weredividedintoonetofivetranchesonanequalbasisasattheirgrantdates.
Thefirsttranchecanbeexercisedimmediatelyorafteraspecifiedperiodrangingfromfourmonthstothreeyearsfromthegrantdate,andtheremainingtrancheswillbecomeexercisableineachsubsequentyear.
(c)EmployeeinvestmentschemesForaligningtheinterestsofkeyemployeeswiththeGroup,theGroupestablishedsixemployees'investmentplansintheformoflimitedliabilitypartnershipsin2011,2014,2015,2016and2017(the"EIS")respectively.
AccordingtothetermoftheEISs,theBoardmay,atitsabsolutediscretion,inviteanyqualifyingparticipantsoftheGroup,excludinganydirectoroftheCompany,toparticipateintheEISsbysubscribingforthepartnershipinterestatcashconsideration.
TheparticipatingemployeesareentitledtoalltheeconomicbenefitsgeneratedbytheEISs,ifany,afteraspecifiedvestingperiodundertherespectiveEISs,rangingfromfourtosevenyears.
Wholly-ownedsubsidiariesoftheCompanyactingasgeneralpartneroftheseEISsadministerandinessence,controltheEISs.
TheseEISsarethereforeconsolidatedbytheCompanyasstructuredentities.
Therelatedshare-basedcompensationexpensesincurredfortheyearsended31December2018and2017wereinsignificanttotheGroup.
24533SHARE-BASEDPAYMENTS(Cont'd)(d)ShareoptionsandshareawardschemesadoptedbysubsidiariesCertainsubsidiariesoftheGroupoperatetheirownshare-basedcompensationplans(shareoptionand/orshareawardschemes).
Theirexercisepricesoftheshareoptions,aswellasthevestingperiodsoftheshareoptionsandawardedsharesaredeterminedbytherespectiveboardofdirectorsofthesesubsidiariesattheirsolediscretion.
Theshareoptionsorrestrictedsharesofthesubsidiariesgrantedarenormallyvestedbyseveraltranches.
ParticipantsofsomesubsidiarieshavetherighttorequesttheGrouptorepurchasetheirvestedequityinterestsoftherespectivesubsidiaries("RepurchaseTransaction").
TheGrouphasdiscretiontosettletheRepurchaseTransactionbyusingeitherequityinstrumentsoftheCompanyorbycash.
FortheRepurchaseTransactionwhichtheGrouphassettlementoptions,thedirectorsoftheCompanyarecurrentlyoftheviewthattheywouldbesettledbyequityinstrumentsoftheCompany.
Asaresult,theyareaccountedforusingtheequity-settledshare-basedpaymentmethod.
(e)ExpectedretentionrateofgranteesTheGrouphastoestimatetheexpectedyearlypercentageofgranteesthatwillstaywithintheGroupattheendofvestingperiodsoftheoptionsandawardedshares(the"ExpectedRetentionRate")inordertodeterminetheamountofshare-basedcompensationexpenseschargedtotheconsolidatedincomestatement.
Asat31December2018,theExpectedRetentionRateoftheGroup'swholly-ownedsubsidiarieswasassessedtobe88%~97%(31December2017:88%~97%).
246TencentHoldingsLimited34BORROWINGSAsat31December20182017RMB'MillionRMB'MillionIncludedinnon-currentliabilities:Non-currentportionoflong-termUSDbankborrowings,unsecured(Note(a))70,93876,326Non-currentportionoflong-termRMBbankborrowings,–unsecured(Note(a))11,1894,459–secured(Note(a))–475Non-currentportionoflong-termHKDbankborrowings,unsecured(Note(a))5,31083487,43782,094Includedincurrentliabilities:USDbankborrowings,unsecured(Note(b))16,4031,307HKDbankborrowings,unsecured(Note(b))3,36814,293RMBbankborrowings,unsecured(Note(b))628–Currentportionoflong-termUSDbankborrowings,unsecured(Note(a))5,62866Currentportionoflong-termRMBbankborrowings,–unsecured(Note(a))33230–secured(Note(a))475–26,83415,696114,27197,79024734BORROWINGS(Cont'd)Note:(a)Theaggregateprincipalamountsoflong-termUSDbankborrowings,long-termRMBbankborrowingsandlong-termHKDbankborrowingswereUSD11,156million(31December2017:USD11,691million),RMB11,996million(31December2017:RMB4,964million)andHKD6,070million(31December2017:HKD1,000million),respectively.
ApplicableinterestratesareatLIBOR/HIBOR+0.
70%~1.
51%orafixedinterestrateof1.
875%fornon-RMBbankborrowings,andinterestratesof4.
18%~9.
00%forRMBbankborrowings(31December2017:LIBOR/HIBOR+0.
70%~1.
51%orafixedinterestrateof1.
875%fornon-RMBbankborrowingsandinterestratesof4.
18%~4.
275%forRMBbankborrowings)perannum.
Thelong-termbankborrowingswererepayableasfollows:Asat31December20182017RMB'MillionRMB'MillionWithin1year6,43596Between1and2years18,6409,947Between2and5years68,79766,201Morethan5years–5,94693,87282,190(b)Theaggregateprincipalamountsofshort-termUSDbankborrowings,short-termRMBbankborrowingsandshort-termHKDbankborrowingswereUSD2,390million(31December2017:USD200million),RMB628million(31December2017:Nil)andHKD3,850million(31December2017:HKD17,133million),respectively.
