Tencent Music Entertainment Group (Form: 6-K, Received: 08/24/2020 06:17:24)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2020

Commission file number: 001-38751

Tencent Music Entertainment Group

(Exact Name of Registrant as Specified in Its Charter)

17/F, Matsunichi Building, Kejizhongyi Road

Midwest District of Hi-tech Park, Nanshan District

Shenzhen, 518057, the People’s Republic of China

Tel: +86-755-8601 3388

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		Tencent Music Entertainment Group

Date:	August 24, 2020	By:	/s/ Min Hu
			Name: Min Hu
			Title: Chief Financial Officer

EXHIBIT INDEX


Exhibit No.		Description

99.1		Unaudited Condensed Consolidated Interim Financial Statement

99.2		Discussion of Unaudited Financial Statements

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 99.1

Tencent Music Entertainment Group

Unaudited Condensed Consolidated Interim Financial Information for the Six Months Ended June 30, 2019 and 2020


	Pages
Condensed Consolidated Income Statements for the six months ended June 30, 2019 and 2020		F-2

Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2019 and 2020		F-3

Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2020		F-4

Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2019 and 2020		F-5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2020		F-7

Notes to the Condensed Consolidated Interim Financial Information		F-8

TENCENT MUSIC ENTERTAINMENT GROUP

CONDENSED CONSOLIDATED INCOME STATEMENTS


			Six months ended June 30,
	Note		2019			2020
			(Unaudited) RMB’million			(Unaudited) RMB’million
Revenue from online music services				3,167			4,265
Revenue from social entertainment services and others				8,467			8,978

Total revenues		7		11,634			13,243

Cost of revenues				(7,660	)		(9,096	)

Gross profit				3,974			4,147

Selling and marketing expenses				(853	)		(1,060	)
General and administrative expenses				(1,236	)		(1,405	)

Total operating expenses				(2,089	)		(2,465	)

Interest income				288			327
Other gains, net		8		59			145

Operating profit				2,232			2,154

Share of net losses of investments accounted for using equity method		13		(8	)		(19	)
Finance cost				(39	)		(37	)

Profit before income tax				2,185			2,098

Income tax expense		10		(271	)		(269	)


Profit for the period				1,914			1,829


Attributable to:
Equity holders of the Company				1,914			1,826
Non-controlling interests				0			3

				1,914			1,829


Earnings per share for Class A and Class B ordinary shares		11
— Basic				0.59			0.55
— Diluted				0.57			0.55

Earnings per ADS (2 Class A shares equal to 1 ADS)
— Basic				1.18			1.10
— Diluted				1.15			1.09

The accompanying notes are an integral part of this condensed consolidated interim financial information.

F-2

TENCENT MUSIC ENTERTAINMENT GROUP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Six months ended June 30
	2019			2020
	(Unaudited)			(Unaudited)
	RMB’million			RMB’million
Profit for the period		1,914			1,829

Other comprehensive income, net of tax:
Item that will not be reclassified subsequently to profit or loss
Fair value changes on financial assets at fair value through other comprehensive income		944			3,428

Items that may be subsequently reclassified to profit or loss
Currency translation differences		38			216
Share of other comprehensive loss of associates		(2	)		1

Total comprehensive income for the period		2,894			5,474

Attributable to:
Equity holders of the Company		2,894			5,471
Non-controlling interests		0			3

		2,894			5,474

The accompanying notes are an integral part of this condensed consolidated interim financial information.

F-3

TENCENT MUSIC ENTERTAINMENT GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS


			December 31, 2019			June 30, 2020
			(Audited)			(Unaudited)
	Note		RMB’million			RMB’million
ASSETS
Non-current assets
Property, plant and equipment		12		179			178
Right-of-use assets		12		148			131
Intangible assets		12		1,622			1,953
Goodwill		12		17,140			17,140
Investments accounted for using equity method		13		489			2,255
Financial assets at fair value through other comprehensive income		14		4,461			8,652
Other investments		14		217			217
Prepayments, deposits and other assets		15		816			998
Deferred tax assets				192			214
Term deposits				500			1,010

				25,764			32,748

Current assets
Inventories				26			30
Accounts receivable				2,198			1,989
Prepayments, deposits and other assets		15		2,220			2,235
Other investments		14		38			37
Short-term investments				6			12
Term deposits				7,000			9,532
Cash and cash equivalents		16		15,426			11,776

				26,914			25,611

Total assets				52,678			58,359

EQUITY
Equity attributable to equity holders of the Company
Share capital		17		2			2
Additional paid-in capital		17		34,425			34,745
Shares held for share award schemes		17		(31	)		(62	)
Treasury Shares		17		—			(134	)
Other reserves		18		2,187			5,831
Retained earnings				7,007			8,833

				43,590			49,215
Non-controlling interests				88			101

Total equity				43,678			49,316

LIABILITIES
Non-current liabilities
Accounts payable				—			136
Other payables and other liabilities		20		68			102
Deferred tax liabilities				297			236
Lease liabilities				78			62
Deferred revenue		21		67			78

				510			614

Current liabilities
Accounts payable				2,559			3,063
Other payables and other liabilities		20		3,782			3,310
Current tax liabilities				386			399
Lease liabilities				69			74
Deferred revenue		21		1,694			1,583

				8,490			8,429

Total liabilities				9,000			9,043

Total equity and liabilities				52,678			58,359

The accompanying notes are an integral part of this condensed consolidated interim financial information.

F-4

TENCENT MUSIC ENTERTAINMENT GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


			Attributable to equity holders of the Company
	Note		Share capital		Additional paid-in capital		Shares held for share award schemes			Other reserves			Retained earnings		Total			Non- controlling interests			Total equity
			RMB’million		RMB’million		RMB’million			RMB’million			RMB’million		RMB’million			RMB’million			RMB’million
(Unaudited)
Balance at January 1, 2019				2		33,776		—			903			3,040		37,721			51			37,772

Profit for the period				—		—		—			—			1,914		1,914			—			1,914
Fair value changes on financial assets at fair value through other comprehensive income				—		—		—			944			—		944			—			944
Share of comprehensive losses of an associate				—		—					(2	)		—		(2	)		—			(2	)
Currency translation differences				—		—		—			38			—		38			—			38

Total comprehensive income for the period				—		—		—			980			1,914		2,894			—			2,894

Transactions with equity holders:
Issuance of ordinary shares		17		—		12		—			—			—		12			—			12
Exercise of share options/ Restricted share units (“RSUs”)		17,18		—		378		—			(281	)		—		97			—			97
Non-controlling interests arising from business combination				—		—		—			—			—		—			48			48
Share-based compensation - value of employee services		18,19		—		—		—			253			—		253			—			253
Shares held for share award schemes		17		—		—		(19	)		—			—		(19	)		—			(19	)
Capital contribution from non-controlling interests				—		—		—			—			—		—			2			2
Additional equity interests in non-wholly owned subsidiaries				—		—		—			(33	)		—		(33	)		(2	)		(35	)

Total transactions with equity holders at their capacity as equity holders for the period				—		390		(19	)		(61	)		—		310			48			358

Balance at June 30, 2019				2		34,166		(19	)		1,822			4,954		40,925			99			41,024

F-5

TENCENT MUSIC ENTERTAINMENT GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


			Attributable to equity holders of the Company
	Note		Share capital		Additional paid-in capital		Shares held for share award schemes			Treasury shares			Other reserves			Retained earnings		Total			Non- controlling interests		Total equity
			RMB’million		RMB’million		RMB’million			RMB’million			RMB’million			RMB’million		RMB’million			RMB’million		RMB’million
(Unaudited)
Balance at January 1, 2020				2		34,425		(31	)		—			2,187			7,007		43,590			88		43,678

Profit for the period				—		—		—			—			—			1,826		1,826			3		1,829
Fair value changes on financial assets at fair value through other comprehensive income				—		—		—			—			3,428			—		3,428			—		3,428
Share of comprehensive losses of an associate				—		—		—			—			1			—		1			—		1
Currency translation differences				—		—		—			—			216			—		216			—		216

Total comprehensive income for the period				—		—		—			—			3,645			1,826		5,471			3		5,474

Transactions with equity holders:
Exercise of share options/ Restricted share units(“RSUs”)		17,18		—		320		—			—			(275	)		—		45			—		45
Share-based compensation - value of employee services		18,19		—		—		—			—			276			—		276			—		276
Shares held for share award schemes		17		—		—		(31	)		—			—			—		(31	)		—		(31	)
Repurchase of shares		17		—		—		—			(134	)		—			—		(134	)		—		(134	)
Disposal of a subsidiary				—		—		—			—			—			—		—			10		10
Additional equity interests in a non-wholly owned subsidiary				—		—		—			—			(2	)		—		(2	)		—		(2	)

Total transactions with equity holders at their capacity as equity holders for the period				—		320		(31	)		(134	)		(1	)		—		154			10		164

Balance at June 30, 2020				2		34,745		(62	)		(134	)		5,831			8,833		49,215			101		49,316

The accompanying notes are an integral part of these condensed consolidated interim financial information.

