Financial Data and Key Metrics Changes - Tencent Music Entertainment Group reported significant changes in financial metrics for Q2 2022, with specific figures to be detailed in the full report [1] Business Line Data and Key Metrics Changes - The performance of various business lines will be discussed in detail during the earnings call, highlighting any notable shifts in revenue and user engagement [1] Market Data and Key Metrics Changes - Market performance indicators will be analyzed, focusing on user growth and market share within the music streaming industry [1] Company Strategy and Development Direction - The management team will outline the company's strategic initiatives and future direction, particularly in response to competitive pressures in the industry [1] Management's Comments on Operating Environment and Future Outlook - Management will provide insights into the current operating environment and their outlook for the future, addressing potential challenges and opportunities [1] Other Important Information - Additional relevant information regarding partnerships, technological advancements, and market trends will be shared during the call [1] Q&A Session All Questions and Answers Question: What are the expectations for user growth in the upcoming quarters? - Management will address user growth expectations and strategies to enhance user engagement in the coming quarters [1] Question: How is the company responding to competitive pressures? - The response to competitive pressures will be discussed, including any strategic adjustments being made to maintain market position [1]

Financial Data and Key Metrics - No specific financial data or key metrics changes mentioned in the provided content [1] Business Line Data and Key Metrics - No specific business line data or key metrics changes mentioned in the provided content [1] Market Data and Key Metrics - No specific market data or key metrics changes mentioned in the provided content [1] Company Strategy and Industry Competition - No specific company strategy or industry competition details mentioned in the provided content [1] Management Commentary on Operating Environment and Future Outlook - No specific management commentary on operating environment or future outlook mentioned in the provided content [1] Other Important Information - The conference call is for Tencent Music Entertainment Group's First Quarter 2022 Earnings [1] - The call is being recorded and hosted by Mr Tony Yip [1] Q&A Session - No Q&A session details provided in the content [1]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021. OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to OR ☐ SHELL COMPANY REPORT PURSUANT TO S ...

[PART I](index=7&type=section&id=PART%20I) [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section outlines the principal risks faced by the company, categorized into business and industry risks, relationship with Tencent, corporate structure (VIE), doing business in China, and risks related to its American Depositary Shares (ADSs) [Risk Factors](index=7&type=section&id=3.D.%20Risk%20Factors) The company identifies significant risks across its operations, including dependence on third-party content licenses, potential copyright infringement, uncertainties in monetization, and structural risks from its VIE setup, alongside reliance on Tencent and evolving Chinese regulations - The company's business is highly dependent on licenses from third-party content providers; adverse changes, loss of relationships, or failure to renew these licenses on favorable terms could materially harm the business[15](index=15&type=chunk)[25](index=25&type=chunk)[28](index=28&type=chunk) - A significant risk arises from the company's corporate structure, which relies on contractual arrangements with Variable Interest Entities (VIEs) to operate in China; if the PRC government finds these arrangements non-compliant, the company could face severe penalties[18](index=18&type=chunk)[145](index=145&type=chunk) - Tencent, as the controlling shareholder, holds **90.6% of the total voting power**, giving it effective control over shareholder actions, which may lead to conflicts of interest not resolved favorably for other shareholders[17](index=17&type=chunk)[138](index=138&type=chunk)[142](index=142&type=chunk) - The company faces regulatory risks in China, including uncertainties in the legal system and evolving online content regulations; the HFCAA could also lead to the delisting of the company's ADSs if the PCAOB is unable to inspect its auditor for three consecutive years[21](index=21&type=chunk)[222](index=222&type=chunk)[224](index=224&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=57&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, business overview, organizational structure, and physical assets, outlining the development of its key products and strategic transactions [History and Development of the Company](index=57&type=section&id=4.A.