Annual report
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2024
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Corporate Information 2 Financial and Business Highlights 4 Management Discussion and Analysis 5 Report of Directors 16 Directors and Senior Management 40 Other Information 43 Corporate Governance Report 54 Environmental, Social and Governance Report 70 Independent Auditor’s Report 109 Consolidated Statement of Profit or Loss 114 Consolidated Statement of Comprehensive Income 115 Consolidated Balance Sheet 116 Consolidated Statement of Changes In Equity 118 Consolidated Statement of Cash Flows 120 Notes To The Consolidated Financial Statements 121 Five Year Financial Summary 186 Definitions 187 CONTENTS
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Corporate Information 2 NetEase Cloud Music Annual Report 2024 BOARD OF DIRECTORS Executive Directors Mr. William Lei Ding (Chairperson and Chief Executive Officer) Mr. Yong Li Ms. Yanfeng Wang Non-Executive Directors Mr. Yat Keung Li Mr. Dewei Zheng (resigned as a non-executive Director with effect from 15 February 2024) Mr. Ran Wang (resigned as a non-executive Director with effect from 23 May 2024) Independent Non-executive Directors Mr. Ying Kit Caleb Lo Mr. Xianfeng Gu Mr. Zhong Xu AUDIT COMMITTEE Mr. Ying Kit Caleb Lo (Chairperson) Mr. Xianfeng Gu Mr. Zhong Xu REMUNERATION COMMITTEE Mr. Zhong Xu (Chairperson) Mr. Xianfeng Gu Mr. Ying Kit Caleb Lo NOMINATION COMMITTEE Mr. Xianfeng Gu (Chairperson) Mr. Ying Kit Caleb Lo Mr. Zhong Xu Ms. Yanfeng Wang (appointed as a member of nomination committee with effect from 20 February 2025) COMPANY SECRETARY Ms. Wong Wai Yee Ella AUTHORISED REPRESENTATIVES Mr. Yong Li Ms. Wong Wai Yee Ella AUDITOR PricewaterhouseCoopers Certified Public Accountants and Registered Public Interest Entity Auditor 22/F, Prince’s Building Central, Hong Kong REGISTERED OFFICE P.O. Box 309, Ugland House Grand Cayman KY1-1104 Cayman Islands PRINCIPAL PLACE OF BUSINESS IN HONG KONG Room 1915, 19/F, Lee Garden One 33 Hysan Avenue, Causeway Bay Hong Kong HEADQUARTERS Room 1201, Block A Hangzhou International Expo Center No. 353 Benjing Avenue Qianjiang Century City Xiaoshan District, Hangzhou Zhejiang, China
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Corporate Information 3 NetEase Cloud Music Annual Report 2024 LEGAL ADVISORS As to Hong Kong law and United States law Skadden, Arps, Slate, Meagher & Flom 42/F, Edinburgh Tower, The Landmark 15 Queen’s Road Central, Hong Kong As to PRC law JunHe LLP 20th Floor, China Resources Building 8 Jianguomenbei Avenue Beijing 100005, China As to Cayman Islands law Maples and Calder (Hong Kong) LLP 26th Floor, Central Plaza 18 Harbour Road Wan Chai, Hong Kong PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE Maples Fund Services (Cayman) Limited P.O. Box 1093, Boundary Hall Cricket Square Grand Cayman KY1-1102 Cayman Islands HONG KONG SHARE REGISTRAR Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wan Chai, Hong Kong PRINCIPAL BANK Industrial and Commercial Bank of China Hangzhou Branch No. 90, Qingchun Road Gongshu District, Hangzhou Zhejiang, China STOCK CODE 9899 COMPANY WEBSITE http://ir.music.163.com
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Financial and Business Highlights 4 NetEase Cloud Music Annual Report 2024 Year ended 31 December 2024 2023 Change (%) (RMB in thousands, except percentages) Revenue 7,950,146 7,866,992 +1.1% Gross profit 2,681,512 2,102,670 +27.5% Profit before income tax 1,570,255 767,679 +104.5% Profit for the year 1,565,369 734,182 +113.2% Non-IFRS measure: Adjusted net profit 1,700,078 818,500 +107.7% IFRS NUMBERS: • Our revenue increased by 1.1% from RMB7.9 billion in 2023 to RMB8.0 billion in the 2024. • Our gross profit increased by 27.5% from RMB2.1 billion in 2023 to RMB2.7 billion in 2024. • Our profit for the year increased by 113.2% from RMB0.7 billion in 2023 to RMB1.6 billion in 2024. NON-IFRS NUMBERS: • Our adjusted net profit reached RMB1,700.1 million in 2024, compared with adjusted net profit of RMB818.5 million in 2023. Adjusted net profit is a non-IFRS measure and is defined as profit for the year attributable to the equity holders of the Company adjusted by adding back equity-settled share-based payments as appropriate. The following table reconciles profit for the year to adjusted net profit for both years: For the year ended 31 December 2024 2023 (in RMB thousands) Profit for the year attributable to the equity holders of the Company 1,561,507 734,182 Add: Equity-settled share-based payments (1) 138,571 84,318 Adjusted net profit 1,700,078 818,500 Note: (1) Equity-settled share-based payments mainly represent share-based compensation expenses incurred in connection with our share incentive plans adopted by the Company. Share-based compensation expenses are not expected to result in future cash payments and are not indicative of our core operating results. The reconciling item is non-cash and does not result in cash outflow.
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Management Discussion and Analysis 5 NetEase Cloud Music Annual Report 2024 BUSINESS OVERVIEW Throughout 2024, we focused intently on strengthening our core music business while nurturing an enduring and vibrant music-centric community. By enriching our premium offerings such as expanding our content library, refining personalised recommendations, introducing innovative features, and fostering a stronger sense of community, we further deepened user engagement. Additionally, the rollout of enhanced membership benefits spurred rapid growth in our subscription-based memberships, further driving robust revenue growth in our core online music business and profitability. We continued to engage users across our leading music-inspired community. Our total monthly active users (MAUs) steadily increased and our DAU/MAU ratio remained above 30%. We further enhanced music discovery and consumption via improved personalised recommendations and comprehensive audio-visual experiences. We broadened interactive scenarios across various user-generated content (UGC) formats to further cultivate our music-centric community, driving increased community content generation, consumption and user interactions. Through these efforts, users became more engaged and spent more time on our mobile app. We also continued to expand our music consumption scenarios by partnering with several NetEase games. Through our rich library of licensed music and original music, we have built a comprehensive and distinctive content ecosystem. In 2024, we continually expanded our music content library, emphasising trending music interests among younger generations while maintaining a focus on improving efficiency. Additions from major Korean music labels, including JYP Entertainment, Kakao Entertainment and CJ ENM, continued to round out our library. We remain dedicated to promoting the growth of high-quality Chinese original music. In 2024, we celebrated the 10th anniversary of our independent musician platform. We have continuously enhanced our in-house music. In 2024, several in-house tracks gained popularity, such as “Follow” (). In 2024, our efforts to strengthen our music-centric monetisation accelerated our growth in online music revenue year-over-year. Revenue from subscription-based memberships grew 22.2% year-over-year, fuelled by an increase in our subscriber base, though slightly offset by a dilution in monthly ARPPU (average revenue per paying user). We rolled out premium offerings, including expanded content and cutting-edge features, expanded membership privileges (such as functional tools, social features and dress-up privileges) and joint programs with external partners. Notably, membership retention rates, time spent and activity ratios grew year over year across our rapidly expanding subscriber base.
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Management Discussion and Analysis 6 NetEase Cloud Music Annual Report 2024 We further improved our profitability in 2024, having benefited from economies of scale from our increased subscriber base, strong monetisation of our core online music business and ongoing cost optimisation initiatives. Our gross margins reached 33.7%, up from 26.7% in 2023, and our adjusted net profit surged to RMB1,700.1 million in 2024, more than doubling from RMB818.5 million in 2023. Looking ahead, our focus will remain on delivering exceptional music experiences, fostering a thriving community, elevating user engagement, and strengthening our operational capabilities. Our strategic vision includes the following key initiatives: • Further diversifying and enhancing our differentiated content offerings with greater efficiency: We plan to deepen our collaboration with copyright holders, boost our independent artist incubation capabilities and elevate our in-house music production competencies, emphasising our strengths in key music genres; • Cultivating our dynamic music-driven community ecosystem: By enriching our offerings with innovative interactive features and expanding opportunities for user communication and connection, we will create more engaging and immersive experiences for our user community; • Driving user willingness to pay for and subscribe to premium offerings: Through enhanced user experiences, deeper engagement, improved membership benefits and expanded consumption scenarios, we will strengthen the appeal of our premium offerings. • Optimising profitability through disciplined approach to operations: We will continue to focus on cost optimisation, operating efficiency and disciplined cost management to achieve sustainable growth.
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Management Discussion and Analysis 7 NetEase Cloud Music Annual Report 2024 Comprehensive and differentiated content ecosystem We actively broadened our content library to offer users a comprehensive and diverse range of licensed and original music. In 2024, we maintained a steady growth of our music library in terms of the number and variety of music tracks. In addition to rounding out top-tier music, we focused on promoting music genres favoured by music lovers on our platform. Enhancing partnerships with copyright holders Throughout the Reporting Period, we remained dedicated to forging expansion of our collaborations with music copyright holders in a cost-effective manner. • Amplifying offerings in signature music genres. Music genres such as hip-hop, rock, Japanese ACG and Western music have surged in popularity on our platform. We broadened our content library in those signature genres, including a newly signed strategic partnership with Modern Sky Entertainment. We are also featuring new songs from rappers like KeyNG, VaVa, AIR, Sha Yiting ( Ӎɓ͓), as well as rock band Penicillin and artist Dou Wei ( ᘨਬ). Additionally, we are pursuing copyright collaborations with Western artists, particularly in electronic music, hip-hop, folk and rock genres, including a recent agreement with Galen Grew. • Expansive catalogue of music labels. We continued enriching our catalogue of music labels, forming new partnerships with major domestic and international labels and artists. We were pleased to sign copyright agreements with major K-Pop labels, including JYP Entertainment and CJ Entertainment. Additionally, we established a strategic collaboration partnership with Kakao Entertainment. Moreover, we signed a copyright cooperation agreement with Li Jian (ҽ), authorizing the full release of his classic works including “Legend” (ෂփ) and “Baikal Lake” (Ԏ̋ဧಳ ऱ). • In-depth collaborations with our copyright partners. We worked closely with copyright holders to enhance both content distribution and commercialisation. These efforts drove remarkable digital and physical album sales on our platform.
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Management Discussion and Analysis 8 NetEase Cloud Music Annual Report 2024 Strengthening our leading independent artists’ ecosystem We are committed to investing in initiatives that aid musicians in music creation, promotion and financial support to help them grow their influence and revenue. As of the end of December 2024, our platform had over 773,500 registered independent artists who contributed approximately 4.4 million music tracks. In 2024, our NetEase Musician platform celebrated its 10th anniversary. To celebrate, we launched a series of activities that showcased musicians ’ 10-year journey, fostering growth, belonging and artists’ connection with fans on the platform. • Supporting musicians in content creation. Our diverse range of support throughout the creative process helps artists actualise their creative potential, such as our all-in-one AI music creation tool, NetEase Tianyin. We also organised co-working camps to bring together emerging music talents for collaboration. At our recent in-person camp, we hosted top overseas musicians like Marc Dold and Yuto for the first time to conduct masterclasses and offer guidance to aspiring artists. • Exploring and improving the exposure of musicians and their work. In 2024, our region-oriented music promotions included our renowned City Tour Guide special planning series (یܸfor which we released the Northeast Special Edition, and launched a new event in Guizhou and Suzhou. Our Project Cornerstone (ྌ) released nine compilation albums featuring fresh talent from diverse regions. To foster talent in our signature music genres, we introduced the Chinese Rap Rookie Award ( ʕ˖Ⴍਨอɛሧ), focusing on identifying rising rap talent. We released a new project “Rap Map” (Ⴍਨήྡ) to help users better understand Dialect rap. We also launched the “Nation” (љ•ᑊ) project, featuring a fusion of ethnic and contemporary popular music. • Helping musicians realise commercial value. We rolled out the latest phase of our renowned musician support project, “Project Cloud Ladder 2024 ” (ྌ2024), which further bolsters financial backing for musicians by offering a more attractive financial settlement mechanism and a broader scope of incentives.
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Management Discussion and Analysis 9 NetEase Cloud Music Annual Report 2024 Developing and promoting differentiated in-house music Drawing on our musical expertise, diverse user base and deep user insights, our in-house studios focused on producing high- quality music content. This approach caters to the diverse preferences of different audiences, particularly for the younger generation who is eager to discover new high-quality music. Multiple tracks developed in-house have gone viral on both our community and external platforms. In 2024, our in-house studios successfully produced and popularised multiple hit songs. We focused on top music genres, such as hip-hop, and produced multiple popular hip-hop tracks, including “Follow” (), “Hai Shi Hui Xiang Ni” (ᒔ ึซЫ), “5:20 AM” (5:20 AM), “Xie Tian Xie Di” () and “Ren Shang Ren” (ɛɪɛ). Our in-house version of Dehors has gained significant popularity. The song combines Cantonese and French languages, creating a unique musical fusion that appeals to a wide range of audiences. Other popular new songs include “Blooming Bauhinia” (ڀ ସක) and “Yu Shi” (), among others. Diversified audio-based content offerings Beyond music tracks, we have been actively broadening long-form audio offerings on our platform. In 2024, we achieved steady growth in long-form audio content consumption, with the average listening time per user of long-form audio on our platform having increased significantly by 35.8% year-over-year. • PUGC/UGC – podcast. By focusing on music-inspired content, podcasts provide an enjoyable avenue for fans to discover quality tracks and lesser-known songs. During the Reporting Period, we launched several customised podcast series interpreting different music genres, such as folk and rock. • PGC – audio books & radio dramas. We have been expanding our library of PGC long-form audio content in a cost- effective way by creating more popular self-produced content. We introduced Mo Yan’s latest audiobook “Not Blown Down by the Strong Wind” () and launched a special project. In this project, Mo Yan addressed young users’ concerns through audio recordings, offering a unique companion experience. Product innovation and community ecosystem Throughout 2024, we focused on product innovation and reinvigorating our unique community experience. Since early 2024, we achieved significant results through a comprehensive upgrade to the NetEase Cloud Music App, particularly on emphasising personalised content recommendations and music centric community. Our ongoing efforts elevated the user experience, increased their resonance with our community and boosted music interaction, which led to improved user engagement, such as increased time spent on our mobile app.
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Management Discussion and Analysis 10 NetEase Cloud Music Annual Report 2024 Optimising users’ music discovery and listening experience We intensified our focus on improving users ’ music discovery and consumption experiences by enhancing personalised content recommendations and innovative features that elevate our premium music-inspired audio-visual offerings. • Music content discovery and distribution. We continuously strengthened our app’s personalised recommendations functionality, including: 1) enhancing recommendation capabilities by integrating user consumption behaviour across various apps, 2) improving the recommendation function tailored for newer users, and 3) adding new content dimensions for music recommendations, such as playlists based on masterpieces, emotions and genres. These initiatives have increased the efficiency and coverage of content recommendations. • Enhancing the music consumption experience. We are delving into extended music consumption, and adding more audio-visual and scenario-based features. We upgraded Music Encyclopedia and introduced innovative features such as Lyric Books ( ဂ൚͉), AI Singing and Lightbulb (ظfor song recommendations. We released a range of new music player interfaces to enhance the audio-visual experience, such as IP-themed players and the popular Vinyl player DIY feature. Fostering music-inspired community resonance and connections In 2024, we focused on the emotional impact of music to strengthen our community ’s music-inspired attributes. This approach improved community content consumption, interaction and creation, playing a vital role in sustaining and increasing strong user activity and stickiness. • Community consumption and interaction. We further enhanced the visibility of our iconic comments section in various app scenarios, by displaying popular comments on the vinyl player and introducing a new player that showcases selected comments. We also optimised interactive features around our iconic comments section. These efforts boosted emotional connections inspired by music, encouraging more user interactions. • Community content generation. Utilising our platform resources, we hosted community activities to encourage the creation of UGC content, like music comments and others. Additionally, we diversified our community content by exploring the integration of music-inspired graphic and text content formats. Expanding music consumption and communication scenarios • Expanding collaboration with NetEase. In 2024, we expanded our collaborations with NetEase games and online education division (specifically Youdao Dictionary). For example, we introduced music-inspired social interaction features in games, enhancing the integrated music and gaming experience for users. These collaborations boosted our brand awareness and recognition among younger users. • IoT layouts. We continued optimising our functionality that lets users easily switch between different terminals like mobile, PC, TV and in-car scenarios, effectively addressing diverse user needs and improving user experience. These efforts help us improve overall user activity and engagement across multiple terminals and scenarios. In 2024, we further expanded in-car coverage to new brands and models such as Xiaomi, Mercedes-Benz, Harmony Intelligent Mobility Alliance, and Changan. Additionally, we formed a long-term strategic partnership with Great Wall Motors.
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Management Discussion and Analysis 11 NetEase Cloud Music Annual Report 2024 FINANCIAL REVIEW The following table sets forth our consolidated statements of profit or loss, both in absolute amounts and as percentages of our total revenues, for the years ended 31 December 2024 and 2023, respectively: Year ended 31 December 2024 2023 RMB % RMB % (RMB in thousands, except percentages) Revenue 7,950,146 100.0 7,866,992 100.0 Cost of revenue (5,268,634) (66.3) (5,764,322) (73.3) Gross profit 2,681,512 33.7 2,102,670 26.7 Selling and marketing expenses (611,533) (7.7) (758,235) (9.6) General and administrative expenses (184,651) (2.3) (165,102) (2.1) Research and development expenses (779,659) (9.8) (868,699) (11.0) Other income 27,859 0.4 71,799 0.9 Other gains/(losses), net 37,319 0.5 (52,253) (0.7) Operating profit 1,170,847 14.8 330,180 4.2 Share of results of investments accounted for using equity method (6,544) (0.1) (63) (0.0) Finance income 406,191 5.1 437,879 5.6 Finance cost (239) (0.0) (317) (0.0) Profit before income tax 1,570,255 19.8 767,679 9.8 Income tax expense (4,886) (0.1) (33,497) (0.4) Profit for the year 1,565,369 19.7 734,182 9.4 Profit for the year attributable to: Equity holders of the Company 1,561,507 19.6 734,182 9.4 Non-controlling interest 3,862 0.1 – – 1,565,369 19.7 734,182 9.4 Non-IFRS measure: Adjusted net profit (1) 1,700,078 21.4 818,500 10.4 Note: (1) Adjusted net profit is a non-IFRS measure. We define “adjusted net profit ” as profit for the year attributable to the equity holders of the Company adjusted by adding back equity-settled share-based payments as appropriate. Adjusted net profit is not a measure required by, or presented in accordance with, IFRS. The use of adjusted net profit has limitations as an analytical tool, and you should not consider it in isolation from, as a substitute for analysis of, or superior to, our results of operations or financial condition as reported under IFRS. For more details, see “ÑNon-IFRS Measure” in this section.