F-6

TENCENT MUSIC ENTERTAINMENT GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


			Six months ended June 30
	Note		2019			2020
			(Unaudited)			(Unaudited)
			RMB’million			RMB’million
Cash flows from operating activities
Cash generated from operations				2,836			2,544
Interest received				271			331
Income taxes paid				(292	)		(370	)

Net cash inflow from operating activities				2,815			2,505

Cash flows from investing activities
Payments for business combinations, net of cash acquired				(45	)		(240	)
Purchase of property, plant and equipment				(25	)		(65	)
Purchase of intangible assets				(51	)		(235	)
Net proceeds from/(purchase of) short term investments				42			(6	)
Placement of term deposits with initial terms of over three months				(3,950	)		(15,044	)
Receipt from maturity of term deposits with initial terms of over three months				3,400			12,002
Payments for acquisition investments accounted for using equity method				(248	)		(1,785	)
Payments for acquisition of financial assets at fair value through other comprehensive income				—			(708	)
Payments for acquisition of financial assets at fair value through profit or loss				—			(77	)
Payments for loans to third parties				(5	)		(15	)
Repayments of loans by third parties				—			5
Dividend received				32			—

Net cash outflow from investing activities				(850	)		(6,168	)

Cash flows from financing activities
Loans from third parties				—			10
Proceeds from issues of ordinary shares		17		12			—
Proceeds from exercise of share options		17		27			42
Payments for acquisition of non-controlling interests in non-wholly owned subsidiaries				(19	)		(6	)
Shares withheld for share award schemes				—			(18	)
Payments for repurchase of ordinary shares				—			(134	)
Proceeds from issuance of additional equity of non-wholly owned subsidiaries				3			—
Payment for interest in relation to non-current liabilities				—			(9	)
Payments of principal elements and related interest of lease				(18	)		(41	)

Net cash inflow/(outflow) from financing activities				5			(156	)

Net increase/(decrease) in cash and cash equivalents				1,970			(3,819	)
Cash and cash equivalents at beginning of the period				17,356			15,426
Exchange differences on cash and cash equivalents				24			169

Cash and cash equivalents at end of the period				19,350			11,776

The accompanying notes are an integral part of this condensed consolidated interim financial information.

F-7

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

1	General information

1.1

General information

Tencent Music Entertainment Group (the “Company” or “TME”), formerly known as China Music Corporation (“CMC”), was incorporated under the laws of the Cayman Islands on June 6, 2012 as an exempted company with limited liability under the Companies Law (2010 Revision) of the Cayman Islands. The address of its registered office is Cricket Square, P.O. Box 2582, Grand Cayman KY1-1112, Cayman Islands. The Company is controlled by Tencent Holdings Limited (“Tencent”), a company incorporated in the Cayman Islands with limited liability and the shares of Tencent are listed on the Main Board of The Stock Exchange of Hong Kong Limited. The Company’s American Depositary Shares (“ADSs”) have been listed on the New York Stock Exchange since December 12, 2018. Each ADS of the Company represents two ordinary shares.

The Company, its subsidiaries, its controlled structured entities (“Structured Entities”, “Variable Interest Entities” or “VIEs”) and their subsidiaries (“Subsidiaries of VIEs”) are collectively referred to as the “Group”. The Group is principally engaged in operating online music entertainment platforms to provide music streaming, online karaoke and live streaming services in the People’s Republic of China (“PRC”). The Company does not conduct any substantive operations of its own but conducts its primary business operations through its wholly-owned subsidiaries, VIEs and subsidiaries of VIEs in the PRC.

The condensed consolidated interim financial information comprises the consolidated balance sheet as of June 30, 2020, the related condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows for the six months then ended, and a summary of significant accounting policies and other explanatory notes (the “Interim Financial Information”). The Interim Financial Information is presented in Renminbi (“RMB”), unless otherwise stated. The Interim Financial Information has not been audited.

1.2

Significant events and transactions

(a)

Coronavirus pandemic (“Pandemic”)

The outbreak of the Pandemic during the six months ended June 30, 2020 has caused temporary decrease in the levels of activities of the users and performers of the Group’s online platforms and negatively affected the operation of the Group to certain extent.

In preparing this Interim Financial Information, the Group has taken into the account the increased risks caused by the Pandemic and considered that there was no significant adverse impact on the Group’s results and financial position. The Group will keep continuous attention to the situation of the Pandemic and react proactively to its impacts on the operation and financial position of the Group.

(b)

Investment in Universal Music Group (“UMG”)

In March 2020, the Group completed the investment of 9.94% equity interest in a consortium, Concerto Partners LLC (”Concerto”), which was led by Tencent to acquire a 10% equity stake in Universal Music Group (“UMG”), for an investment consideration of EUR200 million (equivalent to approximately RMB1,531 million). This investment is accounted for as an investment in an associate (Note 13).

Pursuant to the terms of the transaction documents, the Group was also granted with an option to acquire a minority equity stake in UMG’s Greater China business at terms and conditions subject to separate negotiation.

F-8

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

2	Basis of preparation and presentation

The Interim Financial Information has been prepared in accordance with International Accounting Standard (“IAS”) 34 ‘Interim Financial Reporting’ issued by the International Accounting Standards Board and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2019 (“2019 Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards as issued by International Accounting Standards Board (“IFRS as issued by IASB”).

3	Significant accounting policies

Except as described below, the accounting policies and method of computation used in the preparation of the Interim Financial Information are consistent with those used in the 2019 Financial Statements, which have been prepared in accordance with IFRS as issued by IASB under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income, which are carried at fair values.

Taxes on income for the interim period are accrued using the tax rates that would be applicable to expected total annual assessable profit.

(a)

New and amendments to standards adopted by the Group

The following standards and amendments have been adopted by the Group for the first time for the financial year beginning on January 1, 2020:


Amendments to IAS 1 and IAS 8		Definition of material
Amendments to IFRS 3		Definition of a business
Conceptual Framework		Revised Conceptual Framework for Financial Reporting

The adoption of these new and amended standards does not have material impact on the condensed consolidated interim financial information of the Group.

(b)

Recent accounting pronouncements

The following new standards and interpretations have not come into effect for the financial year beginning January 1, 2020 and have not been early adopted by the Group in preparing the condensed consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group.


		Effective for annual periods beginning on or after

Amendments to IAS 28 and IFRS 10	Sale or contribution of assets between an investor and its associate or joint venture	To be determined
IFRS 16 (amendments)	COVID-19 related rent concessions.	1 June 2020
IAS 16 (amendments)	Property, plant and equipment: Proceeds before intended use	1 January 2022
IAS 37 (amendments)	Onerous contract - cost of fulfilling a contract	1 January 2022
IAS 1 (amendments)	Classification of liabilities as current and non-current	1 January 2022
IFRS 17	Insurance contracts	1 January 2023

F-9

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

4	Consolidation of VIEs

PRC laws and regulations prohibit or restrict foreign ownership of companies that provide Internet-based business, which include activities and services provided by the Group. The Group operates its business operations in the PRC through a series of contractual arrangements (“Structure Contracts”) entered into among the Company, its wholly-owned subsidiaries of the Company (“WOFEs”), domestic entities (“Operating Entities”) that legally owned by individuals (“Nominee Shareholders”) authorized by the Group (collectively, “Contractual Arrangements”). Under the Contractual Arrangements, the Company has the power to control the management, and financial and operating policies of the Operating Entities, has exposure or rights to variable returns from its involvement with the Operating Entities, and has the ability to use its power over the Operating Entities to affect the amount of the returns. As a result, all these Operating Entities are regarded as VIEs that accounted for as consolidated structured entities of the Company and their financial statements have been consolidated by the Company. There were no material changes in any Contractual Arrangements during the six months ended June 30, 2020 from the preceding financial year.

5	Estimates

The preparation of the Interim Financial Information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the Interim Financial Information, the nature of significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were consistent with those described in the 2019 Financial Statements.