%20History%20and%20Development%20of%20the%20Company) The company's history includes the launch of core products like QQ Music, Kugou, and Kuwo, its 2016 combination with Tencent's music business, 2018 NYSE IPO, and recent strategic moves including a US$800 million notes offering and stake acquisitions in UMG and Lazy Audio - In July 2016, Tencent acquired control of CMC and injected its online music businesses (QQ Music, WeSing), making TME a consolidated subsidiary of Tencent[272](index=272&type=chunk) - The company completed its Initial Public Offering (IPO) in December 2018, with ADSs trading on the NYSE under the symbol "TME"[274](index=274&type=chunk) - In 2020 and 2021, TME engaged in significant strategic investments, including acquiring a stake in Universal Music Group (UMG) via a Tencent-led consortium and acquiring **100% of Lazy Audio** to expand into the long-form audio market[276](index=276&type=chunk)[277](index=277&type=chunk) [Business Overview](index=59&type=section&id=4.B.%20Business%20Overview) Tencent Music Entertainment is China's largest online music entertainment platform, operating key apps like QQ Music, Kugou Music, Kuwo Music, and WeSing, with a comprehensive social entertainment ecosystem, vast content library, and multi-faceted monetization models - The company operates China's largest online music entertainment platform, with **644 million online music mobile MAUs** and **240 million social entertainment mobile MAUs** in 2020[285](index=285&type=chunk)[290](index=290&type=chunk) - TME's content library is the largest in China, featuring over **60 million music tracks** as of December 31, 2020, supplemented by a wide range of long-form audio content like audiobooks and podcasts[291](index=291&type=chunk) - Monetization is driven by online music services (subscriptions, digital sales, advertising) and social entertainment services (virtual gifts, premium memberships); in 2020, online music paying users reached **49.4 million (7.7% paying ratio)**, and social entertainment paying users were **11.7 million (4.9% paying ratio)**[291](index=291&type=chunk) - The company is subject to extensive PRC regulations governing the internet, value-added telecommunications, online content, and foreign investment, which necessitates its VIE structure for certain operations[366](index=366&type=chunk)[367](index=367&type=chunk) [Organizational Structure](index=97&type=section&id=4.C.%20Organizational%20Structure) As a Cayman Islands holding company, TME conducts its business in China through wholly-owned PRC subsidiaries and Variable Interest Entities (VIEs) to comply with PRC laws restricting foreign ownership in certain sectors, exerting control over VIEs via contractual arrangements - The company uses a VIE structure to operate in sectors with foreign ownership restrictions in China, such as value-added telecommunication and internet audio-video services[489](index=489&type=chunk) - Control over the VIEs is established through a series of contractual arrangements, including Equity Interest Pledge Agreements, Exclusive Option Agreements, Exclusive Technical Service Agreements, and Voting Trust Agreements[491](index=491&type=chunk)[493](index=493&type=chunk)[497](index=497&type=chunk) [OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=101&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides a detailed analysis of the company's financial performance and condition, discussing key factors affecting results, year-over-year comparisons of revenues, costs, and profitability, and details on liquidity, capital resources, and cash flows [Operating Results](index=101&type=section&id=5.A.%20Operating%20Results) In 2020, total revenues increased **14.6% to RMB 29.15 billion**, driven by **30.7% growth in online music services revenue** to **RMB 9.35 billion**, while gross margin decreased to **31.9%** due to higher revenue sharing fees and content investments, and profit for the year rose to **RMB 4.18 billion** Key Financial Performance (2018-2020) | Financial Metric | 2018 (RMB million) | 2019 (RMB million) | 2020 (RMB million) | 2020 (US$ million) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | **18,985** | **25,434** | **29,153** | **4,468** | | Online music services | 5,536 | 7,152 | 9,349 | 1,433 | | Social entertainment services and others | 13,449 | 18,282 | 19,804 | 3,035 | | **Gross Profit** | **7,277** | **8,673** | **9,302** | **1,426** | | Gross Margin | 38.3% | 34.1% | 31.9% | 31.9% | | **Operating Profit** | **2,039** | **4,622** | **4,710** | **722** | | **Profit for the year** | **1,832** | **3,977** | **4,176** | **640** | Key Operating Metrics (2018-2020) | Operating Metric | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Online Music Mobile MAUs (millions)** | 642 | 653 | 644 | | **Social Entertainment Mobile MAUs (millions)** | 226 | 240 | 240 | | **Online Music Paying Users (millions)** | 24.4 | 33.7 | 49.4 | | Online Music Paying Ratio | 3.8% | 5.2% | 7.7% | | Online Music Monthly ARPPU (RMB) | 8.5 | 8.8 | 9.4 | | **Social Entertainment Paying Users (millions)** | 9.8 | 11.6 | 11.7 | | Social Entertainment Paying Ratio | 4.3% | 4.8% | 4.9% | | Social Entertainment Monthly ARPPU (RMB) | 114.4 | 131.3 | 141.1 | - Revenue from online music services grew **30.7% in 2020**, primarily due to a **56.0% increase in music subscription revenue**, driven by a significant rise in paying users and a higher monthly ARPPU[579](index=579&type=chunk) - Cost of revenues increased by **18.4% in 2020**, mainly due to higher revenue sharing fees for platform competitiveness and increased content costs for new products like long-form audio and TME Live[581](index=581&type=chunk) [Liquidity and Capital Resources](index=119&type=section&id=5.B.%20Liquidity%20and%20Capital%20Resources) The company's primary sources of liquidity are cash from operations and financing activities, with **RMB 11.13 billion** in cash and cash equivalents as of December 31, 2020, and sufficient cash flow for the next 12 months, despite significant cash used in investing activities for term deposits and UMG investments Consolidated Cash Flow Data (2018-2020) | Cash Flow Item (RMB million) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Net cash generated from operating activities** | **5,632** | **6,200** | **4,885** | | **Net cash used in investing activities** | **(1,190)** | **(8,102)** | **(14,206)** | | **Net cash generated from/(used in) financing activities** | **7,741** | **(31)** | **5,292** | | Net increase/(decrease) in cash and cash equivalents | 12,183 | (1,933) | (4,029) | | Cash and cash equivalents at end of the year | 17,356 | 15,426 | 11,128 | - As of December 31, 2020, the company held **RMB 11.13 billion (US$1.71 billion)** in cash and cash equivalents[613](index=613&type=chunk) - The company has two share repurchase programs: a **US$400 million** program announced in December 2019 and a **US$1 billion** program announced in March 2021[614](index=614&type=chunk) [DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=124&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership, compensation practices, board structure, and employee base, including key directors, executive compensation, share incentive plans, and employee headcount by function - As of April 2, 2021, the board of directors consists of nine members, including Tong Tao Sang as Chairman and Cussion Kar Shun Pang as CEO[643](index=643&type=chunk) - In 2020, the aggregate cash compensation paid to directors and executive officers was approximately **RMB 62.1 million (US$9.5 million)**[659](index=659&type=chunk) - The company has three main share incentive plans: the 2014 Share Incentive Plan, the 2017 Option Plan, and the 2017 Restricted Share Scheme, to attract and retain talent[663](index=663&type=chunk)[670](index=670&type=chunk)[677](index=677&type=chunk) Employee Headcount by Function (as of Dec 31, 2020) | Function | Number of employees | | :--- | :--- | | Research and development | 2,821 | | Content management and operation | 879 | | Sales and marketing | 440 | | Management and administration | 629 | | **Total** | **4,769** | [MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=138&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's major shareholders and significant transactions with related parties, highlighting Tencent as the controlling shareholder with **90.6% of voting power** and Spotify as another major shareholder, alongside various business cooperation and co-investment activities with Tencent and its affiliates Major Shareholders (as of April 2, 2021) | Shareholder | Class A Shares (%) | Class B Shares (%) | Total Ordinary Shares (%) | Aggregate Voting Power (%) | | :--- | :--- | :--- | :--- | :--- | | Tencent | 13.5% | 95.6% | 55.1% | 90.6% | | Spotify | 16.9% | — | 8.4% | — | - The company has a master business cooperation agreement with Tencent, covering various operational aspects[712](index=712&type=chunk) - TME and Tencent have co-invested in Spotify and Universal Music Group (UMG), highlighting a strategic alignment in the global music industry[713](index=713&type=chunk)[715](index=715&type=chunk) Significant Related Party Transactions with Tencent Group (2020) | Transaction Type | Amount (RMB million) | | :--- | :--- | | **Revenues from Tencent Group** | | | Online music services | 277 | | Social entertainment & others | 213 | | **Expenses to Tencent Group** | | | Operation expenses recharged | 1,082 | | Advertising agency cost | 440 | | Content royalties | 306 | [FINANCIAL