Theseshort-termbankborrowingswerecarriedatLIBOR/HIBOR+0.
50%~0.
55%orafixedinterestrateof5.
22%~5.
44%(31December2017:LIBOR/HIBOR+0.
50%~0.
55%)perannum.
Duringtheyearended31December2018,theGroupenteredintocertaininterestrateswapcontractstohedgeitsexposurearisingfromitslong-termbankborrowingscarriedatfloatingrates.
TheGroup'soutstandinginterestrateswapcontractsasat31December2018havebeendetailedinNote26.
Asat31December2018,thecarryingamountsofborrowingsapproximatedtheirfairvalues.
248TencentHoldingsLimited35NOTESPAYABLEAsat31December20182017RMB'MillionRMB'MillionIncludedinnon-currentliabilities:Non-currentportionoflong-termUSDnotespayable48,50126,697Non-currentportionoflong-termHKDnotespayable2,7972,66651,29829,363Includedincurrentliabilities:Currentportionoflong-termUSDnotespayable13,7203,919Currentportionoflong-termHKDnotespayable–83313,7204,75265,01834,115TheaggregateprincipalamountsofUSDnotespayableandHKDnotespayablewereUSD9,100million(31December2017:USD4,700million)andHKD3,200million(31December2017:HKD4,200million),respectively.
Applicableinterestratesareat2.
875%~4.
70%and3-monthUSDLIBOR+0.
605%(31December2017:2.
30%~4.
70%)perannum.
Thenotespayablewererepayableasfollows:Asat31December20182017RMB'MillionRMB'MillionWithin1year13,7204,752Between1and2years10,33513,044Between2and5years10,2589,833Morethan5years30,7056,48665,01834,11524935NOTESPAYABLE(Cont'd)AllofthesenotespayableissuedbytheGroupwereunsecured.
On19January2018,theCompanyissuedfourtranchesofseniornotesundertheGlobalMediumTermNoteProgrammewithaggregateprincipalamountsofUSD5billionassetoutbelow:Amount(USD'Million)InterestRate(perannum)Due2023Notes1,0002.
985%20232023FloatingRateNotes5003-monthUSDLIBOR+0.
605%20232028Notes2,5003.
595%20282038Notes1,0003.
925%20385,000InMarch2018,thenotespayablewithanaggregateprincipalamountofUSD600millionissuedinSeptember2012reachedtheirmaturityandwererepaidinfullbytheGroup.
InSeptember2018,thenotespayablewithanaggregateprincipalamountofHKD1,000millionissuedinSeptember2015reachedtheirmaturityandwererepaidinfullbytheGroup.
Asat31December2018,thefairvalueofthenotespayableamountedtoRMB62,820million(31December2017:RMB34,691million).
Therespectivefairvaluesareassessedbasedontheactivemarketpriceofthesenotesonthereportingdateorbymakingreferencetosimilarinstrumentstradedintheobservablemarket.
250TencentHoldingsLimited36LONG-TERMPAYABLESAsat31December20182017RMB'MillionRMB'MillionPurchaseconsiderationpayablesforinvesteecompanies2,018336Payablesrelatingtomediacontentsandrunningroyaltyfeeforonlinegames1,4152,597Presentvalueofliabilitiesinrelationtotheputoptionsgrantedtonon-controllingshareholdersofsubsidiaries393225Others9717044,7973,86237OTHERFINANCIALLIABILITIESAsat31December2018,itmainlycomprisedofthecontingentconsiderationinrelationtotheacquisitionofequityinterestsfromshareholdersofanassociateoftheGroup(Note40).
25138ACCOUNTSPAYABLEAccountspayableandtheirageinganalysis,basedonrecognitiondate,areasfollows:Asat31December20182017RMB'MillionRMB'Million0~30days56,50638,42031~60days6,2643,03061~90days1,5572,050Over90days9,4086,58573,73550,08539OTHERPAYABLESANDACCRUALSAsat31December20182017RMB'MillionRMB'MillionStaffcostsandwelfareaccruals15,92913,451Sellingandmarketingexpenseaccruals3,0384,414Generalandadministrativeexpensesaccruals1,6501,149Purchaseconsiderationpayablesforinvesteecompanies1,2771,045Purchaseofconstructionrelatedcosts1,0651,463Interestspayable951410Prepaymentsreceivedfromcustomersandothers542416Liabilitiesinrelationtotheputoptionsgrantedtonon-controllingshareholdersofsubsidiaries759–Others(Note)8,1017,08533,31229,433Note:Othersprimaryconsistofdepositsfromthirdparties,reserveforplatformservices,sundrypayablesandotheraccruals.
252TencentHoldingsLimited40BUSINESSCOMBINATION(a)Step-upacquisitionofNewClassicsMediaOn31October2018(the"AcquisitionDate"),theGroup'snon-whollyownedsubsidiary,ChinaLiteratureLimited("ChinaLiterature"),acquiredentireequityinterestsinNewClassicMediaHoldingsLimited("NewClassicsMedia"),anexistingassociateoftheGroup,whichisengagedintheproductionanddistributionoftelevisionseries,webseriesandfilmsinthePRC(the"Step-upAcquisition").
TheinvestmentinNewClassicsMediawasinitiallyaccountedforasFVPL,andsubsequentlyreclassifiedasanassociateoftheGroupduetoadditionalinvestmentsandboardrepresentation.