6	Financial risk management

(a)

Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and interest rate risk), credit risk and liquidity risk.

The Interim Financial Information does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the 2019 Financial Statements.

There were no changes in any material risk management policies during the six months ended June 30, 2020.

(b)

Capital risk management

The Group’s objectives on managing capital are to safeguard the Group’s ability to continue as a going concern and support the sustainable growth of the Group in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to enhance shareholders’ value in the long term.

Capital refers to equity and external debts (including borrowings and notes payable). In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

As of December 31, 2019 and June 30, 2020, the directors of the Company considers the risk of the Group’s capital structure is remote as the Group has a net cash position without any material external interest-bearing debts.

F-10

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

6	Financial risk management (Continued)

(c)

Fair value estimation

The table below analyses the Group’s financial instruments carried at fair value as of June 30, 2020 by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorized into three levels within a fair value hierarchy as follows:

•

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

•

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and

•

Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

As of December 31, 2019 and June 30, 2020, the Group’s financial instruments carried at fair values comprised financial assets at fair value through other comprehensive income (Note 14(a)), short-term investments and other investments (Note 14(b)) stated in the consolidated balance sheets were measured at level 1, level 2 and level 3 fair value hierarchy. The Group’s contingent consideration of RMB112 million and RMB56 million included in other payables and other liabilities (Note 20) as of December 31, 2019 and June 30, 2020, respectively were measured at level 3 fair value hierarchy.

The fair value of financial instruments traded in active markets is determined with reference to quoted market prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in level 1.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required for evaluating the fair value of a financial instrument are observable, the instrument is included in level 2. If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. The Group has a team of personnel who performs valuation on these level 3 instruments for financial reporting purposes. The team adopts various valuation techniques to determine the fair value of the Group’s level 3 instruments. External valuation experts may also be involved and consulted when it is necessary.

The components of the level 3 instruments mainly include investments in non-public companies classified as other investment, short-term investments and contingent consideration payables. As these instruments are not traded in an active market, their fair values have been determined using various applicable valuation techniques, including discounted cash flows approach and comparable transactions approach, etc. Major assumptions used in the valuation include historical financial results, assumptions about future growth rates, estimates of weighted average cost of capital (WACC), recent market transactions, discount for lack of marketability and other exposure etc. The fair value of these instruments determined by the Group requires significant judgement, including: (i) investments in unlisted companies and projects and short-term investments: financial performance of the investee companies, market value of comparable companies, projected cash flows as well as discount rate, etc.; and (ii) contingent consideration payables: estimated performance matrix based on historical performance and discount rate.

During the six months ended June 30, 2019 and 2020, there was no transfer between level 1 and 2 for recurring fair value measurements. Movement of the financial assets at fair value that using level 3 measurements, solely represented other investments, have been presented in Note 14(b).

Movement of the financial liabilities at fair value using level 3 measurements, which solely represented contingent consideration resulted from business combination is analyzed as below:


	Six months ended June 30,
	2019		2020
	RMB’million		RMB’million
At beginning of the period		63		112
Fair value change		6		4
Paid		—		(60	)

At end of the period		69		56

7	Revenues

During the six months ended June 30, 2019 and 2020, subscription packages contributed RMB1,508 million and RMB 2,521 million to the revenues from online music services, respectively.

F-11

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

8	Other gains, net


	Six months ended June 30,
	2019		2020
	RMB’million		RMB’million
Government grants and tax rebates (note)		45		94
Impairment provision for investments in an associate (Note 13)		—		(4	)
Gain on disposal of a subsidiary		—		32
Others		14		23

		59		145

Note: There are no unfulfilled conditions or contingencies related to these subsidies.

9	Expense by nature


	Six months ended June 30,
	2019		2020
	RMB’million		RMB’million
Service costs (note i)		6,878		8,116
Advertising agency fees		91		162
Employee benefits expenses		1,212		1,366
Promotion and advertising expenses		753		948

Notes:

(i)

Service costs mainly comprised licensing costs, revenue sharing fees paid to content creators and content delivery costs relating primarily to servers, cloud services and bandwidth costs.

(ii)

During the six months ended June 30, 2019 and 2020, the Group incurred research and development expenses of approximately RMB486 million and RMB685 million, respectively, which comprised employee benefits expenses of RMB443 million and RMB611 million, respectively.

No significant development expenses had been capitalized for the six months ended June 30, 2019 and 2020.

10	Taxation

Income tax expense is recognized based on management’s best knowledge of the income tax rates expected for the financial year.

(i)

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. Additionally, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

(ii)

Hong Kong

Under the current tax laws of Hong Kong, Tencent Music Entertainment Hong Kong Limited (“TME HK”) is subject to Hong Kong profits tax at 16.5% on its taxable income generated from the operation in Hong Kong. Dividends from TME HK is exempted from withholding tax.

F-12

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

10	Taxation (Continued)

(iii)

PRC

Under the Corporate Income Tax (“CIT”) Law, foreign invested enterprises and domestic enterprises are subject to a unified CIT rate of 25%. except for available preferential tax treatment, including tax concession for enterprise approved as “High and New Technology Enterprise” (“HNTE”) and “Software Enterprise” (“SE”), and enterprise established in certain special economic development zones. In accordance with the implementation rules of the CIT Law, a qualified HNTE is eligible for a preferential tax rate of 15% and a SE is entitled to an exemption from income taxation for the first two years, commencing from the year the enterprise makes profit, and a reduction of half tax rate for the next three years.

Guangzhou Kugou Computer Technology Co., Ltd. (“Guangzhou Kugou”) and Beijing Kuwo Technology Co., Ltd. (“Beijing Kuwo”) have been recognized as HNTE by relevant government authorities and were entitled to preferential tax rate of 15% for the six months ended June 30 2019 and 2020. Yeelion Online Network Technology (Beijing) Co., Ltd. (‘‘Yeelion Online”) and Tencent Music Entertainment Technology (Shenzhen) Co., Ltd (‘‘TME Tech Shenzhen”) were qualified as SE and have entitled to tax holiday starting from the year ended December 31, 2017 (i.e. their first profitable year in 2017). Yeelion Online and TME Tech Shenzhen were entitled to a reduced tax rate of 12.5% for the six months ended June 30, 2019 and 2020.

Meanwhile a subsidiary of the Group, Guangzhou Fanxing Entertainment Information Technology Co., Ltd. (“Fanxing”) was in the process of renewing the entitlements as a HNTE by applying to the relevant government authorities as of June 30, 2020. The management of the Company expect that they will continued to be approved as HNTE. As such, corporate income tax rate of 15% was adopted by Fanxing in accruing for its corporate income tax liabilities for the six months ended June 30, 2020.

In addition, for the six months end June 30, 2020, certain subsidiaries of the Group were established in a special economic development zone and entitled to a tax concession of exemption from CIT for five years, commencing from the first profitable year. Furthermore, the Group also has certain subsidiaries subject to other preferential tax treatment for certain reduced tax rates of 5% to 10%.

The income tax expense of the Group for the six months ended June 30, 2019 and 2020 are analysed as follows:


	Six months ended June 30,
	2019			2020
	RMB’million			RMB’million
Current income tax		331			292
Deferred income tax		(60	)		(23	)

Total income tax expense		271			269

F-13

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

11	Earnings per share

(a)	Basic earnings per share

Basic earnings per share (“EPS”) is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.

(b)	Diluted earnings per share

For the calculation of diluted earnings per share, weighted average number of ordinary shares outstanding is adjusted by the effect of dilutive securities, including share-based awards in respect of share options and restricted share units (“RSU”) as well as puttable shares, under the treasury stock method (collectively forming the denominator for computing the diluted earnings per share). Potentially dilutive securities, including share options, RSU and puttable shares, have been excluded from the computation of weighted average number of ordinary shares for the purpose of diluted earnings per share if their inclusion is anti-dilutive. No adjustments is made to earnings (numerator).

For the six months ended June 30, 2019 and 2020, certain share options, RSU and puttable shares that were anti-dilutive and excluded from the calculation of diluted earnings per share were immaterial on a weighted average basis.

The following table sets forth the computation of basic and diluted net income per share:


	Six months ended June 30,
	2019		2020
	RMB’million		RMB’million
Earnings
Net income attributable to the equity holders of the Company		1,914		1,826

	Number of shares
Shares
Weighted average ordinary shares outstanding, used in computing basic earnings per share		3,250,730,997		3,308,207,122
Dilution effect- Adjustments for share options and RSU		85,421,112		41,793,863

Shares used in computing diluted earnings per share		3,336,152,109		3,350,000,985


	RMB		RMB
Basic earnings per share for Class A and Class B ordinary shares		0.59		0.55
Diluted earnings per share for Class A and Class B ordinary shares		0.57		0.55
Basic earnings per ADS		1.18		1.10
Diluted earnings per ADS		1.15		1.09

Note: One ADS represented two Class A ordinary shares of the Company.