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Management Discussion and Analysis 12 NetEase Cloud Music Annual Report 2024 Overview Over the Reporting Period, we recorded a revenue of RMB7,950.1 million and a gross profit of RMB2,681.5 million. Our gross profit significantly increased by RMB578.8 million, primarily due to increased revenues from sales of membership subscriptions and continued improvement in cost control measures. We recorded a net profit of RMB1,565.4 million in 2024, compared with a net profit of RMB734.2 million in 2023. Excluding the impact of equity-settled share-based payments, our adjusted net profit reached RMB1,700.1 million in 2024, compared with an adjusted net profit of RMB818.5 million in 2023. Revenue Our revenue increased by 1.1% from RMB7,867.0 million in 2023 to RMB7,950.1 million in 2024. Revenue from online music services increased by 23.1% from RMB4,350.9 million in 2023 to RMB5,354.5 million in 2024. In particular, revenue from sales of membership subscriptions increased from RMB3,649.2 million in 2023 to RMB4,459.0 million in 2024, driven by an increase in monthly paying users of online music services with the enhanced product and content offerings of our membership services. Revenue from social entertainment services and others decreased by 26.2% from RMB3,516.1 million in 2023 to RMB2,595.6 million in 2024. The decline was primarily attributed to a more prudent operational approach for our social entertainment services, along with a focused emphasis on our core music business. Cost of Revenue Our cost of revenue decreased by 8.6% from RMB5,764.3 million in 2023 to RMB5,268.6 million in 2024, attributable to a decrease in content service costs from RMB4,598.7 million in 2023 to RMB4,008.9 million in 2024. The decrease in content service costs was primarily due to a decrease in revenue sharing fees along with a decrease in revenue from social entertainment services. Gross Profit and Gross Margin As a result of the above, our gross profit increased by 27.5% from RMB2,102.7 million in 2023 to RMB2,681.5 million in 2024, due to increased revenues from online music services and continued improvement in cost control measures. Our gross margin increased from 26.7% in 2023 to 33.7% in 2024. A one-off adjustment of certain content licensing fees increased the gross profit margin by approximately 1.3 percentage points in 2024. Selling and Marketing Expenses Our selling and marketing expenses decreased by 19.3% from RMB758.2 million in 2023 to RMB611.5 million in 2024, primarily due to a decrease in promotion and advertising expenses with more cautious marketing strategy.
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Management Discussion and Analysis 13 NetEase Cloud Music Annual Report 2024 General and Administrative Expenses Our general and administrative expenses increased by 11.8% from RMB165.1 million in 2023 to RMB184.7 million in 2024, primarily due to an increase in employee benefit expenses. Research and Development Expenses Our research and development expenses decreased by 10.2% from RMB868.7 million in 2023 to RMB779.7 million in 2024, primarily due to the improved utilisation of technical resources. Other Income Our other income decreased from RMB71.8 million in 2023 to RMB27.9 million in 2024, primarily due to a decrease in value-added tax subsidies and government grants. Other Gains/(Losses), Net We recorded other gains, net of RMB37.3 million in 2024 (in 2023: losses of RMB52.3 million). The change from losses to gains was primarily due to a loss recognised in relation to an other receivable in 2023, while gains on fair value changes of financial assets at fair value through profit or loss incurred in 2024. Finance Income, Net Our finance income decreased from RMB437.9 million in 2023 to RMB406.2 million in 2024, primarily due to decreased interest income from bank deposits with a decrease of USD fixed deposit rate. Taxation We recorded income tax expenses of RMB4.9 million in 2024 as compared to income tax expenses of RMB33.5 million in 2023, primarily due to a decrease in withholding tax of interest income. Profit for the Year As a result of the above, we generated a profit of RMB1,565.4 million in 2024, compared with a profit of RMB734.2 million in 2023.
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Management Discussion and Analysis 14 NetEase Cloud Music Annual Report 2024 Non-IFRS measure To supplement our consolidated results, which are prepared and presented in accordance with IFRS, our Company uses adjusted net profit as an additional financial measure, which is not required by, or presented in accordance with IFRS. We believe that this measure facilitates comparisons of operating performance from period to period and company to company by eliminating the potential impact of items that our management does not consider to be indicative of our Group ’s operating performance, such as certain non-cash items. The use of this non-IFRS measure has limitations as an analytical tool, and shareholders and potential investors of our Company should not consider them in isolation from, as a substitute for, analysis of, or superior to, our Group ’s results of operations or financial condition as reported under IFRS. In addition, this non-IFRS financial measure may be defined differently from similar terms used by other companies, and may not be comparable to other similarly titled measures used by other companies. Our presentation of this non-IFRS measure should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items. Our adjusted net profit reached RMB1,700.1 million in 2024, compared with adjusted net profit of RMB818.5 million in 2023. Adjusted net profit is a non-IFRS measure and is defined as profit for the year attributable to the equity holders of the Company adjusted by adding back equity-settled share-based payments as appropriate. The following table reconciles the profit for the year to adjusted net profit for both years: For the year ended 31 December 2024 2023 (in RMB thousands) Profit for the year attributable to the equity holders of the Company 1,561,507 734,182 Add: Equity-settled share-based payments (1) 138,571 84,318 Adjusted net profit 1,700,078 818,500 Note: (1) Equity-settled share-based payments mainly represent share-based compensation expenses incurred in connection with our share incentive plan adopted by the Company. Share-based compensation expenses are not expected to result in future cash payments and are not indicative of our core operating results. The reconciling item is non-cash and does not result in cash outflow.
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Management Discussion and Analysis 15 NetEase Cloud Music Annual Report 2024 Liquidity and Capital Resources As at 31 December 2024, we funded our cash requirements principally from cash generated from operating activities. We had cash and cash equivalents of RMB4.0 billion and RMB3.8 billion as at 31 December 2023 and 2024, respectively. Our principal uses of cash have been for funding of required working capital, capital expenditures and other recurring expenses to support the expansion of the Group’s operations. Going forward, our Company intends to finance its expansion and business operations with a combination of the net proceeds received from our Company ’s global offering, and through sustainable growth. Any significant decrease in users of our online music services and/or social entertainment services may adversely impact our liquidity. The following table sets forth a summary of our cash flows for the year indicated, respectively: Year ended 31 December 2024 2023 (in RMB thousands) Operating cash inflows before movement in working capital 1,295,331 487,417 Changes in working capital 487,574 (263,576) Income taxes paid (8,285) (34,788) Net cash generated from operating activities 1,774,620 189,053 Net cash (used in)/generated from investing activities (1,938,782) 1,227,066 Net cash used in financing activities (62,060) (307,676) Net (decrease)/increase in cash and cash equivalents (226,222) 1,108,443 Cash and cash equivalents at the beginning of the year 4,020,400 2,916,534 Exchange differences on cash and cash equivalents 1,032 (4,577) Cash and cash equivalents at the end of the year 3,795,210 4,020,400
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Report of Directors 16 NetEase Cloud Music Annual Report 2024 Our board is pleased to present this report of Directors together with the consolidated financial statements of the Group for the 2024 financial year. OVERVIEW OF OUR BOARD Our Directors who held office during the Reporting Period and up to the Latest Practicable Date are: Executive Directors: Mr. William Lei Ding (Chairman and Chief Executive Officer) Mr. Yong Li Ms. Yanfeng Wang Non-Executive Directors: Mr. Yat Keung Li Mr. Dewei Zheng (resigned as a non-executive Director with effect from 15 February 2024) Mr. Ran Wang (resigned as a non-executive Director with effect from 23 May 2024) Independent Non-Executive Directors: Mr. Ying Kit Caleb Lo Mr. Xianfeng Gu Mr. Zhong Xu Biographical details of our Directors are set out in “Directors and Senior Management ” at pages 40 to 42 of this annual report. In accordance with article 16.20 of our articles of association, Ms. Yanfeng Wang, Mr. Yat Keung Li and Mr. Xianfeng Gu shall retire at our upcoming annual general meeting. Each of these Directors, being eligible, will offer themselves for re-election at our upcoming annual general meeting.
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Report of Directors 17 NetEase Cloud Music Annual Report 2024 OVERVIEW OF OUR COMPANY The Company was incorporated in the Cayman Islands on 2 February 2016 as an exempted limited liability company. Our shares were listed on the Main Board of the Stock Exchange on 2 December 2021. Our Business We operate an online music platform in China. We provide community-centric online music services and social entertainment services for music enthusiasts. NetEase Cloud Music empowers music enthusiasts to connect with one another and to discover, enjoy, share and create music and music-inspired content. Subsidiaries Particulars of the Company’s principal subsidiaries are set out in Note 17 to the consolidated financial statements. Purchase, Sale or Redemption of the Company’s Listed Securities During the Reporting Period, the Company repurchased a total of 331,550 shares of the Company on the Stock Exchange at an aggregate consideration of approximately HK$30,663,242. Particulars of the shares repurchased are as follows: Month of repurchase Number of shares repurchased Highest repurchase price per share Lowest repurchase price per share Aggregate consideration (approximately) (HK$) (HK$) (HK$) September 2024 331,550 98.60 88.25 30,663,242 All of the shares repurchased during the Reporting Period are held as treasury shares. Accordingly, as at 31 December 2024, the Company held 331,550 treasury shares. The Directors considered that the above share repurchases were made to reflect the Company’s confidence in its long-term business prospects and potential growth. As at the Latest Practicable Date, the Company did not intend to conduct any sale of treasury shares but may do so in the future subject to market conditions and the Group’s capital management needs at the relevant time. Save as disclosed above, during the Reporting Period, neither our Company nor any of our subsidiaries purchased, sold or redeemed any of our Company’s securities (including sale of treasury shares) listed on the Stock Exchange. Public Float Based on information that is publicly available to the Company and within the knowledge of our Directors as at the Latest Practicable Date, the Company had maintained the prescribed percentage of public float under the Listing Rules.
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Report of Directors 18 NetEase Cloud Music Annual Report 2024 OVERVIEW OF OUR PERFORMANCE OVER THE REPORTING PERIOD A fair review of the business of the Group as required by Schedule 5 to the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), including an analysis of the Group ’s financial performance and an indication of likely future developments in the Group ’s business is set out in “Management Discussion and Analysis ” of this annual report. Those discussions form part of this report. Events affecting the Company that have occurred since the end of the 2024 financial year are set out in “Events After the Reporting Period” in this annual report. An account of the Company’s key relationships with our employees, customers and suppliers and others that have a significant impact on the Company is set out in our “Environmental, Social and Governance Report” at pages 70 to 108 of this annual report. Results of our Group The results of the Group for the Reporting Period are set out in the consolidated statement of profit or loss at page 114 of this annual report. Financial Summary A summary of the consolidated results and the assets and liabilities of the Group for the last five financial years, as extracted from the consolidated financial statements, is set out at page 186 of this annual report. This summary does not form part of the consolidated financial statements. Pre-emptive Rights There are no provisions for pre-emptive rights under our articles of association or the laws of the Cayman Islands that would oblige the Company to offer new shares on a pro-rata basis to our Shareholders. Tax Relief and Exemption Our Directors are not aware of any tax relief and exemption available to our Shareholders by reason of their holding of our securities. Property, Plant and Equipment Details of movements in the property, plant and equipment of the Company and the Group during the Reporting Period are set out in Note 15 to the consolidated financial statements. Share Capital and Shares Issued The Company has one class of shares with a nominal or par value of US$0.0001 each. Details of movements in the share capital of the Company, and details of our shares issued, during the Reporting Period are set out in Note 25 to the consolidated financial statements. Donations During the Reporting Period, the Group made charitable donations of RMB351,800.00 (2023: RMB90,000.00).
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Report of Directors 19 NetEase Cloud Music Annual Report 2024 Debenture Issued The Group did not issue any debenture during the Reporting Period. Equity-linked Agreements Save as disclosed in “Share Incentive Plans ” at pages 46 to 53 of this annual report, no equity-linked agreements were entered into by the Group, or existed, during the Reporting Period. Dividends Our board does not recommend the distribution of a final dividend for the Reporting Period. No Shareholder has waived or agreed to waive any dividends for the 2024 financial year. Permitted Indemnity Pursuant to our articles of association and subject to the applicable laws and regulations, every Director shall be indemnified out of the assets of the Company against all losses or liabilities incurred or sustained which they or any of them may incur or sustain in or about the execution of their duty in their offices. Such permitted indemnity provision has been in force over the Reporting Period. The Company has taken out liability insurance to provide appropriate coverage for the Directors. Distributable Reserves The Company may pay dividends out of either profits or share premium account provided that immediately following the payment of such dividends, the Company will be in a position to pay its debts as they fall due in the ordinary course of business. As at 31 December 2024, the Company had distributable reserves of RMB14,901.2 million (2023: RMB14,632.9 million). Details of movements in the reserves of the Group and the Company during the Reporting Period are set out in the consolidated statement of changes in equity at page 118 and in Note 35(b) to the consolidated financial statements, respectively. Bank Loans and Other Borrowings As at 31 December 2024, the Group did not have any bank loans or other borrowings. Pledge of Assets As at 31 December 2024, none of our assets were pledged to secure our loans and banking facilities. Gearing Ratio As at 31 December 2024, our gearing ratio was 25.0% (31 December 2023: 27.3%). Gearing ratio is calculated as our total liabilities divided by our total assets as at a particular date.
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Report of Directors 20 NetEase Cloud Music Annual Report 2024 Foreign Exchange Exposure During the Reporting Period, save for the short-term bank deposits which are denominated in U.S. dollars, substantially all of our revenues and expenditures were denominated in RMB. Accordingly, we have certain exposure to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. dollar. Foreign exchange risk arises when commercial transactions or recognised assets and liabilities are denominated in a currency that is not the respective functional currency of our subsidiaries. The functional currency of our Company is U.S. dollar whereas the functional currency of our subsidiaries, which operate in the PRC, is RMB. We currently do not have a foreign currency hedging policy in respect of transactions undertaken in foreign currency but we manage our foreign exchange risk by performing regular reviews of our net foreign exchange exposures. Significant Investments We did not make or hold any significant investments during 2024. Material Acquisitions and Disposals We did not have any material acquisitions or disposals of subsidiaries, consolidated affiliated entities, associated companies or joint ventures during 2024. Contingent Liabilities Saved as disclosed in Note 34 to the consolidated financial information of the Group set out in this annual report, we had no contingent liabilities as at 31 December 2024 (31 December 2023: Nil). Future Plans for Material Investments We had no other plans for material investments or capital assets as at 31 December 2024, except the intended use of proceeds as disclosed in the Prospectus. Major Customers and Suppliers During the Reporting Period, revenue from the Group ’s top five customers, which are primarily media and internet companies, accounted for 14.2% (2023: 10.9%) of the Group’s revenue in the same year. During the Reporting Period, cost of revenue from the Group ’s five largest suppliers accounted for 25.7% (2023: 20.6%) of the Group ’s total cost of revenue amount in the same year. The Group ’s largest supplier for the 2024 financial year accounted for approximately 8.3% (2023: 6.4%) of the Group’s total cost of revenue amount for the same year.
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Report of Directors 21 NetEase Cloud Music Annual Report 2024 Employee and Remuneration Policy As at 31 December 2023 and 2024, we had 1,359 and 1,331 employees, respectively. As at 31 December 2024, substantially all of our employees were based in China. The number of employees employed by the Group varies from time to time depending on business need. Employees ’ remuneration is determined in accordance with prevailing industry practice and employees ’ educational backgrounds, experiences and performance. The Group ’s compensation system is well-structured and consists of a basic salary, a performance-based bonus and long-term incentives, which is reviewed periodically. The Group also provides training sessions to its employees, which mainly focus on campus recruiting personnel, management personnel and professional technology personnel. As required by regulations in China, we participate in various employee social security plans that are organised by municipal and provincial governments for our PRC-based full-time employees, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing funds. These plans are defined contribution plans, under which, we and our PRC-based employees who are participants are required to make monthly contributions in the amount specified under PRC laws and regulations, which are calculated based on the employee ’s actual salary level in the previous year, subject to certain ceilings imposed. There are no forfeited contributions for these defined contribution plans as the contributions are fully vested to the employees upon payment to the scheme. The prescribed percentages are determined by the PRC government and differ across municipalities and provinces in Mainland China. See Note 2.2.9 to the consolidated financial statements for more information on defined contribution plans. The range of applicable percentages for these state-managed contribution plans for the 2024 financial year as applicable to the Group are listed below: Percentages Pension insurance 14.0% to 16.0% Medical insurance 5.0% to 9.8% Unemployment insurance 0.5% to 0.8% Work-related injury insurance 0.16% to 0.40% Housing provident fund 7.0% to 12.0% Remuneration of directors and other senior management of the Group is reviewed by our Board ’s remuneration committee and recommended to the Board based on our performance and the senior managements ’ respective contributions to the Group. Additionally, the Company has two share incentive plans, the principal terms of which are disclosed in Appendix IV to the Prospectus, and the circular of the Company dated 24 May 2023, respectively. Please refer to the “Other Information – Share Incentive Plans – Details of Share Incentive Plans of our Company ” section below for further details. The total remuneration cost incurred by us during the Reporting Period was RMB1,215.8 million (2023 financial year: RMB1,154.0 million).
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Report of Directors 22 NetEase Cloud Music Annual Report 2024 PRINCIPAL RISKS AND UNCERTAINTIES The following list is a summary of certain principal risks and uncertainties facing the Group, some of which are beyond our control: (a) ability to achieve or maintain profitability in the future; (b) ability to accurately predict and effectively cater to changing user preferences in terms of content and product offerings; (c) ability to protect, maintain and enhance our brand and community culture; (d) uncertainties with compliance with laws and regulations in the PRC and other jurisdictions relating to data privacy and security; (e) uncertainties with respect to the enactment, interpretation and implementation of certain laws, regulations and government policies in the PRC; (f) ability to effectively execute monetisation strategies; (g) intense competition for users, users ’ time and attention, content, talent, advertising customers and other resources; and (h) risks related to industry, business and operations. The above is not an exhaustive list. Investors are advised to make their own judgment or consult their own investment advisors before making any investment in our shares. CONTRACTS WITH CONTROLLING SHAREHOLDER AND MANAGEMENT NetEase is the controlling Shareholder (as defined under the Listing Rules) of the Company. Save as disclosed in the Prospectus and in this annual report, to the best knowledge and belief of our Directors, NetEase has no contracts of significance with us or have any competing business which would require disclosure under the Listing Rules. Save as disclosed in the Prospectus and in this annual report, no contract, concerning the management and administration of the whole or any substantial part of the business of the Company was entered into or existed during the Reporting Period. ENVIRONMENTAL POLICIES AND PERFORMANCE The Group is committed to fulfilling social responsibility, promoting employee benefits and development, protecting the environment and giving back to community and achieving sustainable growth. COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS To the best of our knowledge, the Group has complied in all material aspects with the relevant laws and regulations that have a significant impact on the business and operation of the Group. During the Reporting Period, there was no material breach of, or non-compliance with, applicable laws and regulations by the Group.
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Report of Directors 23 NetEase Cloud Music Annual Report 2024 MATERIAL LITIGATION The Company was not involved in any material litigation or arbitration during the Reporting Period. Our Directors are also not aware of any material litigation or claims that are pending or threatened against the Group during the Reporting Period. INFORMATION RELATING TO OUR DIRECTORS Directors’ Service Contracts Each of our executive Directors entered into a service contract with the Company on 21 November 2021 for an initial term of three years from the Listing Date, which is automatically renewed for successive periods of 3 years until terminated in accordance with the service contract or by either party giving prior written notice. Our non-executive Director has entered into an appointment letter with the Company for an initial term of three years from the Listing Date, which is automatically renewed for successive periods of 3 years until terminated in accordance with the appointment letter or by either party giving prior written notice. Each of the independent non-executive Directors entered into an appointment letter with the Company on 21 November 2021 for an initial term of three years from the Listing Date, which is automatically renewed for successive periods of 3 years until terminated in accordance with the appointment letter or by either party giving prior written notice. The above appointments are subject to the provisions of retirement of Directors under our articles of association. None of the Directors proposed for re-election at our upcoming annual general meeting has a service contract with members of the Group that is not determinable by the Group within one year without payment of compensation, other than statutory compensation. Directors’ Interests in Transactions, Arrangements or Contracts of Significance Save as disclosed at pages 24 to 30 and in Note 10 to the consolidated financial statements, none of our Directors nor any entity connected with our Directors had a material interest, either directly or indirectly, in any transactions, arrangements or contracts of significance to which the Company, its holding company, or any of its subsidiaries or fellow subsidiaries was a party subsisting during or at the end of the year ended 31 December 2024. Directors’ Rights to Acquire Shares or Debenture Save as disclosed in this annual report, at no time during the Reporting Period was the Company or any of its subsidiaries a party to any arrangements to enable our Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate; and none of the Directors, or any of their spouse or children under the age of 18, had any right to subscribe for equity or debt securities of the Company or any other body corporate, or had exercised any such right.
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Report of Directors 24 NetEase Cloud Music Annual Report 2024 Emolument Policy and Directors’ Remuneration In compliance with Rule 3.25 of the Listing Rules and the Corporate Governance Code, the Company has established a remuneration committee to assist our Board in formulating remuneration policies. Remuneration is determined and recommended based on each Director ’s and senior management personnel ’s qualification, position and seniority. As for our independent non-executive Directors, their remuneration is determined by our Board upon recommendation from our Board’s remuneration committee. Our Directors and the senior management personnel are eligible participants of our share incentive plans (details of which are summarised in “Share Incentive Plans” at pages 46 to 53 of this annual report. Details of the remuneration of our Directors, senior management (which is also our key management) and the five highest paid individuals are set out in Note 10,33(c) and 9 to the consolidated financial statements. None of our Directors waived or agreed to waive any remuneration and there were no emoluments paid by the Group to any of our Directors or the five highest paid individuals as an inducement to join, or upon joining the Group, or as compensation for loss of office. Over the Reporting Period, the aggregate amount of remuneration (including basic salaries, housing allowances, other allowances, and benefits in kind, contributions to pension plans and discretionary bonuses) for our Directors was approximately RMB9.5 million (as set out in Note 10 to the consolidated financial statements). Directors’ Interests in Competing Business During the Reporting Period, none of our Directors control a business similar to principal business of the Group that competes or is likely to compete, either directly or indirectly, with the Group ’s business, which would require disclosure under the Listing Rules. Continuing Disclosure Obligations pursuant to the Listing Rules Save as disclosed in the Prospectus and in this annual report, the Company does not have any other disclosure obligations under Rules 13.20, 13.21 and 13.22 of the Listing Rules.
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Report of Directors 25 NetEase Cloud Music Annual Report 2024 CONTINUING CONNECTED TRANSACTIONS During the Reporting Period, the Group engaged in certain transactions with the following persons that constituted continuing connected transactions under the Listing Rules. Name of connected person Relationship Registered shareholders that hold 10% or more of the equity interest in the Onshore Holdcos (Note) our substantial shareholder NetEase our substantial shareholder Set out below is a summary of the non-exempt and partially-exempt continuing connected transactions of the Group during the Reporting Period. Note: The Onshore Holdcos are Hangzhou Yuedu Technology Co., Ltd. (ʮ̡ ) ( “Hangzhou Yuedu ”), which operates online programmes, online performances and live streaming businesses and Hangzhou Rege Culture Creativity Co., Ltd. (ʮ̡) (“Hangzhou Rege”), through which the Company makes minority investments related to our business. The registered shareholders of Hangzhou Yuedu are Mr. William Lei Ding as to 99% and Ms. Wei Li as to 1%. The registered shareholders of Hangzhou Rege have been Mr. Anqi Huang as to 50% and Ms. Ni Xie as to 50% since 31 March 2024 (the date on which Mr. Yong Peng ceased to be a 100% registered shareholder of Hangzhou Rege). Contractual Arrangements We engage in radio and television programme production and operation, commercial internet cultural activities and value-added telecommunications services. Under PRC laws and regulations, foreign ownership is prohibited in entities engaging in radio and television programme production and operation and the internet cultural business (except for music) and restricted in entities engaging in value-added telecommunications service providers (in addition to imposing a qualification requirement on the foreign owners). As a result of these foreign ownership restrictions, these businesses are operated by our consolidated affiliated entities (as disclosed in Note 17 in the consolidated financial statements), which are in turn, controlled by us and from which we derive the economic benefits through a series of contractual arrangements. These contractual arrangements are narrowly tailored to achieve our business purpose and minimise the potential for conflict with relevant PRC laws and regulations. For further details of the relevant foreign ownership regulations in the PRC and a discussion of the material terms of the agreements underlying our contractual arrangements are set out in “Contractual Arrangements” section of the Prospectus.
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Report of Directors 26 NetEase Cloud Music Annual Report 2024 Risks relating to the Contractual Arrangements and actions taken to mitigate the risks We believe the following risks are associated with our contractual arrangements. Further details of these risks are set out in the “Risk Factors” section of the Prospectus. (a) If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or their interpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. (b) We rely on contractual arrangements with our VIEs and their shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership. (c) We may lose the ability to use and enjoy assets held by our VIEs and their subsidiaries that are important to our business if our VIEs and their subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding. (d) Contractual arrangements we have entered into with our VIEs may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could negatively affect our financial condition and the value of your investment. (e) If the chops of our PRC subsidiaries, our VIEs and their subsidiaries, are not kept safely, are stolen or are used by unauthorised persons or for unauthorised purposes, the corporate governance of these entities could be severely and adversely compromised. (f) The shareholders of Hangzhou Yuedu may have potential conflicts of interest with us, which may materially and adversely affect our business. (g) Substantial uncertainties exist with respect to how the Foreign Investment Law may impact the viability of our current corporate structure and operations.
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Report of Directors 27 NetEase Cloud Music Annual Report 2024 Summary of the agreements underlying our contractual arrangements The contractual arrangements in place during the Reporting Period include: (a) an operating agreement dated 2 November 2023 entered into among Hangzhou NetEase Cloud Music Technology Co., Ltd. (ʮ̡) (“WFOE”), Hangzhou Yuedu Technology Co., Ltd. ( “Hangzhou Yuedu”), William Lei Ding ( ɕᆾ) ( “Mr. Ding ”) and Wei Li ( ҽᙯ) ( “Ms. Li ”), pursuant to which WFOE agreed to be the guarantor of Hangzhou Yuedu in, and provide full guarantee for the performance of the, contracts, agreements or transactions entered into between Hangzhou Yuedu and third parties in connection with Hangzhou Yuedu ’s business and operations. As counter-guarantee, Hangzhou Yuedu agreed to pledge its accounts receivable in its operations and assets to WFOE. (b) an exclusive purchase option agreement dated 2 November 2023 entered into among WFOE, Ms. Li and Hangzhou Yuedu, pursuant to which, (i) Ms. Li irrevocably granted to WFOE an option to purchase (or a person designated by WFOE to purchase) part or all of the equity interests held by Ms. Li in Hangzhou Yuedu at a purchase price equal to the outstanding loans owed by Ms. Li to WFOE under the loan agreement (detailed in (e) below); and (ii) Hangzhou Yuedu irrevocably granted to WFOE an option to purchase (or a person designated by the WFOE to purchase) part or all of the assets held by Hangzhou Yuedu or its subsidiaries at the minimum purchase price permitted under PRC laws and regulations. (c) an equity pledge agreement dated 2 November 2023 entered into between WFOE and Ms. Li, pursuant to which Ms. Li pledged to WFOE a first security interest in all of Ms. Li’s rights, title and interests in Hangzhou Yuedu. (d) a shareholder voting right trust agreement dated 2 November 2023 entered into between WFOE and Ms. Li, and agreed and accepted by Hangzhou Yuedu, pursuant to which Ms. Li irrevocably entrusted WFOE (and the person designated by WFOE) to exercise on Ms. Li ’s behalf all shareholder’s voting rights and all other shareholder ’s rights at the shareholders’ meeting of Hangzhou Yuedu. (e) a loan agreement dated 2 November 2023 entered into between WFOE and Ms. Li, pursuant to which WFOE shall provide to Ms. Li interest-free loan(s) to pay for the capital contribution towards the registered capital of Hangzhou Yuedu.
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Report of Directors 28 NetEase Cloud Music Annual Report 2024 (f) an amended and restated cooperation agreement dated 18 May 2021 entered into between Hangzhou Yuedu and WFOE, pursuant to which the parties would cooperate to provide clients with, among other things, internet information services, technical support and maintenance services relating to the research and development and operation of computer softwares, internet technology services, and technology development, technical assistance and support for electronic publishing and telecommunications. (g) an amended and restated exclusive purchase option agreement dated 18 May 2021 entered into among WFOE, Mr. Ding and Hangzhou Yuedu, pursuant to which (i) Mr. Ding irrevocably granted to WFOE an option to purchase (or a person designated by WFOE to purchase) part or all of the equity interests held by Mr. Ding in Hangzhou Yuedu at a purchase price equal to outstanding loans owed by Mr. Ding to WFOE under the loan agreement entered into between WFOE and Mr. Ding on the same date; and (ii) Hangzhou Yuedu irrevocably granted to WFOE an option to purchase (or a person designated by WFOE to purchase) part or all of the assets held by Hangzhou Yuedu or its subsidiaries at the minimum purchase price permitted under PRC laws and regulations. (h) an amended and restated equity pledge agreement dated 18 May 2021 entered into between WFOE and Mr. Ding, pursuant to which Mr. Ding pledged to WFOE a first security interest in all of Mr. Ding ’s rights, title and interests in Hangzhou Yuedu. (i) an amended and restated shareholder voting right trust agreement dated 18 May 2021 entered into between WFOE and Mr. Ding, and agreed and accepted by Hangzhou Yuedu, pursuant to which Mr. Ding irrevocably entrusted WFOE (and the person designated by WFOE) to exercise on Mr. Ding ’s behalf all shareholder ’s voting rights and all other shareholder’s rights at the shareholders’ meeting of Hangzhou Yuedu. (j) an amended and restated loan agreement dated 18 May 2021 entered into between WFOE and Mr. Ding, pursuant to which WFOE shall provide to Mr. Ding interest-free loan(s) to pay for the capital contribution towards the registered capital of Hangzhou Yuedu. (k) an operating agreement dated 31 March 2024 entered into among WFOE, Hangzhou Rege Culture Creativity Co., Ltd. (ʮ̡) (“Hangzhou Rege”), Anqi Wang (රτᘅ) (“Mr. Huang”) and Ni Xie (ᑽ) (“Ms. Xie”), pursuant to which WFOE agreed to be the guarantor of Hangzhou Rege in, and provide full guarantee for the performance of the, contracts, agreements or transactions entered into between Hangzhou Rege and third parties in connection with Hangzhou Rege’s business and operations. As counter-guarantee, Hangzhou Rege agreed to pledge its accounts receivable in its operations and assets to WFOE. (l) an exclusive purchase option agreement dated 31 March 2024 entered into among WFOE, Mr. Huang and Hangzhou Rege, pursuant to which, (i) Mr. Huang irrevocably granted to WFOE an option to purchase (or a person designated by WFOE to purchase) part or all of the equity interests held by Mr. Huang in Hangzhou Rege at a purchase price equal to the original and any additional paid-in capital paid by Mr. Huang for such equity interest (or if such payment was not yet made, the higher of RMB1 or such minimum amount required under PRC laws); and (ii) Hangzhou Rege irrevocably granted to WFOE an option to purchase (or a person designated by the WFOE to purchase) part or all of the assets held by Hangzhou Rege or its subsidiaries at the net book value of the assets as shown in Hangzhou Rege ’s financial statements.
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Report of Directors 29 NetEase Cloud Music Annual Report 2024 (m) an exclusive purchase option agreement dated 31 March 2024 entered into among WFOE, Ms. Xie and Hangzhou Rege, pursuant to which, (i) Ms. Xie irrevocably granted to WFOE an option to purchase (or a person designated by WFOE to purchase) part or all of the equity interests held by Ms. Xie in Hangzhou Rege at a purchase price equal to the original and any additional paid-in capital paid by Ms. Xie for such equity interest (or if such payment was not yet made, the higher of RMB1 or such minimum amount required under PRC laws); and (ii) Hangzhou Rege irrevocably granted to WFOE an option to purchase (or a person designated by the WFOE to purchase) part or all of the assets held by Hangzhou Rege or its subsidiaries at the net book value of the assets as shown in Hangzhou Rege ’s financial statements. (n) an equity pledge agreement dated 31 March 2024 entered into among WFOE, Mr. Huang and Hangzhou Rege, pursuant to which Mr. Huang pledged to WFOE a first security interest in all of Mr. Huang ’s rights, title and interests in Hangzhou Rege. (o) an equity pledge agreement dated 31 March 2024 entered into among WFOE, Ms. Xie and Hangzhou Rege, pursuant to which Ms. Xie pledged to WFOE a first security interest in all of Ms. Xie ’s rights, title and interests in Hangzhou Rege. (p) a shareholder voting right trust agreement dated 31 March 2024 entered into among WFOE and Mr. Huang and Hangzhou Rege, pursuant to which Mr. Huang irrevocably entrusted WFOE (and the person designated by WFOE) to exercise on Mr. Huang ’s behalf all shareholder ’s voting rights and all other shareholder ’s rights at the shareholders ’ meeting of Hangzhou Rege. (q) a shareholder voting right trust agreement dated 31 March 2024 entered into among WFOE and Ms. Xie and Hangzhou Rege, pursuant to which Ms. Xie irrevocably entrusted WFOE (and the person designated by WFOE) to exercise on Ms. Xie ’s behalf all shareholder ’s voting rights and all other shareholder ’s rights at the shareholders ’ meeting of Hangzhou Rege. (r) a loan agreement dated 31 March 2024 entered into between WFOE and Mr. Huang, pursuant to which WFOE shall provide to Mr. Huang interest-free loan(s) to pay for the capital contribution towards the registered capital of Hangzhou Rege. (s) a loan agreement dated 31 March 2024 entered into between WFOE and Ms. Xie, pursuant to which WFOE shall provide to Ms. Xie interest-free loan(s) to pay for the capital contribution towards the registered capital of Hangzhou Rege. (t) a cooperation agreement dated 18 May 2021 entered into between Hangzhou Rege and WFOE, pursuant to which the parties would cooperate to provide clients with, among other things, supply of music licence, innovation consultancy services, technical support and maintenance services relating to the research and development and operation of computer softwares, internet technology services, and technology development, technical assistance and support for electronic publishing and telecommunications.
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Report of Directors 30 NetEase Cloud Music Annual Report 2024 (u) an amended and restated operating agreement dated 18 May 2021 entered into among WFOE, Hangzhou Rege and Yong Peng (ۇ“( )Mr. Peng”), pursuant to which WFOE agreed to be the guarantor of Hangzhou Rege in, and to provide full guarantee for the performance of the, contracts, agreements or transactions entered into between Hangzhou Rege and third parties in connection with Hangzhou Rege’s business and operations. As counter-guarantee, Hangzhou Rege agreed to pledge its accounts receivable in its operations and assets to WFOE. (v) an amended and restated exclusive purchase option agreement dated 18 May 2021 entered into among the WFOE, Mr. Peng and Hangzhou Rege, pursuant to which (i) Mr. Peng irrevocably granted to WFOE an option to purchase (or a person designated by the WFOE to purchase) part or all of the equity interests held by Mr. Peng in Hangzhou Rege at a purchase price equal to the original and any additional paid-in capital paid by Mr. Peng for such equity interest; and (ii) Hangzhou Rege irrevocably granted to WFOE an option to purchase (or a person designated by WFOE to purchase) part or all of the assets held by Hangzhou Rege or its subsidiaries at the minimum purchase price permitted under PRC laws and regulations. (w) an amended and restated equity pledge agreement dated 18 May 2021 entered into between WFOE and Mr. Peng, pursuant to which Mr. Peng pledged to WFOE a first security interest in all of Mr. Peng ’s rights, title and interests in Hangzhou Rege. (x) an amended and restated shareholder voting right trust agreement dated 18 May 2021 entered into between WFOE and Mr. Peng, and agreed and accepted by Hangzhou Rege, pursuant to which Mr. Peng irrevocably entrusted WFOE (and the person designated by WFOE) to exercise on Mr. Peng ’s behalf all shareholder ’s voting rights and all other shareholder’s rights at the shareholders’ meeting of Hangzhou Rege. Items (u) to (x) are referred to as the “2021 Hangzhou Rege Agreements”. The 2021 Hangzhou Rege Agreements were terminated on 31 March 2024 as a result of Mr. Peng ceasing to have any interest in Hangzhou Rege (and therefore, ceasing to be a registered shareholder of Hangzhou Rege). Substantially all of the Group ’s total revenue and net assets are derived from our consolidated affiliated entities that are subject to the contractual arrangements. The total revenue and net assets derived from our consolidated affiliated entities that are subject to the contractual arrangements is approximately RMB7,706 million during the Reporting Period and approximately RMB7.9 million as at 31 December 2024, respectively.
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Report of Directors 31 NetEase Cloud Music Annual Report 2024 2023 NetEase Group Framework Agreement On 28 November 2023, the Company (for itself and on behalf of the Group) and NetEase (for itself and on behalf of NetEase Group) entered into a framework agreement (the “2023 NetEase Group Framework Agreement”), pursuant to which, for a term of three years from 1 January 2024 to 31 December 2026: (a) the Group would provide to NetEase Group, (i) advertising services (the “Advertising Services CCTs”), and (ii) other services (the “Other Services CCTs”); and (b) NetEase Group would provide to the Group, among others, (i) bandwidth, server custody and rack services (the “Bandwidth, Server Custody and Rack Services CCTs ”), (ii) information technology services (the “Information Technology Services CCTs”), (iii) shared services (the “Shared Services CCTs”), and (iv) product procurement (the “Product Procurement CCTs”). The terms of the 2023 NetEase Group Framework Agreement were entered into on normal commercial terms (or better) after arm’s length negotiations. Further details of each transaction under the 2023 NetEase Group Framework Agreement, including historical transaction amounts, pricing policy and annual caps are set out in the announcement of the Company dated 28 November 2023. Annual cap and actual transaction amounts The annual caps and actual transaction amounts of the continuing connected transactions with NetEase Group during the Reporting Period are set out below: Transaction Annual Cap for the Reporting Period Transaction Amount in the Reporting Period RMB million RMB million Advertising Services CCTs 278.6 64.1 Other Services CCTs 39.7 19.9 Bandwidth, Server Custody and Rack Services CCTs 48.0 26.4 Information Technology CCTs 365.7 233.7 Shared Services CCTs 55.8 44.0 Product Procurement CCTs 12.4 5.4
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Report of Directors 32 NetEase Cloud Music Annual Report 2024 1. Advertising Services Transaction The Group provides advertising services to end-advertising clients (being primarily third parties) in exchange for advertising service fees. These advertising services include: embedding advertisements across the Group ’s platforms or through the Group ’s services, coordinating advertising campaigns using music or products available on the Group’s platforms, and facilitating collaborations between the end-advertising client and the Group ’s users, artists or stakeholders in the music industry. Certain of these end-advertising clients or advertising services are referred to the Group through NetEase Group, and accordingly, part of the service fees generated from this portion of advertising services will be recorded by the Group as connected transactions with NetEase Group. Pricing Policy Transaction fees charged under this transaction will be based on: the quality of advertising units concerned, a base rate for each advertising unit, a discount rate, and a rebate ratio. The base rate of each advertising unit adopts the “effective cost-per-mille ” (or eCPM) pricing model, which is calculated based on the resources/support required and the cost of advertising space per one thousand units of advertisement impressions. The rebate ratio and the discount rate are percentage multiples determined with reference to the average market rate and is based on the specific contract terms; this allows for greater flexibility and depends on various factors, including advertising volume, advertising duration and any bundling services subscribed for by the end-advertising client. The pricing policy for the Advertising Services CCTs is based on the following formula: Quantity of advertising units x Base rate for each advertising unit x Discounted rate x (1 – rebate ratio) These pricing formulae are in accordance with market practice for advertising services conducted in the online music entertainment industry, and takes into account the following factors: • a base rate for each advertising unit, determined with reference to market rates; • the volume/quantity of each advertising unit, according to the request of the end-advertising client; • a discounted rate, which provides the Group with greater flexibility to tailor the end price according to, among other factors, the end-advertising client, campaign, seasonality, and overall market factors; these rates are preagreed and based on a progressive scale based on the aforementioned factors, and is on the same basis as those offered to third parties; and • a rebate ratio, which represents the percentage charged by NetEase Group to the Group for services they had provided us in the overall process. This formula and its rates (including base rate and discount rate) are on the same basis as those offered by the Group to third parties.
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Report of Directors 33 NetEase Cloud Music Annual Report 2024 Basis of Annual Caps The annual caps are determined with reference to the historical transaction amounts and the expected growth in advertising revenue during the annual cap period. This expected growth is based on the continued widening scope of users, and the gradual increase in selling price of each advertising item, quantity and audience exposure over time, as the Group ’s advertising services yield better results based on greater experience and enhanced technology. Nevertheless, the annual caps also take into account the prevalence of referrals of advertising services or end-advertising clients from non-connected persons of the Company, which would off-set the increase in the expected annual transaction amounts under this transaction going forward. 2. Other Services Transaction The Group will provide to NetEase Group services such as the products/services from us or from our users/partners posted on our platforms/websites (including music streaming, certain rights to use or sub-license intellectual property relating to music and brands associated with the products developed on our platforms/websites). The Group will also provide traffic direction services under this transaction through a portal on its mobile application that directs to NetEase Group’s platforms/websites or products/services. Pricing Policy Transaction fees for music streaming and membership services will be charged at a discount (at a rate comparable to, and no less better than, those provided to third party businesses that we also cooperate with) and bundled with NetEase Group ’s products/services or enjoyed by NetEase Group ’s members and staff. The licensing of intellectual property and other products/services the Group provides to NetEase Group will be negotiated separately on a project basis, with reference to market prices and the same products/services offered to third parties outside of NetEase Group. Transaction fees for traffic direction services will be based on market prices and volume of use and apportioned with NetEase Group according to a fee split. The fee split depends on the actual traffic volume directed through the portal, the type of products/services generating the revenue (or distribution channel), and a fee split ratio that depends on the popularity of the product/service. The discount rate and fee split ratio are calculated on the same basis as those offered to third parties, and is largely based on pre-agreed progressive scale based on purchase amount (for the discount rate) or actual accrued/shared amount (for the fee split). Basis of Annual Caps The annual caps are determined with reference to the historical transaction amounts, the expected growth of business of NetEase Group and the Group over the annual cap period, the estimated growth of users interested in the products/services of the Group’s platforms, and changes in prevailing market rates of products and services over these periods.
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Report of Directors 34 NetEase Cloud Music Annual Report 2024 3. Bandwidth, Server Custody and Rack Services Transaction NetEase Group will provide the Group with bandwidth, server custody and rack services, which includes content delivery network (or CDN) and Internet Data Centre (or IDC) services, that NetEase Group has or will procure from third parties for relevant hardware and services, data storage services, hard disks, storage and central processing units (or CPUs), as well as such services and solutions developed by NetEase Group and tailored to the Group’s needs. Pricing Policy Transaction fees will vary depending on the type of services offered. Server custody fees, sharing of bandwidth equipment and costs associated with engaging operating and maintenance personnel services will be apportioned on a “cost-plus” pricing basis (being a portion of the total costs incurred by NetEase Group to the provider, plus a percentage to cover additional costs and expenses, such as personnel/maintenance/hosting, incurred by NetEase Group in sharing the service). Transcoding services will be priced based on market prices applying a discount. The market prices are based on comparisons of charged or quoted prices by comparable providers for comparable services, such as speed of responding, and reviewed and renegotiated periodically with the provider. For comparable market prices, the Group makes periodic enquiries (e.g., on an annual basis or towards the end of the contract period) with other comparable third party providers (such as one or multiple providers, depending on supply of appropriate and comparable market competitors) to update and compare market prices, to ensure that it is still beneficial or appropriate for the Group to continue transacting with NetEase Group for these services. Basis of Annual Caps The annual caps are determined with reference to the historical transaction amounts, the expected growth of business of the Group over the annual cap period, and changes in prevailing market rates of the products and services offered by NetEase Group and third parties over these periods. In particular, with the market ’s growth, the Group ’s user base (including new and retained user numbers), user engagement time, the quality and breadth of products/services offered on the Group ’s platforms/websites, among other things, are all expected to grow. This growth will require increased demand for services under this transaction, particularly in areas of data storage services, storage and CPUs, as the amount of data passed through and processed on our systems increase.
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Report of Directors 35 NetEase Cloud Music Annual Report 2024 4. Information Technology Services Transaction NetEase Group will provide the Group with information technology services, including cloud hosting and data storage services, big data services (including extraction and analysis services), algorithm training, and security analysis services. Pricing Policy Transaction fees for security analysis services will be priced based on the lowest market price with a discount, while other information technology services will be based on a “cost-plus” pricing policy. For comparable market prices, the Group makes periodic enquiries (e.g., on an annual basis or towards the end of the contract period) with other comparable third party providers (such as one or multiple providers, depending on supply of appropriate and comparable market competitors) to update and compare market prices, to ensure that it is still beneficial or appropriate for the Group to continue transacting with NetEase Group for these services. Basis of Annual Caps The annual caps are determined with reference to the historical transaction amounts, the expected growth of business of the Group over the annual cap period (and therefore, corresponding growth in the Group ’s need for information technology services, particularly in data processing, storage and analysis services), and changes in prevailing market rates offered by NetEase Group and third parties over the same periods. Similar to the basis of the annual caps for the transaction above, with the market ’s growth, the Company anticipates a corresponding increase demand for services under this transaction, particularly in the demand for greater information technology maintenance and support services, as well as adjustments in benchmark market prices for comparable services in response to market changes and inflation. 5. Shared Services Transaction NetEase Group will share various services with the Group, including the sharing of premises and use of administrative resources, facilities, furniture, administrative purchases and various support services, some of which may be procured from third parties should the Company desire or consider it more beneficial. Pricing Policy Transaction fees for shared services will be apportioned on a “cost-plus” pricing basis (being a portion of the total costs incurred by NetEase Group to the provider, plus a percentage to cover additional costs and expenses, such as personnel/maintenance/instalment, incurred by NetEase Group in sharing the service). Basis of Annual Caps The annual caps are determined with reference to the historical transaction amounts, the expected growth of business of the Group over the annual cap period (and corresponding growth in staff demand and costs), and changes in prevailing market rates of the shared services offered by NetEase Group and third parties or for comparable services procurable directly from third parties over the same periods. With the growth of online music entertainment market, the Company anticipates increased staff and office needs, which in turn would lead to increased demand for shared services under this transaction, particularly in areas of premises sharing and administrative resources sharing, as well as adjustments in benchmark market prices for comparable costs in response to market changes and inflation.
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Report of Directors 36 NetEase Cloud Music Annual Report 2024 6. Product Procurement Transaction NetEase Group will procure for the Group fixed assets such as laptops, hardware and other products for the use of our employees or for our Group to provide as employee benefits to incentivise our staff and enhance our working environment. Pricing Policy The procured products will be provided either at-cost or based on market prices applying a discount. The market prices are based on comparisons of charged or quoted prices by providers for comparable products/items, and reviewed and renegotiated periodically with the provider. For comparable market prices, the Group makes periodic enquiries (e.g., on an annual basis or towards the end of the contract period) with other comparable third party service providers (such as one or multiple providers, depending on supply of appropriate and comparable market competitors) to update and compare market prices, to ensure that it is still beneficial or appropriate for the Group to continue transacting with NetEase Group for these services. For those products that have no market price against which to compare (given that the Group is not able to identify an appropriate comparable provider that is able to offer comparable items within comparable conditions), the Group will refer to the “at cost” pricing basis. Basis of Annual Caps The annual caps are determined with reference to the historical transaction amounts, the expected growth of business of the Group over the annual cap period, and changes in prevailing market rates of the products procured by NetEase Group over these periods. With an increase in growth and staff numbers, the Company anticipates a corresponding increase in costs associated with staff and working environment, which in-turn would lead to an increased demand for the products procured under this transaction, as well as adjustments in benchmark market prices for comparable costs in response to market changes and inflation.
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Report of Directors 37 NetEase Cloud Music Annual Report 2024 Internal Control of Connected Transactions The Company has internal control measures in place to ensure that its connected transactions (including continuing connected transactions) are in compliance with applicable Listing Rules. These internal control measures include: (a) the Company has designated teams within the finance and business departments who monitor the transaction amounts on a quarterly basis and will notify the Company ’s legal team when the accrued transaction amount is approaching their respective annual caps and the Group anticipates that the annual cap(s) will need to be revised; (b) the Company has in place a connected transactions policy and relevant members have attended training on the requirements under Chapter 14 and Chapter 14A of the Listing Rules; and (c) the Company has available guidance from external parties (including legal counsel and external auditors) to advise them on connected transactions issues. Implication under the Listing Rules and Confirmations Waivers applied for under the Listing Rules For the purposes of Chapter 14A of the Listing Rules, our consolidated affiliated entities are treated as connected persons of the Company, and as such, the contractual arrangements are considered continuing connected transactions for the Company. For more information on the above continuing connected transactions, including the waivers obtained for the contractual arrangements, please refer to the “Connected Transactions” section of the Prospectus for details of these waivers. Confirmation from Independent Non-executive Directors Our independent non-executive Directors have reviewed the continuing connected transactions of the Group that are subject to the annual reporting requirement during the Reporting Period and have confirmed that these transactions were all entered into in accordance with the matters set out in Rule 14A.55 of the Listing Rules. Confirmations from the Company’s Independent Auditor PricewaterhouseCoopers, the auditor of the Company, has confirmed in a letter to our Board that, with respect to the continuing connected transactions mentioned above during the Reporting Period, nothing has come to their attention that would cause them to believe that any of the factors listed under Rule 14A.56 of the Listing Rules, where applicable, had existed during the Reporting Period. During the Reporting Period, save as disclosed in “Continuing Connected Transactions ” of this annual report, no related party transactions disclosed in Note 33 to the financial statements constituted a connected transaction or continuing connected transaction that should be disclosed pursuant to the Listing Rules. The Company has complied with the disclosure requirements prescribed in Chapter 14A of the Listing Rules with respect to these continuing connected transactions entered into by the Group during the Reporting Period.
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Report of Directors 38 NetEase Cloud Music Annual Report 2024 USE OF NET PROCEEDS FROM GLOBAL OFFERING The Company’s shares were listed on the Stock Exchange on 2 December 2021. In parallel with the Listing, the Company allotted and issued 16,000,000 new shares under our global offering issued, which resulted in approximately HK$3,160 million (equivalent to approximately RMB2,584 million) raised in net proceeds. Details of our global offering are set out in the Prospectus and our allotment results announcement published on the Stock Exchange’s website on 1 December 2021. Set out below is the status of use of proceeds from the global offering as at 31 December 2024. Purpose % of use of proceeds Net proceeds Utilised for the year ended 31 December 2024 Unutilised amount as at 31 December 2024 (HK$ million) (HK$ million) (HK$ million) Continuously cultivating our community 40% 1,264 – 1,264 Continuously innovating and improving technological capabilities 40% 1,264 – 1,264 Selected mergers, acquisitions, and strategic investments, including to continue seeking potential businesses and assets that would provide synergies with our business and resources, particularly in areas including content sourcing, data and audio technology 10% 316 – 316 Working capital and general and administrative purposes 10% 316 – 316 Total 100% 3,160 – 3,160 There was no change in the intended use of net proceeds as disclosed in the Prospectus. The Company will gradually apply the remaining net proceeds in the next 24 months in the manner set out in the Prospectus. See “Future Plans and Use of Proceeds” section of the Prospectus for further details.
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Report of Directors 39 NetEase Cloud Music Annual Report 2024 AUDITOR The consolidated financial statements of the Group have been audited by PricewaterhouseCoopers, Certified Public Accountants and Registered Public Interest Entity Auditor, who will retire and, being eligible, offer themselves for re-appointment at our upcoming annual general meeting. CHANGE OF COMPANY NAME We refer to our announcement of 15 October 2024 in which we proposed to change the Company ’s name from “Cloud Music Inc. ʮ̡ ” to “NetEase Cloud Music Inc. ʮ̡ ”. This name change was approved by our Shareholders at our extraordinary general meeting held on 30 October 2024 and took effect on the 31 October 2024. The stock short names for trading in our shares on the Stock Exchange were changed from “CLOUD MUSIC” to “NETEASE MUSIC ” in English, and from “ᆀ” to “ᆀ” in Chinese, both with effect from 9:00 a.m. on 27 November 2024. For more information on our name change and the change in our stock short names, please see our announcements of 6 November 2024 and 22 November 2024. EVENTS AFTER THE REPORTING PERIOD The address of the principal place of business in Hong Kong of the Company was changed to Room 1915, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong with effect from 10 January 2025. Ms. Yanfeng Wang, an executive Director, was appointed as a member of our nomination committee with effect from 20 February 2025. Save as disclosed in this report, no important events affecting the Group occurred since the end of the Reporting Period and up to the Latest Practicable Date. By the order of our Board Mr. William Lei Ding Chairman Hong Kong 14 March 2025
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Directors and Senior Management 40 NetEase Cloud Music Annual Report 2024 As at the Latest Practicable Date, our board consisted of three executive Directors, one non-executive Director and three independent non-executive Directors. For the profiles of the two non-executive Directors who resigned during the Reporting Period, please refer to the annual report of the Company for the year ended 31 December 2023. DIRECTORS Executive Directors Mr. William Lei Ding, aged 53, is an executive Director and the chief executive officer of the Company and chairperson of our Board. Mr. Ding is the founder of NetEase, and has served as a director since its inception in July 1999 and as its chief executive officer since November 2005. Between 1999 to 2005, Mr. Ding served a number of roles within NetEase, including the chief architect, the acting chief executive officer, acting chief operating officer, and co-chief technology officer of NetEase. Mr. Ding currently serves on the board of directors of Youdao, Inc. (NYSE: DAO) since January 2015. Mr. Ding received a Bachelor of Science degree in Communication Technology from the University of Electronic Science and Technology of China. Mr. Yong Li, aged 47, is an executive Director and the vice president of business intelligence of the Company. Mr. Li joined NetEase in April 2019 and served as a vice president of Kaola. Prior to joining the Company, Mr. Li was a senior technical expert in Tencent Holdings Limited from July 2010 to April 2015. He then served as vice president at Vipshop Holdings Ltd. from April 2015 to June 2018. Mr. Li served as a general manager of operations at Hillhouse Capital in 2018. Mr. Li received a bachelor ’s degree in information management in July 1999 and a master ’s degree in statistics in January 2002 from Anhui University of Finance and Economics. He also received his doctoral degree in informatics from Nanjing University in September 2004. Mr. Li served as a post-doctoral researcher in computer science at Tsinghua University from September 2004 to September 2006. Ms. Yanfeng Wang, aged 38, is an executive Director and a member of the nomination committee. She is one of the senior directors for self-produced content in the Company since July 2020, and is also responsible for the Group ’s brand public relations and communications, since 2015. Prior to that, she was a senior editor and column writer at NetEase Media between May 2013 to March 2015, and a senior editor at Phoenix New Media Limited from June 2011 to May 2013. Ms. Wang received a bachelor’s degree in Chinese Language and Literature from Beijing Normal University in July 2008. She also received her master’s degree in Literature from Communication University of China in June 2011.
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Directors and Senior Management 41 NetEase Cloud Music Annual Report 2024 Non-executive Director Mr. Yat Keung Li, aged 52, is a non-executive Director. Mr. Li currently serves as the Vice president of NetEase. Mr. Li first joined NetEase in 2003 and took several senior roles in marketing, business partnership and corporate development within the group. Prior to NetEase, Mr. Li successively served as an account manager and associate account director at DDB Group Hong Kong from August 1999 to October 2003, and as a brand executive at Leo Burnett Hong Kong from January 1998 to July 1999. Mr. Li received his Bachelor of Science in Physics from the University of Hong Kong in November 1996. Independent Non-executive Directors Mr. Ying Kit Caleb Lo, aged 63, is an independent non-executive Director, and the chairperson of the audit committee and a member of the remuneration committee and nomination committee. Mr. Lo served at Motorola for more than 10 years since 1992 in China and Singapore and held several positions of finance management including the finance controller. Mr. Lo then joined Hangzhou H3C Technologies Co., Ltd. and has served as a vice president and the chief financial officer, during which he concurrently served as a vice president and the chief financial officer of the China region of HP Inc. (NYSE: HPQ) from May 2014 to August 2015. Mr. Lo then served as CFO and Co-President of New H3C Group prior to joining JiHu Information Technology (Hubei) Co., Ltd as CFO in September 2021, a JV of GitLab Inc., till July 2023. Mr. Lo has the appropriate professional accounting or related financial management experience for the purpose of Rule 3.10(2) of the Listing Rules. Mr. Lo received his CPA certificate from University of Illinois in February 1995 and he was admitted as a CPA in Hong Kong in October 1995. He is also a member of the American Institute of Certified Public Accountants, and a fellow member of the Hong Kong Institute of Certified Public Accountants. Mr. Lo received his diploma in Business Administration from Hong Kong Shue Yan College in July 1986. He received his Master of Business Administration from Oklahoma City University in May 1991. Mr. Xianfeng Gu, aged 54, is an independent non-executive Director, and the chairperson of the nomination committee and a member of the audit committee and remuneration committee. Mr. Gu has worked at Stony Brook University since June 2004 and has served as a tenured professor since September 2009, and an Empire Innovation Professor since January 2021. He was previously an assistant professor at University of Florida from August 2003 to May 2004. Mr. Gu received a bachelor’s degree in Computer Science from Tsinghua University in July 1994. He also received his Ph.D. degree in Computer Science from Harvard University in March 2003. Mr. Zhong Xu, aged 56, is an independent non-executive Director, and the chairperson of the remuneration committee and a member of the audit committee and nomination committee. Mr. Xu has won various international competitions as a pianist, including the First Prize at the Maria Canals International Piano Competition in 1988, the Third Prize at the Hamamatsu International Piano Competition in 1991, the Santander Prize of Honour at the Santander Paloma O ’Shea International Piano Competition in 1992, the First Prize and three other awards at the Tokyo International Piano Competition in 1992 and the Fourth Prize at the Tchaikovsky International Piano Competition in Moscow in 1994. He was awarded the “Chevalier de L ’Ordre des Arts et des Lettres ” in 2010, and the “Officier de L ’Ordre des Arts et des Lettres ” in 2018 by the Ministry of Culture and Communication of France. Mr. Xu has served as the Principal Director of Fondazione Arena di Verona, the General Director of Shanghai Opera House, the Chief Conductor of Suzhou Symphony Orchestra, the dean of the School of Music at Soochow University and one of the International Chairs at Royal Welsh College of Music and Drama. He previously served as the Artistic Director of Teatro Massimo Bellini and the Music Director of Israel Haifa Symphony Orchestra. Mr. Xu started his study in Piano in November 1986 at Le Conservatoire national superieur de musique et de danse de Paris. He is also recognised as a level 1 conductor by the Assessment Committee of the Qualification for Senior Professional and Technical Occupations in the Art Categories under the Shanghai Municipal Human Resources and Social Security Bureau.
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Directors and Senior Management 42 NetEase Cloud Music Annual Report 2024 SENIOR MANAGEMENT Mr. William Lei Ding is an executive Director, the chairman and chief executive officer of the Company. Please refer to the above section for his biography. Mr. Xing Zhang, aged 42, is the vice president of products of the Company. He joined the Company in January 2023. From July 2007 to September 2014, Mr. Zhang served a number of positions within NetEase, including product planner and product director. He then worked as a product director at Alibaba from March 2015 to May 2021, and as a product director at ByteDance from May 2021 to December 2022. Mr. Zhang received his bachelor’s degree in Information Engineering from Zhejiang University in June 2005 and his master’s degree in Design and Art from Zhejiang University in June 2007. Ms. Yuan Wei, aged 30, is the vice president of copyrights of the Company. She joined the Company in April 2021 and served positions including business assistant for CEO and copyright director. Prior to joining the Company, Ms. Wei worked for the Diversity Alliance in the United States, Milan Records under Sony Music Entertainment, and was responsible for music and strategic cooperation at BIGO from August 2019 to April 2021. Ms. Wei received her bachelor ’s degree in Law from China University of Political Science and Law in June 2017, and her master ’s degree in Entertainment, Media, and Intellectual Property Law from the University of California, Los Angeles in May 2018. Ms. Ju Lu, aged 44, is the vice president of finance of the Company. She has served as our financial controller since joining in 2018. Previously, she served as the chief financial officer at UNIS-WDC Storage Co., Ltd. (ʮ̡) from May 2016 to February 2018. She was the finance controller at StormNet Information Technology (Shanghai) Co., Ltd. ( Ҧஔ(ɪऎ)ʮ̡) from March 2011 to March 2016. Ms. Lu also worked at Ernst & Young Hua Ming LLP from September 2002 to December 2010 and left as a senior manager. Ms. Lu received her CICPA qualification from the Shanghai Institute of Certified Public Accountants and her AICPA qualification from the Missouri State Board of Accountancy in the U.S. She also obtained a legal professional qualification certificate from the Ministry of Justice of PRC in March 2019. She received her Bachelor of Economics degree in Accounting from Fudan University in July 2002. COMPANY SECRETARY Ms. Wong Wai Yee Ella, aged 49, is the Company secretary. Ms. Wong is also a director of Company Secretarial Services of Tricor Services Limited (a member of Vistra Group) and has been providing corporate secretarial and compliance services to Hong Kong listed companies as well as multinational, private and offshore companies. Ms. Wong currently holds company secretary or joint company secretary positions in multiple companies listed on the Stock Exchange. Ms. Wong is a Chartered Secretary, Chartered Governance Professional, Fellow of both The Hong Kong Chartered Governance Institute and The Chartered Governance Institute in the United Kingdom.
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Other Information 43 NetEase Cloud Music Annual Report 2024 DISCLOSURE OF INTERESTS Directors ’ and Chief Executives ’ Interests and Short Positions in Shares, Underlying Shares and Debentures of our Company or Any of Its Associated Corporations As at 31 December 2024, the interests and short positions of our Directors or chief executives of the Company in any of our shares, underlying shares and debentures of our Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)), as recorded in the register required to be kept by the Company pursuant to Section 352 of the Securities and Futures Ordinance, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code, were as follows: Interest in the Company Name of Director Capacity/Nature of interest Number of ordinary shares Approximate percentage of holding (4) Long position/ Short position Mr. William Lei Ding (1) Other 129,365,718 59.69% Long position Mr. Yong Li (2) Beneficial owner 330,208 0.15% Long position Ms. Yanfeng Wang (3) Beneficial owner 17,975 0.01% Long position Notes: (1) Mr. William Lei Ding is taken to have an interest in 331,550 treasury shares of the Company. In addition, 129,034,168 shares are held by Shining Globe International Limited through NetEase. Shining Globe International Limited is wholly owned by Shining Globe Holding Limited, which is in turn wholly owned by a trust for which TMF (Cayman) Ltd. acts as the trustee and the beneficiaries of which include Mr. Ding and his family. Mr. Ding is also the settlor of the trust. (2) Mr. Yong Li beneficially owns 4,338 shares and is entitled to receive up to (i) 300,000 shares pursuant to the exercise of options granted under our Company ’s Pre-IPO Share Incentive Plan (the “2016 Plan”), and (ii) 25,870 shares under our Company ’s 2022 Restricted Share Unit Plan (the “2022 Plan”, and together with the 2016 Plan, the “Plans”). (3) Ms. Yanfeng Wang beneficially owns 2,341 shares and is entitled to receive up to (i) 2,700 shares pursuant to the exercise of options granted under the 2016 Plan, and (ii) 12,934 shares under the 2022 Plan. (4) The calculation is based on the total number of 216,722,361 shares in issue as at 31 December 2024. (5) Details of the options and share awards granted to the Directors mentioned above are set out in the section headed “Share Incentive Plans” below.
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Other Information 44 NetEase Cloud Music Annual Report 2024 Interest in our associated corporation – NetEase Name of Director Capacity/Nature of interest Number of ADSs (3)/ ordinary shares Interest in associated corporation (1) Long position/ Short position Mr. William Lei Ding Other (2) 1,450,300,000 45.8% Long position Mr. Yong Li (3) Beneficial owner 3,170 ADSs 0.00% Long position Mr. Yat Keung Li (3) Beneficial owner 8,854 ADSs 0.00% Long position Ms. Yanfeng Wang (3) Beneficial owner 2,941 ADSs 100 shares 0.00% Long position Notes: (1) The calculation is based on the number of outstanding shares of NetEase as at 28 February 2025 as disclosed in the annual report of NetEase (a copy of which is available for viewing on the Stock Exchange ’s website at www.hkexnews.hk) and publicly available information and to the best knowledge of the Company. (2) Shining Globe International Limited is the record holder of these 1,450,300,000 NetEase shares, which comprise 1,406,000,000 NetEase shares and 8,860,000 ADSs. As mentioned above, Shining Globe International Limited is wholly owned by Shining Globe Holding Limited, which is in turn wholly owned by a trust for which TMF (Cayman) Ltd. acts as the trustee and the beneficiaries of which include Mr. William Lei Ding and his family. Mr. William Lei Ding is also the settlor of the trust. This reflects the position as at 28 February 2025, which is based on the latest available published information. For more information, please refer to the annual report of NetEase. (3) The interests underlying the ADSs comprise the Director ’s entitlement to receive shares in NetEase pursuant to restricted share units under the 2009 Stock Incentive Plan and/or the 2019 Restricted Share Unit Plan of NetEase, where each restricted share unit represents one ADS of NetEase (being equal to five NetEase shares). This includes vested and unvested restricted share units, with the unvested portion subject to the terms and conditions of the grant. Save as disclosed above, as at 31 December 2024, none of our Directors or chief executives of the Company had or was deemed to have any interests or short positions in our shares, underlying shares or debentures of the Company or any of its associated corporations which would be required to be disclosed.
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Other Information 45 NetEase Cloud Music Annual Report 2024 Substantial Shareholders’ Interests and Short Positions in Shares and Underlying Shares As at 31 December 2024, so far as our Directors are aware, the following persons (other than our Directors or chief executives of the Company) had interests or short positions in our shares or underlying shares of the Company recorded in the register required to be kept by the Company pursuant to Section 336 of the Securities and Futures Ordinance: Name of Shareholder Capacity/Nature of interest Number of ordinary shares Approximate percentage of holding (3) Long position/ Short position NetEase (1) Beneficial owner 129,365,718 59.69% Long position Shining Globe Holding Limited (1) Interest in a controlled corporation 129,365,718 59.69% Long position Shining Globe International Limited (1) Interest in a controlled corporation 129,365,718 59.69% Long position TMF (Cayman) Ltd. (1) Trustee 129,365,718 59.69% Long position GIC Private Limited (2) Interest in a controlled corporation 13,923,356 6.42% Long position Investment manager 225,000 0.10% Long position GIC (Ventures) Pte. Ltd. (2) Interest in a controlled corporation 13,923,356 6.42% Long position GIC Special Investments Private Limited (2) Investment manager 13,923,356 6.42% Long position Notes: (1) Mr. William Lei Ding (through his controlled corporations) is interested in one-third or more of NetEase, and under the Securities and Futures Ordinance, is deemed to be interested in NetEase ’s interest in our Company. Mr. Ding is taken to have an interest in 331,550 treasury shares of the Company. In addition, 129,034,168 shares are held by Shining Globe International Limited through NetEase. Shining Globe International Limited is wholly owned by Shining Globe Holding Limited, which is in turn wholly owned by a trust for which TMF (Cayman) Ltd. acts as the trustee and the beneficiaries of which include Mr. Ding and his family. Mr. Ding is also the settlor of the trust. (2) 225,000 shares are held by GIC Private Limited as an investment manager. The remaining shares represent (i) 10,366,988 shares held by Novel Entertainment Limited; (ii) 1,329,770 shares held by Sincere Jovial Limited; and (iii) 2,226,598 shares held by LVC Cloudy Paradise LP, each of which holds less than 5% interest in the Company. These shareholders are controlled by corporations or investment managers that are ultimately controlled by GIC Private Limited through, among others, its wholly-owned entities GIC (Ventures) Pte. Ltd. and GIC Special Investments Private Limited. Under the Securities and Futures Ordinance, GIC Private Limited and entities through which it controls (as defined under the Securities and Futures Ordinance and include corporations in which it controls one-third or more and investment managers) are deemed to be interested in all of the shares held by Novel Entertainment Limited, Sincere Jovial Limited and LVC Cloudy Paradise LP in the Company on an aggregated basis. (3) The calculation is based on the total number of 216,722,361 shares in issue as at 31 December 2024.
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Other Information 46 NetEase Cloud Music Annual Report 2024 Save as disclosed above, as at 31 December 2024 and based on publicly available information, no other person (other than our Directors or chief executives of the Company) had an interest or short position in our shares or underlying shares which were required to be disclosed to our Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance, or which were required to be entered in the register required to be kept under Section 336 of the Securities and Futures Ordinance. SHARE INCENTIVE PLANS Details of Share Incentive Plans of our Company Overview Adoption The Company had two share incentive plans in effect during the Reporting Period: (a) the Pre-IPO Share Incentive Plan (the “2016 Plan”); and (b) the 2022 Restricted Share Unit Plan (the “2022 Plan”, and together with the 2016 Plan, the “Plans”). The 2016 Plan was adopted before our Listing and upon the adoption of the amended 2022 Plan (which took place on 15 June 2023), the Company ceased making new grants under the 2016 Plan. The 2022 Plan was adopted on 18 August 2022 and amended on 15 June 2023, following which, the 2022 Plan constituted a share scheme governed by the requirements of Chapter 17 of the Listing Rules. Purpose of the Plans The purpose of both Plans is to promote the success and enhance the value of the Company ’s business by linking the personal interests of employees to those of the shareholders of the Company and by providing such individuals with an incentive for outstanding performance to generate superior returns to our Company ’s shareholders. Both Plans also intend to provide flexibility to our Company in its ability to motivate, attract, and retain the services of the employees upon whose judgement, interest, and special effort the successful conduct of the business’s operation is largely dependent. Awards Under the 2016 Plan, our Company granted awards (including share options (“options”) and restricted share units (“RSUs”)) to eligible participants; upon and after Listing, we ceased granting awards under this plan on 15 June 2023. Under the 2022 Plan, we may only grant RSUs to eligible participants. The 2022 Plan does not involve any grant of options. Shares available for grant under the Plans Under the 2016 Plan, prior to Listing, our Company granted options to eligible participants; upon and after Listing, we ceased granting options and only granted share awards in the form of RSU under the 2016 Plan. Following the approval of the amended 2022 Plan on 15 June 2023, our Company ceased to make further grants of RSUs under the 2016 Plan. Accordingly, no options or awards were available for grant under the 2016 Plan as at 1 January 2024 and 31 December 2024, respectively. No service provider sublimit was set under the 2016 Plan.
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Other Information 47 NetEase Cloud Music Annual Report 2024 10,462,280 awards over new shares (including 2,077,569 awards over new shares under the service provider sublimit) were available for grant under the 2022 Plan as at 1 January 2024 and 31 December 2024, respectively. All grants made under the 2022 Plan during the Reporting Period will be satisfied with existing shares of the Company upon vesting. Accordingly, (i) 10,462,280 awards over new shares (including 2,077,569 awards over new shares under the service provider sublimit) remained available for grant under the 2022 Plan as at 1 January 2024 and 31 December 2024, respectively; and (ii) 0 new shares, representing 0% of the weighted average of number of issued shares of the Company (excluding treasury shares) for the Reporting Period, may be issued in respect of all options and awards granted during the Reporting Period to eligible participants pursuant to the Plans. Further details of the Plans The following table summarises the material terms of the Plans. For further information about the 2016 Plan, please see pages IV-20 to IV-24 of Appendix IV to the Prospectus. For further information about the 2022 Plan, please see our Company’s announcement dated 18 August 2022 titled “Adoption of 2022 RSU Plan ” and circular dated 24 May 2023. The aforementioned documents are accessible on the Stock Exchange ’s website (www.hkexnews.hk) and the Company ’s website (http://ir.music.163.com). 2016 Plan 2022 Plan Scheme mandate limit 15,000,000 shares 10,462,280 shares, subject to an annual limit of 3% of the Company ’s total issued share number at the relevant time. Service provider sublimit N/A 2,077,569 shares, subject to an annual limit of 1% of the Company ’s total issued share number at the relevant time. Number of shares available for issue pursuant to awards granted and ungranted under the plan (assuming no granted awards have lapsed or are cancelled or satisfied in a manner other than issuing new shares) 2,189,334 shares, representing 1.01% of the Company ’s total issued share number as at the date of this annual report. 10,462,280 shares, representing 4.83% of the Company ’s total issued share number as at the date of this annual report.
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Other Information 48 NetEase Cloud Music Annual Report 2024 2016 Plan 2022 Plan Eligible participants Eligibility is determined by the plan administrator, and includes: • employees of the Company, our parent, a subsidiary or affiliate of the Company, or any related entity to which a participant provides services as an employee (a “service provider ”); and • directors of the Company, our parent, a subsidiary or related entity of the Company, or consultant or adviser rendering services to a service provider. Eligibility is determined by the plan administrator, and includes: • employees, directors or officers of the Group on the grant date (“employee participants ”); • employees, directors or officers of a “holding company ” of the Company (as defined in the SFO); a “subsidiary ” of a holding company of the Company (as recognised by applicable accounting standards) other than the Group; or an “associate ” of the Company (as defined in the Listing Rules) ( “related entity participants ”); and • service providers that, in the opinion of the plan administrator, provide services to the Group on a continuing or recurring basis in our ordinary and usual course of business and that are in the interests of the long-term growth of the Group or to which grants of awards under the RSU Plan would be in the interest of the Company and our shareholders as a whole, and includes artists, performers or other suppliers and service providers ( “service provider participants ”).
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Other Information 49 NetEase Cloud Music Annual Report 2024 2016 Plan 2022 Plan Maximum entitlement of each participant None None Exercise period for options 10 years from date of grant. N/A Vesting period A period to be determined by the plan administrator. A minimum of 12 months from the date of grant, except limited circumstances as set out in the Company ’s circular dated 24 May 2023. Consideration payable for accepting a grant None, unless otherwise specified by the plan administrator. None, unless otherwise specified by the plan administrator. Basis of determining the exercise price of options Determined by the plan committee and set forth in the award agreement which may be a fixed or variable price related to the fair market value of the shares. N/A Basis of determining the purchase price of awards (where any) The purchase price is nil. The purchase price is nil. Scheme life (unless terminated earlier by our Board) 10 years from adoption date, with a scheme life of approximately 2 years remaining. 10 years from adoption date, from 18 August 2022 to 17 August 2032. (i.e. with a scheme life of approximately 7.3 years remaining)
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Other Information 50 NetEase Cloud Music Annual Report 2024 Details of grants made under the Plans 2016 Plan The following table sets out details of grantees holding outstanding options under the 2016 Plan during the Reporting Period: Details of movements during the Reporting Period Name or category of grantee (1) Position/ Relationship Date of grant Vesting period (from date of grant) Exercise period Exercise price per share Outstanding as at beginning of Reporting Period Granted during the Reporting Period Exercised during the Reporting Period Lapsed during the Reporting Period (2) Cancelled during the Reporting Period Outstanding as at end of Reporting Period Closing price of our shares immediately before the date of grant Fair value of options on date of grant and the accounting standard and policy adopted Weighted average closing price of our shares immediately before the exercise date Mr. Yong Li Director 25 September 2019 4 years from the vesting date and within 10 years from date of grant US$11 300,000 Nil Nil Nil Nil 300,000 N/A N/A N/A Ms. Yanfeng Wang Director 19 February 2021 1 year from the vesting date and within 10 years from date of grant US$11 3,000 Nil 300 Nil Nil 2,700 N/A N/A HK$93.15 313 grantees Employee participants 10 July 2017 to 15 June 2021 1 year to 4 years from the vesting date and within 10 years from date of grant US$8 to US$11 3,386,400 Nil 1,831,510 99,225 Nil 1,455,665 N/A N/A HK$101.17 12 grantees Related entity participants 10 July 2017 to 27 May 2021 4 years from the vesting date and within 10 years from date of grant US$8 to US$11 686,000 Nil 601,125 2,500 Nil 82,375 N/A N/A HK$97.81 Total 4,375,400 Nil 2,432,935 101,725 Nil 1,840,740 Notes: (1) With respect to each award granted, upon each vesting date, the portion of the award that vests shall depend on the grantee meeting a specified threshold in their performance evaluations during the one-year period prior to the vesting date. (2) The exercise prices of the 99,225 options of employee participants and 2,500 options of related entity participants that lapsed during the Reporting Period were US$11.
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Other Information 51 NetEase Cloud Music Annual Report 2024 The following table sets out details of grantees holding unvested RSUs (the June 2023 grants will be satisfied with existing shares) under the 2016 Plan during the Reporting Period. The purchase price for these RSUs was nil. Details of movements during the Reporting Period Name or category of grantee (1) Position/Relationship Date of grant Vesting period (from date of grant) Outstanding as at beginning of Reporting Period Granted during the Reporting Period Vested during the Reporting Period Lapsed during the Reporting Period Cancelled during the Reporting Period Outstanding as at end of Reporting Period Closing price of our shares immediately before the date of grant Fair value of RSUs on date of grant and the accounting standard and policy adopted Weighted average closing price of our shares immediately before the vesting date 58 grantees Employee participants 2 June 2022 to 14 June 2023 3 months to 3 years 846,091 Nil 398,203 99,294 Nil 348,594 N/A N/A HK$100.40 Total 846,091 Nil 398,203 99,294 Nil 348,594 Note: (1) With respect to each award granted, upon each vesting date, the portion of the award that vests shall depend on the grantee meeting a specified threshold in their performance evaluations during the one-year period prior to the vesting date.
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Other Information 52 NetEase Cloud Music Annual Report 2024 2022 Plan The following table sets out details of grantees holding unvested RSUs under the 2022 Plan during the Reporting Period. The vesting of such grants shall be satisfied with existing Shares upon vesting. The purchase price for these RSUs was nil. Details of movements during the Reporting Period Name or category of grantee (1) Position/ Relationship Date of grant Vesting period (from date of grant) Outstanding as at beginning of Reporting Period Granted during the Reporting Period Vested during the Reporting Period Lapsed during the Reporting Period Cancelled during the Reporting Period Outstanding as at end of Reporting Period Closing price of our shares immediately before the date of grant Fair value of RSUs on date of grant and the accounting standard and policy adopted (2) Weighted average closing price of our shares immediately before the vesting date Mr. Yong Li Director 15 September 2023 3 years 16,357 Nil 5,452 Nil Nil 10,905 N/A N/A HK$91.95 5 March 2024 3 years Nil 14,965 Nil Nil Nil 14,965 HK$93.15 HK$88.35 N/A Ms. Yanfeng Wang Director 15 September 2023 3 years 8,178 Nil 2,726 Nil Nil 5,452 N/A N/A HK$91.95 5 March 2024 3 years Nil 7,482 Nil Nil Nil 7,482 HK$93.15 HK$88.35 N/A In Aggregate Employee participants 31 August 2023 3 years 382,731 Nil 124,131 34,923 Nil 223,677 N/A N/A HK$97.70 15 September 2023 3 years 1,335,183 Nil 403,687 146,154 Nil 785,342 N/A N/A HK$91.95 23 November 2023 3 years 64,772 Nil 16,190 16,193 Nil 32,389 N/A N/A HK$118.00 5 March 2024 3 years Nil 1,305,905 Nil 99,644 Nil 1,206,261 HK$93.15 HK$88.35 N/A 31 May 2024 3 years Nil 131,156 Nil 65,928 Nil 65,228 HK$102.40 HK$110.10 N/A 29 August 2024 3 years Nil 138,681 Nil 3,770 Nil 134,911 HK$95.00 HK$95.75 N/A
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Other Information 53 NetEase Cloud Music Annual Report 2024 Details of movements during the Reporting Period Name or category of grantee (1) Position/ Relationship Date of grant Vesting period (from date of grant) Outstanding as at beginning of Reporting Period Granted during the Reporting Period Vested during the Reporting Period Lapsed during the Reporting Period Cancelled during the Reporting Period Outstanding as at end of Reporting Period Closing price of our shares immediately before the date of grant Fair value of RSUs on date of grant and the accounting standard and policy adopted (2) Weighted average closing price of our shares immediately before the vesting date In Aggregate Employee participants 21 November 2024 3 years Nil 92,322 Nil Nil Nil 92,322 HK$116.20 HK$117.90 N/A In Aggregate Related entity participants 15 September 2023 3 years 27,281 Nil 9,093 Nil Nil 18,188 N/A N/A HK$91.95 23 November 2023 3 years 8,479 Nil 2,826 Nil Nil 5,653 N/A N/A HK$118.00 5 March 2024 3 years Nil 43,274 Nil Nil Nil 43,274 HK$93.15 HK$88.35 N/A Total 1,842,981 1,733,785 564,105 366,612 Nil 2,646,049 Notes: (1) With respect to each award granted, upon each vesting date, the portion of the award that vests shall depend on the grantee meeting a specified threshold in their performance evaluations during the one-year period prior to the vesting date. (2) The fair value of awards was determined based on a number of factors, please refer to Note 27 to the “Notes to the Consolidated Financial Statements”.
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Corporate Governance Report 54 NetEase Cloud Music Annual Report 2024 Our Board is pleased to present the corporate governance report for the Company for the 2024 financial year. The Company has adhered to efficient and advance corporate governance principles and constantly improves its corporate governance to ensure that Company ’s operations are sustainable and in line with the long-term interests of the Company and its shareholders as a whole. In 2024, all the meetings including shareholders ’ meetings, the Board and its subordinate committees operated soundly. By improving its transparency, accountability and efficiency, the Company believes that the benefits of its stakeholders (including employees and those with whom the Company does business and the communities as well) will be maximised. Corporate governance provides the framework within which our Board forms their decisions and instructs management of the Group to conduct its businesses with a view to ensuring that its objectives are met. The Board is committed to continuously developing robust corporate governance practices that are intended to ensure the satisfaction of its stakeholders, that the risk management system is well functioned, and that the high standards of ethics are maintained. CORPORATE GOVERNANCE PRACTICES Our Board is committed to achieve high corporate governance standards that it believes are crucial to the Group ’s development and safeguarding the interests of our shareholders. During the year ended 31 December 2024, the Company has adopted and complied with all applicable code provisions of the Corporate Governance Code except for the deviation as set out below. Pursuant to code provision C.2.1 of the Corporate Governance Code, the roles of chairperson and chief executive should be separate and not be performed by the same person. The Company deviates from this provision as Mr. William Lei Ding performs both the roles of chairman of our Board and the chief executive officer of the Company. Mr. Ding is the founder of NetEase, our parent company and controlling Shareholder, and has extensive experience in the business operations and management of the Group. Our Board believes that vesting the roles of both chairman and chief executive officer to Mr. Ding has the benefit of ensuring consistent leadership within the Group and enables more effective and efficient overall strategic planning. This structure will enable the Company to make and implement decisions promptly and effectively. Our Board considers that the balance of power and authority will not be impaired due to this arrangement. In addition, all major decisions are made in consultation with members of our Board, including the relevant Board committees, and our three independent non-executive Directors. Our Board will reassess the division of the roles of chairman and the chief executive officer from time-to-time, and may recommend dividing the two roles between different people in the future, taking into account the circumstances of the Group as a whole. The Company will continue to regularly review and monitor its corporate governance practices to ensure compliance with the Corporate Governance Code, and maintain a high standard of corporate governance practices of the Company. MODEL CODE FOR SECURITIES TRANSACTIONS The Company has adopted management securities dealing policies that are on terms no less stringent than the Model Code to regulate all dealings by Directors and relevant insiders in securities of the Company and other matters covered by the Model Code. Specific enquiry has been made to all of our Directors and they have confirmed that they have complied with the Model Code during the Reporting Period. No incident of non-compliance of the Model Code by the relevant employees has been noted by the Company during the Reporting Period.
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Corporate Governance Report 55 NetEase Cloud Music Annual Report 2024 BOARD OF DIRECTORS Board Composition During the Reporting Period, our Board comprised three executive Directors, three non-executive Directors (two of whom resigned with effect from 15 February 2024 and 23 May 2024, respectively) and three independent non-executive Directors. For details on the members of our Board and their biographies, see “Directors and Senior Management” at pages 40 to 42 of this annual report. Save as disclosed in this report, none of our Directors and members of senior management are related to other Directors or members of senior management. Chairman and Chief Executive Officer The positions of Chairman and Chief Executive Officer are held by Mr. William Lei Ding. Please refer to “Corporate Governance Practices” above for further details. Board Meetings, Committee Meetings and General Meetings A summary of the attendance record of the Directors at our Board meetings, committee meetings and general meetings during the Reporting Period is set out in the following table below: Name of Director Board Remuneration Committee Nomination Committee Audit Committee General Meeting Executive Directors: Mr. William Lei Ding 4/4 0/0 0/0 0/0 2/2 Mr. Yong Li 4/4 0/0 0/0 0/0 2/2 Ms. Yanfeng Wang 4/4 0/0 0/0 0/0 2/2 Non-executive Directors: Mr. Yat Keung Li 4/4 0/0 0/0 0/0 2/2 Mr. Dewei Zheng (resigned with effect from 15 February 2024) 0/0 0/0 0/0 0/0 0/0 Mr. Ran Wang (resigned with effect from 23 May 2024) 1/1 0/0 0/0 0/0 0/0 Independent Non-executive Directors: Mr. Ying Kit Caleb Lo 4/4 1/1 1/1 2/2 2/2 Mr. Xianfeng Gu 4/4 1/1 1/1 2/2 2/2 Mr. Zhong Xu 4/4 1/1 1/1 2/2 2/2
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Corporate Governance Report 56 NetEase Cloud Music Annual Report 2024 Apart from regular board meetings, the Chairman of our Board also held meetings with the independent non-executive Directors without the presence of executive Directors during the Reporting Period. Independence of Independent Non-Executive Directors During the Reporting Period, our Board had at all times met the requirements of the Listing Rules relating to the appointment of at least three independent non-executive Directors representing one-third of our Board with one of whom possessing appropriate professional qualifications or accounting or related financial management expertise. Our Board has received from each of the independent non-executive Directors a written annual confirmation of his independence pursuant to Rule 3.13 of the Listing Rules and considers each of them to be independent. Following annual review, the Board and the nomination committee were satisfied with the independence of each of the independent non-executive Directors with reference to the criteria laid down in the Listing Rules. Board Independence Evaluation The Company has established a Board Independence Evaluation Mechanism which sets out the processes and procedures to ensure a strong independent element on the Board, which allows the Board effectively exercises independent judgment to better safeguard Shareholders’ interests. The objectives of the evaluation are to improve Board effectiveness, maximise strengths, and identify the areas that need improvement or further development. The evaluation process also clarifies what actions of the Company need to be taken to maintain and improve the Board performance, for instance, addressing individual training and development needs of each Director. Pursuant to the Board Independence Evaluation Mechanism, the Board and the nomination committee will conduct annual review on its independence. The Board Independence Evaluation Report will be presented to the Board which will collectively discuss the results and the action plan for improvement, if appropriate. For the year ended 31 December 2024, all Directors have completed the independence evaluation in the form of a questionnaire individually. The Board independence evaluation was presented to the Board and the evaluation results were satisfactory. For the year ended 31 December 2024, the Board reviewed the implementation and effectiveness of the Board Independence Evaluation Mechanism and the results were satisfactory.
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Corporate Governance Report 57 NetEase Cloud Music Annual Report 2024 Appointment, Re-election and Removal of Directors The procedures and process of appointment, re-election and removal of Directors are laid down in our articles of association. Our board’s nomination committee is responsible for reviewing the composition of our Board, developing and formulating the relevant procedures for nomination and appointment of Directors, monitoring the appointment of Directors and succession planning for Directors and assessing the independence of independent non-executive Directors. At every annual general meeting of the Company, one-third of the Directors for the time being (or, if their number is not three or a multiple of three, then the number nearest to, but not less than, one-third) shall retire from office by rotation, provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years. A retiring Director shall retain office until the close of the meeting at which he/she retires and shall be eligible for re-election thereat. Our articles of association also provides that any Director appointed to fill a casual vacancy or as an addition to the Board shall be subject to election by shareholders at the first annual general meeting after his/her appointment. The retiring Directors shall be eligible for re-election. Responsibilities, Accountabilities and Contributions of the Board and Management Our Board should assume responsibility for leadership and control of the Company, and is collectively responsible for directing and supervising the Company’s affairs. Our Board directly, and indirectly through its committees, leads and provides direction to management by laying down strategies and overseeing their implementation, monitors the Group ’s operational and financial performance, and ensures that sound internal control and risk management systems are in place. All Directors, including non-executive Directors and independent non-executive Directors, have brought a wide spectrum of valuable business experience, knowledge and professionalism to our Board for its efficient and effective functioning. All Directors have full and timely access to all the information of the Company and may, upon request, seek independent professional advice in appropriate circumstances, at the Company’s expenses for discharging their duties to the Company. The Directors shall disclose to the Company details of other offices held by them. Our Board reserves for its decision all major matters relating to policy matters, strategies and budgets, internal control and risk management, material transactions (in particular those that may involve conflict of interests), financial information, appointment of directors and other significant operational matters of the Company. Responsibilities relating to implementing decisions of our Board, directing and coordinating the daily operation and management of the Company are delegated to the management.
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Corporate Governance Report 58 NetEase Cloud Music Annual Report 2024 Continuous Professional Development of Directors All Directors should participate in continuous professional development to develop and refresh their knowledge and skills to ensure their contribution to our Board remains informed and relevant. Every newly appointed Director should receive formal, comprehensive and tailored induction on the first occasion of his/her appointment to ensure appropriate understanding of the business and operations of our Company and full awareness of Director’s responsibilities and obligations under the Listing Rules and relevant statutory requirements. Directors should participate in appropriate continuous professional development to develop and refresh their knowledge and skills. Internally-facilitated briefings for our Directors would be arranged and reading material on relevant topics would be provided to our Directors where appropriate. All Directors are encouraged to attend relevant training courses at the Company’s expenses. During the Reporting Period, the Company organised one training session conducted by qualified professionals for the Directors which covered recent developments on the Listing rules including treasury shares and climate-related disclosures. Mr. William Lei Ding, Mr. Yong Li, Ms. Yanfeng Wang, Mr. Yat Keung Li, Mr. Ying Kit Caleb Lo and Mr. Xianfeng Gu attended the training session. In addition, relevant reading materials including legal and regulatory updates and seminar handouts have been provided to all Directors for their reference and study. Directors’ and Officers’ Liabilities Insurance The Company has arranged appropriate insurance cover for Directors ’ and officers ’ liabilities in respect of legal actions against Directors, officers and senior management of the Company arising out of corporate activities. See also “Permitted Indemnity” at page 19 of this annual report. BOARD COMMITTEES Our Board has established three committees, namely, the audit committee, the remuneration committee, and the nomination committee for overseeing particular aspects of the Company ’s affairs. Each of these committees is established with defined written terms of reference. Copies of these terms of reference are available on the Stock Exchange’s website. Audit Committee We have established an audit committee with written terms of reference in compliance with Rule 3.21 of the Listing Rules and the Corporate Governance Code. The audit committee comprises three independent non-executive Directors, namely Mr. Xianfeng Gu, Mr. Ying Kit Caleb Lo and Mr. Zhong Xu, with Mr. Ying Kit Caleb Lo (being our independent non-executive Director with the appropriate professional qualifications) as chairman of the audit committee. The primary duties of the audit committee are to review and supervise the financial reporting process and internal controls system of the Group, review and approve connected transactions and provide advice and comments to our Board.
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Corporate Governance Report 59 NetEase Cloud Music Annual Report 2024 During the Reporting Period, the audit committee held two meetings to review the interim and annual financial results and reports for 2024 financial year and significant issues on the financial reporting, operational and compliance controls, the effectiveness of the risk management and internal control systems and internal audit function, appointment of external auditors and engagement of non-audit services and relevant scope of works, and arrangements for employees to raise concerns about possible improprieties. The audit committee also met three times with the external auditors without the presence of the executive Directors. Remuneration Committee We have established a remuneration committee with written terms of reference in compliance with Rule 3.25 of the Listing Rules and the Corporate Governance Code. The remuneration committee comprises three independent non-executive Directors, namely Mr. Xianfeng Gu, Mr. Ying Kit Caleb Lo and Mr. Zhong Xu, with Mr. Zhong Xu as chairman of the remuneration committee. The primary duties of the remuneration committee are to review and make recommendations to our Board on the terms of remuneration packages, bonuses and other compensation payable to our Directors and other senior management. During the Reporting Period, the remuneration committee met once to report to our Board on the remuneration packages of individual executive Directors and senior management and to review and approve material matters relating to share schemes (including grants made under the Plans during the Reporting Period). Details of the Directors ’ remuneration for the year ended 31 December 2024 are set out in Note 10 to the consolidated financial statements. The remuneration of the senior management (other than Directors) of the Group by band for the 2024 financial year is set out below: Remuneration bands Number of persons HK$0-HK$5,000,000 2 HK$5,000,001-HK$10,000,000 1 TOTAL 3 The Company’s remuneration policy is to ensure that the remuneration offered to employees, including Directors and senior management, is based on skill, knowledge, responsibilities and involvement in the Company ’s affairs. The remuneration packages of executive Directors are also determined with reference to the factors such as the level of remuneration paid by comparable companies, the time commitment and responsibilities of Directors, and the employment conditions of the Company and its subsidiaries. The remuneration for the executive Directors comprises basic salary, pensions and performance bonus. Executive Directors shall receive awards to be granted under the Company ’s share incentive plan. The remuneration policy for non-executive Directors and independent non-executive Directors is to ensure that, under the relevant service contracts, non-executive Directors and independent non-executive Directors are adequately compensated for their efforts and time dedicated to the Company ’s affairs, including their participation in Board committees. The remuneration for the Independent non-executive Directors mainly comprises Director ’s fee which is determined with reference to their duties and responsibilities by the Board. Independent non-executive Directors shall not receive options and awards to be granted under the Company’s share incentive plan. Individual Directors and senior management have not been involved in deciding their own remuneration.
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Corporate Governance Report 60 NetEase Cloud Music Annual Report 2024 Nomination Committee We have established a nomination committee with written terms of reference in compliance with the Corporate Governance Code. During the Reporting Period, the nomination committee comprises three independent non-executive Directors, namely Mr. Xianfeng Gu, Mr. Ying Kit Caleb Lo and Mr. Zhong Xu, with Mr. Xianfeng Gu as chairperson of the nomination committee. Ms. Yanfeng Wang was appointed as a member of the nomination committee with effect from 20 February 2025. The primary duties of the nomination committee are to make recommendations to our Board on the appointment of Directors and management of our Board’s succession. During the Reporting Period, the nomination committee held one meeting to review the structure, size and composition of the Board, assess the independence of the independent non-executive Directors and consider the qualifications of the retiring Directors standing for election at the forthcoming annual general meeting, and recommend to our Board on any measurable objectives for implementing the Board diversity policy. BOARD POLICIES AND CORPORATE GOVERNANCE FUNCTIONS Board Diversity Policy The Company has adopted a board diversity policy which sets out the approach to achieve diversity of our Board. The Company recognises and embraces the benefits of having a diverse board of directors and sees increasing diversity at our Board level, including gender diversity, as an essential element in maintaining the Company ’s competitive advantage and enhancing its ability to attract, retain and motivate employees from the widest possible pool of available talent. In reviewing and assessing suitable candidates to serve as a director of the Company, the nomination committee will consider a number of aspects, including but not limited to gender (including avoiding a single gender board), age, cultural and educational background, professional qualifications, skills, knowledge, and industry and regional experience. The nomination committee will discuss periodically and when necessary, agree on the measurable objectives for achieving diversity, including gender diversity, on our Board and recommend them to our Board for adoption. The nomination committee will review annually the structure, size and composition of the Board and where appropriate, make recommendations on changes to the Board to complement the Company ’s corporate strategy and to ensure that the Board maintains a balanced diverse profile. As at the date of this report, the Company has achieved gender diversity with a female director on the Board and two female managers in the senior management team. For more details such as the gender ratio in the workforce, please refer to page 70 to 108 of the “Environmental, Social and Governance Report”. The Company aims to maintain an appropriate balance of skills, experience and diversity of perspectives on the Board that are relevant to the Company’s business growth. The Company is also committed to ensuring that recruitment and selection practices at all levels (from the Board downwards) are appropriately structured so that a diverse range of candidates are considered. The nomination committee will report annually a summary of this policy and, where applicable, measurable objectives that the Board has adopted for implementation of this policy and the progress made towards achieving these objectives in the Company’s corporate governance report.
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Corporate Governance Report 61 NetEase Cloud Music Annual Report 2024 Director Nomination Policy The Company has adopted a director nomination policy in accordance with the Corporate Governance Code. The director nomination policy sets out the selection criteria and process and our Board ’s succession planning considerations in relation to nomination and appointment of directors of the Company and aims to ensure that our Board has a balance of skills, experience and diversity of perspectives appropriate to the requirements of the Company’s business. The nomination committee shall identify, consider and recommend to our Board appropriate candidates to serve as Directors and to make recommendations to our Shareholders. The ultimate responsibility for selection and appointment of Directors rests with our entire Board. The nomination procedures and the process set out in this policy is as follows: (a) The nomination committee shall nominate candidates for the consideration of the Board. The nomination committee may propose candidates who were not nominated by the Board. The Board shall have the final decision on all matters in relation to its nomination of any candidates to stand for election at a general meeting of the Company. (b) A candidate nominated by the Board to stand for election at a general meeting (the “Board Candidate ”) will submit the necessary personal information, together with their written consent to be elected as a Director and to the publication of their personal information for the purpose of or in relation to their standing for election as a Director. The nomination committee may request the Board Candidate to provide additional information and documents if they consider necessary. (c) A circular will be available to Shareholders (the “Shareholder Circular ”) to provide information of the Board Candidate. The Shareholder Circular will include the personal information of the Board Candidate as required by the applicable laws, rules and regulations, inter alia, their name, brief biography (including qualifications and relevant experience), independence and proposed remuneration. (d) The Board Candidate shall not assume that they have been nominated by the Board to stand for election at the general meeting prior to the despatch/publication of the Shareholder Circular. Where appropriate, the nomination committee and/or the Board should make recommendation to Shareholders in respect of the proposed election of Director at the general meeting.
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Corporate Governance Report 62 NetEase Cloud Music Annual Report 2024 The director nomination policy sets out the non-exhaustive factors for assessing the suitability and the potential contribution to our Board of a proposed candidate, including but not limited to the following: • reputation for integrity; • professional qualifications and skills; • accomplishment and experience in the industry of the Company; • commitment in respect of available time and relevant interest; • independence of proposed independent non-executive Directors; and • diversity of our Board in all aspects, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The director nomination policy also sets out the procedures for the selection and appointment of new Directors and re-election of Directors at general meetings. The nomination committee and/or the Board should review the overall contribution and service to the Company of the retiring Director and determine whether the retiring Director continues to meet the criteria as set out above. Where appropriate, the nomination committee and/or the Board should make recommendation to Shareholders in respect of the proposed election of Directors at the general meeting. The nomination committee will review the director nomination policy, from time to time and as appropriate, to ensure its effectiveness. Corporate Governance Function Our Board is responsible for performing the functions set out in code provision A.2.1 of the Corporate Governance Code. Our Board would review the Company ’s corporate governance policies and practices, training and continuous professional development of the Directors and senior management, the Company ’s policies and practices on compliance with legal and regulatory requirements, and the Company ’s compliance with the Corporate Governance Code and disclosure in its Corporate Governance Report. Our Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. The company secretary of the Company may from time to time and as the circumstances require provide updated written training materials relating to the roles, functions and duties of a director of a company listed on the Stock Exchange.
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Corporate Governance Report 63 NetEase Cloud Music Annual Report 2024 Dividend Policy The Company has adopted a dividend policy on payment of dividends in accordance with code provision F.1.1 of the Corporate Governance Code. The Company does not have any pre-determined dividend payout ratio. According to the dividend policy, payment of dividends depends on a number of factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our Directors may deem relevant. Dividends may be proposed and/or declared by our Board during a financial year and any final dividend for a financial year will be subject to our Shareholders’ approval. FINANCIAL STATEMENTS, INTERNAL CONTROL AND RISK MANAGEMENT Directors’ Responsibility in Respect of the Financial Statements Our Directors acknowledge their responsibility for preparing the financial statements of the Company for the 2024 financial year. Our Directors are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. The statement of the independent auditor of the Company, PricewaterhouseCoopers, about their reporting responsibilities on the consolidated financial statements is set out in the Independent Auditor ’s Report at pages 109 to 113 of this annual report. Auditors’ Responsibility and Remuneration The Company appointed PricewaterhouseCoopers as the external auditor for the 2024 financial year. A statement by PricewaterhouseCoopers about their reporting responsibilities for the financial statements is included in the Independent Auditors’ Report at pages 109 to 113.
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Corporate Governance Report 64 NetEase Cloud Music Annual Report 2024 Details of the fees paid and payable in respect of the audit and non-audit services (representing the interim review services) provided by PricewaterhouseCoopers for the 2024 financial year are set out in the table below: Services rendered for the Company Total fees paid and payable RMB’000 Audit services related to the Group 5,300 Non-audit services 980 Total 6,280 Risk Management and Internal Controls Our Board acknowledges its responsibility for the Company ’s risk management and internal control systems and reviewing their effectiveness. The risk management and internal control measures are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. During the Reporting Period, our Board conducted an annual review on the effectiveness of the risk management internal control system of the Company and considered the system effective and adequate. The annual review also covered the financial reporting and internal audit function and staff qualifications, experiences and relevant resources. Risk Management The Company recognises that risk management is critical to the success of the business operation. Key operational risks faced by the Company include changes in the general market conditions and the regulatory environment of China ’s internet, music, live streaming and online telecommunications and publishing industries. The Company has adopted a consolidated set of risk management policies which set out a risk management framework to identify, assess, evaluate and monitor key risks (including but not limited to financial reporting risks, information system risks, compliance and intellectual property right risks, internal control risks, human resources risks and investment risks) associated with the strategic objectives on an on-going basis. The audit committee, and ultimately our Directors, supervise the implementation of risk management policies. Risks identified by management will be analysed on the basis of likelihood and impact, and will be properly followed up and mitigated by the Group and reported to our Directors. The Company consider that our Directors and members of the senior management possess the necessary knowledge and experience in providing good corporate governance oversight in connection with risk management and internal control. See “Directors and Senior Management” at pages 40 to 42 for details of their qualification and experiences.
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Corporate Governance Report 65 NetEase Cloud Music Annual Report 2024 Internal Control Our Board is responsible for establishing the internal control system and reviewing its effectiveness. The Company established an internal control function to develop and maintain an appropriate internal control framework. In addition, an internal audit function was also established to perform independent monitoring responsibilities. The Company regularly reviews and enhances the internal control system. Below is a summary of the internal control policies, measures and procedures the Company has implemented: (i) We maintain internal procedures to ensure that we have obtained all material requisite licences, permits and approvals for our business operation, and conduct regular reviews to monitor the status and effectiveness of those licences and approvals. Relevant business departments work with related functional departments to obtain requisite governmental approvals or consents, including preparing and submitting all necessary documents for filing with relevant government authorities within the prescribed regulatory timelines. (ii) To comply with the rapidly evolving laws and regulations in the internet industry, we have professional teams in the Group to enforce our strict internal procedures, which include without limitation monitoring laws and regulations updated from time to time and conducting relevant researches and studies; monitoring notices, instructions and requirements issued by the regulatory authorities and communicating with relevant authorities to obtain further instructions when necessary; collecting external professional opinions on any new laws and regulations; issuing appropriate plans of compliance for each product and ensuring the implementation of such plans; carrying out supervision, inspection and feedback on the implementation. (iii) To comply with the laws and regulations relating to live-streaming entertainment business, we have established various regulating mechanisms including the Management of Practices of Live Streaming Performers (˴ᅧ၍ଣᇍ), the Management of Practices on Users ( ͜˒၍ଣᇍ) and Penalties on Violation of the Rules by Live Streaming Talent Agencies (LOOK ). We have also established a comprehensive review system on live streams that covers all sections from the registration of performers, to the process of live streaming, and to the reporting after the end of the live streaming programs. The specific actions include but are not limited to the following: • Firstly, we have established a management and security system. For instance, we have implemented a stringent real-name basis system through which performers are required to register with information such as their real name and ID numbers. Such information will be verified by authorised third party organisations using biometrics technologies such as face recognition and identity authentication, to match the face of performers with their identity information and confirm the validity of such identity information. During the face recognition process, after obtaining the consent from the performers, the system will capture the face information of the performers through camera, and will instruct the performers to perform certain actions, such as blinking and opening the mouth, to confirm it is a real person. The authorised third party organisation will compare the pictures captured by the camera with photos in the performers ’ ID cards to verify whether the performers are the holders of such ID cards. The content review system adopts a “machine + manual” approach, with the help from technologies such as AI capture and key words detection, voice recognition, and risk characteristic models. The review team is on 24/7 shifts to ensure sufficient manpower to monitor all live stream content.
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Corporate Governance Report 66 NetEase Cloud Music Annual Report 2024 • Secondly, we have established a protection mechanism for minor users. We have set up and continuously upgrade the youth review mode, which cover various aspects of minor usage, including Internet addiction and virtual gifting. We have also set up multiple real-name authentication portals. Any user identified as a minor user by real-name authentication cannot be registered as a live streaming performer or top up in the live streaming service. • Finally, we have established a management mechanism of live streaming performers. We have set up penalties for prohibited conducts such as spreading vulgar content in live streaming rooms and inducing minors to make virtual gifting. The penalties include but not limited to warning, closing live streaming room, banning performance, freezing account, blocking or suspending settlement of revenue sharing for the month and suspending provision of publicity and promotion resources. We also have a tagging system for contents of live streaming programmes and a grading system based on quality of live streaming programmes and performers, and different levels are allocated with different resources. (iv) Our Directors (who are responsible for monitoring the corporate governance of the Group), with help from the legal advisers, also periodically review the compliance status with all relevant laws and regulations. (v) Our Board has established the audit committee, which: (i) makes recommendations to our Directors on the appointment and removal of external auditors; and (ii) reviews the financial statements and renders advice in respect of financial reporting as well as oversees internal control procedures of the Group. The Company has adopted the Whistleblowing Policy for employees of the Company and those who deal with the Company to raise concerns, in confidence and anonymity, with the internal audit department ( “IA”) about possible improprieties in any matters related to the Company. The Company has also adopted the Anti-Corruption Policy to safeguard against corruption and bribery within the Company. The Company has an internal reporting channel that is open and available for employees of the Company to report any suspected corruption and bribery. Employees can also make anonymous reports to the IA which is responsible for investigating the reported incidents and taking appropriate measures. The Company continues to carry out anti-corruption and anti-bribery activities to cultivate a culture of integrity, and actively organises anti-corruption training and inspections to ensure the effectiveness of anti-corruption and anti-bribery. The Company regulates the handling and dissemination of inside information as set out in various inside information disclosure procedures to ensure inside information remains confidential until the disclosure of such information is appropriately approved, and the dissemination of such information is efficiently and consistently made. COMPANY SECRETARY Ms. Wong Wai Yee Ella has been appointed as the Company ’s company secretary. Ms. Wong ’s primary contact person at the Company is Ms. Ju Lu, vice president of finance of the Company. See “Directors and Senior Management” on page 42 in this annual report for Ms. Wong’s biography. In the 2024 financial year, Ms. Wong has undertaken not less than 15 hours of relevant professional training respectively in compliance with Rule 3.29 of the Listing Rules.
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Corporate Governance Report 67 NetEase Cloud Music Annual Report 2024 SHAREHOLDER RIGHTS AND COMMUNICATIONS Convening of Extraordinary General Meetings by Shareholders and Putting Forward Proposals at General Meetings Pursuant to article 12.3 of our articles of association, our Board may, whenever it thinks fit, convene an extraordinary general meeting. Extraordinary general meetings shall also be convened on the written requisition of one or more members holding together, as at the date of deposit of the requisition, shares representing not less than one-tenth of the voting rights, on a one vote per share basis, in the share capital of the Company. The written requisition shall be deposited at the principal office of the Company in Hong Kong or, in the event the Company ceases to have such a principal office, the registered office of the Company, specifying the objects of the meeting and signed by the requisitionist(s). If the Board does not within 21 days from the date of deposit of the requisition proceed to convene a meeting to be held within a further 21 days, the requisitionist(s) themselves or any of them representing more than one-half of the total voting rights of all of them, may convene the general meeting in the same manner, as nearly as possible, as that in which meetings may be convened by the Board provided that any meeting so convened shall not be held after the expiration of three months from the date of deposit of the requisition, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of our Board shall be reimbursed to them by the Company. Shareholders who wish to put forward proposals at general meetings may achieve this by means of convening an extraordinary general meeting following the procedures set out in the paragraph above. For the procedures for our Shareholders to propose a candidate for election as a director of the Company, please see the Company’s website at http://ir.music.163.com. Putting Forward Enquiries to the Board and Contact Details For putting forward any enquiries to our Board, Shareholders may send written enquiries to the Company as follows: Attn.: The Board of Directors, NetEase Cloud Music Inc. Room 1201, Block A Hangzhou International Expo Center No. 353 Benjing Avenue, Qianjiang Century City, Xiaoshan District Hangzhou, Zhejiang Province, China. The Company will not normally deal with verbal or anonymous enquiries.
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Corporate Governance Report 68 NetEase Cloud Music Annual Report 2024 Communication with Shareholders and Investors Relations The Company considers that effective communication with Shareholders is essential for enhancing investor relations and investor understanding of the Group ’s business performance and strategies. The Company endeavours to maintain an ongoing dialogue with Shareholders and in particular, through annual general meetings and other general meetings. At the forthcoming annual general meeting, our Directors (or their delegates as appropriate) will be available to meet Shareholders and answer their enquiries. To promote effective communication, the Company maintains a website at http://ir.music.163.com, where information and updates on the Company ’s business developments and operations, financial information, corporate governance practices and other information are available for public access. The Company has established a number of channels for maintaining an on-going dialogue with its Shareholders as follows: (a) Corporate Communication “Corporate Communication” as defined under the Listing Rules refers to any document issued or to be issued by the Company for the information or action of holders of any of its securities, including but not limited to the following documents of the Company: (i) the annual report (with Directors ’ report, annual accounts together with a copy of the auditor’s report) and, where applicable, its summary financial report; (ii) the interim report and, where applicable, its summary interim report; (iii) the quarterly results; (iv) a notice of meeting; (v) a circular; and (vi) a proxy form. The Corporate Communication of the Company will be published on the Stock Exchange ’s website (www.hkexnews.hk) in a timely manner as required by the Listing Rules. Corporate Communication will be available to Shareholders and non-registered holders of the Company ’s securities in both English and Chinese versions or where permitted, in a single language, in a timely manner as required by the Listing Rules. Shareholders and non-registered holders of the Company’s securities shall have the right to choose the language (either English or Chinese) or means of receipt of the Corporate Communication (in printed form or through electronic means). (b) Announcements and Other Documents pursuant to the Listing Rules The Company shall publish announcements (on inside information, corporate actions and transactions etc.) and other documents (e.g. memorandum and articles of association) on the Stock Exchange ’s website in a timely manner in accordance with the Listing Rules. (c) Corporate Website Any information or documents of the Company posted on the Stock Exchange ’s website will also be published on the Company ’s website (http://ir.music.163.com). Other corporate information about the Company ’s business developments, goals and strategies and corporate governance will also be available on the Company’s website.
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Corporate Governance Report 69 NetEase Cloud Music Annual Report 2024 (d) Shareholders ’ Meetings The annual general meeting and other general meetings of the Company are the primary forum for communication between the Company and its Shareholders. The Company shall provide Shareholders with relevant information on the resolutions(s) proposed at a general meeting in a timely manner in accordance with the Listing Rules. The information provided shall be reasonably necessary to enable Shareholders to make an informed decision on the proposed resolution(s). Shareholders are encouraged to participate in general meetings or to appoint proxies to attend and vote at the meetings for and on their behalf if they are unable to attend the meetings. Where appropriate or required, the chairman of the Board and other Board members, the chairmen of Board committees or their delegates, and the external auditors should attend general meetings of the Company to answer Shareholders ’ questions (if any). The chairman of the independent Board committee (if any) should also be available to answer questions at any general meeting to approve a connected transaction or any other transaction that is subject to independent Shareholders ’ approval. (e) Shareholders and Investors Enquiries The Company will not normally deal with verbal or anonymous enquiries. Shareholders and investors may send any enquiries to the Investor Relations by email: music.ir@service.netease.com. (f) Webcast Webcasts of the Company’s interim and annual results briefings are available. (g) Other Investor Relations Communication Platforms Investor/analysts briefings, roadshows (both domestic and international), media interviews, marketing activities for investors and specialist industry forums etc. will be launched on a required basis. We annually review the implementation and effectiveness of the above Shareholders ’ communication policy (with communication channels). Following our review during the Reporting Period, we have concluded that the above policy provides sufficient opportunity and avenues for ongoing communication between the Company (including the Board and management) and our Shareholders. Changes in Constitutional Documents On 26 June 2024, our Company amended certain provisions of our articles of association to, among other things, bring the articles of association in line with the regulatory requirements in relation to the expanded paperless listing regime and the electronic dissemination of corporate communications by listed issuers and the related amendments to the Listing Rules which took effect from 31 December 2023, by way of adoption of the new memorandum and articles of association in substitution for, and to the exclusion of, the memorandum and articles of association, upon the shareholders ’ approval by special resolution at the annual general meeting of 2024. For further details, please refer to the circular of the Company dated 25 April 2024. The latest version of our memorandum and articles of association are available on the websites of the Company and the Stock Exchange.
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Environmental, Social and Governance Report 70 NetEase Cloud Music Annual Report 2024 ABOUT THIS REPORT Introduction This report is the fourth Environmental, Social, and Governance ( “ESG”) Report (“this report”) published by NetEase Cloud Music Inc. (the “Company”, “NetEase Cloud Music”, “we”, “us” or “our”) to share its efforts, initiatives and achievements in ESG activities with stakeholders. Reporting Period This report covers the period from January 1, 2024 to December 31, 2024 (the “reporting period ”), with some content retrospectively referencing prior years or extending into 2025. Reporting Scope This report covers the Company and its subsidiaries. Reporting Guidelines This report was compiled in accordance with Environmental, Social and Governance Reporting Code (formerly Environmental, Social and Governance Reporting Guide, the “ESG Reporting Code”) in Appendix C2 of the Rules (the “Listing Rules”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) applicable for the reporting period and with reference to the Global Reporting Initiative’s Sustainability Reporting Standards 2021 (“GRI Standards 2021”). We also considered the relevant requirements of the International Financial Reporting Standards S2 (“IFRS S2”) Climate-related Disclosures in preparing “Responding to Climate Change” section in chapter two. Reporting Principles and Process Adhering to reporting principles such as materiality, quantitative, and consistency, this report was prepared by following the procedures of identifying and prioritizing stakeholders and material ESG-related issues, determining the scope of the report, collecting relevant materials and data, compiling the report based on the information, and reviewing the contents of the report to ensure its completeness, substance, accuracy, and balance. Materiality This report focuses on the disclosure of the ESG issues identified by the Company ’s board of directors (“Board of Directors” or “Board”) as having material impacts on investors and other stakeholders. For details of the identification process and outcomes of NetEase Cloud Music’s ESG material issues for 2024, please refer to the “Stakeholder Engagement” and “ESG Material Issues” sections in chapter one. Quantitative This report discloses NetEase Cloud Music ’s quantitative ESG data, along with the standards and methodologies used for data collection, statistics, and calculations. Additionally, textual explanations are provided for the data. For NetEase Cloud Music’s 2024 quantitative ESG data, please refer to Appendix 2 “ESG Performance Indicators ” and the corresponding sections in each chapter. Consistency Unless otherwise stated, the Company adheres to a consistent statistical method for data disclosure in each reporting period.
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Environmental, Social and Governance Report 71 NetEase Cloud Music Annual Report 2024 Sources and Credibility The information and data contained herein are from the Company ’s statistical reports and official documents, and have been approved by the relevant departments. The Company undertakes that this report does not contain any false or misleading information, and is responsible for the truthfulness, accuracy, and completeness of the content. Languages and Formats This report is available in both Chinese and English and can be accessed in electronic form. For more information regarding the background, business development, and sustainability philosophy of NetEase Cloud Music, please visit our investor relations website (http://ir.music.163.com/en/index.php). Confirmation and Approval This report was confirmed by the management team and was approved by the Board of Directors. Access and Feedback We attach great importance to the opinions of our stakeholders and welcome readers to contact us through the following email address. Your opinions will help us improve this report as well as our ESG performance. Email: music.ir@service.netease.com
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Environmental, Social and Governance Report 72 NetEase Cloud Music Annual Report 2024 1 ESG GOVERNANCE NetEase Cloud Music is dedicated to sustainable development. Through our ESG governance structure, we integrate ESG principles into our daily operations. We actively enhance communication with stakeholders through a variety of channels to collect their feedback and understand their expectations regarding our ESG efforts. Additionally, we continuously strengthen our risk management capabilities to ensure business stability and promote sustainable development of the Company. 1.1 ESG Governance Structure NetEase Cloud Music’s ESG governance structure consists of the Board of Directors and the ESG Working Group. With clearly defined responsibilities and functions, they collaborate to ensure that the Company’s ESG work is carried out in an orderly manner. Statement by the Board of Directors The Board of Directors firmly integrates ESG principles into the Company ’s growth strategy, and aligns ESG concepts with the Company’s business operations. The Board recognizes its responsibility to guide and oversee the Company ’s ESG matters and takes the ultimate responsibility for the Company ’s ESG initiatives and performance. The duties of the Board include reviewing ESG strategies and policies and regularly monitoring progress toward our ESG goals. During the reporting period, the Board reviewed the annual ESG report and provided suggestions to the ESG management for next year. The ESG Working Group is tasked with implementing the Company ’s ESG strategies, goals, and guidelines, and regularly reporting to the Board on ESG work progresses. ESG Governance Structure • Coordinates and oversee the Company's ESG issues •M akes decisions regarding material ESG issues •R eviews and reflects on ESG progress • Assesses and reviews material ESG issues and related risks and opportunities •R eviews anda pprovesE SG reports Board of Directors • Implements ESG matters • Implement ESG goals, strategies, and policies •A ssesses ESGi ssues andr isks •C ompilesE SG reports • ESG activities implementation ESGW orking Group
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Environmental, Social and Governance Report 73 NetEase Cloud Music Annual Report 2024 1.2 Stakeholder Engagement To better address stakeholders ’ concerns, NetEase Cloud Music continues to optimize its stakeholder communication system, ensuring that all stakeholders are heard and responded to through various channels. We conduct annual interviews and communication with stakeholders to understand their expectations and requirements regarding the Company’s ESG efforts, serving as the foundation for identifying and assessing the Company ’s annual ESG material issues. The table below shows the key stakeholders and their expectations identified by NetEase Cloud Music during the reporting period. Table: Key Stakeholders and Communication Channels Stakeholder Expectations and Demands Communication Channels Users • Content Innovation • Content Compliance • Customer Services • Privacy and Data Security • Customer Satisfaction Surveys • Customer Complaint Handling • The Company ’s Website • Official WeChat Account Partners and Industry Associations • Experience Sharing • Support for Industry Development • Strategic Cooperation • Industry Exchanges Employees • Compensation and Benefits • Health and safety • Employee Communication • Promotion and Career Advancement Opportunities • Employee Satisfaction Surveys • Channel Suggestions • Team building Activities Shareholders and Investors • Corporate Governance • Return on Investment (ROI) and Growth • Risk Management • Tackling Climate Change • Shareholders ’ Meetings • Road Shows • Information Disclosure via ESG Reports and Annual Reporting Communities and Charities • Volunteering • Support for Local Development • Care for Vulnerable Groups • Charity Work • Community Building Activities • Visits Government and Regulatory Authorities • Product Compliance • Anti-corruption • Tackling Climate Change • Policy Consulting • Reception of Visitors • Meetings Media • Promoting Industry Development • Support for Local Development • Care for Vulnerable Groups • Tackling Climate Change • Press Conferences • Social Media Suppliers • Supplier Management • Transparent Procurement • Products and Service Quality Assurance • Supplier Training • Supplier Qualification Assessment
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Environmental, Social and Governance Report 74 NetEase Cloud Music Annual Report 2024 1.3 Material ESG Issues NetEase Cloud Music continuously collects stakeholders ’ feedback on its ESG work, addresses regulatory concerns and emerging trends, and regularly updates its material ESG issues library. During the reporting period, through management discussions, stakeholder communications and peer benchmarking results, 19 issues with significant impact on the Company’s sustainability were identified. TablejList of Material ESG Issues Category Issue No. Issue Environment 1 Carbon Emissions 2 Tackling Climate Change 3 Energy Management 4 Waste Management Society 5 Privacy and Data Security 6 User Experience Improvement 7 Product and Content Innovation 8 Product and Content Quality Assurance 9 Intellectual Property Protection (IPP) 10 Lawful Employment 11 Employee Development and Training 12 Employee Health and Safety 13 Supply Chain Management 14 Partnership 15 Customer Complaint Management 16 Charity and Social Welfare Governance 17 Anti-corruption and Business Ethics 18 Business Compliance 19 Corporate Governance
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Environmental, Social and Governance Report 75 NetEase Cloud Music Annual Report 2024 Matrix of Material ESG Issues Importance to Stakeholders Importance to NetEase Cloud Music's Sustainable Development High High Medium Medium High Minor Medium Carbon Emissions Tackling Climate Change Privacy and Data Security Product and Content Quality Energy Management Waste Management Charity and Social Welfare Employee Development and Training Lawful Employment Employee Health and Safety Supply Chain Management Customer Complaint Management Partnership Intellectual Property Protection (IPP) User Experience Improvement Product and Content Innovation Corporate Governance Anti-Corruption and Business Ethics Business Compliance Legend: Governance Social Environmental We update our material ESG issue matrix to accurately reflect the significance of each issue to stakeholders and guide the future ESG work of the Company by comprehensively considering the stakeholders ’ concerns, business trends, and business strategy during the reporting period. For instance, we recognize product and content innovation as the key driver of the Company ’s sustainable development, complemented by strict control on product and content quality, as well as robust protection of user privacy and data to ultimately improve the user experience. Therefore, during the reporting period, these related ESG issues were identified as high importance to both the stakeholders and the Company during the reporting period. In addition, regulatory requirements released during the reporting period have provided a clear guidance for our climate change management and disclosure efforts, effectively eliminating uncertainties pertaining to external requirements, and our stakeholders ’ interest in climate change and carbon emission issues has decreased during the reporting period. Consequently, we reclassified the related issues as medium importance.
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Environmental, Social and Governance Report 76 NetEase Cloud Music Annual Report 2024 1.4 Compliance Governance In compliance with applicable laws and regulations, including the Company Law of the People ’s Republic of China , the Basic Internal Control Norms for Enterprises , the Listing Rules , etc., NetEase Cloud Music developed corporate governance policies and systems. We strictly enforce regulatory and compliance requirements while improving the transparency and efficiency of corporate governance. During the reporting period, we implemented a rigorous risk management structure. Our business and legal departments collaboratively identify and manage front-end risks. Based on the results of risk level assessments, timely reports are submitted to senior management, who then determines whether the identified risks should be presented to the Audit Committee for further review. For material unexpected risks, the Company established a dedicated risk management committee consisting of the Board of Directors, senior management, and legal and business departments, ensuring effective risk review and decision-making. The Company continuously updates its risk map, managing risks across multiple areas including corporate governance, business ethics, employment, intellectual property, and cyber and data security, etc. Targeted measures are implemented based on risk levels and potential hazards. During the reporting period, in response to rising online fraud, we identified and addressed operational risks by detecting and blocking abnormal proxy behaviors, preventing large-scale recharge fraud, and cracking down on illegal groups to safeguard platform integrity. During the reporting period, we conducted regular trainings on various topics, educating the related business departments and employees on the latest laws, regulatory requirements, and industry standards. As a result, the overall risk awareness is strengthened, and a culture of compliance is fostered within the Company. Compliance Training Examples During the reporting period, we offered an in-depth interpretation of new regulations, such as the Regulation on the Protection of Minors in Cyberspace, effective from 2024. This interpretation aimed at providing our business departments and employees with clear understanding of the new require- ments, ensuring their compliance. During the reporting period, the Company provided comprehensive compliance training and case study sharing for livestreaming staff. This training ensures that our business departments and employees fully understand the relevant regulations. •• Interpretation of New Internet Regulations Training on Livestreaming Compliance
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Environmental, Social and Governance Report 77 NetEase Cloud Music Annual Report 2024 2 GREEN OPERATIONS NetEase Cloud Music is committed to the sustainable development with a focus on environmental responsibility. We strictly comply with related laws and regulations, including the Environmental Protection Law of the People’s Republic of China, the Energy Conservation Law of the People’s Republic of China, and the Water Law of the People’s Republic of China . We actively explore opportunities to reduce energy consumption and emissions across our operations, standardize and implement management processes and measures for emission, energy, resource and climate response, striving to create eco-friendly and resource-efficient workplaces. 2.1 Environmental Targets Following the Stock Exchange ’s ESG Reporting Code applicable for the reporting period, NetEase Cloud Music set environmental and climate targets based on the environmental performance in previous years and its own business characteristics and monitored yearly progress. NetEase Cloud Music’s Environmental Targets Environmental Target Section Carbon Emissions Improve our capability to manage carbon emissions data and take various measures to reduce carbon emissions year by year Resource Management Waste Reduction Take effective measures to reduce wastes Waste Management Energy Use Efficiency Build a sound energy use system and improve energy efficiency Resource Management Water Use Efficiency Take effective measures to improve water use efficiency Resource Management
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Environmental, Social and Governance Report 78 NetEase Cloud Music Annual Report 2024 2.2 Waste Management NetEase Cloud Music strictly complies the relevant laws and regulations, such as the Law of the People ’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste . We established standardized waste management processes and continuously strengthen education on waste classification, utilization, and reduction to ensure compliant waste disposal. We implement waste sorting based on the principles of reduction, reusing and recycling. We collect and categorize our kitchen waste, recyclable waste and hazardous waste generated from daily operations, which is then handed over to qualified third parties for centralized transportation, recycling, and disposal, ensuring regulatory compliance and minimizing environmental impact. 2.3 Resource Management NetEase Cloud Music is dedicated to managing resource consumption throughout its operations and value chain. We monitor and manage our energy, water and supply usage to minimize waste, improve efficiency, and maintain a low- carbon, low-waste operation. • • KitchenW aste • Common waste: Bottles, cartons, etc. Disposal method: We entrust qualified service provider(s) to recycle them • Recyclable Waste • • HazardousW aste Common waste: Fluorescent Lamps, electronic waste, etc. Disposal method: We use refillable toner cartridges and ink cartridges, which are recycled by service provider(s) and disposed of in compliance with regulations after reaching the end of their service life Common waste: Food scraps, leftovers, etc. Disposal method: We designate qualified third-party service provider(s) to clean and deliver the waste to the government's disposal station
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Environmental, Social and Governance Report 79 NetEase Cloud Music Annual Report 2024 2.3.1 Energy Management Energy conservation is a key driver in mitigating climate change and ensuring sustainability. With IoT (Internet of Things) technology and smart control systems and platforms, we identify and explore new energy-saving opportunities through intelligent sensors and real-time monitoring of environmental and energy consumption data, enabling us to further optimize our energy usage structure and conservation plans. Based on the monitoring results and our actual energy needs, we promote centralized management of energy use across different areas and time periods to maximize our energy efficiency. As part of our energy management efforts, we are committed to optimizing energy use at our data centers. We implemented measures to improve efficiency and reduce energy use, including the adoption of evaporative cooling systems and integrated power solutions, which shorten equipment operating hours and reduce maintenance demands. Energy usage in subsystems and server rooms is closely monitored, with targeted improvements applied to high-PUE (Power Usage Effectiveness) subsystems to enhance performance. We also impose strict energy management requirements on our data center service providers, using a fee-sharing system to encourage them to implement energy-saving measures and enhance energy efficiency. 2.3.2 Water Resource Management NetEase Cloud Music values natural resources and integrates the concepts of resource conservation and nature protection into its operations. We actively promote water-saving awareness among employees, fostering a culture of collective resource conservation. We improve water efficiency by implementing campus recycling system to collect and reuse rainwater for daily domestic and greening purposes. We also conduct regular inspections of the water pipelines, facilities, and fixtures, and upgrade outdated fixtures to minimize water loss from leaks. Intelligent sensors in offices We employ intelligent automated light control systems that activate lights when human activity is detected and switch them off when the workplace is unoccupied, eliminating the need for manual intervention and prevent unnecessary energy consumption. Real-time energy consumption data collection and monitoring By utilizing IoT devices and systems, we collect and monitor energy consumption data for different usage scenarios and devices in our workplace in real time. We review the monthly and yearly to identify irregular energy use and optimize our energy utilization plans. Resource allocation optimization For air conditioning requirements outside of working hours, a request must be submitted. We group departments that need air conditioning during the same time periods within the same building to ensure centralized management and reduce energy consumption.
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Environmental, Social and Governance Report 80 NetEase Cloud Music Annual Report 2024 2.3.3 Green Office NetEase Cloud Music strives to lead in green office practices. We reduce unnecessary waste and improving resource efficiency by promoting paperless workflows, and encouraging resource sharing among employees to extend the lifecycle of resources. We also regularly promote green office initiatives to raise employee awareness of green practices. We also continue to advance our Clean-Your-Plant initiative by offering self-service dining options, enabling employees to personalize their portions, flavors, and meal types to minimize food waste. Food-saving awareness is further reinforced through signage at dish return and waste disposal areas, along with on-site supervision in our canteen. 2.4 Responding to Climate Change NetEase Cloud Music recognizes the impact of climate change on both global environment and its business operations. We are committed to addressing this challenge through collaboration and proactive measures. Guided by the IFRS S2 framework and recommendations, we established a climate-related risk management process to identify and analyze related risks and opportunities, followed by the implementation of action plans to address them. 2.4.1 Governance The Company developed an ESG governance structure consisting of its management and an ESG Working Group, which are responsible for coordinating, supervising, and executing climate change-related matters. The management is responsible for assessing and reviewing climate-related risks and opportunities, formulating climate strategies, and overseeing the implementation of related actions and plans. The ESG Working Group collaborates with different business units to identify climate-related risks and opportunities and promotes response plans.
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Environmental, Social and Governance Report 81 NetEase Cloud Music Annual Report 2024 2.4.2 Strategy To enhance our climate resilience and adaptability, we identify and analyze climate-related risks and opportunities, define the potential impacts of them on our business operations and development, and develop targeted measures to address them. Examples of Transition Risk Identification and Response Risk Type Description Impact Measure Transition Policy and legal More stringent requirements of climate and environmental regulations and policies • Due to updates in regulatory policies, our obligation to report greenhouse gas emissions increased. Additional budget needs to be allocated for increased greenhouse gas auditing and management, resulting in higher operating costs. • As environmental policies become stricter, we need to implement more in-depth environmental practices, leading to increased budget allocations for environmental management and energy- saving measures. We strictly follow regulatory requirements on climate and environmental protection, increase invest in energy- saving initiatives, and promote implementation of energy-saving projects. Reputation Changing consumer preferences Products and contents need to keep up with consumer preferences by implementing timely market research and targeted measures. We create contents that advocate environmental protection and sustainability of our products and services. Public opinion Climate-related events (such as extreme weather damaging IT infrastructure and causing server failures) may shape public perspectives that impact our brand and image. We continuously monitor public feedback and promptly respond to the concerns and discussions raised by the public.
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Environmental, Social and Governance Report 82 NetEase Cloud Music Annual Report 2024 Examples of Physical Risk Identification and Response Risk Type Description Impact Measure Physical Acute Typhoons, rainstorms, and floods • