OpenAI「珠玉在前」，确实具备参照价值，但是否该成为「追赶」对象依然值得商榷。 回望过去一年风风火火的大模型之战，从最初的拼参数、讲数据到最近的找落地、看应用，「实用主义」成为 2024 年的主节奏。 该如何走出自身大模型之路？抓最前沿的技术趋势，但为开发者设置最低的使用门槛，这是商汤给出的解法。 今天商汤科技正式发布「日日新 SenseNova 4.0」，宣告大模型体系多维度全面升级。 「日日新 SenseNova 4.0」拥有更全面的知识覆盖、更可靠的推理能⼒，更优越的长⽂本理解力及更稳定的数字推理能⼒和更强的代码⽣成能⼒，并⽀持跨模态交互。日日新·商量大语言模型-通用版本（SenseChat V4）综合整体评测成绩水平比肩 GPT 4，相较 GPT 3.5 已经实现全⾯超越。 商汤还率先推出了支持不同模态工具调用的⽇⽇新·商量大语言模型 Function call & Assistants API 版本，为先进的大模型与各类应用服务工具的连接提供便利桥梁，显著降低开发者使用大模型的门槛。 同时，商汤将先进的大模型能力转化为落地实际场景的产品应用，基于最新发布的⽇⽇新·商量大语言模型 Function ...

Financial Performance - Total revenue for the first half of 2023 was RMB 1,433,122,000, a 1.3% increase from RMB 1,415,343,000 in the same period of 2022[8]. - Gross profit decreased by 30.6% to RMB 648,673,000, down from RMB 934,043,000 in the previous year, resulting in a gross margin of 45.3%[8]. - The adjusted EBITDA loss improved by 12.8% to RMB (2,025,854,000) compared to RMB (2,322,546,000) in the first half of 2022[8]. - The adjusted net loss for the group was RMB 2,393.4 million, a reduction of 6.7% compared to the same period last year[18]. - The net loss for the six months ended June 30, 2023, was RMB 3,142.6 million, compared to a net loss of RMB 3,208.0 million for the six months ended June 30, 2022[55]. - The company reported a loss attributable to equity holders of RMB 3,122,744 thousand for the six months ended June 30, 2023, compared to a loss of RMB 3,157,653 thousand in the same period of 2022, indicating a slight improvement in performance[156]. - Basic and diluted loss per share remained at RMB 0.10 for both the six months ended June 30, 2023, and 2022, reflecting consistent performance despite ongoing losses[156][157]. Revenue Segmentation - The smart business segment achieved revenue of RMB 853.6 million in the first half of 2023, a year-on-year increase of 50.2%, with a customer base of 481 and a 59.9% increase in revenue per customer[22]. - The smart living segment's revenue grew by 6.7% year-on-year to RMB 311.8 million, accounting for 21.8% of the group's total revenue, with a customer base of 270[23]. - The smart automotive segment experienced a 573% year-on-year growth in production business, delivering 390,000 vehicles, although overall revenue decreased by 30.5% to RMB 83.9 million due to a shift in collaboration models[28]. - The smart city segment's revenue fell by 57.7% year-on-year to RMB 183.8 million, contributing 12.8% to the group's total revenue, down from 28.8% in 2022[32]. - International business revenue for the first half of 2023 was RMB 229.2 million, contributing 16.0% to total revenue, similar to the previous year's 16.8%[33]. Research and Development - The company upgraded its SenseCore AI infrastructure, increasing the number of GPUs from 27,000 to approximately 30,000, and enhancing computing power from 5 ExaFLOPS to 6 ExaFLOPS[10]. - The company invested approximately 10,000 GPUs in the development of large language models, significantly enhancing their capabilities[11]. - The company is actively developing new features for mobile operating systems based on large language models, collaborating with major smartphone manufacturers[25]. - Research and development expenses decreased from RMB 2,035.3 million to RMB 1,783.2 million, reflecting a strategic focus on cost management[38]. - Research and development expenses increased to RMB 232,732,000 in the first half of 2023, up from RMB 212,666,000 in the same period of 2022, highlighting the company's commitment to innovation[162]. Cost Management - The group has reduced operational costs by 6.5% year-on-year, despite increased investment in large model research and development[18]. - Sales costs rose by 63.0% from RMB 481.3 million to RMB 784.4 million, mainly due to increased hardware costs and subcontracting service fees[43]. - Administrative expenses rose by 3.6% from RMB 768.6 million for the six months ended June 30, 2022, to RMB 796.5 million for the six months ended June 30, 2023, primarily due to increased depreciation and amortization[48]. Cash Flow and Liquidity - The group holds a total of RMB 14,818.7 million in cash, bank deposits, and other fixed-income investments as of June 30, 2023[18]. - Cash and cash equivalents as of June 30, 2023, amounted to RMB 7,153.0 million, down from RMB 7,962.8 million as of December 31, 2022[66]. - Net cash used in operating activities for the six months ended June 30, 2023, was RMB 1,804.8 million, showing stability compared to RMB 1,848.1 million for the same period in 2022[68]. - Net cash generated from investing activities for the six months ended June 30, 2023, was RMB 384.7 million, a significant improvement from a net cash used of RMB 5,721.4 million in the same period of 2022[69]. - Total borrowings increased from RMB 3,228.6 million as of December 31, 2022, to RMB 3,792.8 million as of June 30, 2023[71]. Market and Product Development - The generative AI business recorded strong triple-digit year-on-year growth, driven by the launch of new products such as SenseChat and SenseMirage[10]. - The company launched the medical language model "商量 • 大醫," enhancing hospital diagnostic efficiency and patient services through advanced medical language understanding[26]. - The company plans to launch the upgraded SenseMirage 4.0 model in Q3 2023, which will include a new aesthetic system to enhance product competitiveness[16]. - The AI robot product line saw rapid sales growth, with over 1,000 units sold in June 2023, ranking first in the robot category on major e-commerce platforms[27]. Asset Management - Total assets as of June 30, 2023, amounted to RMB 35,601,390 thousand, a decrease of 4.9% from RMB 37,426,993 thousand as of December 31, 2022[94]. - Non-current assets increased to RMB 16,270,488 thousand, up 2.3% from RMB 15,902,814 thousand year-over-year[94]. - Current assets decreased by 10.2% to RMB 19,330,902 thousand from RMB 21,524,179 thousand[94]. - The company had pledged assets with a book value of RMB 4,401.6 million in buildings and land use rights to secure borrowings[81]. Fair Value and Financial Instruments - The fair value loss on preferred shares and other financial liabilities increased from RMB 5.1 million for the six months ended June 30, 2022, to RMB 10.0 million for the six months ended June 30, 2023[53]. - The fair value of financial assets measured at fair value through profit or loss was RMB 7,489,372,000, compared to RMB 7,308,657,000 as of December 31, 2022, reflecting an increase of approximately 2.47%[121]. - The company reported a significant increase in level 3 financial assets, with a total of RMB 5,475,517,000 as of June 30, 2023, compared to RMB 5,126,995,000 as of June 30, 2022, representing a year-over-year growth of approximately 6.81%[125]. Employee and Operational Metrics - Employee count as of June 30, 2023, was 5,016, reflecting the company's staffing needs[74]. - Employee benefits expenses decreased to RMB 1,909,104,000 in the first half of 2023 from RMB 2,093,511,000 in the same period of 2022, representing a reduction of approximately 8.8%[138]. - The total number of issued shares as of June 30, 2023, was 33,468,925,000, a slight increase from 33,507,400,000 shares as of June 30, 2022[199].

[Executive Summary](index=1&type=section&id=Executive%20Summary) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) During the reporting period, the company's total revenue increased by 1.3% to RMB 1,433.1 million, but gross profit and gross margin significantly decreased, while loss for the period and adjusted net loss narrowed year-on-year | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | YoY Change | | :-------------------- | :---------------------- | :---------------------- | :--------- | | Revenue | 1,433,122 | 1,415,343 | 1.3% | | Gross Profit | 648,673 | 934,043 | -30.6% | | Loss for the Period | (3,142,624) | (3,207,988) | -2.0% | | Adjusted EBITDA | (2,025,854) | (2,322,546) | -12.8% | | Adjusted Net Loss | (2,393,395) | (2,564,180) | -6.7% | [Operational Data](index=2&type=section&id=Operational%20Data) The number of Smart Life and Smart Auto customers significantly increased, Smart Business customers slightly decreased, and the number of cities served by Smart City remained stable | Indicator | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Number of Smart Business Customers | 481 | 512 | -6.1% | | Number of Smart Life Customers | 270 | 183 | 47.5% | | Number of Smart Auto Customers | 34 | 20 | 70.0% | | Cumulative Cities Served by Smart City | 163 | 162 | 0.6% | [Business Review and Performance](index=3&type=section&id=Business%20Review%20and%20Performance) [Overall Performance](index=3&type=section&id=Overall%20Performance) The company maintained stable revenue in the first half, accelerating generative AI R&D with the "SenseNova" large model system, releasing foundational models like InternLM and product families such as SenseChat and SenseMirage, leading to a 670.4% increase in generative AI-related revenue, contributing 20.3% to total revenue, while SenseCore AI Infrastructure computing power increased to 6 ExaFLOPS - The company actively expanded its generative AI business, achieving triple-digit year-on-year growth, leading the group's business transformation[4](index=4&type=chunk) - SenseCore AI Infrastructure continued to upgrade, with the number of GPUs increasing to approximately **30,000 units** and computing power expanding from 5 ExaFLOPS to **6 ExaFLOPS**[4](index=4&type=chunk) - The pre-trained large language model InternLM was released, becoming the first domestic foundational model to surpass GPT-3.5-turbo performance, and based on this, generative AI product families such as "SenseChat," "SenseMirage," and "SenseAvatar" were launched[4](index=4&type=chunk) | Indicator | H1 2023 | H1 2022 | YoY Growth | | :-------------------------------------- | :------ | :------ | :--------- | | Generative AI-related Revenue | - | - | 670.4% | | Generative AI Revenue as % of Total Group Revenue | 20.3% | 10.4% | - | - The InternLM-123B model ranked **second globally** in tests across 51 well-known evaluation datasets, surpassing models like GPT-3.5-turbo and Meta's newly released LLaMA-2-70B[5](index=5&type=chunk) - The company invested approximately **2,000 GPUs** in text-to-image model R&D, with SenseMirage 3.0 base model parameters increasing to **7 billion**, achieving leading image generation results domestically and ranking among the top three globally[9](index=9&type=chunk)[11](index=11&type=chunk) - A generative AI product family was released, including six categories: SenseChat conversational assistant, SenseMirage, SenseAvatar, SenseSpace, SenseThings, and SenseAnnotation[11](index=11&type=chunk)[12](index=12&type=chunk) [Performance by Business Segment](index=7&type=section&id=Performance%20by%20Business%20Segment) Each business segment actively promoted generative AI, driving business structure transformation and optimization, with Smart Business and Smart Life revenue increasing, while Smart Auto and Smart City revenue decreased [Smart Business](index=7&type=section&id=Smart%20Business) Smart Business revenue increased by 50.2% year-on-year to RMB 853.6 million, with revenue per customer increasing by 59.9%, primarily driven by new opportunities from generative AI-related businesses, as the company customized industry-specific large models for 10 vertical sectors | Indicator | H1 2023 (RMB millions) | YoY Growth | | :-------------------- | :--------------------- | :--------- | | Smart Business Revenue | 853.6 | 50.2% | | Revenue per Customer | - | 59.9% | - In-depth customization of industry-specific large models for **10 vertical sectors**, including energy, finance, real estate, human resources, media, industrial manufacturing, and consulting[15](index=15&type=chunk) [Smart Life](index=8&type=section&id=Smart%20Life) Smart Life revenue increased by 6.7% year-on-year to RMB 311.8 million, with 270 customers, actively embracing generative AI to empower mobile phone and mobile internet customers through large models, achieving mass production and delivery of AI sensors and AI ISP chips, bringing large models to mobile terminals, while AI robot products were fully upgraded, with the SenseRobot AI Go chess robot selling over a thousand units in a single month | Indicator | H1 2023 (RMB millions) | YoY Growth | | :-------------------- | :--------------------- | :--------- | | Smart Life Revenue | 311.8 | 6.7% | | Smart Life Customers | 270 | - | [Mass Production and Delivery of AI Sensors and AI ISP Chips, Large Models Enter Mobile Terminals](index=8&type=section&id=Mass%20Production%20and%20Delivery%20of%20AI%20Sensors%20and%20AI%20ISP%20Chips%2C%20Large%20Models%20Enter%20Mobile%20Terminals) The smart terminal business demonstrated resilience, with AI SDKs, AI sensors, and AI ISP chips continuously mass-produced for hundreds of millions of mobile phones, and real-time large language model computing capabilities successfully achieved on mobile devices in collaboration with leading mobile chip manufacturers, based on lightweight InternLM models - AI SDKs, AI sensors, and AI ISP chips continued to be mass-produced for **hundreds of millions of mobile phones**, ensuring sustained market penetration[18](index=18&type=chunk) - Based on lightweight InternLM models and proprietary inference acceleration algorithms, the company collaborated with two leading mobile phone chip manufacturers to successfully achieve real-time large language model computing capabilities on mobile devices[18](index=18&type=chunk) [Smart Healthcare Enters the 'Large Model' Era](index=9&type=section&id=Smart%20Healthcare%20Enters%20the%20%27Large%20Model%27%20Era) The medical large language model "SenseChat·DaYi" was developed, possessing strong medical language understanding and reasoning capabilities, supporting scenarios such as hospital guidance, consultations, health advice, and auxiliary decision-making - Developed the medical large language model "SenseChat·DaYi," which possesses medical language understanding and reasoning capabilities, supporting scenarios like hospital guidance, consultations, health advice, and auxiliary decision-making[19](index=19&type=chunk) [AI Robot Products Fully Upgraded](index=9&type=section&id=AI%20Robot%20Products%20Fully%20Upgraded) The SenseRobot AI Go chess robot was launched, with single-month sales quickly exceeding a thousand units, ranking first on both Tmall and JD platforms in the robot category, and even defeating a world champion in a live broadcast - The SenseRobot AI Go chess robot was launched, with single-month sales exceeding **a thousand units**, ranking first on both Tmall and JD platforms in the robot category[20](index=20&type=chunk) [Smart Auto](index=9&type=section&id=Smart%20Auto) SenseAuto mass production business grew by 573%, delivering 390,000 vehicles, with a 29% increase in gross profit per vehicle, and new designated projects reaching over 5 million units, while the overall Smart Auto segment revenue decreased by 30.5% to RMB 83.9 million, primarily due to a shift from R&D service model to front-loaded product cooperation model | Indicator | H1 2023 (RMB millions) | YoY Change | | :-------------------- | :--------------------- | :--------- | | Smart Auto Revenue | 83.9 | -30.5% | | Mass Production Growth | - | 573% | | Vehicles Delivered | 390,000 units | - | | Gross Profit per Vehicle Increase | - | 29% | | New Designated Projects | Over 5 million units | - | [Smart Driving Technology Research and Application Leads the Industry](index=9&type=section&id=Smart%20Driving%20Technology%20Research%20and%20Application%20Leads%20the%20Industry) SenseAuto became one of the first domestic L2++ level autonomous driving mass production service providers, and its UniAD algorithm won the CVPR Best Paper award, integrating detection, tracking, mapping, prediction, and planning to significantly improve accuracy in multi-object tracking, lane line prediction, object trajectory prediction, and planning - SenseAuto became one of the first domestic L2++ level autonomous driving mass production service providers, with an increasing number of delivered vehicle models[22](index=22&type=chunk) - The UniAD algorithm won the CVPR Best Paper award, integrating autonomous driving detection, tracking, mapping, prediction, and planning into a single framework, significantly improving accuracy across all aspects[22](index=22&type=chunk) [High-Speed Growth in Mass Production and Delivery of Smart Cabin](index=10&type=section&id=High-Speed%20Growth%20in%20Mass%20Production%20and%20Delivery%20of%20Smart%20Cabin) Smart Cabin mass production achieved high-speed growth, with front-loaded production four times that of the same period last year, ranking first in the Chinese market for passenger vehicle smart cabin software suppliers in the front-loaded market share, and actively advancing R&D for large language model-related in-cabin applications - Smart Cabin mass production achieved high-speed growth, with front-loaded production **four times** that of the same period last year[23](index=23&type=chunk) - Ranked **first** in the Chinese market for passenger vehicle smart cabin software suppliers in the front-loaded market share in Q1 2023[23](index=23&type=chunk) [Smart City](index=10&type=section&id=Smart%20City) The Smart City business continued its transformation, focusing on premium customers to optimize revenue quality and improve cash flow, resulting in a 57.7% year-on-year decrease in revenue to RMB 183.8 million, with its contribution to total group revenue falling to 12.8%, while revenue from China's first and second-tier cities increased to 64% | Indicator | H1 2023 (RMB millions) | YoY Decrease | | :-------------------- | :--------------------- | :----------- | | Smart City Revenue | 183.8 | -57.7% | | Revenue Contribution | 12.8% | - | | Revenue from China's Tier 1 & 2 Cities | 64% | - | - Strategic focus shifted to leading customers with sound credit profiles, optimizing revenue quality and improving cash flow[24](index=24&type=chunk) [International Business](index=10&type=section&id=International%20Business) International business revenue amounted to RMB 229.2 million, contributing 16.0% to total revenue, similar to the prior year, with original large model capabilities favored by overseas customers, empowering smart park construction in Saudi Arabia through a joint venture, and bringing immersive smart cultural tourism experiences to a theme park in the UAE | Indicator | H1 2023 (RMB millions) | Revenue Contribution | | :-------------------- | :--------------------- | :------------------- | | International Business Revenue | 229.2 | 16.0% | - Through a joint venture with Saudi Arabia's Public Investment Fund (PIF), SenseSpace's 3D digital twin technology empowered the construction of the King Abdullah Financial District (KAFD) smart park in Saudi Arabia[25](index=25&type=chunk) [Environmental, Social, and Governance](index=11&type=section&id=Environmental%2C%20Social%2C%20and%20Governance) [Trusted AI Development](index=11&type=section&id=Trusted%20AI%20Development) The company is committed to building a trusted AI system, actively participating in the formulation of AI application standards and regulatory rules, and launching "SenseTrust - SenseTime Trusted AI Infrastructure" to implement full-lifecycle secure and trusted governance, including anti-counterfeiting detection large models, digital watermarking technology, and an AI security governance open platform - Launched "SenseTrust - SenseTime Trusted AI Infrastructure" to implement full-lifecycle secure and trusted governance across AI training data, models, and application governance stages[26](index=26&type=chunk) - Introduced an anti-counterfeiting detection large model, with detection capabilities **over 20% higher** than similar industry products, already serving numerous financial industry customers[26](index=26&type=chunk) - Implemented digital watermarking technology for generative AI applications, used for copyright protection and anti-counterfeiting traceability[26](index=26&type=chunk) [Carbon Neutrality Goals](index=11&type=section&id=Carbon%20Neutrality%20Goals) The company is committed to achieving carbon neutrality goals of "carbon peaking by 2025, operational carbon neutrality by 2030, and net-zero emissions by 2050," with the Lingang AIDC achieving an average annual PUE of 1.28, and office air conditioning systems reducing annual electricity consumption by 8% through AI-driven automatic control - Committed to achieving carbon neutrality goals of "carbon peaking by **2025**, operational carbon neutrality by **2030**, and net-zero emissions by **2050**"[27](index=27&type=chunk) - The Lingang AIDC achieved an actual average annual PUE of **1.28**, lower than its design value[27](index=27&type=chunk) [Management Discussion and Analysis](index=12&type=section&id=Management%20Discussion%20and%20Analysis) [Financial Performance Comparison](index=12&type=section&id=Financial%20Performance%20Comparison) In H1 2023, total revenue slightly increased by 1.3%, but cost of sales surged by 63.0%, leading to a significant decline in gross profit and gross margin, while R&D expenses decreased, and selling and administrative expenses slightly increased, resulting in a 2.0% year-on-year narrowing of loss for the period [Revenue](index=13&type=section&id=Revenue) Total revenue increased by 1.3% year-on-year to RMB 1,433.1 million, with increases in Smart Business and Smart Life revenue offset by decreases in Smart City and Smart Auto revenue | Business Segment | H1 2023 (RMB millions) | % of Total | H1 2022 (RMB millions) | % of Total | YoY Change | | :--------------- | :--------------------- | :--------- | :--------------------- | :--------- | :--------- | | Smart Business | 853.6 | 59.5 | 568.3 | 40.2 | 50.2% | | Smart Life | 311.8 | 21.8 | 292.1 | 20.6 | 6.7% | | Smart City | 183.8 | 12.8 | 434.1 | 30.7 | -57.7% | | Smart Auto | 83.9 | 5.9 | 120.8 | 8.5 | -30.5% | | **Total** | **1,433.1** | **100.0** | **1,415.3** | **100.0** | **1.3%** | - Smart Business revenue growth was primarily driven by new business opportunities related to generative AI[31](index=31&type=chunk) - Smart City revenue decline was mainly due to a strategic shift towards leading customers with sound credit profiles[32](index=32&type=chunk) [Cost of Sales](index=14&type=section&id=Cost%20of%20Sales) Cost of sales increased by 63.0% year-on-year to RMB 784.4 million, primarily attributable to higher hardware costs, subcontracting service fees, and increased depreciation and amortization related to AIDC | Cost of Sales Component | H1 2023 (RMB millions) | % of Total | H1 2022 (RMB millions) | % of Total | YoY Change | | :-------------------- | :--------------------- | :--------- | :--------------------- | :--------- | :--------- | | Hardware Costs & Subcontracting Service Fees | 643.1 | 82.0 | 417.4 | 86.7 | 54.1% | | AIDC Operating Costs | 20.3 | 2.6 | 11.6 | 2.4 | 75.0% | | Depreciation & Amortization | 79.4 | 10.1 | 12.0 | 2.5 | 561.7% | | **Total** | **784.4** | **100.0** | **481.3** | **100.0** | **63.0%** | [Gross Profit and Gross Margin](index=14&type=section&id=Gross%20Profit%20and%20Gross%20Margin) Gross profit decreased by 30.5% year-on-year to RMB 648.7 million, and gross margin declined from 66.0% to 45.3%, primarily due to increased cost of sales, especially the rising proportion of hardware and AIDC-related costs | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :----------- | :--------------------- | :--------------------- | :--------- | | Gross Profit | 648.7 | 934.0 | -30.5% | | Gross Margin | 45.3% | 66.0% | -20.7pp | [Research and Development Expenses](index=14&type=section&id=Research%20and%20Development%20Expenses) R&D expenses decreased by 12.4% year-on-year to RMB 1,783.2 million, mainly due to reduced employee benefit expenses and lower server operation and cloud service fees as the company shifted from third-party cabinet services to using its own AIDC | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :----------------- | :--------------------- | :--------------------- | :--------- | | R&D Expenses | 1,783.2 | 2,035.3 | -12.4% | [Selling Expenses](index=15&type=section&id=Selling%20Expenses) Selling expenses increased by 4.0% year-on-year to RMB 418.0 million, primarily due to increased domestic and international market and marketing activities to enhance brand awareness | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :-------------- | :--------------------- | :--------------------- | :--------- | | Selling Expenses | 418.0 | 402.1 | 4.0% | [Administrative Expenses](index=15&type=section&id=Administrative%20Expenses) Administrative expenses increased by 3.6% year-on-year to RMB 796.5 million, mainly due to higher depreciation and amortization from the purchase of new office space, partially offset by reduced professional services and other consulting fees | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Administrative Expenses | 796.5 | 768.6 | 3.6% | [Net Impairment Loss on Financial and Contract Assets](index=15&type=section&id=Net%20Impairment%20Loss%20on%20Financial%20and%20Contract%20Assets) Net impairment loss on financial and contract assets decreased by 26.9% year-on-year to RMB 396.5 million, primarily due to increased recovery of trade receivables | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Net Impairment Loss | 396.5 | 542.2 | -26.9% | [Other Income](index=15&type=section&id=Other%20Income) Other income decreased by 21.3% year-on-year to RMB 152.2 million, primarily due to a reduction in government grants | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :----------- | :--------------------- | :--------------------- | :--------- | | Other Income | 152.2 | 193.3 | -21.3% | [Net Other Losses](index=15&type=section&id=Net%20Other%20Losses) Net other losses amounted to RMB 754.1 million, primarily comprising net foreign exchange losses of RMB 246.7 million due to the depreciation of RMB against HKD, and fair value losses on financial assets at fair value through profit or loss of RMB 505.3 million due to a decline in investment portfolio valuation | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | | :-------------------- | :--------------------- | :--------------------- | | Net Other Losses | 754.1 | 798.8 | | Net Foreign Exchange Losses | 246.7 | - | | Fair Value Loss on Financial Assets | 505.3 | - | [Net Finance Income](index=15&type=section&id=Net%20Finance%20Income) Net finance income slightly decreased to RMB 100.5 million, maintaining a relatively stable level | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :---------------- | :--------------------- | :--------------------- | :--------- | | Net Finance Income | 100.5 | 103.4 | -2.8% | [Fair Value Loss on Preferred Shares and Other Financial Liabilities](index=16&type=section&id=Fair%20Value%20Loss%20on%20Preferred%20Shares%20and%20Other%20Financial%20Liabilities) Fair value loss on preferred shares and other financial liabilities increased to RMB 10.0 million, due to changes in the fair value of preferred shares issued by a subsidiary | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :----------------- | :--------------------- | :--------------------- | :--------- | | Fair Value Loss | 10.0 | 5.1 | 96.1% | [Income Tax Credit](index=16&type=section&id=Income%20Tax%20Credit) Income tax credit increased to RMB 124.2 million, primarily due to an increase in deductible tax losses | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :--------------- | :--------------------- | :--------------------- | :--------- | | Income Tax Credit | 124.2 | 114.3 | 8.7% | [Loss for the Period](index=16&type=section&id=Loss%20for%20the%20Period) Loss for the period was RMB 3,142.6 million, narrowing by 2.0% year-on-year | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :---------------- | :--------------------- | :--------------------- | :--------- | | Loss for the Period | 3,142.6 | 3,208.0 | -2.0% | [Non-IFRS Measures](index=16&type=section&id=Non-IFRS%20Measures) The company uses Adjusted EBITDA and Adjusted Net Loss as supplementary financial indicators to eliminate the impact of non-cash items and financing investment activities, aiding in understanding and evaluating operating performance, with both Adjusted EBITDA and Adjusted Net Loss narrowing year-on-year in H1 2023 | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | YoY Change | | :-------------------- | :--------------------- | :--------------------- | :--------- | | Adjusted EBITDA | (2,025.8) | (2,322.6) | -12.8% | | Adjusted Net Loss | (2,393.4) | (2,564.2) | -6.7% | [Trade, Other Receivables and Prepayments](index=18&type=section&id=Trade%2C%20Other%20Receivables%20and%20Prepayments) Total trade, other receivables and prepayments decreased to RMB 5,764.9 million, with total trade receivables remaining stable but aging deteriorating, primarily affected by longer payment cycles from Smart City customers and the macroeconomic environment [Trade Receivables](index=18&type=section&id=Trade%20Receivables) Total trade receivables amounted to RMB 4,806.8 million, relatively stable compared to the end of 2022; however, the aging profile deteriorated, mainly due to longer payment cycles from Smart City customers and macroeconomic uncertainties | Trade Receivables (Net) | June 30, 2023 (RMB millions) | December 31, 2022 (RMB millions) | | :-------------------- | :--------------------------- | :------------------------------- | | Total | 4,806.8 | 5,217.8 | - The aging profile of total trade receivables deteriorated, primarily affected by longer payment cycles from Smart City customers and macroeconomic uncertainties[52](index=52&type=chunk) [Liquidity and Financial Resources](index=19&type=section&id=Liquidity%20and%20Financial%20Resources) As of June 30, 2023, the company held cash and cash equivalents of RMB 7,153.0 million and time deposits of RMB 4,688.8 million, with net cash used in operating activities remaining largely stable year-on-year, net cash from investing activities, and net cash from financing activities | Indicator | June 30, 2023 (RMB millions) | December 31, 2022 (RMB millions) | | :------------------------ | :--------------------------- | :------------------------------- | | Cash and Cash Equivalents | 7,153.0 | 7,962.8 | | Time Deposits | 4,688.8 | 6,212.9 | | Cash Flow Category | H1 2023 (RMB millions) | H1 2022 (RMB millions) | | :-------------------------------- | :--------------------- | :--------------------- | | Net Cash Used in Operating Activities | (1,804.8) | (1,848.1) | | Net Cash From Investing Activities | 384.7 | (5,721.4) | | Net Cash From Financing Activities | 413.2 | 1,177.3 | [Net Cash Used in Operating Activities](index=19&type=section&id=Net%20Cash%20Used%20in%20Operating%20Activities) Net cash used in operating activities was RMB 1,804.8 million, primarily from loss before income tax, remaining largely stable compared to the same period last year | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | | :---------------------------- | :--------------------- | :--------------------- | | Net Cash Used in Operating Activities | (1,804.8) | (1,848.1) | [Net Cash From Investing Activities](index=20&type=section&id=Net%20Cash%20From%20Investing%20Activities) Net cash from investing activities was RMB 384.7 million, mainly due to a net decrease in time deposit investments and reduced cash used for equity investments compared to the first half of last year, reflecting the company's strengthened investment discipline | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | | :---------------------------- | :--------------------- | :--------------------- | | Net Cash From Investing Activities | 384.7 | (5,721.4) | - Cash used for equity investments decreased compared to H1 2022, reflecting the company's strengthened investment discipline[56](index=56&type=chunk) [Net Cash From Financing Activities](index=20&type=section&id=Net%20Cash%20From%20Financing%20Activities) Net cash from financing activities was RMB 413.2 million, primarily from proceeds from borrowings, partially offset by repayment of borrowings, principal lease payments, and interest paid | Indicator | H1 2023 (RMB millions) | H1 2022 (RMB millions) | | :---------------------------- | :--------------------- | :--------------------- | | Net Cash From Financing Activities | 413.2 | 1,177.3 | [Borrowings](index=20&type=section&id=Borrowings) As of June 30, 2023, total borrowings amounted to RMB 3,792.8 million, an increase from the end of 2022, with the company maintaining a prudent approach to capital management and interest rate risk primarily calculated at floating rates | Indicator | June 30, 2023 (RMB millions) | December 31, 2022 (RMB millions) | | :----------- | :--------------------------- | :------------------------------- | | Total Borrowings | 3,792.8 | 3,228.6 | [Exchange Rate Fluctuation Risk](index=20&type=section&id=Exchange%20Rate%20Fluctuation%20Risk) The company is primarily exposed to exchange rate fluctuations between HKD and RMB, and HKD and USD, currently not engaging in hedging activities but continuously monitoring and taking necessary measures to mitigate impacts - The company is primarily exposed to the impact of exchange rate fluctuations between HKD and RMB, and HKD and USD[59](index=59&type=chunk) - Currently, no hedging activities are undertaken, but the company will continue to monitor and take necessary measures to mitigate exchange rate impacts[59](index=59&type=chunk) [Employees, Training and Remuneration Policies](index=20&type=section&id=Employees%2C%20Training%20and%20Remuneration%20Policies) As of June 30, 2023, the Group had 5,016 employees, with the company formulating employee remuneration plans based on market compensation, industry practices, and remuneration strategies, also providing year-end performance bonuses (cash or share options) | Indicator | June 30, 2023 | | :----------- | :------------ | | Number of Employees | 5,016 | - Employee remuneration plans combine market compensation, industry practices, and the company's remuneration strategy, also providing year-end performance bonuses (cash or share options)[61](index=61&type=chunk) [Use of Proceeds](index=21&type=section&id=Use%20of%20Proceeds) The company received net proceeds of approximately HKD 6,351.0 million from its global offering, of which approximately HKD 5,958.2 million had been utilized as of June 30, 2023, with the unutilized net proceeds held as bank deposits and to be used according to the purposes and timeframe stated in the prospectus | Intended Use | Planned Proportion (%) | Net Proceeds (Approx. HKD millions) | Actual Use as of June 30, 2023 (Approx. HKD millions) | | :----------------------- | :--------------------- | :---------------------------------- | :---------------------------------------------------- | | Enhance R&D Capabilities | 60.0 | 3,810.6 | 209.3 | | Expand Business | 15.0 | 952.7 | 301.7 | | Seek Strategic Investment & Acquisition Opportunities | 15.0 | 952.7 | - | | Working Capital & General Corporate Purposes | 10.0 | 635.0 | - | | **Total** | **100.0** | **6,351.0** | **511.0** | - As of June 30, 2023, approximately **HKD 5,958.2 million** of the net proceeds had been utilized, with the unutilized portion held as bank deposits[62](index=62&type=chunk) [Capital Gearing Ratio](index=22&type=section&id=Capital%20Gearing%20Ratio) As of June 30, 2023, the capital gearing ratio was -5.9%, representing a net cash position | Indicator | June 30, 2023 | | :---------------- | :------------ | | Capital Gearing Ratio | -5.9% | [Contingent Liabilities](index=22&type=section&id=Contingent%20Liabilities) As of June 30, 2023, the company had no material contingent liabilities - As of June 30, 2023, the company had no material contingent liabilities[65](index=65&type=chunk) [Material Investments Held](index=22&type=section&id=Material%20Investments%20Held) As of June 30, 2023, the company held no material investments in the equity of other companies - As of June 30, 2023, the company held no material investments in the equity of other companies[65](index=65&type=chunk) [Material Acquisitions and Disposals of Subsidiaries, Associates and Joint Ventures](index=22&type=section&id=Material%20Acquisitions%20and%20Disposals%20of%20Subsidiaries%2C%20Associates%20and%20Joint%20Ventures) For the six months ended June 30, 2023, the company had no material acquisitions or disposals of subsidiaries, associates, or joint ventures - For the six months ended June 30, 2023, the company had no material acquisitions or disposals of subsidiaries, associates, or joint ventures[65](index=65&type=chunk) [Pledge of Assets](index=22&type=section&id=Pledge%20of%20Assets) As of June 30, 2023, the company pledged certain buildings and land use rights with a carrying amount of RMB 4,401.6 million and restricted pledged deposits of RMB 325.2 million to secure borrowings - As of June 30, 2023, the company pledged certain buildings and land use rights with a carrying amount of **RMB 4,401.6 million** and restricted pledged deposits of **RMB 325.2 million** to secure borrowings[66](index=66&type=chunk) [Future Plans for Material Investments and Capital Assets](index=22&type=section&id=Future%20Plans%20for%20Material%20Investments%20and%20Capital%20Assets) As of June 30, 2023, the company had no specific future plans for material investments and acquisitions of capital assets but will continue to identify investment opportunities related to its core business to create synergies - As of June 30, 2023, the company had no specific future plans for material investments and acquisitions of capital assets[67](index=67&type=chunk) - The company will continue to identify new investment opportunities, investing in companies related to its core business to