INFORMATION](index=141&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section covers consolidated financial statements, legal proceedings, and dividend policy, noting the company's involvement in copyright infringement lawsuits with **RMB 46.9 million** in sought damages, shareholder class action lawsuits, and its current policy of retaining earnings for business expansion - As of December 31, 2020, the company was involved in **1,116 pending lawsuits** related to alleged copyright infringement, with total damages sought of approximately **RMB 46.9 million (US$7.2 million)**[730](index=730&type=chunk) - The company and certain directors/officers were named as defendants in two putative securities class action lawsuits filed in 2019, alleging material misstatements in its IPO Registration Statement and 2018 annual report; the company intends to defend these actions vigorously[732](index=732&type=chunk) - The company has no current plans to declare or pay dividends, intending to retain earnings to fund business growth and expansion[733](index=733&type=chunk) [ADDITIONAL INFORMATION](index=143&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides details on the company's corporate governance, material contracts, exchange controls, and taxation, including its dual-class share structure, Cayman Islands tax exemption, PRC EIT rates, and the risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. investors - The company has a dual-class share structure, where each Class A ordinary share has one vote, while each Class B ordinary share has **15 votes** and is convertible into one Class A share[745](index=745&type=chunk)[749](index=749&type=chunk) - The company is an exempted company in the Cayman Islands and is not subject to income or capital gains tax there[768](index=768&type=chunk) - In the PRC, the company is subject to a **25% Enterprise Income Tax (EIT)**, but certain subsidiaries qualify for preferential rates (e.g., **15% for HNTEs**) or tax holidays[770](index=770&type=chunk)[1055](index=1055&type=chunk) - For U.S. investors, there is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC) for a given taxable year, which could result in adverse U.S. federal income tax consequences[785](index=785&type=chunk)[1468](index=1468&type=chunk) [QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=153&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risks are foreign exchange risk, as revenues are almost entirely in RMB, and to a lesser extent, interest rate and inflation risk, with no current hedging instruments in use and minimal impact from inflation to date - The company's main market risk is foreign exchange risk, as revenues are almost entirely in RMB while it may have US dollar-denominated needs; the company does not currently engage in hedging[799](index=799&type=chunk) - Interest rate risk is not significant as the company's notes payable carry fixed rates[797](index=797&type=chunk)[798](index=798&type=chunk) - Inflation in China has not materially impacted the company's results of operations[801](index=801&type=chunk) [PART II](index=157&type=section&id=PART%20II) [MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS](index=157&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS) This section confirms no material modifications to security holder rights and details the use of proceeds from the company's December 2018 IPO, with all **US$509 million** net proceeds used as intended for content acquisition, strategic investments, and other operating purposes - The company received net proceeds of approximately **US$509 million** from its December 2018 IPO[810](index=810&type=chunk) - As of the date of this report, all net proceeds from the IPO have been used for their intended purposes, including content acquisition and strategic investments[812](index=812&type=chunk) [CONTROLS AND PROCEDURES](index=157&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section addresses the company's internal controls, with management concluding that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion also attested to by the independent registered public accounting firm - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[814](index=814&type=chunk) - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[816](index=816&type=chunk) - The independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP, has audited and confirmed the effectiveness of the company's internal control over financial reporting as of December 31, 2020[818](index=818&type=chunk) [PART III](index=161&type=section&id=PART%20III) [FINANCIAL STATEMENTS](index=161&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the audited consolidated financial statements for Tencent Music Entertainment Group for fiscal years 2018, 2019, and 2020, prepared in accordance with IFRS, including the independent auditor's unqualified opinion on both the financial statements and internal control over financial reporting Consolidated Income Statement Highlights (RMB million) | Item | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Total Revenues** | **18,985** | **25,434** | **29,153** | | Gross Profit | 7,277 | 8,673 | 9,302 | | Operating Profit | 2,039 | 4,622 | 4,710 | | **Profit for the year** | **1,832** | **3,977** | **4,176** | | Basic EPS (RMB) | 0.60 | 1.22 | 1.25 | | Diluted EPS (RMB) | 0.58 | 1.19 | 1.24 | Consolidated Balance Sheet Highlights (RMB million) | Item | Dec 31, 2019 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **52,678** | **68,273** | | Cash and cash equivalents | 15,426 | 11,128 | | Goodwill | 17,140 | 17,492 | | **Total Liabilities** | **9,000** | **15,542** | | Notes payable | — | 5,175 | | **Total Equity** | **43,678** | **52,731** | Consolidated Cash Flow Highlights (RMB million) | Item | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Net cash inflow from operating activities | 5,632 | 6,200 | 4,885 | | Net cash outflow from investing activities | (1,190) | (8,102) | (14,206) | | Net cash inflow/(outflow) from financing activities | 7,741 | (31) | 5,292 |

Part I [Key Information](index=6&type=section&id=Item%203.%20Key%20Information) This section provides selected consolidated financial data and an extensive list of risk factors for Tencent Music Entertainment Group from 2016 to 2019 [Selected Financial Data](index=6&type=section&id=3.A.%20Selected%20Financial%20Data) Total revenues grew from RMB 10,981 million in 2017 to RMB 25,434 million in 2019, with profit for the year reaching RMB 3,977 million Selected Consolidated Statement of Operations Data (RMB millions) | Indicator | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | **Total revenues** | 10,981 | 18,985 | 25,434 | | Online music services | 3,149 | 5,536 | 7,152 | | Social entertainment services and others | 7,832 | 13,449 | 18,282 | | **Gross profit** | 3,810 | 7,277 | 8,673 | | **Operating profit** | 1,593 | 2,039 | 4,622 | | **Profit for the year** | 1,319 | 1,832 | 3,977 | | **Adjusted profit for the year** | 1,904 | 4,174 | 4,903 | | **Basic Earnings per Share (RMB)** | 0.51 | 0.60 | 1.22 | | **Diluted Earnings per Share (RMB)** | 0.50 | 0.58 | 1.19 | Selected Consolidated Balance Sheet Data (RMB millions) | Indicator | As of Dec 31, 2018 | As of Dec 31, 2019 | | :--- | :--- | :--- | | **Total assets** | 44,605 | 52,678 | | Total current assets | 20,778 | 26,914 | | Non-current assets | 23,827 | 25,764 | | **Total liabilities** | 6,833 | 9,000 | | Total current liabilities | 6,238 | 8,490 | | Non-current liabilities | 595 | 510 | | **Total equity** | 37,772 | 43,678 | Selected Consolidated Cash Flow Data (RMB millions) | Indicator | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Net cash generated from operating activities | 2,500 | 5,632 | 6,200 | | Net cash used in investing activities | (483) | (1,190) | (8,102) | | Net cash generated from/(used in) financing activities | 99 | 7,741 | (31) | | Net increase/(decrease) in cash and cash equivalents | 2,116 | 12,183 | (1,933) | | Cash and cash equivalents at end of the year | 5,174 | 17,356 | 15,426 | [Risk Factors](index=9&type=section&id=3.D.%20Risk%20Factors) This section details risks related to business operations, content licensing, the VIE structure, Tencent's control, PRC regulations, and ADS price volatility - The company's ability to attract and retain users is **highly dependent on offering attractive content** that caters to evolving user preferences, with failure potentially **adversely affecting user traffic and engagement**[31](index=31&type=chunk)[32](index=32&type=chunk) - A significant portion of the music library is licensed from third parties, and the loss of these licenses or renewal on unfavorable terms could **materially harm the business**[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company faces risks from its VIE structure, used to comply with PRC foreign investment restrictions, and could face **severe penalties** if these arrangements are found non-compliant by the PRC government[188](index=188&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk) - As a controlling shareholder, Tencent has **effective control** over shareholder actions, and its interests may not always align with other shareholders, leading to **potential conflicts of interest**[177](index=177&type=chunk)[178](index=178&type=chunk)[180](index=180&type=chunk) - The company faces risks from potential PRC government censorship of content, which could lead to **penalties, loss of licenses, and reputational harm**[109](index=109&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [Information on the Company](index=41&type=section&id=Item%204.%20Information%20on%20the%20Company) This section outlines the company's history, business operations, organizational structure, and property, including its platform ecosystem and VIE structure [History and Development of the Company](index=46&type=section&id=4.A.%20History%20and%20Development%20of%20the%20Company) This section traces the company's evolution from individual music platforms to Tencent Music Entertainment Group, including its IPO and proposed UMG investment - In July 2016, **Tencent acquired control** of China Music Corporation (CMC) and injected its online music businesses, with CMC later **renamed Tencent Music Entertainment Group**[329](index=329&type=chunk) - The company completed its **initial public offering in December 2018**, with its ADSs trading on the New York Stock Exchange[331](index=331&type=chunk) - In December 2019, TME **proposed to acquire a 10% equity stake in Universal Music Group (UMG) at an enterprise value of EUR30 billion**, with an option for an additional 10%[331](index=331&type=chunk) [Business Overview](index=47&type=section&id=4.B.%20Business%20Overview) The company operates China's largest online music entertainment platform, with 653 million online music mobile MAUs and a vast content library, generating revenue from music and social entertainment services - The company operates the top four music mobile apps in China, with **653 million online music mobile MAUs** and **232 million social entertainment mobile MAUs** in 2019[337](index=337&type=chunk)[342](index=342&type=chunk) - The platform has China's **largest music content library with over 40 million tracks** as of December 31, 2019, sourced from domestic and international music labels[344](index=344&type=chunk) Key User Metrics (2018-2019) | Metric | 2018 | 2019 | | :--- | :--- | :--- | | Online Music Paying Users (millions) | 24.4 | 33.7 | | Online Music Paying Ratio (%) | 3.8% | 5.2% | | Social Entertainment Paying Users (millions) | 9.8 | 11.6 | | Social Entertainment Paying Ratio (%) | 4.3% | 5.0% | | Online Music Monthly ARPPU (RMB) | 8.5 | 8.8 | | Social Entertainment Monthly ARPPU (RMB) | 114.4 | 131.3 | - Revenue is generated through two primary segments: **Online Music Services (28.1% of 2019 revenue)** and **Social Entertainment Services and Others (71.9% of 2019 revenue)**[420](index=420&type=chunk)[424](index=424&type=chunk) [Organizational Structure](index=77&type=section&id=4.C.%20Organizational%20Structure) The company operates through a Variable Interest Entity (VIE) structure in the PRC due to foreign ownership restrictions, maintaining control via contractual arrangements and consolidating VIE financial results - Due to PRC laws restricting foreign ownership in value-added telecommunication services, the company operates its core business through a **VIE structure**[568](index=568&type=chunk) - Control over the VIEs is maintained through a series of **contractual arrangements**, including Equity Interests Pledge Agreements, Exclusive Option Agreements, and Voting Trust Agreements[572](index=572&type=chunk)[573](index=573&type=chunk)[580](index=580&type=chunk) Revenue and Asset Contribution by Entity Type (2019) | Entity Type | % of Total Revenues | % of Total Assets | | :--- | :--- | :--- | | Consolidated VIEs | 99.8% | 28.7% | | Wholly-owned PRC subsidiaries | 0.2% | 12.3% | | TME Group & offshore subsidiaries | 0.0% | 59.0% | [Operating and Financial Review and Prospects](index=80&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) This section analyzes the company's financial performance, liquidity, capital resources, and critical accounting policies, detailing revenue, cost, and profit trends [Operating Results](index=81&type=section&id=5.A.%20Operating%20Results) Revenues grew 34.0% to RMB 25,434 million in 2019, driven by online music and social entertainment services, despite a gross margin decrease due to higher content costs Revenue Breakdown (2017-2019, RMB millions) | Revenue Source | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Online music services | 3,149 | 5,536 | 7,152 | | Social entertainment services and others | 7,832 | 13,449 | 18,282 | | **Total revenues** | **10,981** | **18,985** | **25,434** | - In 2019, revenues increased by **34.0% year-over-year**, with online music services growing **29.2%** and social entertainment services growing **35.9%**[676](index=676&type=chunk)[678](index=678&type=chunk)[680](index=680&type=chunk) - Gross margin **decreased to 34.1% in 2019 from 38.3% in 2018**, primarily due to increased content costs and revenue sharing fees[683](index=683&type=chunk)[685](index=685&type=chunk) Key Operating Metrics (2017-2019) | Metric | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Online music mobile MAUs (millions) | 606 | 642 | 653 | | Social entertainment mobile MAUs (millions) | 201 | 226 | 232 | | Online music paying users (millions) | 17.4 | 24.4 | 33.7 | | Social entertainment paying users (millions) | 7.4 | 9.8 | 11.6 | | Online music monthly ARPPU (RMB) | 8.8 | 8.5 | 8.8 | | Social entertainment monthly ARPPU (RMB) | 88.2 | 114.4 | 131.3 | [Liquidity and Capital Resources](index=98&type=section&id=5.B.