ImmediatelybeforetheStep-upAcquisition,theGroupheld44.
08%equityinterestsinNewClassicsMedia(the"PreviouslyHeldInterests").
UponcompletionoftheStep-upAcquisition,theGroupindirectlyheldapproximately56%equityinterestsinNewClassicsMediathroughChinaLiteratureandaccountedforitasasubsidiaryoftheGroup.
TheGroupexpectstheacquisitionofNewClassicsMediatofurtherincreaseitsmarketshareinentertainmentindustry.
GoodwillofapproximatelyRMB6,933millionwasrecognisedasaresultoftheStep-upAcquisition.
Itwasmainlyattributabletotheoperatingsynergiesandeconomiesofscaleexpectedtobederivedfromcombiningtheoperations.
Noneofthegoodwillisexpectedtobedeductibleforincometaxpurpose.
TheGroupchosetorecordthenon-controllingequityinterestsinNewClassicsMediaatfairvalueonAcquisitionDate.
Thefollowingtablesummarisesthepurchaseconsideration,fairvalueofassetsacquired,liabilitiesassumedandthenon-controllinginterestrecognisedasattheAcquisitionDate.
25340BUSINESSCOMBINATION(Cont'd)(a)Step-upacquisitionofNewClassicsMedia(Cont'd)Asat31October2018RMB'MillionTotalconsideration:Cashpaid1,532OrdinarysharesissuedbyChinaLiterature1,431Contingentconsideration(Note)3,301FairvalueofthePreviouslyHeldInterests(Note20(a)(ii))2,9459,209Non-controllinginterests(4,070)TotalconsiderationattributabletotheCompany'sequityholders5,139Recognisedamountsofidentifiableassetsacquiredandliabilitiesassumed:Cashandcashequivalents1,006Accountsreceivable1,527Intangibleassetsarisingfromacquisition741Intangibleassetsandprepayments(mainlyincludetelevisionseriesandfilmrights)2,449Otherassets608Deferredrevenueandotherpayablesandaccruals(2,173)Borrowings(1,363)Otherliabilities(290)Deferredincometaxliabilities(231)Totalidentifiablenetassets2,274Non-controllinginterests(4,068)Goodwill6,9335,139254TencentHoldingsLimited40BUSINESSCOMBINATION(Cont'd)(a)Step-upacquisitionofNewClassicsMedia(Cont'd)Note:Pursuanttothesharepurchaseagreement,theconsiderationwillbesettledbyacombinationofcashandnewsharespaidandissuedbyChinaLiteratureandwillbesubjecttotheearn-outmechanismsetforthinthesharepurchaseagreement.
"MonteCarloSimulationMethod"wasusedinthisexercisetomeasurethevalueofthecontingentconsideration.
ThefuturenetprofitofNewClassicsMediawassimulatedinnumerousscenariosbasedontheassumptionsofgrowthrateandvolatilityofnetprofitofNewClassicsMedia.
Foreachscenario,theconsiderationtobepaidintheformofcashandshareswouldbedeterminedinaccordancewiththeearn-outmechanismsetoutinthesharepurchaseagreement.
Suchconsiderationwasthendiscountedataratethatreflectstheassociatedriskofthepaymenttoarrivethepresentvalueofconsiderationinascenario.
Thevalueofcontingentconsiderationwasobtainedbytheaverageofthepresentvalueofconsiderationsinthesescenarios.
Asat31October2018,otherfinancialliabilitiesofapproximatelyRMB3,301millioninrelationtothisarrangementwasrecognisedintheGroup'sconsolidatedstatementoffinancialpositionbasedontheearn-outmechanism.
TherevenueandtheresultscontributedbyNewClassicsMediatotheGroupfortheperiodsincetheAcquisitionDatewereinsignificant.
TheGroup'srevenueandresultsfortheyearwouldnotbemateriallydifferentshouldtheStep-upAcquisitionhaveotherwiseoccuredon1January2018.
Thefinancialimpactsrecordedas"Othergains,net"duringtheyearended31December2018forthedifferencebetweenthefairvalueofthePreviouslyHeldInterestsandtheexistingcarryingamountofinvestmentinanassociateattheAcquisitionDatewereinsignificant.
TherelatedtransactioncostsoftheStep-upAcquisitionarenotmaterialtotheGroup'sconsolidatedfinancialstatements.
(b)OtherbusinesscombinationDuringtheyearended31December2018,theGroupalsoacquiredcertaininsignificantsubsidiaries.
TheaggregateconsiderationsfortheseacquisitionswasapproximatelyRMB3,077million,fairvalueofnetassetsacquired(includingidentifiableintangibleassets),non-controllinginterestsandgoodwillrecognisedwereapproximatelyRMB1,426million,RMB1,003millionandRMB2,654million,respectively.
TherevenueandtheresultscontributedbytheseacquiredsubsidiariesfortheperiodsincerespectiveacquisitiondatewereinsignificanttotheGroup.
TheGroup'srevenueandresultsfortheyearwouldnotbemateriallydifferentiftheseacquisitionshadoccurredon1January2018.
TherelatedtransactioncostsofthesebusinesscombinationswerenotmaterialtotheGroup'sconsolidatedfinancialstatements.