F-14

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

12	Property, plant and equipment, right-of-use assets, intangible assets and goodwill


	Property, plant and equipment			Right-of-use assets			Intangible assets			Goodwill
	RMB’million			RMB’million			RMB’million			RMB’million
Net book amounts at January 1, 2019		168			100			1,763			17,088
Additions		28			59			20			—
Business combination		1			—			56			52
Depreciation and amortization		(43	)		(20	)		(170	)		—

Net book amounts at June 30, 2019		154			139			1,669			17,140

Net book amounts at January 1, 2020		179			148			1,622			17,140
Additions (note)		49			24			605			—
Disposals		—			(3	)		—			—
Depreciation and amortization		(50	)		(38	)		(274	)		—

Net book amounts at June 30, 2020		178			131			1,953			17,140

Note: During the six months ended June 30, 2020, the additions of intangible assets mainly arising from acquisition of copyrights amounted to RMB600 million.

F-15

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

13	Investments accounted for using equity method


	As of
	December 31, 2019			June 30, 2020
	RMB’million			RMB’million
Investments in associates		422			2,190
Investments in joint ventures		67			65

		489			2,255


	Six months ended June 30,
	2019			2020
	RMB’million			RMB’million
Share of net losses of investments accounted for using equity method:
Associates		(1	)		(16	)
Joint ventures		(7	)		(3	)

		(8	)		(19	)

Movement of investments in associates and joint ventures is analyzed as follows:


	Six months ended June 30,
	2019			2020
	RMB’million			RMB’million
At beginning of the period		236			489
Additions (note)		206			1,785
Share of losses		(8	)		(19	)
Share of other comprehensive (loss)/income		(2	)		1
Disposal		(1	)		—
Impairment provision		—			(4	)
Currency translation differences		—			3
Dividend received		(20	)		—

At end of the period		411			2,255

Note:

As detailed in Note 1.2(b), the Group completed the investment of 9.94% equity interest in a consortium, Concerto, for an investment consideration of EUR200 million (equivalent to approximately RMB1,531 million). According to the shareholders agreement of Concerto, the Group is able to participate in certain key decision making process of Concerto and therefore, this investment is accounted for as an investment in an associate.

F-16

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

14	Financial assets at fair value

(a)

Financial assets at fair value through other comprehensive income

As of December 31, 2019 and June 30, 2020, the Group’s financial assets at fair value through other comprehensive income mainly represented its equity investment in Spotify Technology S.A. (“Spotify”). Spotify has been listed on the New York Stock Exchange since April 2018. During the six months ended June, 2020, the Group made a new investment in Warner Music Group Corp. (“WMG”), with an amount of approximately USD100 million (equivalent to approximately RMB708 million) to subscribe for approximately 0.78% of its equity interests.

Movement of financial assets at fair value through other comprehensive income is analyzed as follows:


	Six months ended June 30,
	2019		2020
	RMB’million		RMB’million
Listed equity investments
At beginning of the period		3,331		4,461
Addition		—		708
Fair value change		944		3,428
Currency translation differences		24		55

At end of the period		4,299		8,652

(b)

Other investments

Other investments represent financial assets at fair value through profit or loss. Movement of other investments is analyzed as follows:


	Six months ended June 30,
	2019			2020
	RMB’million			RMB’million
At beginning of the period		256			255
Disposal		(2	)		(1	)

At end of the period		254			254

Of which are:
Current		37			37
Non-current		217			217

		254			254

F-17

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

15	Prepayments, deposits and other receivables


	As of
	December 31, 2019		June 30, 2020
	RMB’million		RMB’million
Included in non-current assets
Prepaid content royalties		816		998

		816		998

Included in current assets
Prepaid content royalties		1,600		1,520
Value-added tax recoverable		153		151
Prepaid vendors deposits and other receivables		199		229
Prepaid promotion and other expenses		133		202
Receivable from Tencent (Note 23)		50		30
Others		85		103

		2,220		2,235

		3,036		3,233

16	Cash and cash equivalents


	As of
	December 31, 2019		June 30, 2020
	RMB’million		RMB’million
Cash at bank		8,892		7,215
Term deposits with initial terms within three months		6,534		4,561

		15,426		11,776

17	Share capital


	Number of shares		Share capital RMB’million		Additional paid-in capital RMB’million		Shares held for share award schemes RMB’million			Treasury stock RMB’million
Balance January 1, 2019		3,265,986,486		2		33,776		—			—
Issuance of ordinary shares (note i)		280,512		—		12		—			—
Employee share award schemes
-Value of employee service		—		—		378		—			—
-Shares held for share award schemes (note ii)		—		—		—		(19	)		—
-Shares allotted for share award schemes (note iii)		88,798,940		—		—		—			—

Balance June 30, 2019		3,355,065,938		2		34,166		(19	)		—

Balance January 1, 2020		3,355,065,938		2		34,425		(31	)		—
Employee share award schemes
-Value of employee service		—		—		320		—			—
- Shares held for share award schemes (note ii)		—		—		—		(31	)		—
Repurchase of shares (note iv)		—		—		—		—			(134	)

Balance June 30, 2020		3,355,065,938		2		34,745		(62	)		(134	)

F-18

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

17	Share capital (Continued)

Notes:

(i)

On February 20, 2019, the Company completed a private placement, where the Company sold to Tencent 280,512 Class A ordinary shares with an aggregate value of US$1.8 million at the offering price per share in our initial public offering for distribution to its eligible shareholders as required by the relevant listing rules of the Hong Kong Stock Exchange.

(ii)

During the six months ended 30 June 2020, the Share Scheme Trust withheld 752,264 (2019:382,418) Class A ordinary shares of the Company for an amount of approximately RMB31 million (2019: RMB19 million) which had been deducted from the equity.

(iii)

As of December 31, 2019 and June 30, 2020, 31,310,524 and 16,995,518 Class A ordinary shares are held in the Share Scheme Trust for the purpose of granting awarded shares to the participants under the Share Award Schemes, respectively.

(iv)

Repurchase of shares

In December 2019, the Company approved a share repurchase program under which the Company may repurchase up to USD400 million of its Class A ordinary shares in the form of ADSs during a twelve-month period commencing on December 15, 2019.

During the six months ended June 30, 2020, the Company had repurchased 1,936,742 ADSs from the open market, at an aggregate consideration of approximately US$19 million in cash. The Company accounted for the repurchased ordinary shares as treasury stock under the cost method, and recorded it as a component of the shareholders’ equity.

F-19

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

18	Other reserves


	Share based compensation reserve			Contribution from ultimate holding company		PRC statutory reserve		Foreign currency translation reserve		Fair value reserve			Others			Total other reserves
	RMB’million			RMB’million		RMB’million		RMB’million		RMB’million			RMB’million			RMB’million
At January 1, 2019		1,416			463		79		451		(675	)		(831	)		903
Currency translation differences		—			—		—		38		—			—			38
Fair value changes on financial assets at fair value through other comprehensive income		—			—		—		—		944			—			944
Share of other comprehensive losses of an associate		—			—		—		—		—			(2	)		(2	)
Share based compensation		253			—		—		—		—			—			253
Exercise of share options/RSU		(281	)		—		—		—		—			—			(281	)
Additional equity interest in non- wholly owned subsidiaries		—			—		—		—		—			(33	)		(33	)

At June 30, 2019		1,388			463		79		489		269			(866	)		1,822

At January 1, 2020		1,470			463		94		712		356			(908	)		2,187
Currency translation differences		—			—		—		216		—			—			216
Fair value changes on financial assets at fair value through other comprehensive income		—			—		—		—		3,428			—			3,428
Share of other comprehensive income of associates		—			—		—		—		—			1			1
Share based compensation		276			—		—		—		—			—			276
Exercise of share options/RSU		(275	)		—		—		—		—			—			(275	)
Additional investments in non-wholly owned subsidiaries		—			—		—		—		—			(2	)		(2	)

At June 30, 2020		1,471			463		94		928		3,784			(909	)		5,831

F-20

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

19	Share based compensation

(a)	Share-based compensation plans of the Company

The Group has adopted three share-based compensation plans, namely, the 2014 Share Incentive Plan, the 2017 Restricted Share Scheme and the 2017 Option Plan.

(i)

2014 Share Incentive Plan

2014 Share Incentive Plan was approved by the then board of directors of the Company in October 2014. According to the 2014 Share Incentive Plan, 96,704,847 ordinary shares have been reserved to be issued to any qualified employees, directors, non-employee directors, and consultants as determined by the board of directors of the Company. The options will be exercisable only if option holder continues employment or provide services through each vesting date. The maximum term of any issued stock option is ten years from the grant date.

Some granted options follow the first category vesting schedule, one-fourth (1/4) of which shall vest and become exercisable upon the first anniversary of the date of grant and one-eighth (1/8) of which shall vest and become exercisable on each half of a year anniversary thereafter. Some granted options follow the second category vesting schedule, one-fourth (1/4) of which shall vest upon the first anniversary of the grant date and one-sixteenth (1/16) of which shall vest on each three months thereafter. Under the second category vesting schedule, in the event of the Company’s completion of an Initial Public Offering (IPO) or termination of the option holder’s employment agreement by the Company without cause, the vesting schedule shall be accelerated by a one year period (which means that the whole vesting schedule shall be shortened from four years to three years). For the third category vesting schedule, all options shall vest upon the first anniversary of the grant date, and in the event of the Company’s completion of an IPO. The option holders may elect at any time to exercise any part or all of the vested options before the expiry date.

F-21

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

19	Share based compensation (Continued)

(a)	Share-based compensation plans of the Company (Continued)

(i)

2014 Share Incentive Plan (Continued)


	Number of options			Weighted- average exercise price		Weighted- average grant date fair value
				(US$)		(US$)
Outstanding as of January 1, 2019		56,736,209			0.19		1.94
Exercised		(28,035,644	)		0.20		1.93
Forfeited		(242,949	)		0.25		1.92

Outstanding as of June 30, 2019		28,457,616			0.20		1.95

Vested and expected to vest as of June 30, 2019		28,058,643			0.20		1.95
Exercisable as of June 30, 2019		24,568,124			0.19		1.95
Non vested as of June 30, 2019		3,889,492			0.25		1.92
Outstanding as of January 1, 2020		13,897,304			0.23		1.92
Exercised		(4,976,190	)		0.23		1.91
Forfeited		(46,982	)		0.27		1.91

Outstanding as of June 30, 2020		8,874,132			0.23		1.92

Vested and expected to vest as of June 30, 2020		8,864,335			0.23		1.92
Exercisable as of June 30, 2020		8,792,494			0.23		1.92
Unvested as of June 30, 2020		81,638			0.00		2.09

No new grants during the six months ended June 30, 2019 and 2020.

Share options outstanding at the end of the period have the following expiry date and exercise prices:


Grant Date	Expiry date	Exercise price	Share options June 30, 2019	Share options June 30, 2020
March 1, 2015	February 28, 2025	US$0.000076	1,036,027	298,801
March 1, 2015	February 28, 2025	US$0.27	620,510	394,470
March 1, 2015	February 28, 2025	US$0.000076	6,057,428	811,200
March 1, 2015	February 28, 2025	US$0.27	3,896,953	862,810
March 30, 2015	March 29, 2025	US$0.27	3,252,058	1,138,842
July 1, 2015	June 30, 2025	US$0.27	75,100	—
October 1, 2015	September 30, 2025	US$0.27	741,758	127,100
December 31, 2015	December 30, 2025	US$0.27	2,441,844	844,908
December 31, 2015	December 30, 2025	US$0.000076	224,750	38,000
March 1, 2016	February 28, 2026	US$0.27	401,583	162,215
March 31, 2016	March 30, 2026	US$0.27	205,364	137,032
June 30, 2016	June 29, 2026	US$0.000076	326,538	81,638
June 30, 2016	June 29, 2026	US$0.27	9,177,703	3,977,116

Total			28,457,616	8,874,132

Weighted average remaining contractual life of options outstanding at end of period:			6.22	5.36

The weighted average price of the shares at the time these options were exercised was USD7.75 (equivalent to approximately RMB54.75) and USD5.98 per share (equivalent to approximately RMB42.25), during six months ended June 30, 2019 and 2020.

F-22

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

19	Share based compensation (Continued)

(a)	Share-based compensation plans of the Company (Continued)

(ii)

2017 Restricted Share Scheme and 2017 Option Plan

Followed the completion of the Reverse Acquisition, the Company has reserved certain ordinary shares to be issued to any qualified employees of Tencent Music Business transferred to the Group.

Pursuant to the RSUs agreements under 2017 Restricted Share Scheme, subject to grantee’s continued services to the Group through the applicable vesting date, some RSUs follow the first category of vesting schedule, one-fourth (1/4) of which shall vest eighteen months after grant date, and one-fourth (1/4) every year after. Some granted RSUs shall follow the second vesting schedule, half (1/2) shall vest six months after grant date, and the other half shall vest six months thereafter. Other granted RSUs shall follow the third vesting schedule, which were divided into range of half, one to third and one to fourth tranches on an equal basis as at their grant dates, and the tranches will become exercisable in each subsequent year.

Movements in the number of RSUs for the period ended June 30, 2019 and 2020 are as follows:


	Number of awarded shares
Outstanding as of January 1, 2019		13,724,100
Granted		18,513,224
Vested		(4,462,014	)
Forfeited		(305,226	)

Outstanding as of June 30, 2019		27,470,084

Expected to vest as of June 30, 2019		24,723,076
Outstanding as of January 1, 2020		26,659,516
Granted		22,027,146
Vested		(6,341,234	)
Forfeited		(1,059,450	)

Outstanding as of June 30, 2020		41,285,978

Expected to vest as of June 30, 2020		37,167,270

The fair value of the RSUs was calculated based on the fair value of ordinary shares of the Company. The weighted average fair value of RSUs granted during six months ended June 30, 2019 and 2020 was US$ 7.10 per share (equivalent to approximately RMB50.16 per share) and US$6.19 per share (equivalent to approximately RMB43.71 per share).

F-23

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

19	Share based compensation (Continued)

(a)	Share-based compensation plans of the Company (Continued)

(ii)

2017 Restricted Share Scheme and 2017 Option Plan (Continued)

Share options granted are generally subject to four batches vesting schedule as determined by the board of directors of the grant. One-fourth (1/4) of which shall vest nine months, twelve months, eighteen months or twenty-four months after grant date, respectively, as provided in the grant agreements, and one-fourth (1/4) of which will become exercisable in every year thereafter.


	Number of options			Weighted- average exercise price		Weighted- average grant date fair value
				(US$)		(US$)
Outstanding as of January 1, 2019		36,086,303			2.75		2.24
Granted		1,993,780			7.05		3.00
Exercised		(4,891,152	)		1.81		1.99
Forfeited		(102,265	)		0.27		3.11

Outstanding as of June 30, 2019		33,086,666			3.15		2.32

Vested and expected to vest as of June 30, 2019		30,566,163			3.11		2.31
Exercisable as of June 30, 2019		7,881,636			1.69		1.85
Non vested as of June 30, 2019		25,205,030			3.61		2.46
Outstanding as of January 1, 2020		26,640,508			3.43		2.39
Granted		4,333,800			6.20		5.33
Exercised		(2,997,582	)		1.75		2.26
Forfeited		(164,352	)		5.91		3.32

Outstanding as of June 30, 2020		27,812,374			4.02		2.44

Vested and expected to vest as of June 30, 2020		26,580,133			3.96		2.44
Exercisable as of June 30, 2020		7,965,034			2.53		1.94
Unvested as of June 30, 2020		19,847,340			4.62		2.64

The fair value of share options were valued using the Binomial option-pricing model. Assumptions used in the Binomial option-pricing model are presented below:


	Six months ended June 30,
	2019			2020
Risk free interest rate		2.08	%		0.71	%
Expected dividend yield		0	%		0	%
Expected volatility		40	%		40	%
Exercise multiples		2.2-2.8			2.2-2.8
Contractual life		10 years			10 years

F-24

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

19	Share based compensation (Continued)

(a)	Share-based compensation plans of the Company (Continued)

(ii)

2017 Restricted Share Scheme and 2017 Option Plan (Continued)

Share options outstanding as of June 30, 2019 and 2020 have the following expiry date and exercise prices:


Grant Date	Expiry date		Exercise price		Share options June 30, 2019		Share options June 30, 2020
June 16, 2017		June 15, 2027	US$	2.32		10,855,560		6,945,594
August 31, 2017		August 31, 2027	US$	0.27		6,167,716		3,322,756
December 20, 2017		December 20, 2027	US$	2.32		7,078,110		5,008,018
April 16, 2018		April 16, 2028	US$	4.04		975,000		650,000
October 17, 2018		October 16, 2028	US$	7.14		6,016,500		5,581,500
June 14, 2019		June 13, 2029	US$	7.05		1,993,780		1,970,706
June 12, 2020		June 11, 2030	US$	6.20		—		4,333,800

Total						33,086,666		27,812,374

Weighted average remaining contractual life of options outstanding at end of period:						8.25		7.97

The weighted average price of the shares at the time these options were exercised was USD7.15 per share (equivalent to approximately RMB50.52) and USD5.96 per share (equivalent to approximately RMB42.11), during six months ended June 30, 2019 and 2020.

F-25

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

19	Share based compensation (Continued)

(b)	Share-based compensation plans of Tencent

Tencent operates a number of share-based compensation plans (including share option scheme and share award scheme) covering certain employees of the Group.

Share options granted are generally subject to a four-year or five-year vesting schedule as determined by the board of directors of Tencent. Under the four-year vesting schedule, share options in general vest one-fourth (1/4) upon the first anniversary of the grant date, and one-fourth (1/4) every year after. Under the five-year vesting schedule, depending on the nature and purpose of the grant, share options in general vest one-fifth (1/5) upon the first or second anniversary of the grant date, respectively, as provided in the grant agreement, and one-fifth (1/5) every year after.

RSUs are subject to a three-year or four-year vesting schedule, and each year after the grant date, one-third (1/3) or one-fourth (1/4) shall vest accordingly.

No outstanding share options or RSUs will be exercisable or subject to vesting after the expiry of a maximum of seven years from the date of grant.

As of December 31, 2019 and June 30, 2020, the outstanding number of share options of Tencent relevant to the Group is the same as 65,100. No new grants during the six months ended June 30, 2019 and 2020.

Share options outstanding at the end of the period have the following expiry date and exercise prices:

Grant Date

Expiry date

Exercise
price

Share options
December 31, 2019

Share options
June 30, 2020

July 6, 2016

July 5, 2023

HK$

174.86

32,690

July 10, 2017

July 9, 2024

HK$

272.36

32,410

Total

65,100

As of December 31, 2019 and June 30, 2020, the outstanding number of awarded shares of Tencent relevant to the Group is 54,575 and 2,470, respectively. No new grants during the six months ended June 30, 2019 and 2020.

(c)	Expected retention rate of grantees

The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end of vesting periods of the options and awarded shares (the “Expected Retention Rate”) in order to determine the amount of share-based compensation expenses charged to the consolidated income statement. As of December 31, 2019 and June 30, 2020, the Expected Retention Rate of the Group was assessed to be 88%-95%.

F-26

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

20	Other payables and other liabilities


	As of December 31 2019 RMB’million		As of June 30 2020 RMB’million
Included in non-current liabilities
Government grants		2		2
Deferred income		66		90
Others		—		10

		68		102

Included in current liabilities
Dividend payable		12		12
Accrued expenses (note i)		2,105		1,997
Advances from customers		83		81
Investment payables		611		287
Other tax liabilities		140		122
Present value of liability of puttable shares		539		566
Deferred income		23		37
Other deposits		77		85
Others		80		67
Contingent consideration, measured at fair value (note ii)		112		56

		3,782		3,310

Note:

(i)

Accrued expenses mainly comprised payroll and welfare, advertising and marketing, short-term lease rental and other operating expenses.

(ii)

In October 2018, the Company acquired the entire equity interest of a music contents production company at a cash consideration comprising a fixed amount and a variable amount, settlement in certain tranches. The variable amount is determined based on certain operating performance indicators of the acquiree and up to RMB400 million. As of December 31, 2019 and June 30, 2020, contingent consideration in relation to the arrangement was recognized at fair value as determined by management taking into account the estimation of the performance indicators.

21	Deferred revenue


	As of December 31 2019 RMB’million		As of June 30 2020 RMB’million
Non-current		67		78
Current		1,694		1,583

		1,761		1,661

Deferred revenue mainly represents contract liabilities in relation to service fees prepaid by customers for time-based virtual gifts, membership subscriptions, and digital music albums or single songs, for which the related services had not been rendered as of December 31, 2019 and June 30, 2020.

F-27

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

22	Commitments

(a)	Operating commitments

As of December 31, 2019 and June 30, 2020, future minimum operating commitments of the Group are RMB235 million and RMB466 million, respectively, which are mainly related to rental of bandwidth.

(b)	Contents royalty

As of December 31, 2019 and June 30, 2020, minimum royalty payments of the Group associated with its license agreements are RMB7,217 million and RMB3,872 million, respectively.

(c)	Investment commitments

As of December 31, 2019 and June 30, 2020, the Group had commitments of approximately RMB198 million and RMB116 million to invest in certain entities to hold the equity interest in such entities.

23	Related party transactions

The table below sets forth the major related parties and their relationships with the Group as of June 30, 2020:


Name of related parties		Relationship with the Group
Tencent and its subsidiaries other than the entities controlled by the Group (“Tencent Group”)		The Company’s principal owner
China Literature Limited (“China Literature”)		Tencent’s subsidiary

(a)	Transactions

For the six months ended June 30, 2019 and 2020, significant related party transactions were as follows:


	Six months ended,
	2019 RMB’million		2020 RMB’million
Revenue
Online music services to Tencent Group (note)		251		129
Online music services to the Company’s associates and associates of Tencent Group		18		68
Social entertainment services and others to Tencent Group, the Company’s associates and associates of Tencent Group		15		72
Expenses
Operation expenses recharged by Tencent Group		345		510
Advertising agency cost to Tencent Group		91		134
Content royalties to Tencent Group, the Company’s associates and associates of Tencent Group		64		106
Other costs to the Company’s associates and associates of Tencent Group		16		15

Note:

Including revenue from sublicensed contents to Tencent and subscription packages Tencent purchased pursuant to the Business Cooperation Agreement.

In March 2020 the Group signed a five-year strategic partnership with China Literature, a subsidiary of Tencent. Through this partnership arrangement, the Group was granted a global license to produce derivative content in the form of audiobooks of online literary works for which China Literature has the rights to or the license to adapt, and the rights to sublicense, as well as the ability to distribute existing audiobooks in China Literature’s portfolio.

Aggregate total minimum guarantee profit sharing to China Literature for the five-year period amounted to RMB250 million, any excess portion will be shared based on a pre-determined percentage. As of June 30, 2020, the present value of the minimum guarantee of RMB227 million was recognized as intangible assets and the amortization expense for the six months ended June 30, 2020 was RMB11 million.

These related party transactions were conducted at prices and terms as agreed by parties involved.

F-28

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

23	Related party transactions (Continued)

(b)	Balances with related parties


	As of December 31, 2019 RMB’million		As of June 30, 2020 RMB’million
Included in accounts receivable from related parties:
Tencent Group(note)		1,653		1,430
The Company’s associates and associates of Tencent Group		49		72

Included in prepayments, deposits and other assets from related parties:
Tencent Group		50		30
The Company’s associates and associates of Tencent Group		23		90

Included in accounts payable to related parties:
Tencent Group		215		619
The Company’s associates and associates of Tencent Group		15		44

Included in other payables and accruals to related parties:
Tencent Group		382		116
The Company’s associates and associates of Tencent Group		19		16

Outstanding balances are unsecured and are repayable on demand.

Note:

The balance is mainly arising from user payments collected through various payment channels of Tencent Group pursuant to the Business Cooperation Agreement entered with Tencent Group.

(c)	Key management personnel compensation


	Six months ended,
	2019 RMB’million		2020 RMB’million
Short-term employee benefits		32		33
Share-based compensation		109		88

		141		121

F-29

TENCENT MUSIC ENTERTAINMENT GROUP

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED JUNE 30, 2020

24	Contingent liabilities

The Group is involved in a number of claims pending in various courts, in arbitration, or otherwise unresolved as of June 30, 2020. These claims are mainly related to alleged copyright infringement with an aggregate amount of damages sought of approximately RMB29.6 million. Adverse results in these claims may include awards of damages and may also result in, or even compel, a change in the Company’s business practices, which could impact the Company’s future financial results.

In addition, in September 2019 and October 2019, respectively, the Company, certain of its current and former directors and officers, and Tencent, based on its status as the Company’s controlling shareholder, were named as defendants in two putative securities class actions filed in the U.S. District Court for the Eastern District of New York. Both actions, purportedly brought on behalf of a class of persons who allegedly suffered damages as a result of their trading in the ADSs, allege that the Company’s public filings contained material misstatements and omissions in violation of the U.S. federal securities laws. These actions remain in their preliminary stages. Additional complaints related to these claims may be filed in the coming months. The Company are currently unable to estimate the potential loss, if any, associated with the resolution of such lawsuits, if they proceed. Nevertheless, with the legal advice, the Company believes these cases are without merit and intend to defend actions vigorously.

The Company is unable to estimate the reasonably possible loss or a range of reasonably possible losses for proceedings in the early stages or where there is a lack of clear or consistent interpretation of laws specific to the industry-specific complaints among different jurisdictions. Although the results of unsettled litigations and claims cannot be predicted with certainty, the Company does not believe that, as of June 30, 2020, there was at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of the accrued expenses, with respect to such loss contingencies. Accordingly, the Group has made certain accruals in “Account payable” in the consolidated balance sheet as of June 30, 2020 and recognized related cost expenses for the period ended June 30, 2020. The losses accrued include judgments handed down by the court and out-of-court settlements after June 30, 2020, but related to cases arising on or before June 30, 2020. The Company is in the process of appealing certain judgments for which losses have been accrued. However, the ultimate timing and outcome of pending litigation is inherently uncertain. Therefore, although management considers the likelihood of a material loss for all pending claims, both asserted and unasserted, to be remote, if one or more of these legal matters were resolved against the Company in the same reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements of a particular reporting period could be materially adversely affected.

F-30

Exhibit 99.2

Non-IFRS Financial Measure

We use adjusted profit, which is a non-IFRS financial measure, in evaluating our operating results and for financial and operational decision-making purposes. We believe that adjusted profit helps identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that we include in our profit for the year. We believe that adjusted profit provides useful information about our results of operations, enhances the overall understanding of our past performance and future prospects and allows for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

Adjusted profit should not be considered in isolation or construed as an alternative to operating profit, profit or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review adjusted profit and the reconciliation to its most directly comparable IFRS measure. Adjusted profit presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

Adjusted profit represents profit excluding amortization of intangible and other assets resulting from acquisitions, share-based compensation expenses, share-based payments in respect of the issuance of ordinary shares to music label partners, net losses/gains from investments, fair value changes arising from investments and income tax effects. The table below sets forth a reconciliation of our profit to adjusted profit indicated.


	For the Year Ended December 31,												For the Six Months Ended June 30
	2017			2018			2019						2019			2020
	RMB			RMB			RMB			US$			RMB			RMB			US$
				(in millions, except for share and per share data)
Profit for the year/period		1,319			1,832			3,977			571			1,914			1,829			259
Adjustments:
Amortization of intangible and other assets arising from acquisitions ⁽¹⁾		329			306			362			52			180			187			26
Share-based compensation expenses		384			487			519			75			253			276			39
Share-based payments in respect of issuance of ordinary shares to music label partners⁽²⁾		—			1,519			—			—			—			—			—
(Gains)/losses from investments⁽³⁾		(70	)		52			79			11			(1	)		(19	)		(3	)
Fair value change on puttable shares⁽⁴⁾		—			35			37			5			18			19			3
Income tax effects⁽⁵⁾		(58	)		(57	)		(71	)		(10	)		(35	)		(34	)		(5	)

Adjusted profit for the year/period		1,904			4,174			4,903			704			2,329			2,258			320

Attributable to
Non-IFRS equity holders of the Company		1,911			4,175			4,908			705			2,329			2,255			319
Non-controlling interests		(7	)		(1	)		(5	)		(1	)		0			3			0
Earnings per share for Class A and Class B ordinary shares
Basic		0.74			1.36			1.50			0.22			0.72			0.68			0.10
Diluted		0.72			1.32			1.47			0.21			0.70			0.67			0.10
Shares used in earnings per Class A and Class B ordinary share computation
Basic		2,593,157,207			3,076,314,670			3,272,754,403			3,272,754,403			3,250,730,997			3,308,207,122			3,308,207,122
Diluted		2,639,466,412			3,159,220,888			3,347,572,338			3,347,572,338			3,336,152,109			3,350,000,985			3,350,000,985
Earnings per ADS⁽⁶⁾
Basic		—			2.71			3.00			0.43			1.43			1.36			0.19
Diluted		—			2.64			2.93			0.42			1.40			1.35			0.19
ADS used in earnings per ADS computation
Basic		—			1,538,157,335			1,636,377,201			1,636,377,201			1,625,365,498			1,654,103,561			1,654,103,561
Diluted		—			1,579,610,444			1,673,786,169			1,673,786,169			1,668,076,055			1,675,000,493			1,675,000,493

Notes:

(1)	Represents the amortization of identifiable assets, including intangible assets and prepayments for music content, resulting from acquisitions.

(2)	Represents the excess of the then fair value of the ordinary shares we issued to certain investors over the aggregate consideration we received in October 2018.

(3)	Including the net (gains)/ losses on deemed disposals/disposals of investments, fair value changes arising from investments, impairment provision of investments and other expenses in relation to equity transactions of investments

(4)	Represents the fair value changes on the put liability of certain shares issued in 2018.

(5)	Represents the income tax effects of amortization of identifiable assets, including intangible assets and prepayments for music content, resulting from acquisitions.

(6)	Each ADS represents two of our Class A ordinary shares.

Set forth below is a discussion of our unaudited statements of operations data for the six months ended June 30, 2019 and 2020.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenues

Our revenues increased by 13.8% from RMB11,634 million for the six months ended June 30, 2019 to RMB13,243 million (US$1,874 million) for the six months ended June 30, 2020.

Online music services

Our revenues generated from online music services increased by 34.7% from RMB3,167 million for the six months ended June 30, 2019 to RMB4,265 million (US$604 million) for the six months ended June 30, 2020, mainly driven by strong growth in music subscription revenues, supplemented by growth in sales of digital albums and advertising service revenues, which was offset by a decrease in sublicensing revenues.

Our revenues generated from music subscriptions increased by 67.2% from RMB1,508 million for the six months ended June 30, 2019 to RMB2,521 million (US$357 million) for the six months ended June 30, 2020, which was mainly attributable to the increase in the number of paying users and the monthly ARPPU due to the success of our pay-for-streaming model as we continued to cultivate our users’ willingness to pay for premium music content with improved paying user retention. From the second quarter of 2019 to the second quarter of 2020, the number of paying users increased by 51.9%, from 31.0 million to 47.1 million and the monthly ARPPU increased by 8.1%, from RMB8.6 to RMB9.3 (US$1.3).

Social entertainment services and others

Our revenues generated from social entertainment services and others increased by 6.0% from RMB8,467 million for the six months ended June 30, 2019 to RMB8,978 million (US$1,271 million) for the six months ended June 30, 2020. The number of paying users of our social entertainment services increased by 11.6% from approximately 11.2 million for the second quarter of 2019 to 12.5 million for the second quarter of 2020, and the ARPPU of our social entertainment services decreased by 2.6% over the same period, primarily due to the impact from the outbreak of COVID-19 and adjustments to certain interactive features in live streaming.

Cost of revenues

Our cost of revenues increased by 18.7% from RMB7,660 million for the six months ended June 30, 2019 to RMB9,096 million (US$1,287 million) for the six months ended June 30, 2020, primarily driven by increases in service costs by 18.0% from RMB6,878 million for the six months ended June 30, 2019 to RMB8,116 million (US$1,149 million) for the six months ended June 30, 2020. The increase in service costs was primarily due to higher revenue sharing fees to strengthen our platforms’ competitiveness, as well as increased content costs related to higher digital album sales, purchase of variety show contents, and investment in new products and content offerings such as long-form audios.

Other cost of revenues increased by 25.3% from RMB782 million for the six months ended June 30, 2019 to RMB980 million (US$139 million) for the six months ended June 30, 2020, which was primarily attributable to higher payment channel fees, agency fees, and bandwidth expense.

Gross profit

As a result of the foregoing, our gross profit increased by 4.4% from RMB3,974 million for the six months ended June 30, 2019 to RMB4,147 million (US$587 million) for the six months ended June 30, 2020. Our gross margin decreased from 34.2% for the six months ended June 30, 2019 to 31.3% for the six months ended June 30, 2020. The slight decrease in gross margin was mainly attributable to higher revenue sharing fees, which resulted from additional incentives offered to live streaming performers and increase in revenue sharing ratio to online karaoke performers, as well as the impact from increased investment in new products and content offerings such as long-form audios.

Operating expenses

Our operating expenses increased by 18.0% from RMB2,089 million for the six months ended June 30, 2019 to RMB2,465 million (US$349 million) for the six months ended June 30, 2020.

Selling and marketing expenses

Our selling and marketing expenses increased by 24.3% from RMB853 million for the six months ended June 30, 2019 to RMB1,060 million (US$150 million) for the six months ended June 30, 2020, which was primarily due to increased spending to promote existing products to strengthen our products’ competitiveness and in promoting our new product and content offerings such as long-form audio, Kugou Changchang and TME Live. Such new offerings were still ramping up in terms of revenue generation as we incurred material initial investments in promoting them for future growth.

General and administrative expenses

Our general and administrative expenses increased by 13.7% from RMB1,236 million for the six months ended June 30, 2019 to RMB1,405 million (US$199 million) for the six months ended June 30, 2020, primarily due to our increased investment in research and development in new products to expand our competitive advantages in product and technology innovations.

Interest income

Our interest income was RMB327 million (US$46 million) for the six months ended June 30, 2020, as compared to RMB288 million for the six months ended June 30, 2019. The increase was primarily due to increased balances of our cash and cash equivalents and term deposits.

Other gains, net

Our other gains, net, were RMB145 million (US$21 million) for the six months ended June 30, 2020, as compared to other gains, net, of RMB59 million for the six months ended June 30, 2019. The increase was mainly attributable to tax rebate received during the year and gains on disposal of a subsidiary.

Operating profit

As a result of the foregoing, our operating profit for the period decreased by 3.5% to RMB2,154 million (US$305 million) for the six months ended June 30, 2020 from RMB2,232 million for the six months ended June 30, 2019. Operating margin decreased to 16.3% for the six months ended June 30, 2020 from 19.2% for the six months ended June 30, 2019. The decreased was mainly due to the decrease in gross margin and increase in selling and marketing expenses.

Income tax expense

We had an income tax expense of RMB271 million for the six months ended June 30, 2019 and RMB269 million (US$38 million) for the six months ended June 30, 2020. Our effective tax rate was 12.8% in the first half of 2020, as compared to 12.4% in the first half of 2019.

Profit for the period

As a result of the foregoing, our profit for the period decreased from RMB1,914 million for the six months ended June 30, 2019 to RMB1,829 million (US$259 million) for the six months ended June 30, 2020.

Cash Flows and Working Capital

Our principal sources of liquidity have been cash generated from operating activities and contributions from shareholders. As of June 30, 2020, we had RMB11,776 million (US$1,667 million) in cash and cash equivalents. Our cash and cash equivalents consist primarily of bank deposits and highly liquid investments, which have original maturities of three months or less when purchased. We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months.

On December 17, 2019, we announced a share repurchase program under which we may repurchase up to $400 million of our Class A ordinary shares in the form of ADSs pursuant to relevant SEC rules during a twelve-month period commencing on December 15, 2019. In March and up to the date of this prospectus, we have repurchased ADSs from the open market for an aggregate amount of approximately US$19 million in cash pursuant to the share repurchase program.

We intend to finance our future working capital requirements and capital expenditures from cash generated from operating activities and funds raised from financing activities, including the net proceeds from this offering and the net proceeds we received from our initial public offering in December 2018. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to issue debt or equity securities or obtain additional credit facilities. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. Issuance of additional equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

As a holding company with no material operations of our own, we conduct our operations primarily through our PRC subsidiaries and our consolidated VIEs in China. We are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries in China through capital contributions or loans, subject to the approval of government authorities and limits on the amount of capital contributions and loans. In addition, our subsidiaries in China may provide Renminbi funding to our consolidated VIEs only through entrusted loans. The ability of our subsidiaries in China to make dividends or other cash payments to us is subject to various restrictions under PRC laws and regulations.

The following table presents our selected consolidated cash flow data for the periods indicated.


	For the Year Ended December 31,												For the Six Months Ended June 30,
	2017			2018			2019						2019			2020
	RMB			RMB			RMB			US$			RMB			RMB			US$
													(*Unaudited*)
	(in millions)
Selected Consolidated Cash Flow Data:
Net cash generated from operating activities		2,500			5,632			6,200			891			2,815			2,505			355
Net cash used in investing activities		(483	)		(1,190	)		(8,102	)		(1,164	)		(850	)		(6,168	)		(873	)
Net cash generated from/(used in) financing activities		99			7,741			(31	)		(4	)		5			(156	)		(22	)

Net increase/(decrease) in cash and cash equivalents		2,116			12,183			(1,933	)		(278	)		1,970			(3,819	)		(541	)

Cash and cash equivalents at beginning of the year/period		3,071			5,174			17,356			2,493			17,356			15,426			2,183
Exchange differences on cash and cash equivalents		(13	)		(1	)		3			—			24			169			24

Cash and cash equivalents at end of the year/period		5,174			17,356			15,426			2,216			19,350			11,776			1,667

Operating activities

Net cash generated from operating activities was RMB2,505 million (US$355 million) in the six months ended June 30, 2020. The difference between our profit before income tax of RMB2,098 million (US$297 million) and the net cash generated from operating activities was mainly due to (i) depreciation and amortization of RMB362 million (US$51 million); (ii) the increase in accounts payable of RMB295 million (US$42 million); (iii) non-cash share-based compensation expense of RMB276 million (US$39 million); and (iv) the decrease in accounts receivables of RMB203 million (US$29 million), partially offset by (i) the income tax paid of RMB370 million (US$52 million); (ii) the increase in other operating assets of RMB253 million (US$36 million)) and (iii) the decrease in other operating liabilities of RMB173 million (US$24 million).

Net cash generated from operating activities was RMB2,815 million for the six months ended June 30, 2019. The difference between our profit before income tax of RMB2,185 million and the net cash generated from operating activities was mainly due to (i) the increase in accounts payable of RMB594 million; (ii) the increase in other operating liabilities of RMB399 million; and (iii) depreciation and amortization of RMB233 million, partially offset by (i) the income tax paid of RMB292 million; and (ii) the increase in accounts receivables of RMB205 million.

Investing activities

Net cash used in investing activities was RMB6,168 million (US$873 million) in the six months ended June 30, 2020, which was primarily attributable to (i) placement of term deposits with initial terms of over three months of RMB15.0 billion (US$2.1 billion); (ii) payments for investment in UMG of RMB1.53 billion (US$216 million), (iii) purchase of financial asset of RMB785 million (US$111 million), (iv) payment for business combination of RMB240 million (US$34 million), (v) purchase of intangible assets of RMB235 million (US$33 million); and (iii) our purchases of property, plant and equipment of RMB65 million (US$9 million), partially offset by receipt from maturity of term deposits with initial terms of over three months of RMB12.0 billion (US$1.7 billion).

Net cash used in investing activities was RMB850 million for the six months ended June 30, 2019, which was primarily attributable to (i) placement of term deposits with initial terms of over three months of RMB4.0 billion; (ii) payments for acquisition of investments accounted for using equity method of RMB248 million; (iii) purchase of intangible assets of RMB51 million; and (iv) purchase of property, plant and equipment of RMB25 million, partially offset by receipt from maturity of term deposits with initial terms of over three months of RMB3.4 billion.

Financing activities

Net cash used in financing activities in the six months ended June 30, 2020 was RMB156 million (US$22 million), which was mainly due to (i) payment for repurchase of ordinary shares of RMB134 million (US$19 million); (ii) payment for lease liabilities of RMB42 million (US$6 million); (iii) share withheld for share award schemes of RMB18 million (US$3 million), partially offset by the proceeds from exercise of share options of RMB42 million (US$6 million).

Net cash generated from financing activities for the six months ended June 30, 2019 was RMB5 million, which was mainly due to the proceeds from exercise of share options and issuance of ordinary shares of RMB39 million, partially offset by (i) payment for acquisition of non-controlling interests in non-wholly-owned subsidiaries of RMB19 million; and (ii) payment for lease liabilities of RMB18 million.

Capital expenditures

Our capital expenditures are incurred primarily in connection with purchases of property, plant and equipment and intangible assets. Our capital expenditures were RMB76 million and RMB300 million (US$42 million), in the six months ended June 30, 2019 and 2020, respectively. We intend to fund our future capital expenditures with our existing cash balance and net proceeds from this offering and our initial public offering in December 2018. We will continue to make capital expenditures to meet the expected growth of our business.