%20Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily driven by RMB 6,200 million in operating cash flow, with RMB 15,426 million in cash and cash equivalents as of December 31, 2019 - As of December 31, 2019, the company had **RMB 15,426 million (US$2,216 million)** in cash and cash equivalents[715](index=715&type=chunk) - Net cash generated from operating activities was **RMB 6,200 million (US$891 million) in 2019**, an **increase from RMB 5,632 million in 2018**[721](index=721&type=chunk)[722](index=722&type=chunk) - A **share repurchase program** was announced in December 2019, authorizing the repurchase of **up to $400 million** of Class A ordinary shares in the form of ADSs[716](index=716&type=chunk) - Capital expenditures totaled **RMB 286 million (US$41 million) in 2019**, **up from RMB 144 million in 2018**[731](index=731&type=chunk) [Directors, Senior Management and Employees](index=103&type=section&id=Item%206.%20Directors%2C%20Senior%20Management%20and%20Employees) This section details the company's leadership, compensation, board structure, and employee base, highlighting Tencent's controlling share ownership - The board of directors consists of **nine members**, including key executives like Chairman Tong Tao Sang and CEO Cussion Kar Shun Pang[748](index=748&type=chunk)[801](index=801&type=chunk) - In 2019, the aggregate cash compensation paid to directors and executive officers was approximately **RMB 65.0 million (US$9.0 million)**[765](index=765&type=chunk) Employee Headcount by Function (as of December 31, 2019) | Function | Number of Employees | | :--- | :--- | | Research and development | 2,021 | | Content management | 641 | | Sales and marketing | 361 | | Management and administration | 587 | | **Total** | **3,610** | - As of March 25, 2020, Tencent is the principal shareholder, beneficially owning **55.6% of total ordinary shares** and controlling **78.7% of the aggregate voting power**[818](index=818&type=chunk) [Major Shareholders and Related Party Transactions](index=114&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) This section details major shareholders and significant related party transactions with Tencent Group, including revenues, expenses, and balances - Tencent Group is the company's **principal owner** and a major related party with which the company conducts **significant business transactions**[821](index=821&type=chunk)[828](index=828&type=chunk) Significant Related Party Transactions with Tencent Group (2019, RMB millions) | Transaction Type | Amount | | :--- | :--- | | Online music services revenue from Tencent | 355 | | Operation expenses recharged by Tencent | 752 | | Advertising agency cost to Tencent | 231 | Balances with Tencent Group (as of December 31, 2019, RMB millions) | Balance Type | Amount | | :--- | :--- | | Accounts receivable from Tencent Group | 1,653 | | Accounts payable to Tencent Group | 215 | | Other payables and accruals to Tencent Group | 382 | [Financial Information](index=116&type=section&id=Item%208.%20Financial%20Information) This section details legal proceedings, including copyright infringement and securities class action lawsuits, and the company's dividend policy - As of December 31, 2019, the company faced **132 pending lawsuits** related to alleged copyright infringement, with total damages sought of approximately **RMB 20.5 million (US$2.9 million)**[837](index=837&type=chunk) - In late 2019, the company, along with certain directors and officers, was named in **two putative securities class action lawsuits** alleging material misstatements and omissions in its public filings[839](index=839&type=chunk) - The company has **no current plans to pay dividends** and intends to retain future earnings to operate and expand its business[840](index=840&type=chunk) [Additional Information](index=118&type=section&id=Item%2010.%20Additional%20Information) This section covers corporate governance, including the dual-class share structure, and taxation in the Cayman Islands, PRC, and U.S. federal income tax implications for ADSs - The company has a **dual-class share structure**, where each **Class A ordinary share has one vote**, while each **Class B ordinary share has 15 votes** and is convertible into one Class A share[851](index=851&type=chunk)[854](index=854&type=chunk) - The company is an exempted company in the Cayman Islands and is **not subject to income, corporation, or capital gains tax** there[882](index=882&type=chunk) - In the PRC, the company is subject to a **standard 25% Enterprise Income Tax (EIT)**, but certain subsidiaries qualify for **preferential rates of 15% or lower** as High and New Technology Enterprises (HNTE) or Software Enterprises (SE)[1192](index=1192&type=chunk)[1193](index=1193&type=chunk) - There is a risk that the company could be classified as a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes, which could result in **adverse tax consequences** for U.S. investors[322](index=322&type=chunk)[901](index=901&type=chunk)[902](index=902&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=127&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section identifies the company's primary market risks as interest rate, foreign exchange (RMB-USD), and inflation, noting no hedging instruments are used - The company's main market risks include **interest rate risk** on cash deposits, **foreign exchange risk** due to revenues being in RMB, and **inflation risk** in China[916](index=916&type=chunk)[917](index=917&type=chunk)[920](index=920&type=chunk) - **Substantially all revenues are denominated in Renminbi (RMB)**, exposing the company to fluctuations in the RMB-USD exchange rate, and it has **not entered into any hedging transactions** to mitigate this risk[917](index=917&type=chunk)[918](index=918&type=chunk) Part II [Material Modifications to the Rights of Security Holders and Use of Proceeds](index=129&type=section&id=Item%2014.%20Material%20Modifications%20to%20the%20Rights%20of%20Security%20Holders%20and%20Use%20of%20Proceeds) This section details the net proceeds of approximately US$509 million from the December 2018 IPO, which remained unused as of December 31, 2019 - The company received net proceeds of approximately **US$509 million** from its December 2018 IPO[926](index=926&type=chunk) - As of December 31, 2019, the net proceeds from the IPO had **not yet been used**, but the company still intends to use them as previously disclosed[928](index=928&type=chunk) [Controls and Procedures](index=129&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that as of December 31, 2019, the company's disclosure controls and procedures were **effective**[929](index=929&type=chunk)[930](index=930&type=chunk) - Based on the COSO framework, management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2019[931](index=931&type=chunk) - The independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP, issued an **unqualified opinion on the effectiveness** of the company's internal control over financial reporting as of December 31, 2019[933](index=933&type=chunk) [Item 16.A-H](index=130&type=section&id=Item%2016.A-H) This section addresses corporate governance, including the audit committee financial expert, code of conduct, principal accountant fees, and use of home country governance exemptions - The Board of Directors has determined that Ms. Edith Manling Ngan qualifies as an "**audit committee financial expert**"[935](index=935&type=chunk) Principal Accountant Fees (RMB thousands) | Service Type | 2018 | 2019 | | :--- | :--- | :--- | | Audit Fees | 6,000 | 15,000 | | Audit-Related Fees | 13,800 | — | | Tax Fees | 400 | — | | Other Fees | 2,000 | 2,690 | | **Total** | **22,200** | **17,690** | - As a foreign private issuer, the company **follows certain Cayman Islands corporate governance practices in lieu of NYSE standards**, such as not having a majority of independent directors on the board[942](index=942&type=chunk) Part III [Financial Statements](index=132&type=section&id=Item%2018.%20Financial%20Statements) This section presents the audited consolidated financial statements for 2017-2019, prepared under IFRS, with an unqualified opinion from PricewaterhouseCoopers Zhong Tian LLP - The independent auditor, PricewaterhouseCoopers Zhong Tian LLP, issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[956](index=956&type=chunk)[957](index=957&type=chunk) - Critical Audit Matters identified by the auditor include **revenue recognition from the sale of durable virtual gifts** in social entertainment services and the **impairment assessment of goodwill**[964](index=964&type=chunk)[965](index=965&type=chunk)[969](index=969&type=chunk) Consolidated Income Statement Highlights (RMB millions) | Line Item | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues | 10,981 | 18,985 | 25,434 | | Gross profit | 3,810 | 7,277 | 8,673 | | Operating profit | 1,593 | 2,039 | 4,622 | | Profit for the year | 1,319 | 1,832 | 3,977 | Consolidated Balance Sheet Highlights (RMB millions) | Line Item | As of Dec 31, 2018 | As of Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | 44,605 | 52,678 | | Goodwill | 17,088 | 17,140 | | Cash and cash equivalents | 17,356 | 15,426 | | Total Liabilities | 6,833 | 9,000 | | Total Equity | 37,772 | 43,678 |

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018. OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF ...