商汤(00020) - 2023 - 中期业绩

Executive Summary Financial Highlights 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 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 Overall Performance 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] - 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] - 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] | 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] - 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][11] - A generative AI product family was released, including six categories: SenseChat conversational assistant, SenseMirage, SenseAvatar, SenseSpace, SenseThings, and SenseAnnotation[11][12] Performance by Business Segment 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 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] Smart Life 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 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] - 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] Smart Healthcare Enters the 'Large Model' Era 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] AI Robot Products Fully Upgraded 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] Smart Auto 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 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] - 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] High-Speed Growth in Mass Production and Delivery of Smart Cabin 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] - Ranked first in the Chinese market for passenger vehicle smart cabin software suppliers in the front-loaded market share in Q1 2023[23] Smart City 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] International Business 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] Environmental, Social, and Governance Trusted AI Development 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] - Introduced an anti-counterfeiting detection large model, with detection capabilities over 20% higher than similar industry products, already serving numerous financial industry customers[26] - Implemented digital watermarking technology for generative AI applications, used for copyright protection and anti-counterfeiting traceability[26] Carbon Neutrality Goals 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] - The Lingang AIDC achieved an actual average annual PUE of 1.28, lower than its design value[27] Management Discussion and Analysis Financial Performance Comparison 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 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] - Smart City revenue decline was mainly due to a strategic shift towards leading customers with sound credit profiles[32] Cost of Sales 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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] Liquidity and Financial Resources 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 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 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] Net Cash From Financing Activities 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 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 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] - Currently, no hedging activities are undertaken, but the company will continue to monitor and take necessary measures to mitigate exchange rate impacts[59] Employees, Training and Remuneration Policies 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] Use of Proceeds 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] Capital Gearing Ratio 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 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] Material Investments Held 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] Material Acquisitions and Disposals of Subsidiaries, Associates and Joint Ventures 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] Pledge of Assets 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] Future Plans for Material Investments and Capital Assets 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] - The company will continue to identify new investment opportunities, investing in companies related to its core business to create synergies[67] Financial Information Interim Condensed Consolidated Statement of Profit or Loss 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 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 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 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 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 General Information 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] - The company was listed on the Main Board of the Hong Kong Stock Exchange on December 30, 2021[77] Basis of Preparation 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] New Standards and Interpretations 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 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] - 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][83] New Standards, Amendments and Interpretations Not Yet Adopted 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] Segment Information 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 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 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 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 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 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 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 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] Loss Per Share 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 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 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] 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] Property, Plant and Equipment 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 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 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 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 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 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 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 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 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 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 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] Guaranteed Bank Borrowings 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] | 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 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] Other Information Purchase, Sale or Redemption of the Company's Listed Securities 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] Events After 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 - 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] Compliance with Corporate Governance Code 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] - Dr. Xu Li, the Chairman of the Board, was unable to attend the company's Annual General Meeting held on June 23, 2023[130] Interim Dividend 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] Directors' Securities Transactions 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] Audit Committee 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] Publication of Interim Results and Interim Report This interim results announcement has been published on the Stock Exchange websit