25541CONSOLIDATEDCASHFLOWSTATEMENT(a)Reconciliationofnetprofittocashinflowfromoperatingactivities:20182017RMB'MillionRMB'MillionProfitfortheyear79,98472,471Adjustmentsfor:Incometaxexpense14,48215,744Netgainsondisposalsanddeemeddisposalsofinvesteecompanies(2,932)(13,518)Dividendincome(686)(1,713)Depreciationofproperty,plantandequipmentandinvestmentproperties8,4234,880Amortisationofintangibleassetsandlanduserights25,82518,731Netlossesondisposalsofintangibleassetsandproperty,plantandequipment4724Interestincome(4,569)(3,940)Equity-settledshare-basedcompensationexpenses7,8696,137Otherexpensesinrelationtoequitytransactionsofaninvesteecompany1,519–Shareofprofitofassociatesandjointventures(1,487)(821)Impairmentprovisionforinvestmentsinassociates,jointventures(2017:investmentsinassociates,jointventures,AFSandRCPS)16,3972,555NetfairvaluegainsonFVPLandotherfinancialinstruments(29,757)(4,298)Impairmentofintangibleassets1,181239Exchangegains(228)(152)Changesinworkingcapital:Accountsreceivable(10,302)(6,400)Inventories(29)(39)Prepayments,depositsandotherreceivables(4,050)(3,760)Accountspayable22,95516,134Otherpayablesandaccruals(3,154)8,422Othertaxliabilities(19)189Deferredrevenue(505)9,117Cashgeneratedfromoperatingactivities120,964120,002256TencentHoldingsLimited41CONSOLIDATEDCASHFLOWSTATEMENT(Cont'd)(b)Majornon-cashtransactionsOtherthanthetransactionwithnon-controllinginterestsdescribedinNote32(e)and40(a),therewerenomaterialnon-cashtransactionsduringtheyearended31December2018.
(c)Net(debt)/cashreconciliationThissectionsetsoutananalysisofnetcash/(debt)andthemovementsinnetcash/(debt)foreachoftheyearspresented.
Net(debt)/cashAsat31December20182017RMB'MillionRMB'MillionCashandcashequivalents97,814105,697Termdepositsandothers69,30542,540Borrowings–repayablewithinoneyear(26,834)(15,696)Borrowings–repayableafteroneyear(87,437)(82,094)Notespayable–repayablewithinoneyear(13,720)(4,752)Notespayable–repayableafteroneyear(51,298)(29,363)Net(debt)/cash(12,170)16,332Cashandcashequivalents,termdepositsandothers167,119148,237Grossdebt–fixedinterestrates(74,910)(39,257)Grossdebt–floatinginterestrates(104,379)(92,648)Net(debt)/cash(12,170)16,33225741CONSOLIDATEDCASHFLOWSTATEMENT(Cont'd)(c)Net(debt)/cashreconciliation(Cont'd)CashandcashequivalentsTermdepositsandothersBorrowingsduewithin1yearBorrowingsdueafter1yearNotespayableduewithin1yearNotespayabledueafter1yearTotalRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionRMB'MillionNetcashasat1January2018105,69742,540(15,696)(82,094)(4,752)(29,363)16,332Cashflows(10,090)24,811(2,724)(7,237)4,666(32,547)(23,121)Exchangeimpacts2,2071,954(1,559)(3,598)(957)(2,011)(3,964)Othernon-cashmovements––(6,855)5,492(12,677)12,623(1,417)Netdebtasat31December201897,81469,305(26,834)(87,437)(13,720)(51,298)(12,170)Netcashasat1January201771,90255,735(12,278)(57,549)(3,466)(36,204)18,140Cashflows36,346(13,179)(3,698)(28,764)3,450–(5,845)Exchangeimpacts(2,551)(16)7683,7312311,9214,084Othernon-cashmovements––(488)488(4,967)4,920(47)Netcashasat31December2017105,69742,540(15,696)(82,094)(4,752)(29,363)16,33242COMMITMENTS(a)CapitalcommitmentsCapitalcommitmentsasat31December2018and2017areanalysedasfollows:Asat31December20182017RMB'MillionRMB'MillionContracted:Construction/purchaseofbuildingsandpurchaseoflanduserights2,219273Purchaseofotherproperty,plantandequipment357153Capitalinvestmentininvestees8,7633,02711,3393,453258TencentHoldingsLimited42COMMITMENTS(b)OperatingleasecommitmentsThefutureaggregateminimumleasepaymentsundernon-cancellableoperatingleasesinrespectofbuildingsandservercustodyleases,areasfollows:Asat31December20182017RMB'MillionRMB'MillionContracted:Notlaterthanoneyear2,6321,027Laterthanoneyearandnotlaterthanfiveyears7,3981,056Laterthanfiveyears2,26497012,2943,053(c)OthercommitmentsThefutureaggregateminimumpaymentsundernon-cancellablebandwidth,onlinegamelicensingandmediacontentsagreementsareasfollows:Asat31December20182017RMB'MillionRMB'MillionContracted:Notlaterthanoneyear7,2605,279Laterthanoneyearandnotlaterthanfiveyears8,3329,822Laterthanfiveyears2,2792,23617,87117,33725943RELATEDPARTIESTRANSACTIONSExceptasdisclosedinNote13(a)(Seniormanagement'semoluments),Note13(b)(Fivehighestpaidindividuals),Note14(Benefitsandinterestsofdirectors),Note20(Transactionswithassociates),Note25(Loanstoinvesteesandinvestees'shareholders)andNote33(Share-basedpayments)totheconsolidatedfinancialstatements,theGrouphadnoothermaterialtransactionswithrelatedpartiesduringtheyearsended31December2018and2017,andnoothermaterialbalanceswithrelatedpartiesasat31December2018and2017.
44SUBSEQUENTEVENTSTherewerenomaterialsubsequenteventsduringtheperiodfrom31December2018totheapprovaldateofthesefinancialstatementsbytheBoardofDirectorson21March2019.
45FINANCIALPOSITIONANDRESERVEMOVEMENTOFTHECOMPANY(a)FinancialpositionoftheCompanyAsat31December20182017RMB'MillionRMB'MillionASSETSNon-currentassetsIntangibleassets4241Investmentsinsubsidiaries60,77055,253ContributiontoShareSchemeTrust954360,90755,337CurrentassetsAmountsduefromsubsidiaries52,0788,725Prepayments,depositsandotherreceivables617Cashandcashequivalents637,91952,14716,661Totalassets113,05471,998260TencentHoldingsLimited45FINANCIALPOSITIONANDRESERVEMOVEMENTOFTHECOMPANY(Cont'd)(a)FinancialpositionoftheCompany(Cont'd)Asat31December20182017RMB'MillionRMB'MillionEQUITYEquityattributabletoequityholdersoftheCompanySharecapital––Sharepremium27,29422,204Sharesheldforshareawardschemes(4,173)(3,970)Otherreserves(b)(179)(531)Retainedearnings(b)5,4438,371Totalequity28,38526,074LIABILITIESNon-currentliabilitiesNotespayable51,29829,363Otherfinancialliabilities1,1642,06852,46231,431CurrentliabilitiesAmountsduetosubsidiaries17,4549,408Otherpayablesandaccruals1,033333Notespayable13,7204,75232,20714,493Totalliabilities84,66945,924Totalequityandliabilities113,05471,99826145FINANCIALPOSITIONANDRESERVEMOVEMENTOFTHECOMPANY(Cont'd)(b)ReservemovementoftheCompanyRetainedearningsOtherreservesRMB'MillionRMB'MillionAt1January20188,371(531)Profitfortheyear4,067–Dividendspaidrelatingto2017(6,995)–Currencytranslationdifferences–352At31December20185,443(179)At1January20174,031126Profitfortheyear9,392–Dividendspaidrelatingto2016(5,052)–Currencytranslationdifferences–(657)At31December20178,371(531)262TencentHoldingsLimited46SUBSIDIARIESANDCONTROLLEDSTRUCTUREDENTITIESThefollowingisalistofprincipalsubsidiariesoftheCompanyasat31December2018:NamePlaceofestablishmentandnatureoflegalentityParticularsofissued/paid-incapitalProportionofequityinterestheldbytheGroup(%)PrincipalactivitiesandplaceofoperationTencentComputerEstablishedinthePRC,limitedliabilitycompanyRMB65,000,000100%(Note(a))Provisionofvalue-addedservicesandInternetadvertisementservicesinthePRCTencentTechnologyEstablishedinthePRC,whollyforeignownedenterpriseUSD2,000,000100%DevelopmentofsoftwaresandprovisionofinformationtechnologyservicesinthePRCShenzhenShijiKaixuanTechnologyCompanyLimitedEstablishedinthePRC,limitedliabilitycompanyRMB11,000,000100%(Note(a))ProvisionofInternetadvertisementservicesinthePRCTencentCyber(Tianjin)CompanyLimitedEstablishedinthePRC,whollyforeignownedenterpriseUSD90,000,000100%DevelopmentofsoftwaresandprovisionofinformationtechnologyservicesinthePRCTencentAssetManagementLimitedEstablishedinBVI,limitedliabilitycompanyUSD100100%AssetmanagementinHongKongTencentTechnology(Beijing)CompanyLimitedEstablishedinthePRC,whollyforeignownedenterpriseUSD1,000,000100%DevelopmentandsaleofsoftwaresandprovisionofinformationtechnologyservicesinthePRCNanjingWangDianTechnologyCompanyLimitedEstablishedinthePRC,limitedliabilitycompanyRMB10,290,000100%(Note(a))Provisionofvalue-addedservicesinthePRCBeijingBIZCOMTechnologyCompanyLimitedEstablishedinthePRC,limitedliabilitycompanyRMB1,216,500,000100%(Note(a))Provisionofvalue-addedservicesinthePRCBeijingStarsinhandTechnologyCompanyLimitedEstablishedinthePRC,limitedliabilitycompanyRMB10,000,000100%(Note(a))Provisionofvalue-addedservicesinthePRC26346SUBSIDIARIESANDCONTROLLEDSTRUCTUREDENTITIES(Cont'd)NamePlaceofestablishmentandnatureoflegalentityParticularsofissued/paid-incapitalProportionofequityinterestheldbytheGroup(%)PrincipalactivitiesandplaceofoperationTencentCyber(Shenzhen)CompanyLimitedEstablishedinthePRC,whollyforeignownedenterpriseUSD30,000,000100%DevelopmentofsoftwaresinthePRCTencentTechnology(Shanghai)CompanyLimitedEstablishedinthePRC,whollyforeignownedenterpriseUSD5,000,000100%DevelopmentofsoftwaresandprovisionofinformationtechnologyservicesinthePRCTencentTechnology(Chengdu)CompanyLimitedEstablishedinthePRC,whollyforeignownedenterpriseUSD220,000,000100%DevelopmentofsoftwaresandprovisionofinformationtechnologyservicesinthePRCTencentTechnology(Wuhan)CompanyLimitedEstablishedinthePRC,whollyforeignownedenterpriseUSD30,000,000100%DevelopmentofsoftwaresandprovisionofinformationtechnologyservicesinthePRCTencentCloudComputing(Beijing)CompanyLimitedEstablishedinthePRC,limitedliabilitycompanyRMB142,500,000100%(Note(a))ProvisionofinformationsystemintegrationservicesinthePRCMoresparkLimitedEstablishedinHongKong,limitedliabilitycompanyHKD1,000100%InvestmentholdingandprovisionofonlineadvertisementservicesinHongKongBeijingTencentCultureMediaCompanyLimitedEstablishedinthePRC,limitedliabilitycompanyRMB5,000,000100%DesignandproductionofadvertisementinthePRCRiotGames,Inc.
EstablishedintheUnitedStates,limitedliabilitycompanyUSD1,306100%DevelopmentandoperationofonlinegamesintheUnitedStatesChinaLiteratureEstablishedintheCaymanIslands,limitedliabilitycompanyUSD102,25555.
59%*ProvisionofonlineliteratureservicesinthePRCTME(Note(b))EstablishedintheCaymanIslands,limitedliabilitycompanyUSD269,02550.
08%*ProvisionofonlinemusicentertainmentservicesinthePRC*onanoutstandingbasis264TencentHoldingsLimited46SUBSIDIARIESANDCONTROLLEDSTRUCTUREDENTITIES(Cont'd)Note:(a)AsdescribedinNote1,theCompanydoesnothavelegalownershipinequityofthesestructuredentitiesortheirsubsidiaries.
Nevertheless,undercertaincontractualagreementsenteredintowiththeregisteredownersofthesestructuredentities,theCompanyanditsotherlegallyownedsubsidiariescontrolthesecompaniesbywayofcontrollingthevotingrights,governingtheirfinancialandoperatingpolicies,appointingorremovingthemajorityofthemembersoftheircontrollingauthorities,andcastingthemajorityofvotesatmeetingsofsuchauthorities.
Inaddition,suchcontractualagreementsalsotransfertherisksandrewardsofthesecompaniestotheCompanyand/oritsotherlegallyownedsubsidiaries.
Asaresult,theyarepresentedascontrolledstructuredentitiesoftheCompany.
(b)ThedirectorsoftheCompanyconsideredthatthenon-whollyownedsubsidiarieswithnon-controllinginterestsarenotsignificanttotheGroup,therefore,nosummarisedfinancialinformationofthesenon-whollyownedsubsidiariesispresentedseparately.
(c)Allsubsidiaries'undertakingsareincludedintheconsolidation.
Theproportionofthevotingrightsinthesubsidiary'sundertakingshelddirectlybytheparentcompanydonotdifferfromitsproportionofordinarysharesheld.
Theparentcompanyfurtherdoesnothaveanyshareholdingsinthepreferencesharesofsubsidiary'sundertakingsincludedintheGroup.
(d)SignificantrestrictionsAsat31December2018,cashandcashequivalents,termdepositsandrestrictedcashoftheGroup,amountingtoRMB86,468millionwereheldinMainlandChinaandtheyaresubjecttolocalexchangecontrolandotherfinancialandtreasuryregulations.
Thelocalexchangecontrol,andotherfinancialandtreasuryregulationsprovideforrestrictions,onpaymentofdividends,sharerepurchaseandoffshoreinvestments,otherthanthroughnormalactivities.
(e)ConsolidationofstructuredentitiesAsmentionedinNote(a)aboveandNote33(c),theCompanyhasconsolidatedtheoperatingentitieswithintheGroupwithoutanylegalinterestsandtheEISsoutofwhichwholly-ownedsubsidiariesoftheCompanyactasgeneralpartner.
Inaddition,duetotheimplementationoftheshareawardschemesoftheGroupmentionedinNote33(b),theCompanyhasalsosetupastructuredentity("ShareSchemeTrust"),anditsparticularsareasfollows:StructuredentityPrincipalactivitiesShareSchemeTrustAdministeringandholdingtheCompany'ssharesacquiredforshareawardschemeswhicharesetupforthebenefitsofeligiblepersonsoftheSchemesAstheCompanyhasthepowertogovernthefinancialandoperatingpoliciesoftheShareSchemeTrustandcanderivebenefitsfromthecontributionsoftheeligiblepersonswhoareawardedwiththesharesbytheschemes,thedirectorsoftheCompanyconsiderthatitisappropriatetoconsolidatetheShareSchemeTrust.
Duringtheyearended31December2018,theCompanycontributedapproximatelyRMB2,187million(2017:RMB2,232million)totheShareSchemeTrustforfinancingitsacquisitionoftheCompany'sshares.
265Inthisannualreport,unlessthecontextotherwiserequires,thefollowingexpressionsshallhavethefollowingmeanings:TermDefinition"2007ShareAwardScheme"theshareawardschemeadoptedbytheCompanyonAdoptionDateI,asamended"2013ShareAwardScheme"theshareawardschemeadoptedbytheCompanyonAdoptionDateII,asamended"2019AGM"theannualgeneralmeetingoftheCompanytobeheldon15May2019oranyadjournmentthereof"2B"Product/Serviceprovidedtobusinesscustomers"AccountI"thebankaccountopenedinthenameoftheCompanytobeoperatedsolelyforthepurposesofoperatingthe2007ShareAwardSchemeandthefundsthereoftobeheldontrustbytheCompanyfortheSelectedParticipants"AccountII"thebankaccountopenedinthenameofthetrustpursuanttoTrustDeedII,managedbytheTrustee,andoperatedsolelyforthepurposesofoperatingthe2013ShareAwardScheme,whichisheldontrustforthebenefitofSelectedParticipantsandcanbefundedbytheCompanyoranyofitssubsidiaries"AdoptionDateI"13December2007,beingthedateonwhichtheCompanyadoptedthe2007ShareAwardScheme"AdoptionDateII"13November2013,beingthedateonwhichtheCompanyadoptedthe2013ShareAwardScheme"AFS"available-for-salefinancialassets"AI"artificialintelligence"ArticlesofAssociation"theamendedandrestatedarticlesofassociationoftheCompanyadoptedbyspecialresolutionpassedon14May2014"AuditCommittee"theauditcommitteeoftheCompany"Auditor"PricewaterhouseCoopers,theauditoroftheCompany"AwardedShare(s)"theshare(s)oftheCompanyawardedundertheShareAwardSchemes266TencentHoldingsLimitedTermDefinition"BeijingBIZCOM"BeijingBIZCOMTechnologyCompanyLimited"BeijingStarsinhand"BeijingStarsinhandTechnologyCompanyLimited"Board"theboardofdirectorsoftheCompany"BOC"BankofChinaLimited"CCB"ChinaConstructionBankCorporation"CGCode"thecorporategovernancecodeassetoutinAppendix14totheListingRules"ChinaLiterature"ChinaLiteratureLimited,anon-whollyownedsubsidiaryoftheCompany,whichisincorporatedintheCaymanIslandswithlimitedliabilityandthesharesofwhicharelistedontheStockExchange"ChongqingTencentInformation"ChongqingTencentInformationTechnologyCompanyLimited"CMB"ChinaMerchantsBankCo.
,Ltd.
"Company"TencentHoldingsLimited,alimitedliabilitycompanyorganisedandexistingunderthelawsoftheCaymanIslandsandthesharesofwhicharelistedontheStockExchange"CompanyWebsite"thewebsiteoftheCompanyatwww.
tencent.
com"CorporateGovernanceCommittee"thecorporategovernancecommitteeoftheCompany"COSOFramework"theInternalControlIntegratedFrameworkissuedbytheCommitteeofSponsoringOrganisations"CyberTianjin"TencentCyber(Tianjin)CompanyLimited"DAU"dailyactiveuseraccounts"DnF"DungeonandFighter"EBITDA"earningsbeforeinterest,tax,depreciationandamortisation"EligiblePerson(s)"anyperson(s)eligibletoparticipateintherespectiveShareAwardSchemes267TermDefinition"EpicGames"EpicGames,Inc.
,aMarylandcorporationorganizedunderthegenerallawsoftheStateofMaryland,US"EPS"earningspershare"ESGReportingGuide"theenvironmental,socialandgovernancereportingguideassetoutinAppendix27totheListingRules"FinTech"financialtechnology"GAAP"GenerallyAcceptedAccountingPrinciples"GrantDate"inrelationtoanyAwardedShare,thedateonwhichtheAwardedShareis,wasoristobegranted"Group"theCompanyanditssubsidiaries"GuangzhouTencentTechnology"GuangzhouTencentTechnologyCompanyLimited"GuianNewAreaTencentCyber"GuianNewAreaTencentCyberCompanyLimited"HainanNetwork"HainanTencentNetworkInformationTechnologyCompanyLimited"HKD"thelawfulcurrencyofHongKong"HongKong"theHongKongSpecialAdministrativeRegion,thePRC"IA"internalauditdepartmentoftheCompany"IaaS"Infrastructure-as-a-Service"IAS"InternationalAccountingStandards"IC"internalcontroldepartmentoftheCompany"IFRS"InternationalFinancialReportingStandards268TencentHoldingsLimitedTermDefinition"IM"Instantmessaging"InvestmentCommittee"theinvestmentcommitteeoftheCompany"IP"intellectualproperty"IPO"initialpublicoffering"KPL"KingProLeague"LBS"LocationBasedService"ListingRules"theRulesGoverningtheListingofSecuritiesontheStockExchange"M&A"mergersandacquisitions"MAU"monthlyactiveuseraccounts"MeituanDianping"MeituanDianping,alimitedliabilitycompanyincorporatedintheCaymanIslandsandthesharesofwhicharelistedontheStockExchange"MIHTC"MIHTCHoldingsLimited"MOBA"MultiplayerOnlineBattleArena"ModelCode"theModelCodeforSecuritiesTransactionsbyDirectorsofListedIssuerssetoutinAppendix10totheListingRules"NASDAQ"NASDAQGlobalSelectMarket"NominationCommittee"thenominationcommitteeoftheCompany269TermDefinition"O2O"online-to-offline,oroffline-to-online"PaaS"Platform-as-a-Service"PC"personalcomputer"Post-IPOOptionSchemeI"thePost-IPOShareOptionSchemeadoptedbytheCompanyon24March2004"Post-IPOOptionSchemeII"thePost-IPOShareOptionSchemeadoptedbytheCompanyon16May2007"Post-IPOOptionSchemeIII"thePost-IPOShareOptionSchemeadoptedbytheCompanyon13May2009"Post-IPOOptionSchemeIV"thePost-IPOShareOptionSchemeadoptedbytheCompanyon17May2017"PRC"or"China"thePeople'sRepublicofChina"Pre-IPOOptionScheme"thePre-IPOShareOptionSchemeadoptedbytheCompanyon27July2001"PUBG"PlayerUnknown'sBattlegrounds"QRCodes"QuickResponseCodes"R&D"researchanddevelopment"ReferenceDate"inrespecttoaSelectedParticipant,thedateoffinalapprovalbytheBoardofthetotalnumberofsharesoftheCompanytobeawardedtotherelevantSelectedParticipantonasingleoccasionpursuanttothe2007ShareAwardScheme"RemunerationCommittee"theremunerationcommitteeoftheCompany"RiotGames"RiotGames,Inc.
,aCompanyestablishedinUS"RMB"thelawfulcurrencyofthePRC"ROI"returnoninvestment"Sea"SeaLimited,acompanyheadquarteredinSingaporeandlistedontheNewYorkStockExchange270TencentHoldingsLimitedTermDefinition"SelectedParticipant(s)"anyEligiblePerson(s)selectedbytheBoardtoparticipateintheShareAwardSchemes"SFO"theSecuritiesandFuturesOrdinance(Chapter571oftheLawsofHongKong)asamended,supplementedorotherwisemodifiedfromtimetotime"ShanghaiTencentInformation"ShanghaiTencentInformationTechnologyCompanyLimited"ShareAwardSchemes"the2007ShareAwardSchemeandthe2013ShareAwardScheme"ShareSubdivision"witheffectfrom15May2014,eachexistingissuedandunissuedshareofHKD0.
0001eachinthesharecapitaloftheCompanywassubdividedintofivesubdividedsharesofHKD0.
00002each,afterpassingofanordinaryresolutionattheannualgeneralmeetingoftheCompanyheldon14May2014andgrantingbytheStockExchangeofthelistingof,andpermissiontodealin,thesubdividedshares"ShenzhenTencentInformation"ShenzhenTencentInformationTechnologyCompanyLimited"ShenzhenTencentNetwork"ShenzhenTencentNetworkInformationTechnologyCompanyLimited"ShijiKaixuan"ShenzhenShijiKaixuanTechnologyCompanyLimited"Singapore"theRepublicofSingapore"SKTCFC"theco-operationframeworkcontractdated28February2004enteredintobetweenCyberTianjinandShijiKaixuan"SKTCo-operationCommittee"theco-operationcommitteeestablishedundertheSKTCFC"SME"smallandmediumenterprise"Sogou"SogouInc.
,acompanyincorporatedintheCaymanIslandsandlistedontheNewYorkStockExchange"StockExchange"TheStockExchangeofHongKongLimited"Supercell"SupercellOy,aprivatecompanyincorporatedinFinland"TCSCFC"theco-operationframeworkcontractdated28February2004enteredintobetweenTencentTechnologyandTencentComputer"TCSCo-operationCommittee"theco-operationcommitteeestablishedundertheTCSCFC271TermDefinition"TencentBeijing"TencentTechnology(Beijing)CompanyLimited"TencentCharityFunds"charityfundsestablishedbytheGroup"TencentChengdu"TencentTechnology(Chengdu)CompanyLimited"TencentComputer"ShenzhenTencentComputerSystemsCompanyLimited"TencentShanghai"TencentTechnology(Shanghai)CompanyLimited"TencentTechnology"TencentTechnology(Shenzhen)CompanyLimited"TencentWuhan"TencentTechnology(Wuhan)CompanyLimited"TME"TencentMusicEntertainmentGroup,alimitedliabilitycompanyincorporatedunderthelawsoftheCaymanIslandsandlistedontheNewYorkStockExchange"TrustDeedII"atrustdeedenteredintobetweentheCompanyandtheTrustee(asrestated,supplementedandamendedfromtimetotime)inrespectoftheappointmentoftheTrusteefortheadministrationofthe2013ShareAwardScheme"Trustee"anindependenttrusteeappointedbytheCompanyformanagingtheShareAwardSchemes"UnitedStates"or"US"theUnitedStatesofAmerica"USD"thelawfulcurrencyoftheUnitedStates"VAS"value-addedservices"Yixin"YixinGroupLimited,acompanyincorporatedintheCaymanIslandswithlimitedliabilityandthesharesofwhicharelistedontheStockExchange"WangDian"NanjingWangDianTechnologyCompanyLimited272TencentHoldingsLimitedTermDefinition"WFOEs"TencentTechnology,CyberTianjin,TencentBeijing,ShenzhenTencentInformation,TencentChengdu,ChongqingTencentInformation,ShanghaiTencentInformation,TencentShanghai,TencentWuhan,HainanNetwork,GuangzhouTencentTechnology,ShenzhenTencentNetworkandGuianNewAreaTencentCyberWebsite:www.
tencent.
comTencentGroupHeadOfficeTencentBinhaiTowers,No.
33Haitian2ndRoadNanshanDistrict,Shenzhen,thePRCZipcode:518054Telephone:86-755-86013388Facsimile:86-755-86013399TencentHoldingsLimitedHongKongOffice29/F.
,ThreePacificPlaceNo.
1Queen'sRoadEastWanchai,HongKongTelephone:852-21795122Facsimile:852-25201148