create synergies[67](index=67&type=chunk) [Financial Information](index=23&type=section&id=Financial%20Information) [Interim Condensed Consolidated Statement of Profit or Loss](index=23&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) During the reporting period, the company recorded revenue of RMB 1,433.1 million, gross profit of RMB 648.7 million, loss for the period of RMB 3,142.6 million, and basic and diluted loss per share of RMB (0.10) | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :---------------------------- | :---------------------- | :---------------------- | | Revenue | 1,433,122 | 1,415,343 | | Gross Profit | 648,673 | 934,043 | | Operating Loss | (3,347,305) | (3,419,684) | | Loss for the Period | (3,142,624) | (3,207,988) | | Basic and Diluted Loss Per Share (RMB) | (0.10) | (0.10) | [Interim Condensed Consolidated Statement of Comprehensive Loss](index=24&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Loss) During the reporting period, the total comprehensive loss for the period was RMB 2,606.5 million, an increase from RMB 1,893.6 million in the prior year, primarily due to exchange differences on foreign operations | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :---------------------------- | :---------------------- | :---------------------- | | Loss for the Period | (3,142,624) | (3,207,988) | | Total Comprehensive Loss for the Period | (2,606,540) | (1,893,618) | [Interim Condensed Consolidated Statement of Financial Position](index=25&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2023, the company's total assets were RMB 35,601.4 million, total equity was RMB 26,696.0 million, and total liabilities were RMB 8,905.4 million, with non-current assets increasing and current assets decreasing | Indicator | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :---------------- | :---------------------------- | :-------------------------------- | | Total Assets | 35,601,390 | 37,426,993 | | Total Equity | 26,695,990 | 29,013,860 | | Total Liabilities | 8,905,400 | 8,413,133 | | Net Current Assets | 16,378,146 | 18,201,175 | [Interim Condensed Consolidated Statement of Changes in Equity](index=27&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) As of June 30, 2023, the company's total equity was RMB 26,696.0 million, with a total comprehensive loss for the period of RMB 2,606.5 million, while other reserves increased due to the exercise of share options and share-based payment expenses | Indicator | June 30, 2023 (RMB thousands) | January 1, 2022 (RMB thousands) | | :---------------------------- | :---------------------------- | :------------------------------ | | Total Equity at Beginning of Period | 29,013,860 | 31,987,084 | | Total Comprehensive Loss for the Period | (2,606,540) | (1,893,618) | | Total Transactions with Equity Holders | 288,670 | 1,009,370 | | Total Equity at End of Period | 26,695,990 | 31,102,836 | [Interim Condensed Consolidated Statement of Cash Flows](index=29&type=section&id=Interim%20Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) During the reporting period, net cash used in operating activities was RMB 1,804.8 million, net cash from investing activities was RMB 384.7 million, and net cash from financing activities was RMB 413.2 million, with cash and cash equivalents at the end of the period amounting to RMB 7,153.0 million | Cash Flow Category | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :-------------------------------- | :---------------------- | :---------------------- | | Net Cash Used in Operating Activities | (1,804,805) | (1,848,149) | | Net Cash From Investing Activities | 384,721 | (5,721,378) | | Net Cash From Financing Activities | 413,199 | 1,177,327 | | Cash and Cash Equivalents at End of Period | 7,153,015 | 10,373,626 | [Notes to the Interim Condensed Consolidated Financial Information](index=31&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Information) [General Information](index=31&type=section&id=General%20Information) SenseTime Group Inc. was incorporated in the Cayman Islands on October 15, 2014, primarily engaged in the sale of advanced AI software, platforms, integrated software and hardware products, and AIDC services in China, Northeast Asia, Southeast Asia, and other regions, and was listed on the Main Board of the Hong Kong Stock Exchange on December 30, 2021 - The company was incorporated in the Cayman Islands on **October 15, 2014**, primarily engaged in the sale of advanced AI software, platforms, integrated software and hardware products, and AIDC services[77](index=77&type=chunk) - The company was listed on the Main Board of the Hong Kong Stock Exchange on **December 30, 2021**[77](index=77&type=chunk) [Basis of Preparation](index=31&type=section&id=Basis%20of%20Preparation) This interim condensed consolidated financial information has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and reviewed by the auditor and the audit committee - This interim condensed consolidated financial information has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting"[79](index=79&type=chunk) [New Standards and Interpretations](index=32&type=section&id=New%20Standards%20and%20Interpretations) During the reporting period, the company adopted several new or amended standards, including IAS 12 (Amendments) "Income Taxes," which requires the recognition of deferred tax for specific transactions but had no material impact on the Group's interim financial information, and the company adopted amendments to the International Tax Reform "Pillar Two Model Rules," utilizing a temporary mandatory exception not to recognize or disclose deferred tax assets and liabilities related to Pillar Two income taxes [New or Amended Standards Adopted by the Group](index=32&type=section&id=New%20or%20Amended%20Standards%20Adopted%20by%20the%20Group) The Group first adopted several amended standards for the financial year beginning January 1, 2023, which had no material impact on the interim condensed consolidated financial information, and adopted amendments to the International Tax Reform "Pillar Two Model Rules," utilizing a temporary mandatory exception not to recognize or disclose deferred tax assets and liabilities related to Pillar Two income taxes - The Group first adopted several amended standards for the financial year beginning **January 1, 2023**, which had no material impact on the interim condensed consolidated financial information[82](index=82&type=chunk) - Amendments to the International Tax Reform "Pillar Two Model Rules" were adopted, utilizing a temporary mandatory exception not to recognize or disclose deferred tax assets and liabilities related to Pillar Two income taxes[82](index=82&type=chunk)[83](index=83&type=chunk) [New Standards, Amendments and Interpretations Not Yet Adopted](index=33&type=section&id=New%20Standards%2C%20Amendments%20and%20Interpretations%20Not%20Yet%20Adopted) Several new standards and amendments to standards not yet effective are listed, which are not expected to have a material impact on the Group's interim condensed consolidated financial information - Several new standards and amendments to standards not yet effective are listed, which are not expected to have a material impact on the Group's interim condensed consolidated financial information[84](index=84&type=chunk) [Segment Information](index=33&type=section&id=Segment%20Information) The company does not disaggregate operating segment financial information as the executive directors review the Group's financial performance as a whole, and this section discloses revenue information by geography and major customers, as well as disaggregated revenue by timing of recognition [Geographical Information](index=33&type=section&id=Geographical%20Information) For the six months ended June 30, 2023, revenue from Mainland China was RMB 1,204.0 million, Northeast Asia was RMB 185.4 million, Southeast Asia was RMB 11.2 million, and other regions (primarily Hong Kong, China and the Middle East) was RMB 32.6 million | Region | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :----------- | :---------------------- | :---------------------- | | Mainland China | 1,203,994 | 1,140,734 | | Northeast Asia | 185,367 | 227,706 | | Southeast Asia | 11,169 | 4,213 | | Other | 32,592 | 42,690 | | **Total** | **1,433,122** | **1,415,343** | [Non-current Assets](index=34&type=section&id=Non-current%20Assets) As of June 30, 2023, total non-current assets amounted to RMB 8,103.1 million, with Mainland China accounting for the largest share at RMB 7,952.4 million | Region | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :----------- | :---------------------------- | :-------------------------------- | | Mainland China | 7,952,403 | 7,498,318 | | Northeast Asia | 57,341 | 66,301 | | Southeast Asia | 21,470 | 27,054 | | Other | 71,911 | 55,318 | | **Total** | **8,103,125** | **7,646,991** | [Information on Major Customers](index=34&type=section&id=Information%20on%20Major%20Customers) For the six months ended June 30, 2023, Customer A contributed 12.7% of total revenue, while in the prior year, Customer B and Customer C contributed 19.8% and 16.9% respectively | Major Customer | H1 2023 Revenue Contribution (%) | H1 2022 Revenue Contribution (%) | | :------------- | :------------------------------- | :------------------------------- | | Customer A | 12.7 | - | | Customer B | * (<10%) | 19.8 | | Customer C | * (<10%) | 16.9 | [Disaggregation of Revenue from Contracts with Customers by Timing of Revenue Recognition](index=34&type=section&id=Disaggregation%20of%20Revenue%20from%20Contracts%20with%20Customers%20by%20Timing%20of%20Revenue%20Recognition) For the six months ended June 30, 2023, revenue recognized at a point in time was RMB 1,178.1 million, and revenue recognized over a period of time was RMB 255.0 million | Revenue Recognition Method | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :------------------------- | :---------------------- | :---------------------- | | Recognized at a point in time | 1,178,109 | 1,336,432 | | Recognized over a period of time | 255,013 | 78,911 | | **Total** | **1,433,122** | **1,415,343** | [Expenses by Nature](index=35&type=section&id=Expenses%20by%20Nature) For the six months ended June 30, 2023, total expenses were RMB 3,782.1 million, with employee benefit expenses being the largest component at RMB 1,909.1 million, though decreasing year-on-year, while hardware costs and project subcontracting service fees, and depreciation and amortization significantly increased | Expense Category | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | YoY Change | | :--------------------------- | :---------------------- | :---------------------- | :--------- | | Employee Benefit Expenses | 1,909,104 | 2,093,511 | -8.8% | | Hardware Costs & Project Subcontracting Service Fees | 643,147 | 417,367 | 54.1% | | Depreciation & Amortization | 592,294 | 459,299 | 28.9% | | Professional Services & Other Consulting Fees | 299,305 | 399,093 | -25.0% | | Server Operation & Cloud Service Fees | 51,673 | 135,040 | -61.7% | | **Total** | **3,782,108** | **3,687,407** | **2.6%** | [Net Other Losses](index=35&type=section&id=Net%20Other%20Losses) For the six months ended June 30, 2023, net other losses amounted to RMB 754.1 million, primarily comprising fair value losses on financial assets at fair value through profit or loss (RMB 505.3 million) and net foreign exchange losses (RMB 246.7 million) | Loss Category | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :------------------------ | :---------------------- | :---------------------- | | Fair Value Loss on Financial Assets | (505,252) | (339,319) | | Net Foreign Exchange Losses | (246,652) | (447,467) | | **Total** | **(754,066)** | **(798,784)** | [Income Tax Credit](index=36&type=section&id=Income%20Tax%20Credit) For the six months ended June 30, 2023, the income tax credit was RMB 124.2 million, and this section details the company's income tax policies and rates in different operating regions, noting that some Mainland China subsidiaries enjoy a preferential income tax rate of 15% as high-tech enterprises | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :--------------- | :---------------------- | :---------------------- | | Current Income Tax | (3,537) | (8,674) | | Deferred Income Tax | 127,753 | 122,978 | | **Income Tax Credit** | **124,216** | **114,304** | - Some Mainland China subsidiaries (e.g., Beijing SenseTime, Shenzhen SenseTime, Shanghai SenseTime, and Shanghai SenseAuto) qualify as "High and New Technology Enterprises" and enjoy a preferential income tax rate of **15%**[101](index=101&type=chunk) [Loss Per Share](index=37&type=section&id=Loss%20Per%20Share) For the six months ended June 30, 2023, both basic and diluted loss per share were RMB (0.10), and due to the company incurring a loss, potentially dilutive ordinary shares (preferred shares, restricted share units, and share options) had an anti-dilutive effect and were therefore not included in the calculation of diluted loss [Basic](index=37&type=section&id=Basic) Basic loss per share is calculated by dividing the loss attributable to equity holders of the company by the weighted average number of ordinary shares in issue, amounting to RMB (0.10) | Indicator | H1 2023 | H1 2022 | | :-------------------- | :------ | :------ | | Basic Loss Per Share (RMB) | (0.10) | (0.10) | [Diluted](index=37&type=section&id=Diluted) Due to the company incurring a loss, potentially dilutive ordinary shares (preferred shares, restricted share units, and share options) had an anti-dilutive effect, thus diluted loss per share was the same as basic loss per share, amounting to RMB (0.10) - Due to the company incurring a loss, potentially dilutive ordinary shares had an anti-dilutive effect, thus diluted loss per share was the same as basic loss per share[107](index=107&type=chunk) [Dividends](index=38&type=section&id=Dividends) For the six months ended June 30, 2023, the company did not declare or pay any dividends - For the six months ended June 30, 2023, the company did not declare or pay any dividends[108](index=108&type=chunk) [Property, Plant and Equipment](index=38&type=section&id=Property%2C%20Plant%20and%20Equipment) As of June 30, 2023, the net book value of property, plant and equipment was RMB 7,355.4 million, an increase from RMB 6,999.0 million at the end of 2022, with additions of RMB 787.4 million and depreciation expenses of RMB 422.2 million during the reporting period | Indicator | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :----------- | :---------------------------- | :-------------------------------- | | Net Book Value | 7,355,409 | 6,999,010 | | Indicator | H1 2023 (RMB thousands) | | :--------------- | :---------------------- | | Additions | 787,443 | | Depreciation Expenses | 422,212 | [Trade, Other Receivables and Prepayments](index=39&type=section&id=Trade%2C%20Other%20Receivables%20and%20Prepayments) As of June 30, 2023, total trade, other receivables and prepayments amounted to RMB 5,764.9 million, with net trade receivables of RMB 4,806.8 million, and an increased proportion of receivables over 1 year old, reflecting a deterioration in aging | Indicator | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :-------------------- | :---------------------------- | :-------------------------------- | | Total | 5,764,921 | 6,071,675 | | Net Trade Receivables | 4,806,792 | 5,217,762 | | Trade Receivables Aging | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :-------------------- | :---------------------------- | :-------------------------------- | | Up to 6 Months | 815,857 | 1,995,560 | | 6 Months to 1 Year | 1,369,041 | 746,068 | | 1 to 2 Years | 2,893,900 | 3,244,937 | | 2 to 3 Years | 2,022,390 | 1,179,960 | | 3 to 4 Years | 509,440 | 582,289 | | Over 4 Years | 115,479 | 47,464 | | **Total** | **7,726,107** | **7,796,278** | [Financial Assets at Fair Value Through Profit or Loss](index=41&type=section&id=Financial%20Assets%20at%20Fair%20Value%20Through%20Profit%20or%20Loss) As of June 30, 2023, total financial assets measured at fair value amounted to RMB 7,489.4 million, including debt investments, equity investments, and structured deposits, with fair value changes in these financial assets resulting in a loss of RMB 505.3 million during the reporting period [Classification of Financial Assets at Fair Value Through Profit or Loss](index=41&type=section&id=Classification%20of%20Financial%20Assets%20at%20Fair%20Value%20Through%20Profit%20or%20Loss) The company classifies debt investments not meeting amortized cost or OCI measurement, equity investments held for trading, and equity investments for which the option not to recognize fair value gains and losses in OCI has not been elected, as financial assets at fair value through profit or loss | Asset Category | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :--------------- | :---------------------------- | :-------------------------------- | | Debt Investments | 5,635,687 | 5,798,760 | | Equity Investments | 820,395 | 877,773 | | Structured Deposits | 1,033,290 | 632,124 | | **Total** | **7,489,372** | **7,308,657** | [Debt Investments](index=42&type=section&id=Debt%20Investments) As of June 30, 2023, the closing balance of debt investments was RMB 5,635.7 million, with fair value changes resulting in a loss of RMB 437.9 million during the reporting period | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :--------------- | :---------------------- | :---------------------- | | Beginning Balance | 5,798,760 | 3,665,678 | | Additions | 167,966 | 2,036,694 | | Fair Value Changes | (437,892) | (248,439) | | Ending Balance | 5,635,687 | 5,612,684 | [Equity Investments](index=42&type=section&id=Equity%20Investments) As of June 30, 2023, the closing balance of equity investments was RMB 820.4 million, with fair value changes resulting in a loss of RMB 75.3 million during the reporting period | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :--------------- | :---------------------- | :---------------------- | | Beginning Balance | 877,773 | 645,292 | | Additions | 50,000 | 629,242 | | Fair Value Changes | (75,331) | (98,479) | | Ending Balance | 820,395 | 1,192,984 | [Structured Deposits](index=43&type=section&id=Structured%20Deposits) As of June 30, 2023, the closing balance of structured deposits was RMB 1,033.3 million, with fair value changes resulting in a gain of RMB 8.0 million during the reporting period | Indicator | H1 2023 (RMB thousands) | H1 2022 (RMB thousands) | | :--------------- | :---------------------- | :---------------------- | | Beginning Balance | 632,124 | 272,549 | | Additions | 2,030,000 | 2,665,000 | | Fair Value Changes | 7,971 | 7,599 | | Ending Balance | 1,033,290 | 466,678 | [Amounts Recognized in the Interim Condensed Consolidated Statement of Profit or Loss](index=43&type=section&id=Amounts%20Recognized%20in%20the%20Interim%20Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) For the six months ended June 30, 2023, the total fair value change loss on financial assets at fair value through profit or loss was RMB 505.3 million | Investment Category | H1 2023 Fair Value Change (Loss)/Gain (RMB thousands) | H1 2022 Fair Value Change (Loss)/Gain (RMB thousands) | | :------------------ | :---------------------------------------------------- | :---------------------------------------------------- | | Debt Investments | (437,892) | (248,439) | | Equity Investments | (75,331) | (98,479) | | Structured Deposits | 7,971 | 7,599 | | **Total** | **(505,252)** | **(339,319)** | [Trade and Other Payables](index=44&type=section&id=Trade%20and%20Other%20Payables) As of June 30, 2023, total trade and other payables amounted to RMB 2,341.2 million, a decrease from RMB 2,472.6 million at the end of 2022, with trade payables aged up to 6 months accounting for the largest proportion | Indicator | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :-------------------- | :---------------------------- | :-------------------------------- | | Total | 2,341,170 | 2,472,581 | | Trade Payables Aging | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :------------------- | :---------------------------- | :-------------------------------- | | Up to 6 Months | 519,996 | 718,327 | | 6 Months to 1 Year | 189,359 | 76,660 | | 1 to 2 Years | 13,152 | 19,477 | | Over 2 Years | 43,198 | 34,397 | | **Total** | **765,705** | **848,861** | [Borrowings](index=45&type=section&id=Borrowings) As of June 30, 2023, total borrowings amounted to RMB 3,792.8 million, including secured bank borrowings and guaranteed bank borrowings, with most borrowings having maturities of 2 to over 5 years [Secured Bank Borrowings](index=45&type=section&id=Secured%20Bank%20Borrowings) As of June 30, 2023, secured bank borrowings amounted to RMB 3,193.3 million, collateralized by restricted deposits, equity interests in Shanghai Yuqin, joint liabilities of Shanghai Yuqin and Shanghai SenseTime, and certain buildings and land use rights - As of June 30, 2023, secured bank borrowings amounted to **RMB 3,193.3 million**, collateralized by restricted deposits, equity interests, joint liabilities, and buildings and land use rights[124](index=124&type=chunk) [Guaranteed Bank Borrowings](index=46&type=section&id=Guaranteed%20Bank%20Borrowings) As of June 30, 2023, guaranteed bank borrowings amounted to RMB 453.2 million (RMB 296.7 million non-current and RMB 156.4 million current), guaranteed by SenseTime Group Limited - As of June 30, 2023, guaranteed bank borrowings amounted to **RMB 453.2 million**, guaranteed by SenseTime Group Limited[125](index=125&type=chunk) | Borrowing Term | June 30, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :------------- | :---------------------------- | :-------------------------------- | | 6 Months or Less | 121,854 | 199,954 | | 6 to 12 Months | 45,810 | 118,594 | | 1 to 2 Years | 78,255 | 6,300 | | 2 to 5 Years | 1,154,492 | 610,565 | | Over 5 Years | 2,389,107 | 2,290,288 | | **Total** | **3,789,518** | **3,225,701** | [Events After the Reporting Period](index=46&type=section&id=Events%20After%20the%20Reporting%20Period) As of the date of this announcement, the company had no material events after the reporting period - As of the date of this announcement, the company had no material events after the reporting period[127](index=127&type=chunk) [Other Information](index=47&type=section&id=Other%20Information) [Purchase, Sale or Redemption of the Company's Listed Securities](index=47&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20the%20Company%27s%20Listed%20Securities) During the reporting period, neither the company nor any of its subsidiaries or consolidated affiliated entities purchased, sold, or redeemed any of the company's securities listed on the Stock Exchange - During the reporting period, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's securities listed on the Stock Exchange[128](index=128&type=chunk) [Events After Reporting Period](index=47&type=section&id=Events%20After%20Reporting%20Period) Save as disclosed elsewhere in this announcement, there have been no other material events affecting the Group since the end of the reporting period - Save as disclosed elsewhere in this announcement, there have been no other material events affecting the Group since the end of the reporting period[129](index=129&type=chunk) [Compliance with Corporate Governance Code](index=47&type=section&id=Compliance%20with%20Corporate%20Governance%20Code) The company has complied with the Corporate Governance Code set out in Appendix 14 to the Listing Rules, except that Dr. Xu Li serves as both Chairman and Chief Executive Officer, and the Chairman did not attend the 2023 Annual General Meeting, with the Board believing the current arrangement facilitates unified leadership and decision-making efficiency - The company has complied with the Corporate Governance Code, but Dr. Xu Li serves as both Chairman and Chief Executive Officer[129](index=129&type=chunk) - Dr. Xu Li, the Chairman of the Board, was unable to attend the company's Annual General Meeting held on June 23, 2023[130](index=130&type=chunk) [Interim Dividend](index=48&type=section&id=Interim%20Dividend) The Board has resolved not to declare an interim dividend for the six months ended June 30, 2023 - The Board has resolved not to declare an interim dividend for the six months ended June 30, 2023[131](index=131&type=chunk) [Directors' Securities Transactions](index=48&type=section&id=Directors%20Securities%20Transactions) The Board has adopted the Model Code, and all Directors confirmed compliance with its provisions during the reporting period - All Directors confirmed compliance with the provisions of the Model Code during the reporting period[131](index=131&type=chunk) [Audit Committee](index=48&type=section&id=Audit%20Committee) The Audit Committee has reviewed the Group's unaudited interim condensed consolidated financial information for the reporting period and discussed accounting policies, risk management, internal controls, and financial reporting matters with senior management and the auditor - The Audit Committee has reviewed the Group's unaudited interim condensed consolidated financial information for the reporting period[132](index=132&type=chunk) [Publication of Interim Results and Interim Report](index=48&type=section&id=Publication%20of%20Interim%20Results%20and%20Interim%20Report) This interim results announcement has been published on the Stock Exchange websit

Financial Performance - Revenue decreased from RMB 4,700.3 million in 2021 to RMB 3,808.5 million in 2022, representing a decline of approximately 19%[6] - Gross profit fell from RMB 3,277.6 million in 2021 to RMB 2,542.3 million in 2022, a decrease of about 22.4%[6] - Annual loss reduced from RMB 17,177.1 million in 2021 to RMB 6,093.0 million in 2022, showing an improvement of approximately 64.5%[6] - Adjusted EBITDA loss increased from RMB 879.0 million in 2021 to RMB 4,213.4 million in 2022[6] - Adjusted net loss rose from RMB 1,418.4 million in 2021 to RMB 4,736.2 million in 2022[6] - The company reported a loss before income tax of RMB 6,332.812 million for 2022, compared to RMB 17,141.544 million in 2021[4] - The group reported an annual loss of RMB 6,093.0 million, with an adjusted net loss of RMB 4,736.2 million[10] Revenue Breakdown - Revenue from the smart living business reached RMB 955.1 million, representing a year-on-year growth of 129.9%[10] - Revenue from the smart automotive business was RMB 292.7 million, a year-on-year increase of 58.9%[10] - Revenue from the smart business segment decreased by 25.2% to RMB 1,464.3 million, with the segment accounting for 38.4% of the group's total revenue, down from 41.7% in 2021[22] - The smart city segment's revenue fell by 48.8% to RMB 1,096.4 million in 2022, with the segment's contribution to total revenue decreasing from 45.6% in 2021 to 28.8% in 2022[23][27] Research and Development - R&D investment for the year was RMB 3,795.8 million, a year-on-year increase of 24.0%[10] - R&D expenditure, excluding share-based compensation, reached RMB 3,795.8 million in 2022, a 24.0% increase year-on-year, with cumulative R&D investment since 2018 totaling RMB 12,847.1 million[14] - The company aims to achieve significant breakthroughs in AGI technology in the coming years, focusing on high-performance computing infrastructure and advanced hardware capabilities[31] - The development of multimodal large models is a strategic investment area, enhancing capabilities in processing various data types and improving model performance in complex tasks[32] Market Expansion and Strategy - The company aims to enhance its market expansion and product development strategies moving forward[8] - The company plans to lower the cost of AI technology to make it more accessible to individuals and organizations, focusing on developing low-cost, high-performance hardware and software solutions[34] - The company is actively pursuing partnerships with global chip design and manufacturing leaders to enhance AI hardware and chip development for improved computing power and energy efficiency[33] - The company plans to expand its market presence in Southeast Asia, targeting a 15% market share by 2025[139] Corporate Governance - The board of directors is responsible for leading and controlling the company, ensuring the best interests of the company and its shareholders are prioritized[68] - The board held a total of 4 meetings during the reporting period, including 4 audit committee meetings, 1 remuneration committee meeting, 1 nomination committee meeting, and 2 corporate governance committee meetings[72] - The company has established a robust anti-money laundering system and anti-corruption policies, which are monitored by the audit committee[79] - The corporate governance committee is tasked with ensuring compliance with listing rules and safeguarding provisions related to the company's dual-class share structure[85] Shareholder Communication - The company has established a shareholder communication policy to ensure timely and equal access to information for shareholders[108] - The company emphasizes effective communication with shareholders to enhance investor relations and transparency regarding business performance and strategies[105] - Shareholders are encouraged to participate in annual general meetings, with at least 21 days' notice provided for such meetings[105] Employee and Diversity Policies - The company has implemented gender-neutral hiring policies to ensure equal opportunities for candidates of all skills, backgrounds, and genders[91] - The board currently includes one female member, reflecting the company's commitment to gender diversity, with a goal to maintain this representation level[90] - The gender ratio among employees is 73% male and 27% female, with the company aiming to sustain this diversity level across its workforce[91] Risk Management - The company is committed to maintaining a robust risk management and internal control system to manage risks associated with achieving business objectives[96] - Compliance risk management is a core aspect of the company's risk management activities, ensuring adherence to applicable laws and regulations[99] - The audit committee conducts ongoing reviews of the company's risk management policies and internal control systems, ensuring their effectiveness and adequacy[103] Strategic Investments and Acquisitions - A strategic acquisition of a smaller tech firm is anticipated to enhance the company's capabilities in machine learning[139] - The company is seeking strategic investment and acquisition opportunities, with an allocation of approximately HKD 952.7 million, fully utilized[195] - The company has entered into an exclusive purchase agreement with Shanghai Qianlun and Shanghai SenseTime, granting Shanghai Yuqin irrevocable rights to acquire shares from individual shareholders at nominal prices or other prices approved by Shanghai Yuqin[177] Technology Development - The company developed a high-performance computing system, SenseCore AI, capable of 5.0 exaFLOPS output using 27,000 GPUs[9] - SenseCore supports training of large models with up to 20 trillion parameters simultaneously, with a parallel efficiency of 91.5%[12] - The company emphasizes the importance of technology aligning with human values and social benefits, promoting sustainable development[200] Financial Position - Total assets as of 2022 amounted to RMB 37,426.993 million, compared to RMB 36,944.319 million in 2021[5] - Total liabilities increased to RMB 8,413.133 million in 2022 from RMB 4,957.235 million in 2021[5] - The company's equity attributable to owners decreased to RMB 28,970.224 million in 2022 from RMB 31,892.511 million in 2021[5] Share Buyback and Dividends - The company decided not to recommend the payment of a final dividend for the year ended December 31, 2022, considering the long-term interests of shareholders[112] - The company aims to enhance shareholder value through a share buyback program, allocating 20 million for this initiative[142] Connected Transactions - The independent non-executive directors have confirmed that the ongoing connected transactions were conducted in the normal course of business and on normal commercial terms[170] - The auditor has confirmed that the ongoing connected transactions complied with the relevant agreements and pricing policies[170]

[Annual Results Announcement Summary](index=1&type=section&id=Annual%20Results%20Announcement%20Summary) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) In fiscal year 2022, SenseTime Group's revenue decreased by 19.0% to RMB 3,808.5 million, with gross profit down 22.4% to RMB 2,542.3 million; annual loss significantly narrowed by 64.5% to RMB 6,093.0 million, but adjusted EBITDA and adjusted net loss both expanded 2022 Fiscal Year Key Financial Data (thousand RMB) | Indicator | 2022 Amount | 2021 Amount | YoY Change | | :------------- | :--------- | :--------- | :------- | | Revenue | 3,808,510 | 4,700,263 | -19.0% | | Gross Profit | 2,542,267 | 3,277,638 | -22.4% | | Annual Loss | (6,092,990)| (17,177,050)| -64.5% | | Adjusted EBITDA | (4,213,444)| (878,970) | 379.4% | | Adjusted Net Loss | (4,736,199)| (1,418,348)| 233.9% | [Operating Data](index=2&type=section&id=Operating%20Data) In 2022, the number of Smart Business customers decreased by 22.2%, Smart Living customers increased by 23.3%, and Smart Auto customers remained flat, while the cumulative number of Smart City service cities grew by 15.7% 2022 Fiscal Year Operating Data | Indicator | 2022 | 2021 | YoY Change | | :----------------- | :----- | :----- | :------- | | Smart Business Customers | 717 | 922 | -22.2% | | Smart Living Customers | 317 | 257 | 23.3% | | Smart Auto Customers | 34 | 34 | 0.0% | | Cumulative Smart City Service Cities | 162 | 140 | 15.7% | [Business Review and Outlook](index=3&type=section&id=Business%20Review%20and%20Outlook) [Core Technology Breakthroughs](index=3&type=section&id=Core%20Technology%20Breakthroughs) In 2022, SenseTime achieved significant progress in Artificial General Intelligence (AGI), continuously investing in high-performance computing infrastructure and large model R&D, and making breakthroughs in five key technical areas: computer vision, AIGC, natural language processing, speech recognition and synthesis, decision intelligence, and AI chips - The company actively invests in the AGI field, focusing on large computing power and large model R&D, maintaining a leading position in high-performance computing systems and large model training capabilities[4](index=4&type=chunk) - In computer vision, the company successfully developed the world's largest general vision model with **32 billion parameters**, widely applied in autonomous driving, industrial quality inspection, and medical imaging[5](index=5&type=chunk) - In AI Content Generation (AIGC), multiple text-to-image large models were trained, supporting **6K high-definition image generation** and demonstrating unique advantages in understanding traditional Chinese culture[5](index=5&type=chunk) [Large-scale AI Infrastructure and High-Performance Computing](index=3&type=section&id=Large-scale%20AI%20Infrastructure%20and%20High-Performance%20Computing) SenseTime's SenseCore AI large-scale infrastructure continues to make breakthroughs, achieving 5.0 exaFLOPS computing power output based on 27,000 GPUs, supporting simultaneous training of up to 20 ultra-large models with hundreds of billions of parameters, providing reliable computing power for large model R&D - SenseCore AI large-scale infrastructure achieves **5.0 exaFLOPS** computing power output, supporting simultaneous training of up to **20 ultra-large models** with hundreds of billions of parameters[4](index=4&type=chunk) [Computer Vision](index=3&type=section&id=Computer%20Vision) The company achieved significant results in computer vision, developing the world's largest general vision model with 32 billion parameters, applied in autonomous driving, industrial quality inspection, and medical imaging, and winning the 2022 Waymo Challenge - Successfully developed the world's largest general vision model with **32 billion parameters**, applied in autonomous driving, industrial quality inspection, and medical imaging[5](index=5&type=chunk) - BEVFormer++ perception algorithm based on large vision models won the championship in the main track of the **2022 Waymo Challenge**[5](index=5&type=chunk) [AI Content Generation (AIGC)](index=3&type=section&id=AI%20Content%20Generation%20(AIGC)) The company trained multiple text-to-image large models in AIGC, demonstrating excellent text-to-image understanding, image quality, and inference speed, with a unique advantage in understanding traditional Chinese culture, supporting 6K high-definition image generation - Achieved training of multiple text-to-image large models, demonstrating excellent text-to-image understanding, image quality, and inference speed[5](index=5&type=chunk) - Possesses unique advantages in understanding traditional Chinese culture, supporting **6K high-definition image generation** with more delicate light and shadow processing[5](index=5&type=chunk) [Natural Language Processing (NLP)](index=4&type=section&id=Natural%20Language%20Processing%20(NLP)) The company achieved significant breakthroughs in natural language processing, successfully developing a pre-trained large model with hundreds of billions of parameters, significantly improving text generation and human-computer interaction performance, with a market launch planned for mid-2023 - Successfully developed a pre-trained large model with **hundreds of billions of parameters**, significantly improving text generation and human-computer interaction performance[6](index=6&type=chunk) - This model and its capabilities are planned to be launched to the market by **mid-2023**[6](index=6&type=chunk) [Speech Recognition and Synthesis](index=4&type=section&id=Speech%20Recognition%20and%20Synthesis) The company achieved technological leadership in speech recognition and synthesis, with its speech recognition model achieving high accuracy and low-latency speech-to-text capabilities, and its speech synthesis model generating voices with different tones and timbres, supporting digital humans and smart cockpits - Speech recognition model achieves **high accuracy and low-latency** speech-to-text capabilities[6](index=6&type=chunk) - Speech synthesis model can generate voices with different tones and timbres according to user needs, supporting digital humans and smart cockpits[6](index=6&type=chunk) [Reinforcement Learning and Decision Intelligence](index=4&type=section&id=Reinforcement%20Learning%20and%20Decision%20Intelligence) The company made significant progress in reinforcement learning, successfully developing efficient decision intelligence models applied in robot control, game AI, and autonomous driving decision systems - Successfully developed efficient decision intelligence models, applied in robot control, game AI, and autonomous driving decision systems[6](index=6&type=chunk) [AI Chips and Hardware Acceleration](index=4&type=section&id=AI%20Chips%20and%20Hardware%20Acceleration) The company achieved important results in AI hardware, successfully developing multiple high-performance, low-power AI inference chips and AI ISP chips, providing hardware foundation for AI business, and collaborating with semiconductor manufacturers to optimize AI model operating efficiency - Successfully developed multiple high-performance, low-power AI inference chips and AI ISP chips, demonstrating powerful computing capabilities in data centers and edge computing scenarios[6](index=6&type=chunk) - Collaborates with semiconductor manufacturers to continuously optimize the operating efficiency of AI models on hardware[6](index=6&type=chunk) [SenseCore AI Infrastructure and R&D Investment](index=4&type=section&id=SenseCore%20AI%20Infrastructure%20and%20R%26D%20Investment) SenseTime's SenseCore AI large-scale infrastructure continues to expand, deploying 27,000 GPUs to achieve 5.0 exaFLOPS computing power, providing services to industry partners in an AIaaS model to support large model production, with R&D investment of RMB 3,795.8 million in 2022, a 24.0% increase year-on-year, and significantly improved R&D efficiency - SenseCore AI large-scale infrastructure has deployed **27,000 GPUs**, achieving **5.0 exaFLOPS** computing power output, providing services to industry partners in an AIaaS model[9](index=9&type=chunk) - In 2022, R&D investment excluding share-based compensation expenses was **RMB 3,795.8 million**, a **24.0% increase** year-on-year[8](index=8&type=chunk)[14](index=14&type=chunk) - The number of models developed per person per year increased by **90% to 9.35**, and the cumulative number of commercial models increased by **93% to 67,000**[14](index=14&type=chunk) [SenseCore AIaaS Capabilities](index=5&type=section&id=SenseCore%20AIaaS%20Capabilities) SenseCore provides Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Model as a Service (MaaS), offering high-performance computing resources, user-friendly development tools, a rich library of pre-trained models, flexible deployment, professional support, and high-quality data processing capabilities - SenseCore provides **IaaS, PaaS, and MaaS** capabilities, supporting large-scale distributed training at the thousand-card level, with a thousand-card parallel efficiency of **91.5%**[9](index=9&type=chunk)[10](index=10&type=chunk) - Open-source platforms like OpenMMLab and four others, containing over **2,500 pre-trained models** and over **400 algorithms**, attracting global developers[11](index=11&type=chunk) - Supports one-click cross-platform deployment of AI models to cloud, edge devices, or hybrid environments, with adaptation and optimization for **30 chips and over 100 platforms**[12](index=12&type=chunk) [R&D Investment and Efficiency](index=6&type=section&id=R%26D%20Investment%20and%20Efficiency) In 2022, the company's R&D expenditure excluding share-based compensation expenses was RMB 3,795.8 million, a 24.0% increase year-on-year, with an R&D team of 3,466 people, accounting for 68% of total employees, and significant improvements in per capita R&D efficiency and commercial model count - In 2022, R&D expenditure excluding share-based compensation expenses was **RMB 3,795.8 million**, a **24.0% increase** year-on-year[14](index=14&type=chunk) - The R&D team comprises **3,466 people**, accounting for **68%** of total employees[14](index=14&type=chunk) - The number of models developed per person per year increased by **90% to 9.35**, and the cumulative number of commercial models increased by **93% to 67,000**[14](index=14&type=chunk) [Performance of Business Segments](index=7&type=section&id=Performance%20of%20Business%20Segments) In 2022, SenseTime comprehensively upgraded its product matrix across Smart Living, Smart Auto, Smart Business, and Smart City business lines, leveraging SenseCore AI large-scale infrastructure and large model capabilities, achieving business structure transformation, with significant revenue growth in Smart Living and Smart Auto, and revenue decline in Smart Business and Smart City - Revenue from Smart Living and Smart Auto businesses significantly increased, while revenue from Smart Business and Smart City businesses decreased[7](index=7&type=chunk)[15](index=15&type=chunk) - Smart Living revenue increased by **129.9%**, and Smart Auto revenue increased by **58.9%**[7](index=7&type=chunk)[8](index=8&type=chunk) - Smart Business revenue decreased by **25.2%**, and Smart City revenue decreased by **48.8%**[8](index=8&type=chunk) [Smart Living](index=7&type=section&id=Smart%20Living) The Smart Living segment's revenue in 2022 increased by 129.9% to RMB 955.1 million, reaching a new high and increasing its proportion of group revenue to 25.1%, with commercialization breakthroughs in AIGC, AI sensors, AI ISP chips, and smart healthcare, and digital human products becoming market leaders Smart Living Business Performance | Indicator | 2022 Amount (million RMB) | 2021 Amount (million RMB) | YoY Growth | | :--------- | :------------------------ | :------------------------ | :------- | | Revenue | 955.1 | 415.4 | 129.9% | | Revenue Share | 25.1% | 8.8% | Increase | | Customer Count | 317 | 257 | 23.3% | | Revenue Per Customer | - | - | 86.4% | - AIGC multi-modal full-stack capabilities empower over **200 APP applications**, with offline scenario coverage increasing to **15 million square meters**[17](index=17&type=chunk) - Digital human products ranked first in technical evaluations for tenders and were recognized as a market leader by Frost & Sullivan[17](index=17&type=chunk) - AI sensors and AI ISP chips achieved technological and commercial breakthroughs, with AI-ISP chip power consumption **50% lower** than similar products, expected to be mass-produced in 2023[18](index=18&type=chunk) - Smart healthcare business revenue achieved multi-fold growth, with SenseCare Smart Diagnosis and Treatment Platform obtaining **22 domestic and international medical device certifications** and deployed in over a hundred hospitals[19](index=19&type=chunk) - Consumer AI product "SenseRobot Go" chess robot quickly topped Tmall and JD's smart robot category in transaction volume since its launch[20](index=20&type=chunk) [Smart Auto](index=9&type=section&id=Smart%20Auto) The Smart Auto segment's revenue in 2022 increased by 58.9% to RMB 292.7 million, increasing its proportion of group revenue to 7.7%, with over 500,000 units delivered, over 8 million new designated vehicle models, multiple industry-first innovative functions, successful mass production of L2+ and L2++, significantly improved per-vehicle value, and the launch of a vehicle-road-cloud integrated product matrix Smart Auto Business Performance | Indicator | 2022 Amount (million RMB) | 2021 Amount (million RMB) | YoY Growth | | :------- | :------------------------ | :------------------------ | :------- | | Revenue | 292.7 | 184.2 | 58.9% | | Revenue Share | 7.7% | 3.9% | Increase | - Over **500,000 units mass-produced and delivered** in 2022, with over **8 million new designated vehicle models**, covering over **30 car manufacturers and 80 models**[22](index=22&type=chunk) - Achieved mass production of multiple smart cockpit and smart driving functions, including high-speed navigation and urban navigation for **L2+ and L2++ smart driving solutions**, significantly increasing per-vehicle value[23](index=23&type=chunk) - Launched AI cloud platform – SenseAuto Vehicle-Road Collaboration Platform, integrating a comprehensive "vehicle-road-cloud" product matrix, improving traffic efficiency by over **20%**[24](index=24&type=chunk) [Smart Business](index=10&type=section&id=Smart%20Business) The Smart Business segment's revenue in 2022 decreased by 25.2% to RMB 1,464.3 million, reducing its proportion of group revenue to 38.4%, primarily due to the impact of the pandemic and macro economy, with the company focusing on AI cloud business transformation, rapid growth in SenseCore external service revenue, and assisting leading clients in digital energy and industrial sectors with digital transformation Smart Business Business Performance | Indicator | 2022 Amount (million RMB) | 2021 Amount (million RMB) | YoY Change | | :------- | :------------------------ | :------------------------ | :------- | | Revenue | 1,464.3 | 1,957.9 | -25.2% | | Revenue Share | 38.4% | 41.7% | Decrease | | Customer Count | 717 | 922 | -22.2% | | Revenue Per Customer | - | - | -3.8% | - SenseCore external service revenue rapidly broke through, accounting for over **20%** of Smart Business's total revenue, expected to significantly increase in 2023[26](index=26&type=chunk) - Assists leading enterprises in digital energy and industrial sectors with digital transformation, providing automated inspection services for China's largest power grid company, improving efficiency by **5-6 times**[27](index=27&type=chunk) [Smart City](index=12&type=section&id=Smart%20City) The Smart City segment's revenue in 2022 decreased by 48.8% to RMB 1,096.4 million, reducing its proportion of group revenue to 28.8%, primarily due to the impact of the pandemic, with the company actively adjusting its business, focusing on serving key clients, optimizing revenue quality, and continuously expanding the deployment of SenseFoundry City Ark Smart City Business Performance | Indicator | 2022 Amount (million RMB) | 2021 Amount (million RMB) | YoY Change | | :------- | :------------------------ | :------------------------ | :------- | | Revenue | 1,096.4 | 2,142.8 | -48.8% | | Revenue Share | 28.8% | 45.6% | Decrease | - The company was recognized in the Leader category of IDC MarketScape China City Intelligent Computing Platform Vendor Assessment, ranking first in strategic capabilities[28](index=28&type=chunk) - SenseFoundry City Ark expanded its coverage to **22 new cities**, with a cumulative deployment in **162 cities**, equipped with approximately **35,000 AI models**[28](index=28&type=chunk) [Environmental, Social and Governance (ESG)](index=12&type=section&id=Environmental%2C%20Social%20and%20Governance%20(ESG)) [Environmental Protection](index=13&type=section&id=Environmental%20Protection) SenseTime actively practices green development, setting carbon peaking by 2025, operational carbon neutrality by 2030, and net-zero emissions by 2050 targets, optimizing energy consumption through AIDC smart management systems, with AI large-scale infrastructure power consumption over 10% lower than the industry average, reducing approximately 35,600 tons of CO2 emissions annually - Established carbon neutrality targets: **carbon peaking by 2025**, **operational carbon neutrality by 2030**, and **net-zero emissions by 2050**[30](index=30&type=chunk) - AI large-scale infrastructure power consumption is over **10% lower** than the average level of China's medium and large data center industry, saving approximately **45 million kWh** of power and reducing approximately **35,600 tons of CO2 emissions** annually[30](index=30&type=chunk) - Plans to optimize energy consumption per unit of computing power by **30% by 2025** and launch solutions like smart virtual power plants to empower carbon neutrality in the energy industry[30](index=30&type=chunk) [AI Governance and Information Security Protection](index=14&type=section&id=AI%20Governance%20and%20Information%20Security%20Protection) SenseTime highly values AI governance, publishing the "AI Governance White Paper on Balanced Development" and proposing a vision for "responsible and assessable" AI, embedding ethical principles throughout the product lifecycle, and receiving multiple trusted AI practice awards, while SenseAuto obtained ISO/SAE 21434:2021 automotive information security process certification, becoming one of the few companies in the industry to obtain all three certifications - Published the "AI Governance White Paper on Balanced Development," proposing a vision for developing "responsible and assessable" AI[31](index=31&type=chunk) - AI training platform (AutoLink) received the "Trusted AI Platform Application Benchmark Case" award, and its ethical governance system and algorithm evaluation tools won the "Trusted AI Practice Excellent Case" award[31](index=31&type=chunk) - SenseAuto obtained **ISO/SAE 21434:2021** automotive information security process certification, becoming one of the few companies in the industry to obtain **ISO 26262, ASPICE CL2, and ISO/SAE 21434** certifications[32](index=32&type=chunk) [Strategic Outlook](index=15&type=section&id=Strategic%20Outlook) [Core Strategic Directions](index=15&type=section&id=Core%20Strategic%20Directions) SenseTime will pursue Artificial General Intelligence (AGI) as its core strategic goal, aiming for significant breakthroughs in AGI technology within the next few years, focusing on large computing power, multi-modal large models, AI-specific hardware and chips, and open research collaboration, while establishing and executing the "AI for All" development goal - Artificial General Intelligence (AGI) is the core strategic goal, aiming for significant breakthroughs in AGI technology within the next few years[33](index=33&type=chunk) - Continuously expand SenseCore AI large-scale infrastructure capabilities, invest in high-performance computing infrastructure, and strengthen system scalability[34](index=34&type=chunk) - Multi-modal large model R&D is a strategic investment direction, building capabilities in model architecture innovation, dataset construction, knowledge fusion and reasoning, application scenario expansion, and interpretability and security[35](index=35&type=chunk) [Large Computing Power](index=15&type=section&id=Large%20Computing%20Power) SenseTime will use SenseCore AI large-scale infrastructure as the core platform for large model production, continuously investing in high-performance computing infrastructure, deeply researching parallel computing and distributed system technologies, strengthening system scalability, shortening model training time, and accelerating iteration cycles - SenseCore AI large-scale infrastructure serves as the core platform, with continuous investment in high-performance computing infrastructure, including high-speed networks, large-scale data storage, and powerful computing nodes[34](index=34&type=chunk) - Deeply research parallel computing and distributed system technologies, strengthening system scalability, shortening model training time, and accelerating iteration cycles[34](index=34&type=chunk) [Multi-modal Large Models](index=15&type=section&id=Multi-modal%20Large%20Models) SenseTime will strategically invest in multi-modal large model R&D, aiming to process various data types and enhance data understanding and generation capabilities, focusing on model architecture innovation, large-scale multi-modal dataset construction, knowledge fusion and reasoning, application scenario expansion, and model interpretability and security - Optimize model architectures that combine various data types, build large-scale multi-modal datasets, and enhance the model's ability to process multi-modal data[35](index=35&type=chunk) - Optimize multi-modal knowledge representation and fusion methods, actively collaborate with ecosystem partners to advance multi-modal large model applications in smart assistants, autonomous driving, and medical diagnosis[35](index=35&type=chunk) [AI-specific Hardware and Chips and Open Research Collaboration](index=16&type=section&id=AI-specific%20Hardware%20and%20Chips%20and%20Open%20Research%20Collaboration) SenseTime will collaborate with leading global chip design and manufacturing companies to promote the development of AI hardware and chips, achieving stronger AI computing capabilities and higher energy efficiency ratios, while actively cooperating with global research institutions, universities, and enterprises to jointly explore new ways to optimize computing power and advance AI computing development - Collaborate with leading global chip design and manufacturing companies to promote the development of AI hardware and chips, achieving stronger AI computing capabilities and higher energy efficiency ratios[36](index=36&type=chunk) - Actively cooperate with global research institutions, universities, and enterprises to jointly explore new ways to optimize computing power and advance AI computing development[36](index=36&type=chunk) [AI for All Development Goal](index=16&type=section&id=AI%20for%20All%20Development%20Goal) SenseTime is committed to making AI technology benefit all humanity by reducing AI technology costs and barriers, developing low-cost, high-performance software and hardware solutions, and providing user-friendly APIs and development tools, while promoting AI technology development through open source and collaboration, focusing on diversity and inclusion, and collaborating with governments and industry partners to formulate AI policies and regulatory frameworks to ensure compliant and sustainable AI technology development - Committed to reducing AI technology costs and barriers, developing low-cost, high-performance software and hardware solutions, and providing user-friendly APIs and development tools[36](index=36&type=chunk) - Through open-source projects, shared resources, and collaborative research, jointly advance AI technology development with global AI researchers and developers[36](index=36&type=chunk) - Collaborate with governments, industry partners, and academic organizations to jointly discuss and formulate AI technology policies and regulatory frameworks, ensuring compliance and sustainable development[37](index=37&type=chunk) [Business Segment Upgrade Strategy](index=17&type=section&id=Business%20Segment%20Upgrade%20Strategy) SenseTime will leverage SenseCore large-scale infrastructure and large model capabilities to comprehensively upgrade its Smart Living, Smart Auto, Smart Business, and Smart City business segments, promoting AI applications through continuous advancement of SenseCore external services, deepening AIGC multi-modal capabilities, innovating smart auto functions, focusing on AI cloud business transformation, and optimizing Smart City cash flow, with commercialization as the key driver - Continuously advance SenseCore external service business, empowering large model R&D enterprises and research institutions, as well as key industry enterprises in AIGC, autonomous driving, and AI for Science[38](index=38&type=chunk) - Smart Living will deepen AIGC multi-modal full-stack capabilities, promote digital human product applications, and continuously innovate AI SDK, AI sensor, and AI ISP chip product portfolios[38](index=38&type=chunk) - Smart Auto will continuously innovate and mass-produce smart driving and smart cockpit functions, deepen the vehicle-road-cloud integrated product matrix, and maintain industry leadership[38](index=38&type=chunk) - Smart City and Smart Business will focus on AI cloud business transformation, increasing AIaaS revenue, assisting digital energy and industrial clients with digital transformation, and optimizing Smart City business cash flow[38](index=38&type=chunk) [Management Discussion and Analysis](index=18&type=section&id=Management%20Discussion%20and%20Analysis) [Revenue Analysis](index=19&type=section&id=Revenue%20Analysis) In 2022, revenue decreased by 19.0% year-on-year to RMB 3,808.5 million, primarily due to declines in Smart City and Smart Business revenue, partially offset by growth in Smart Living and Smart Auto revenue, with Smart Living revenue growing by 129.9%, Smart Auto revenue by 58.9%, and Smart Business and Smart City revenues decreasing by 25.2% and 48.8% respectively Revenue Breakdown by Source (million RMB) | Business Segment | 2022 Amount | 2022 Share | 2021 Amount | 2021 Share | YoY Change | | :------- | :--------- | :--------- | :--------- | :--------- | :------- | | Smart Business | 1,464.3 | 38.4% | 1,957.9 | 41.7% | -25.2% | | Smart City | 1,096.4 | 28.8% | 2,142.8 | 45.6% | -48.8% | | Smart Living | 955.1 | 25.1% | 415.4 | 8.8% | 129.9% | | Smart Auto | 292.7 | 7.7% | 184.2 | 3.9% | 58.9% | | Total | 3,808.5 | 100.0% | 4,700.3 | 100.0% | -19.0% | - Smart Business revenue decline was primarily due to the impact of the COVID-19 pandemic and lockdown measures, leading to delayed customer AI spending and hindered on-site product deployment[42](index=42&type=chunk) - Smart Living revenue growth was mainly driven by increased R&D revenue from AI ISP chips, growth in healthcare customer revenue, and the successful international expansion of the SenseMARS platform[43](index=43&type=chunk) [Cost of Sales, Gross Profit and Gross Margin](index=20&type=section&id=Cost%20of%20Sales%2C%20Gross%20Profit%20and%20Gross%20Margin) In 2022, cost of sales decreased by 11.0% year-on-year to RMB 1,266.2 million, primarily due to lower hardware costs and subcontracting service fees, with gross profit decreasing by 22.4% to RMB 2,542.3 million, and gross margin declining from 69.7% in 2021 to 66.8% in 2022 Cost of Sales Breakdown by Nature (million RMB) | Nature | 2022 Amount | 2022 Share | 2021 Amount | 2021 Share | | :----------------- | :--------- | :--------- | :--------- | :--------- | | Hardware Costs and Subcontracting Service Fees | 1,118.9 | 88.4% | 1,265.4 | 89.0% | | Server Operations and Cloud Service Fees | 13.8 | 1.1% | 1.5 | 0.1% | | Employee Benefit Expenses | 72.1 | 5.7% | 80.1 | 5.6% | | Depreciation and Amortization | 39.4 | 3.1% | – | – | | Other Expenses | 22.0 | 1.7% | 75.6 | 5.3% | | Total | 1,266.2 | 100.0% | 1,422.6 | 100.0% | - The decrease in cost of sales is consistent with the decline in revenue, reflecting a reduction in hardware costs and subcontracting service fees[45](index=45&type=chunk) - Gross margin decreased from **69.7% in 2021 to 66.8% in 2022**, primarily due to reduced revenue[46](index=46&type=chunk) [Operating Expenses Analysis](index=20&type=section&id=Operating%20Expenses%20Analysis) In 2022, R&D expenses increased by 11.1% to RMB 4,014.3 million, mainly due to increased AIDC infrastructure investment and professional service fees; selling expenses increased by 32.2% to RMB 900.8 million, due to an expanded sales and marketing team and increased brand promotion activities; administrative expenses decreased by 31.8% to RMB 1,567.7 million, primarily due to reduced share-based compensation expenses [R&D Expenses](index=20&type=section&id=R%26D%20Expenses) In 2022, R&D expenses increased by 11.1% year-on-year to RMB 4,014.3 million, primarily due to increased depreciation and amortization from AIDC infrastructure investment, and increased professional service and consulting fees related to AI chip R&D work - R&D expenses increased by **11.1% to RMB 4,014.3 million**[47](index=47&type=chunk) - Primarily due to increased depreciation and amortization from AIDC infrastructure investment, and increased professional service and consulting fees related to AI chip R&D work[47](index=47&type=chunk) [Selling Expenses](index=20&type=section&id=Selling%20Expenses) In 2022, selling expenses increased by 32.2% year-on-year to RMB 900.8 million, primarily due to increased employee compensation expenses from an expanded sales and marketing team, and increased domestic and international marketing and promotional activities - Selling expenses increased by **32.2% to RMB 900.8 million**[48](index=48&type=chunk) - Primarily due to increased employee compensation expenses from an expanded sales and marketing team, and increased marketing, conference, and travel expenses[48](index=48&type=chunk) [Administrative Expenses](index=21&type=section&id=Administrative%20Expenses) In 2022, administrative expenses decreased by 31.8% year-on-year to RMB 1,567.7 million, primarily due to reduced share-based compensation expenses for the management team and administrative staff - Administrative expenses decreased by **31.8% to RMB 1,567.7 million**[49](index=49&type=chunk) - Primarily due to reduced share-based compensation expenses for the management team and administrative staff[49](index=49&type=chunk) [Other Financial Items](index=21&type=section&id=Other%20Financial%20Items) In 2022, net impairment loss on financial and contract assets significantly increased by 222.2% to RMB 1,667.7 million, mainly due to increased impairment provisions for trade receivables; other income decreased by 11.3% to RMB 447.3 million, primarily due to reduced government grants; net other losses were RMB 1,367.3 million, mainly including foreign exchange losses and fair value losses on financial assets; net finance income increased to RMB 205.1 million; and annual loss narrowed to RMB 6,093.0 million [Net Impairment Loss on Financial and Contract Assets](index=21&type=section&id=Net%20Impairment%20Loss%20on%20Financial%20and%20Contract%20Assets) In 2022, net impairment loss on financial and contract assets increased by 222.2% to RMB 1,667.7 million from RMB 517.6 million in 2021, primarily due to increased impairment provisions for trade receivables, with the total amount of trade receivables also increasing - Net impairment loss on financial and contract assets increased by **222.2% to RMB 1,667.7 million**[50](index=50&type=chunk) - The percentage of impairment provisions for trade receivables increased from **16.2% to 33.1%**, primarily due to COVID-19 related disruptions and customer budget constraints[50](index=50&type=chunk) [Other Income](index=21&type=section&id=Other%20Income) In 2022, other income decreased by 11.3% to RMB 447.3 million from RMB 504.3 million in 2021, primarily due to reduced government grants - Other income decreased by **11.3% to RMB 447.3 million**, primarily due to reduced government grants[51](index=51&type=chunk) [Net Other Losses](index=21&type=section&id=Net%20Other%20Losses) In 2022, net other losses were RMB 1,367.3 million, compared to RMB 400.0 million in 2021, mainly comprising net foreign exchange losses of RMB 453.4 million and fair value losses on financial assets measured at fair value through profit or loss of RMB 885.1 million - In 2022, net other losses were **RMB 1,367.3 million**, mainly comprising net foreign exchange losses of **RMB 453.4 million** and fair value losses on financial assets measured at fair value through profit or loss of **RMB 885.1 million**[52](index=52&type=chunk) - Foreign exchange losses were primarily due to unrealized foreign exchange losses from the **8.5% depreciation of RMB against HKD**[52](index=52&type=chunk) [Net Finance Income](index=21&type=section&id=Net%20Finance%20Income) In 2022, net finance income increased to RMB 205.1 million from RMB 154.0 million in 2021, primarily due to increased interest income earned on financial assets held for cash management purposes - Net finance income increased to **RMB 205.1 million**, primarily due to increased interest income earned on financial assets[53](index=53&type=chunk) [Fair Value Loss on Preferred Shares and Other Financial Liabilities](index=22&type=section&id=Fair%20Value%20Loss%20on%20Preferred%20Shares%20and%20Other%20Financial%20Liabilities) In 2021, fair value loss on preferred shares and other financial liabilities was RMB 13,525.5 million, mainly referring to changes in the fair value of preferred shares issued by the company; in 2022, this loss significantly decreased to RMB 7.2 million, primarily due to the automatic conversion of preferred shares into ordinary shares after the company's initial public offering - In 2021, fair value loss on preferred shares and other financial liabilities was **RMB 13,525.5 million**, primarily related to the increase in the company's valuation[54](index=54&type=chunk) - In 2022, this loss significantly decreased to **RMB 7.2 million**, primarily due to the automatic conversion of preferred shares into ordinary shares after the company's initial public offering[54](index=54&type=chunk) [Income Tax Credit / (Expense)](index=22&type=section&id=Income%20Tax%20Credit%20%2F%20(Expense)) In 2022, income tax credit was RMB 239.8 million, compared to an income tax expense of RMB 35.5 million in 2021, primarily due to an increase in deductible tax losses - In 2022, income tax credit was **RMB 239.8 million**, primarily due to an increase in deductible tax losses[55](index=55&type=chunk) [Annual Loss](index=22&type=section&id=Annual%20Loss) In 2022, the annual loss was RMB 6,093.0 million, a significant narrowing from RMB 17,177.1 million in 2021, primarily due to the combined impact of R&D investment, impairment losses on financial assets, fair value losses, and net foreign exchange losses - In 2022, the annual loss was **RMB 6,093.0 million**, a significant narrowing from **RMB 17,177.1 million in 2021**[56](index=56&type=chunk) - The loss was primarily affected by R&D investment, net impairment loss on financial and contract assets, fair value losses on financial assets measured at fair value through profit or loss, and net foreign exchange losses[56](index=56&type=chunk) [Non-IFRS Measures](index=22&type=section&id=Non-IFRS%20Measures) The company uses adjusted EBITDA and adjusted net loss as non-IFRS financial metrics to eliminate the impact of non-cash items and financing and investing activities, aiding in the understanding and evaluation of operating performance, with adjusted EBITDA at RMB (4,213.4) million and adjusted net loss at RMB (4,736.2) million in 2022 - Adjusted EBITDA and adjusted net loss are used as non-IFRS metrics to eliminate the impact of non-cash items and financing and investing activities[57](index=57&type=chunk) Reconciliation of Non-IFRS Measures (million RMB) | Indicator | 2022 Amount | 2021 Amount | | :------------- | :--------- | :--------- | | Adjusted EBITDA | (4,213.4) | (879.0) | | Adjusted Net Loss | (4,736.2) | (1,418.4) | [Trade, Other Receivables and Prepayments](index=24&type=section&id=Trade%2C%20Other%20Receivables%20and%20Prepayments) In 2022, total trade, other receivables and prepayments increased to RMB 6,071.7 million; net trade receivables remained relatively stable, but their aging deteriorated, with turnover days increasing to 494 days, mainly due to delayed customer payments affected by the COVID-19 pandemic; other receivables decreased to RMB 211.1 million - Total trade, other receivables and prepayments increased from **RMB 5,775.9 million in 2021 to RMB 6,071.7 million in 2022**[60](index=60&type=chunk) [Trade Receivables](index=24&type=section&id=Trade%20Receivables) In 2022, net trade receivables remained relatively stable, but the aging of the total amount deteriorated, with trade receivables turnover days increasing from 319 days in 2021 to 494 days, primarily due to delayed customer payments affected by the COVID-19 pandemic Trade Receivables Details (million RMB) | Indicator | 2022 Amount | 2021 Amount | | :------------- | :--------- | :--------- | | Gross Trade Receivables | 7,796.3 | 6,064.1 | | Impairment Provision | (2,578.5) | (980.4) | | Net Trade Receivables | 5,217.8 | 5,083.7 | Trade Receivables Aging Analysis (million RMB) | Aging | 2022 Amount | 2021 Amount | | :----------- | :--------- | :--------- | | Up to 6 months | 1,995.6 | 2,659.6 | | 6 months to 1 year | 746.1 | 1,048.8 | | 1 to 2 years | 3,244.9 | 1,402.8 | | 2 to 3 years | 1,180.0 | 852.1 | | Over 3 years | 629.7 | 100.8 | | **Total** | **7,796.3**| **6,064.1**| - Trade receivables turnover days increased from **319 days in 2021 to 494 days in 2022**, primarily due to longer payment cycles in the Smart City business and the impact of the COVID-19 pandemic[64](index=64&type=chunk) [Other Receivables](index=26&type=section&id=Other%20Receivables) In 2022, other receivables decreased to RMB 211.1 million from RMB 329.2 million in 2021, primarily due to a decrease in balances paid on behalf of customers - Other receivables decreased to **RMB 211.1 million**, primarily due to a decrease in balances paid on behalf of customers[65](index=65&type=chunk) [Liquidity and Financial Resources](index=26&type=section&id=Liquidity%20and%20Financial%20Resources) As of December 31, 2022, the company held cash and cash equivalents of RMB 7,962.8 million and time deposits of RMB 6,212.9 million; net cash used in operating activities was RMB 3,084.5 million, net cash used in investing activities was RMB 9,298.2 million, and net cash generated from financing activities was RMB 3,329.1 million; total borrowings increased to RMB 3,228.6 million Cash Flow Summary (million RMB) | Cash Flow Type | 2022 Amount | 2021 Amount | | :------------------- | :--------- | :--------- | | Net Cash Used in Operating Activities | (3,084.5) | (2,485.4) | | Net Cash Used in Investing Activities | (9,298.2) | (1,548.1) | | Net Cash Generated from Financing Activities | 3,329.1 | 9,378.5 | | Cash and Cash Equivalents at Year-End | 7,962.8 | 16,529.5 | - As of December 31, 2022, the total balance of bank deposits, cash on hand, structured deposits, and fair value of bond investments was **RMB 16,602.7 million**[8](index=8&type=chunk) - Total borrowings increased from **RMB 339.9 million in 2021 to RMB 3,228.6 million in 2022**[71](index=71&type=chunk) [Net Cash Used in Operating Activities](index=26&type=section&id=Net%20Cash%20Used%20in%20Operating%20Activities) In 2022, net cash used in operating activities was RMB 3,084.5 million, primarily from loss before income tax, adjusted for non-cash items such as impairment provisions for financial assets, depreciation and amortization, and fair value losses - In 2022, net cash used in operating activities was **RMB 3,084.5 million**[68](index=68&type=chunk) [Net Cash Used in Investing Activities](index=27&type=section&id=Net%20Cash%20Used%20in%20Investing%20Activities) In 2022, net cash used in investing activities was RMB 9,298.2 million, primarily due to purchases of property, plant and equipment, acquisitions of debt and equity investments, and net increase in time deposits - In 2022, net cash used in investing activities was **RMB 9,298.2 million**[69](index=69&type=chunk) - Primarily due to purchases of property, plant and equipment, acquisitions of debt and equity investments, and net increase in time deposits[69](index=69&type=chunk) [Net Cash Generated from Financing Activities](index=27&type=section&id=Net%20Cash%20Generated%20from%20Financing%20Activities) In 2022, net cash generated from financing activities was RMB 3,329.1 million, primarily due to proceeds from borrowings and net proceeds from the over-allotment option of the initial public offering, partially offset by net changes in deposits for bank borrowings - In 2022, net cash generated from financing activities was **RMB 3,329.1 million**[70](index=70&type=chunk) - Primarily due to proceeds from borrowings and net proceeds from the over-allotment option of the initial public offering[70](index=70&type=chunk) [Borrowings](index=27&type=section&id=Borrowings) As of December 31, 2022, total borrowings increased to RMB 3,228.6 million; the company maintains a prudent approach to capital management, with interest rate risk primarily calculated at floating rates, and continuously monitors exchange rate movements - Total borrowings increased from **RMB 339.9 million in 2021 to RMB 3,228.6 million in 2022**[71](index=71&type=chunk) - The company maintains a prudent approach to capital management, with interest rate risk primarily calculated at floating rates and no interest rate swap contracts used for hedging[71](index=71&type=chunk) [Exchange Rate Fluctuation Risk](index=27&type=section&id=Exchange%20Rate%20Fluctuation%20Risk) The company is primarily exposed to fluctuations in exchange rates between HKD and RMB, and HKD and USD; currently, it does not engage in foreign currency exchange risk hedging activities but will continue to monitor and take necessary measures to mitigate exchange rate impacts - Primarily exposed to fluctuations in exchange rates between **HKD and RMB**, and **HKD and USD**[72](index=72&type=chunk) - Currently does not engage in foreign currency exchange risk hedging activities but will continue to monitor and take necessary measures to mitigate exchange rate impacts[72](index=72&type=chunk) [Other Information](index=28&type=section&id=Other%20Information) [Employees, Training and Remuneration Policy](index=28&type=section&id=Employees%2C%20Training%20and%20Remuneration%20Policy) As of December 31, 2022, the Group had 5,098 employees; the company formulates employee remuneration plans based on market compensation, industry practices, and remuneration strategies, providing year-end performance bonuses (cash or share options) based on individual performance, in addition to salaries, training courses, and employee benefits - As of December 31, 2022, the Group had **5,098 employees**[73](index=73&type=chunk) - Employee remuneration plans combine market compensation, industry practices, and the Group's remuneration strategy, offering year-end performance bonuses (cash or share options)[73](index=73&type=chunk) [Use of Proceeds](index=28&type=section&id=Use%20of%20Proceeds) The company received net proceeds of approximately HKD 6,351.0 million from the global offering; as of December 31, 2022, approximately HKD 5,447.2 million had been utilized, mainly for enhancing R&D capabilities, expanding business, seeking strategic investment and acquisition opportunities, and working capital and general corporate purposes; unused net proceeds are held as bank deposits - Net proceeds from the global offering were approximately **HKD 6,351.0 million**[74](index=74&type=chunk) Use of Proceeds Details (approx. million HKD) | Intended Use | Planned Proportion (%) | Planned Use | Unused at 2021 Year-End | Actual Use in 2022 | Unused at 2022 Year-End | Expected Full Utilization Time | | :------------------- | :----------- | :------- | :------------- | :------------- | :------------- | :--------------- | | Enhancing R&D Capabilities | 60.0 | 3,810.6 | 3,810.6 | 3,601.3 | 209.3 | Before end of 2023 | | Business Expansion | 15.0 | 952.7 | 952.7 | 258.2 | 694.5 | Before end of 2023 | | Strategic Investments and Acquisitions | 15.0 | 952.7 | 952.7 | 952.7 | – | Not applicable | | Working Capital and General Corporate Purposes | 10.0 | 635.0 | 635.0 | 635.0 | – | Not applicable | | **Total** | **100.0** | **6,351.0**| **6,351.0** | **5,447.2** | **903.8** | | [Capital Gearing Ratio](index=29&type=section&id=Capital%20Gearing%20Ratio) As of December 31, 2022, the company's capital gearing ratio was -11.7%, representing a net cash position, calculated as net debt divided by total capital - As of December 31, 2022, the capital gearing ratio was **-11.7%**, representing a net cash position[76](index=76&type=chunk) [Contingent Liabilities, Material Investments and Acquisitions/Disposals](index=30&type=section&id=Contingent%20Liabilities%2C%20Material%20Investments%20and%20Acquisitions%2FDisposals) As of December 31, 2022, the company had no material contingent liabilities, material investments, or material acquisitions or disposals concerning subsidiaries, associates, and joint ventures - As of December 31, 2022, the company had no material contingent liabilities[77](index=77&type=chunk) - As of December 31, 2022, the company held no material investments[77](index=77&type=chunk) - For the year ended December 31, 2022, the company had no material acquisitions or disposals concerning subsidiaries, associates, and joint ventures[77](index=77&type=chunk) [Future Plans for Material Investments and Capital Assets](index=30&type=section&id=Future%20Plans%20for%20Material%20Investments%20and%20Capital%20Assets) As of December 31, 2022, the company had no specific future plans for material investments and acquisitions of capital assets; the Group will continue to identify new investment opportunities, investing in companies related to its principal and core businesses to achieve synergies and improve services and products - As of December 31, 2022, the company had no specific future plans for material investments and acquisitions of capital assets[79](index=79&type=chunk) - The Group will continue to identify new investment opportunities, investing in companies related to its principal and core businesses to achieve synergies and improve services and products[79](index=79&type=chunk) [Repurchase of Listed Securities](index=59&type=section&id=Repurchase%20of%20Listed%20Securities) During the reporting period and up to the announcement date, the company repurchased a total of 38,475,000 Class B shares on the Stock Exchange for a total consideration of HKD 75,956,740, all of which have been cancelled; concurrently, Class A shareholders converted 8,644,928 Class A shares into Class B shares to maintain the differential voting rights ratio 2022 Class B Share Repurchase Details | Repurchase Month | Number of Class B Shares Repurchased | Price Paid Per Class B Share (HKD) | Total Consideration (HKD) | | :------- | :-------------- | :-------------------------- | :------------- | | July | 6,700,000 | Highest 2.1, Lowest 2.1 | 14,070,000 | | September | 31,775,000 | Highest 2, Lowest 1.89 | 61,886,740 | | **Total** | **38,475,000** | | **75,956,740** | - All repurchased Class B shares were subsequently cancelled, and Class A shareholders converted **8,644,928 Class A shares into Class B shares** to maintain the differential voting rights ratio[157](index=157&type=chunk) [Events After Reporting Period](index=59&type=section&id=Events%20After%20Reporting%20Period) Other than as disclosed in the announcement, there have been no other significant events affecting the Group since the end of the reporting period - Other than as disclosed in the announcement, there have been no other significant events affecting the Group since the end of the reporting period[159](index=159&type=chunk) [Corporate Governance and Dividends](index=59&type=section&id=Corporate%20Governance%20and%20Dividends) The company is committed to achieving high standards of corporate governance and complies with the Corporate Governance Code set out in Appendix 14 of the Listing Rules; the Board recommends no final dividend for the year ended December 31, 2022; the Annual General Meeting will be held on June 23, 2023 - The company has complied with the applicable code provisions of the Corporate Governance Code set out in Appendix 14 of the Listing Rules, except for the Chairman and Chief Executive Officer roles being held by the same person[159](index=159&type=chunk)[160](index=160&type=chunk) - The Board recommends no final dividend for the year ended December 31, 2022[161](index=161&type=chunk) - The Annual General Meeting will be held on **June 23, 2023**, and share transfer registration will be suspended from **June 19 to June 23, 2023**[161](index=161&type=chunk)[162](index=162&type=chunk) [Auditor and Audit Committee](index=61&type=section&id=Auditor%20and%20Audit%20Committee) The Group's auditor, PricewaterhouseCoopers, has confirmed that the figures in the consolidated financial statements in the announcement agree with those in the audited consolidated financial statements; the Audit Committee has reviewed the Group's consolidated financial statements and discussed accounting policies and internal control matters with management and the auditor - The Group's auditor, PricewaterhouseCoopers, has confirmed that the figures in the consolidated financial statements in the announcement agree with those in the audited consolidated financial statements[164](index=164&type=chunk) - The Audit Committee has reviewed the Group's consolidated financial statements and discussed accounting policies and practices and internal control matters with senior management and the auditor[165](index=165&type=chunk) [Publication of Annual Results Announcement and Annual Report](index=61&type=section&id=Publication%20of%20Annual%20Results%20Announcement%20and%20Annual%20Report) This annual results announcement has been published on the Stock Exchange website and the company's website; the company's annual report for the year ended December 31, 2022, will be published and dispatched to shareholders in due course - This annual results announcement has been published on the Stock Exchange website www.hkexnews.hk and the company's website www.sensetime.com[166](index=166&type=chunk) - The company's annual report for the year ended December 31, 2022, will be published and dispatched to shareholders in due course[166](index=166&type=chunk) [Consolidated Financial Statements](index=31&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statement of Profit or Loss](index=31&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss) [Consolidated Statement of Comprehensive Loss](index=32&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Loss) [Consolidated Statement of Financial Position](index=33&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) [Consolidated Statement of Changes in Equity](index=35&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) [Consolidated Statement of Cash Flows](index=37&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) [Notes to the Financial Statements](index=39&type=section&id=Notes%20to%20the%20Financial%20Statements) [General Information](index=39&type=section&id=General%20Information) SenseTime Group Inc. was incorporated in the Cayman Islands on October 15, 2014, primarily engaged in selling advanced AI software, platforms, related services, integrated software-hardware products, and AIDC services in China, Northeast Asia, Southeast Asia, and other regions; the company is a leading AI software company, with Professor Tang Xiao'ou as the ultimate controlling shareholder, and was listed on the Main Board of the Hong Kong Stock Exchange on December 30, 2021 - The company was incorporated in the Cayman Islands on **October 15, 2014**, primarily engaged in selling advanced AI software, platforms, related services, integrated software-hardware products, and AIDC services[89](index=89&type=chunk) - The company is a leading AI software company, with Professor Tang Xiao'ou as the ultimate controlling shareholder[89](index=89&type=chunk) - The company was successfully listed on the Main Board of the Hong Kong Stock Exchange on **December 30, 2021**[89](index=89&type=chunk) [Basis of Preparation](index=39&type=section&id=Basis%20of%20Preparation) The consolidated financial statements are prepared in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, based on the historical cost convention, and modified for the revaluation of certain financial assets and financial liabilities measured at fair value - The consolidated financial statements are prepared in accordance with **International Financial Reporting Standards** and the disclosure requirements of the Hong Kong Companies Ordinance[90](index=90&type=chunk) - Prepared on a historical cost convention, and modified for the revaluation of certain financial assets and financial liabilities measured at fair value[90](index=90&type=chunk) [Changes in Accounting Policies and Disclosures](index=40&type=section&id=Changes%20in%20Accounting%20Policies%20and%20Disclosures) The Group first adopted amendments to IAS 16, IFRS 3, IAS 37, and Annual Improvements to IFRS Standards 2018-2020 for the fiscal year beginning January 1, 2022, which had no significant impact on the consolidated financial statements, and new standards not yet adopted in the future are also not expected to have a significant impact - The Group first adopted several standard amendments for the fiscal year beginning **January 1, 2022**, which had no significant impact on the consolidated financial statements[91](index=91&type=chunk) - New standards and amendments not yet adopted in the future are not expected to have a significant impact on the Group's consolidated financial information[92](index=92&type=chunk) [Segment Information](index=41&type=section&id=Segment%20Information) The company develops software and hardware products for different vertical industries and use cases based on the same AI infrastructure platform and model training framework, without distinguishing operating segment financial information; in 2022, mainland China accounted for the highest proportion of revenue, and non-current assets were mainly concentrated in mainland China; Customer A was one of the major customers, and revenue recognition was primarily at a point in time - The company does not distinguish operating segment financial information, and executive directors review the Group's financial performance as a whole[94](index=94&type=chunk) [Revenue by Geographical Location](index=41&type=section&id=Revenue%20by%20Geographical%20Location) In 2022, the Group's revenue primarily came from mainland China, accounting for 83.2% of total revenue, with revenue from Northeast Asia increasing Consolidated Total Revenue by Customer Location (thousand RMB) | Region | 2022 Amount | 2021 Amount | | :------- | :--------- | :--------- | | Mainland China | 3,168,880 | 4,147,620 | | Northeast Asia | 521,866 | 365,759 | | Southeast Asia | 95,860 | 56,944 | | Other | 21,904 | 129,940 | | **Total** | **3,808,510**| **4,700,263**| [Non-current Assets](index=41&type=section&id=Non-current%20Assets) As of December 31, 2022, the Group's total non-current assets were RMB 7,646,991 thousand, primarily concentrated in mainland China, accounting for 98.1% Total Non-current Assets by Asset Location (thousand RMB) | Region | 2022 Amount | 2021 Amount | | :------- | :--------- | :--------- | | Mainland China | 7,498,318 | 3,310,770 | | Northeast Asia | 66,301 | 74,633 | | Southeast Asia | 27,054 | 62,392 | | Other | 55,318 | 118,218 | | **Total** | **7,646,991**| **3,566,013**| [Information on Major Customers](index=42&type=section&id=Information%20on%20Major%20Customers) In 2022, revenue from Customer A accounted for 15.20% of the Group's total revenue, making it one of the Group's major customers Revenue Share from Major Customers | Customer | 2022 Share | 2021 Share | | :----- | :--------- | :--------- | | Customer A | 15.20% | 11.68% | | Customer B | * | 10.73% | [Disaggregation of Revenue](index=42&type=section&id=Disaggregation%20of%20Revenue) In 2022, the Group's revenue was primarily recognized at a point in time, accounting for 93.0% of total revenue, with revenue recognized over time accounting for 7.0% Revenue Breakdown by Recognition Timing (thousand RMB) | Revenue Recognition Method | 2022 Amount | 2021 Amount | | :----------- | :--------- | :--------- | | Recognized at a point in time | 3,543,301 | 4,364,889 | | Recognized over time | 265,209 | 335,374 | | **Total** | **3,808,510**| **4,700,263**| [Expenses by Nature](index=43&type=section&id=Expenses%20by%20Nature) In 2022, total expenses were RMB 7,749.1 million, with employee benefit expenses accounting for the highest proportion at RMB 4,012.5 million; hardware costs and project subcontracting service fees, depreciation and amortization, and professional and other consulting fees were the main expense items Expenses by Nature Analysis (thousand RMB) | Expense Item | 2022 Amount | 2021 Amount | | :------------------- | :--------- | :--------- | | Employee Benefit Expenses | 4,012,452 | 4,577,655 | | Hardware Costs and Project Subcontracting Service Fees | 1,118,932 | 1,265,429 | | Depreciation and Amortization | 967,685 | 657,830 | | Professional and Other Consulting Fees | 800,666 | 659,612 | | Server Operations and Cloud Service Fees | 250,985 | 201,730 | | Marketing, Conference and Travel Expenses | 247,663 | 183,710 | | Utilities, Property Management and Administrative Expenses | 168,912 | 105,525 | | Data Labeling Fees | 59,895 | 53,362 | | R&D Tools and Consumables | 42,509 | 52,140 | | Auditor's Remuneration | 19,465 | 15,856 | | Listing Expenses | – | 134,579 | | Other Expenses | 59,942 | 109,283 | | **Total** | **7,749,106**| **8,016,711**| - Employee benefit expenses in 2022 included share-based compensation expenses of approximately **RMB 464,473,000**, a significant decrease from **RMB 1,583,925,000 in 2021**[101](index=101&type=chunk) [Other Losses – Net](index=43&type=section&id=Other%20Losses%20–%20Net) In 2022, net other losses were RMB 1,367.3 million, a significant increase from RMB 399.9 million in 2021, primarily composed of fair value losses on financial assets measured at fair value through profit or loss and net foreign exchange losses Other Losses – Net Details (thousand RMB) | Item | 2022 Amount | 2021 Amount | | :--------------------------------- | :--------- | :--------- | | Fair Value Loss on Financial Assets at FVTPL | (885,078) | (514,661) | | Change in Net Assets of Investment Funds Attributable to Limited Partners | (17,188) | – | | Net Foreign Exchange (Loss) / Gain | (453,432) | 132,435 | | **Total** | **(1,367,311)**| **(399,958)**| [Income Tax (Credit) / Expense](index=44&type=section&id=Income%20Tax%20(Credit)%20%2F%20Expense) In 2022, income tax credit was RMB 239.8 million, compared to an income tax expense of RMB 35.5 million in 2021, primarily due to an increase in deductible tax losses; the Group applies different tax rates in various regions, with high-tech enterprises in mainland China enjoying a 15% preferential tax rate; as of December 31, 2022, the Group's unrecognized deferred income tax assets were RMB 1,357.6 million Income Tax (Credit) / Expense Details (thousand RMB) | Item | 2022 Amount | 2021 Amount | | :----------- | :--------- | :--------- | | Current Income Tax | 22,714 | 7,269 | | Deferred Income Tax | (262,536) | 28,237 | | **Total** | **(239,822)**| **35,506** | - In 2022, income tax credit was **RMB 239.8 million**, primarily due to an increase in deductible tax losses[55](index=55&type=chunk)[112](index=112&type=chunk) [Tax Rates by Region](index=44&type=section&id=Tax%20Rates%20by%20Region) The Group is exempt from tax in the Cayman Islands and British Virgin Islands, with a Hong Kong profits tax rate of 16.5%, Singapore income tax rate of 17% (with a 5% preferential rate for certain activities), Japan corporate tax rate of 23.2%, Malaysia income tax rate of 24% (with a 17% preferential rate for small businesses), and Saudi Arabia income tax rate of 20% - Cayman Islands and British Virgin Islands are tax-exempt[103](index=103&type=chunk)[104](index=104&type=chunk) - Hong Kong profits tax rate is **16.5%**, Singapore income tax rate is **17%** (with a **5% preferential rate** for certain activities)[105](index=105&type=chunk)[106](index=106&type=chunk) - Japan corporate tax rate is **23.2%**, Malaysia income tax rate is **24%** (with a **17% preferential rate** for small businesses), and Saudi Arabia income tax rate is **20%**[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) [PRC Corporate Income Tax and Withholding Tax](index=45&type=section&id=PRC%20Corporate%20Income%20Tax%20and%20Withholding%20Tax) The statutory corporate income tax rate for PRC businesses is 25%, but high-tech enterprises such as Beijing SenseTime, Shenzhen SenseTime, Shanghai SenseTime, and Shanghai Lingang enjoy a 15% preferential income tax rate; dividends distributed to overseas investors are generally subject to a 10% withholding tax, which can be reduced to 5% for eligible Hong Kong investors - The statutory corporate income tax rate for PRC businesses is **25%**, with high-tech enterprises enjoying a **15% preferential income tax rate**[110](index=110&type=chunk) - Dividends distributed to overseas investors are generally subject to a **10% withholding tax**, which can be reduced to **5%** for eligible Hong Kong investors[111](index=111&type=chunk) [Tax Losses and Deferred Income Tax Assets](index=46&type=section&id=Tax%20Losses%20and%20Deferred%20Income%20Tax%20Assets) In 2022, the super deduction policy for R&D expenses was adjusted from 175% to 200%; as of December 31, 2022, the Group's unrecognized deferred income tax assets were RMB 1,357.6 million, and total unutilized tax losses were RMB 7,704.3 million - In 2022, the super deduction policy for R&D expenses was adjusted from **175% to 200%**[114](index=114&type=chunk) - As of December 31, 2022, the Group's unrecognized deferred income tax assets were **RMB 1,357,648,000**[116](index=116&type=chunk) Unutilized Tax Losses Expiry Dates (thousand RMB) | Expiry Date | 2022 Amount | 2021 Amount | | :----- | :--------- | :--------- | | 2023 | 8,162 | 8,162 | | 2024 | 87,797 | 87,797 | | 2025 | 339,949 | 177,775 | | 2026 | 919,258 | 614,259 | | 2027 | 1,940,533 | 49,395 | | 2028 | 416,029 | 418,653 | | 2029 | 963,974 | 963,974 | | 2030 | 688,746 | 688,746 | | 2031 | 587,216 | 571,523 | | 2032 | 841,191 | – | | Indefinite | 911,467 | 668,920 | | **Total** | **7,704,322**| **4,249,204**| [Loss Per Share](index=47&type=section&id=Loss%20Per%20Share) In 2022, basic loss per share was RMB (0.19), a significant narrowing from RMB (1.74) in 2021; diluted loss per share was the same as basic loss per share due to the anti-dilutive effect of potential ordinary shares when the Group incurred a loss Loss Per Share (RMB) | Indicator | 2022 | 2021 | | :------------- | :----- | :----- | | Basic Loss Per Share | (0.19) | (1.74) | | Diluted Loss Per Share | (0.19) | (1.74) | - Due to the Group incurring a loss, potential ordinary shares have an anti-dilutive effect, thus diluted loss per share is the same as basic loss per share[120](index=120&type=chunk) [Dividends](index=48&type=section&id=Dividends) For the year ended December 31, 2022, the company did not declare or pay any dividends - For the year ended December 31, 2022, the company did not declare or pay any dividends[121](index=121&type=chunk) [Prope

Financial Data and Key Metrics Changes - Total revenue for SenseTime in 2022 was RMB 3.8 billion, a 19% decrease compared to the previous year [6] - Gross profit was RMB 2.5 billion, with a gross profit margin of 66.7% [6] - R&D investment increased by 24% year-on-year to RMB 3.8 billion, while net losses narrowed by 64% to RMB 6.1 billion [6] - Adjusted net loss was RMB 4.7 billion [6][44] Business Line Data and Key Metrics Changes - Smart Life segment revenue increased by 30% year-on-year to RMB 960 million, contributing 25% to total revenue [27][29] - Smart Auto segment revenue rose by 59% year-on-year to RMB 290 million, with its contribution increasing from 4% to 8% [27][35] - Smart Business segment revenue declined by 25% year-on-year to RMB 1.5 billion, while Smart City revenue decreased by 49% to RMB 1.1 billion [28][40] Market Data and Key Metrics Changes - Overseas business revenue grew by 16%, increasing its share of total revenue from 12% to 17% [44] - The company served 717 clients in the Smart Business segment, a 22% decline year-on-year [39] Company Strategy and Development Direction - The company is focusing on large model development and has undergone a strategic transformation to align its business structure [26] - SenseTime aims to enhance its AI infrastructure and expand its capabilities in supercomputing and large multimodal models [53] - The company is committed to promoting AI technology accessibility and ethical considerations in its development goals [54] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of Smart City and Smart Business segments as macroeconomic conditions stabilize [77] - The company anticipates that the demand for AI infrastructure will continue to grow, particularly in the context of digital transformation [78] - Long-term investments in Smart Life and Smart Auto are expected to yield significant returns, with these segments projected to account for a larger share of revenue [46][81] Other Important Information - SenseTime has invested over RMB 12.8 billion in R&D since its inception, with R&D personnel accounting for 68% of total employees [15] - The company has developed the world's largest CV foundation model with 32 billion parameters, enhancing its capabilities in various applications [12] Q&A Session Summary Question: What is your view on the industry trend now that ChatGPT is generating such heat? - Management believes that cross-modal large models are the future of AI development, as they can process diverse data types and meet increasing industry demands [61][62] Question: How do you expect the situation to improve in 2023 for Smart City and Smart Business segments? - Management expects these segments to recover as the macroeconomic situation stabilizes, with a focus on high-quality opportunities and faster payment cycles [77][78] Question: What are your plans for AIDC computing power scale this year? - The company has proactively procured GPUs and adapted to domestically produced chips, ensuring sufficient computing power for large model training [71][73]

Financial Performance - Total revenue for the six months ended June 30, 2022, was RMB 1,415,343, a decrease of 14.3% compared to RMB 1,651,809 in the same period of 2021[5]. - Gross profit for the same period was RMB 934,043, representing a gross margin of 66.0%, down from 73.0% in 2021[5]. - The company reported a loss of RMB (3,207,988) for the six months, an improvement of 13.6% compared to a loss of RMB (3,712,873) in 2021[5]. - Adjusted EBITDA for the period was RMB (2,322,546), significantly worse than the adjusted EBITDA of RMB (556,160) in the previous year, reflecting a 317.6% increase in losses[5]. - The adjusted net loss for the period was RMB (2,564,180), a significant increase of 264.9% compared to RMB (702,665) in the same period of 2021[5]. - The net loss for the six months ended June 30, 2022, was RMB 3,208.0 million, compared to a net gain of RMB 206.4 million for the six months ended June 30, 2021[34]. - The company reported a total comprehensive loss of RMB 1,893,618 for the period, compared to RMB 3,474,356 in the previous year, suggesting a reduction in overall losses[64]. - The group reported a basic loss per share of RMB 0.10 for the six months ending June 30, 2022, compared to RMB 0.39 for the same period in 2021[116]. Revenue Breakdown - The smart business segment generated revenue of RMB 570 million, a year-on-year decrease of 12%, with a customer base of 512, down 19%[10]. - The smart city segment achieved revenue of RMB 430 million, a year-on-year decline of 45%, with 15 new cities added[11]. - The Smart Living segment achieved revenue of RMB 290 million in the first half of 2022, representing a 98% year-over-year growth and accounting for 21% of the group's total revenue, up from 9% in 2021[13]. - Smart automotive revenue increased by 71.1% to RMB 120.8 million, attributed to a growing customer base and new partnerships for advanced driver assistance systems[27]. - Revenue from Mainland China for the six months ended June 30, 2022, was RMB 1,140,734 thousand, a decrease of 19.2% compared to RMB 1,412,976 thousand for the same period in 2021[94]. - The total revenue from Southeast Asia for the six months ended June 30, 2022, was RMB 4,213 thousand, a significant decrease of 80.6% from RMB 21,671 thousand in the same period of 2021[94]. Customer Metrics - The number of customers in the Smart Business segment decreased by 19.4% to 512 from 635 in the previous year[6]. - The Smart Life segment saw an 18.1% increase in customers, reaching 183 compared to 155 in 2021[6]. - The Smart Auto segment experienced a 53.8% increase in customers, growing from 13 to 20[6]. - The number of customers served in the Smart Living segment increased by 18% to 183, with average revenue per customer rising by 67%[13]. Research and Development - Research and development expenses for the first half of 2022 amounted to RMB 1.88 billion, representing 133.1% of the revenue[8]. - R&D expenditure reached RMB 2.04 billion in the first half of 2022, with cumulative investment exceeding RMB 10 billion since 2018[17]. - The number of R&D personnel reached 4,093, accounting for 69% of total employees, with an average model production per person increasing by 15% to 6.8 models annually[17]. - The AI model achieved over 90% accuracy in the ImageNet large-scale recognition task, ranking among the top three globally alongside Google and Microsoft[17]. - The company is committed to ongoing research and development in artificial intelligence technology, aiming to enhance its product offerings and market competitiveness[73]. Cash Flow and Liquidity - The company's cash and cash equivalents decreased to RMB 10,373.6 million as of June 30, 2022, from RMB 16,529.5 million at the beginning of the period[44]. - Net cash used in operating activities was RMB 1,848.1 million for the six months ended June 30, 2022, compared to RMB 830.9 million in the same period of 2021[47]. - Net cash used in investing activities was RMB 5,721.4 million, primarily due to investments in financial assets and property purchases[49]. - The company has sufficient financial resources totaling RMB 17,873.1 million as of June 30, 2022, to support business development[44]. - The total amount of structured deposits increased to RMB 466,678,000 as of June 30, 2022, from RMB 2,186,374,000 a year earlier, indicating a significant reduction of about 78.7%[154]. Financial Position - Total assets as of June 30, 2022, were RMB 36,666,655, a decrease from RMB 36,944,319 at the end of 2021[66]. - Total liabilities rose to RMB 5,563,819 from RMB 4,957,235, indicating an increase in financial obligations[66]. - The total equity attributable to equity holders of the company as of June 30, 2022, was RMB 31,102,836 thousand, compared to RMB 31,987,084 thousand at the beginning of the year, reflecting a decrease of approximately 2.8%[68]. - The company’s total liabilities included preferred share liabilities of RMB 1,048,291 thousand and other financial liabilities of RMB 127,877 thousand, contributing to a total liability of RMB 1,176,168 thousand[84]. Strategic Initiatives - The company is focusing on expanding its market presence and enhancing its product offerings in response to the changing market dynamics[5]. - The company aims to strengthen its competitive advantages in smart cities and smart business, enhance autonomous driving technology, and continue the development of AI sensors and consumer robotics[22]. - The company signed strategic agreements with GAC Group to accelerate smart vehicle development and production, with over 3 million units of the smart vehicle cabin AI software delivered[15]. - The company has connected over 1.5 million IoT devices through its urban platform, with an increase of approximately 26% in the first half of 2022[12]. Market Conditions - The company maintained the number one market share in China's AI algorithm analysis software market as of 2021[8]. - The overseas market revenue contribution increased by approximately 760 basis points compared to the full year of 2021, accounting for 19% of total revenue[9]. - The company continues to monitor currency exchange rate fluctuations and will take necessary measures to mitigate their impact[51]. Compliance and Governance - The company received the BS10012:2017 certification for personal information management, demonstrating its commitment to data security and privacy protection[21]. - The interim financial data has been prepared in accordance with International Accounting Standard 34, ensuring compliance with international financial reporting standards[74]. - The company has not engaged in any significant acquisitions or disposals of subsidiaries, associates, or joint ventures during the reporting period[55].

Financial Performance - The company's revenue increased from RMB 3,446.2 million in 2020 to RMB 4,700.3 million in 2021, representing a growth of approximately 36.4%[7] - Gross profit rose from RMB 2,432.1 million in 2020 to RMB 3,277.6 million in 2021, marking an increase of about 34.8%[7] - The annual loss widened from RMB 12,158.3 million in 2020 to RMB 17,177.1 million in 2021, reflecting an increase of approximately 41.5%[7] - Adjusted EBITDA loss increased from RMB 531.8 million in 2020 to RMB 879.0 million in 2021[7] - The loss attributable to equity holders of the company increased from RMB 12,158.2 million in 2020 to RMB 17,140.1 million in 2021[5] - The company reported an adjusted EBITDA loss of RMB 878.97 million for 2021, compared to a loss of RMB 531.85 million in 2020[26] - Operating loss widened to RMB 3,729.73 million in 2021 from RMB 1,811.78 million in 2020[26] - Total annual loss increased to RMB 17,177.05 million in 2021 from RMB 12,158.35 million in 2020[26] Assets and Liabilities - Total assets as of 2021 were RMB 36,944.3 million, while total liabilities were RMB 4,957.2 million[6] - The company's cash and bank deposits at the end of 2021 amounted to RMB 13.5% of total assets, down from 14.6% in 2020[8] - The company reported a total equity of RMB 31,987.1 million as of 2021[6] - The company's asset-liability ratio stood at -85.4% as of December 31, 2021, reflecting a net cash position, which is a positive indicator of financial health[53] Market and Business Segments - In 2021, SenseTime's total revenue increased by 36.4% year-over-year to RMB 4.7 billion, up from RMB 3.45 billion in 2020, with a gross margin of 69.7%[9] - The smart business segment generated revenue of RMB 1.96 billion in 2021, reflecting a year-over-year growth of 31.8%[10] - Smart business revenue rose by 31.8% from RMB 1,485.0 million in 2020 to RMB 1,957.9 million in 2021, with the customer base expanding from 848 to 922[28] - Smart city revenue surged by 56.5% from RMB 1,368.9 million in 2020 to RMB 2,142.8 million in 2021, attributed to increased market penetration and expanded city coverage[29] - The Smart Living segment achieved revenue of RMB 420 million in 2021, serving consumer-facing enterprises such as mobile manufacturers and healthcare institutions[12] Research and Development - Research and development expenses reached RMB 3.06 billion, accounting for 65.1% of total revenue, while management expenses decreased from 29.6% in 2020 to 25.1% in 2021[9] - Research and development expenses grew by 47.3% from RMB 2,453.9 million in 2020 to RMB 3,614.1 million in 2021, primarily due to increased employee compensation[33] - The company aims to leverage AI technology across four major revenue sources: smart business, smart cities, smart living, and intelligent vehicles, maintaining industry leadership in all segments[10] Technology and Innovation - The number of commercial AI models produced through SenseCore exceeded 34,000 by the end of 2021, a 152% increase from 13,000 at the end of 2020[10] - SenseTime's AI computing power reached 1.17 exaflops with 23 operational supercomputing clusters by the end of 2021, and a new AI computing center was launched in January 2022 with a peak computing power of 3.74 exaflops[10] - The newly launched "Shusheng" general vision technology system improved accuracy and data efficiency significantly, achieving a 40.2% reduction in average error rate for classification tasks compared to the best open-source model[16] - SenseTime's self-developed AI inference chip, STPU S100-0AC, has been shipped over 16,000 units by the end of 2021, demonstrating three times the video stream processing capability compared to traditional GPUs at the same cost[16] Corporate Governance - The board of directors has complied with listing rules by appointing at least three independent non-executive directors, constituting at least one-third of the board[56] - The company has established a corporate governance committee to ensure operations align with shareholder interests and compliance with listing rules[66] - The audit committee consists of three members, including Mr. Lin Yizhong, Ms. Fan YuanYuan, and Mr. Li Wei, with Mr. Lin serving as the chairman[64] - The company has established a practice of holding board meetings at least four times a year, approximately once per quarter[58] Shareholder Communication - The company emphasizes the importance of effective communication with shareholders, particularly regarding compliance with listing rules[68] - The company has established a shareholder communication policy to ensure equal and timely access to information for shareholders[91] - Shareholders can submit written inquiries to the company to bring matters to the attention of the board of directors[90] - The company’s website serves as a platform for communication with shareholders and investors, regularly updating information[89] Sustainability and ESG Initiatives - The company aims to achieve peak carbon emissions by 2025 and operational carbon neutrality by 2030, with a long-term goal of net-zero emissions by 2050[17] - The company has established an ESG governance structure to manage environmental, social, and governance matters, aiming for sustainable development[170] - The ESG report is the company's first, highlighting its commitment to responsible AI leadership and sustainable practices[170] - The company is committed to promoting social responsibility and community engagement through charitable activities and environmental protection initiatives[174] Strategic Partnerships and Acquisitions - The company is focused on enhancing its market position through strategic partnerships and potential acquisitions in the technology sector[141] - A strategic acquisition of a smaller tech firm was announced, expected to enhance the company's capabilities in computer vision technology[121] - The company is exploring strategic acquisitions to bolster its technology portfolio, with a budget of 500 million allocated for potential deals[130] Risk Management - The company has implemented a risk management and internal control system to oversee risks undertaken by the group[65] - The company has a dedicated compliance risk management framework to effectively identify and manage compliance risks, ensuring operations align with applicable laws and regulations[79] - The company has established a compliance monitoring department to investigate serious violations and strengthen fraud risk prevention mechanisms[181] Product Quality and Customer Satisfaction - The company has established a comprehensive quality management system, achieving certifications such as ISO9001 and CMMI Level 3, ensuring compliance with various operational standards[191] - The company has achieved ASPICE Level 2 and ASIL-B certification in the smart automotive sector, enhancing its product safety standards[191] - The company aims to improve customer satisfaction and product quality through diversified communication channels, including surveys and direct feedback[191]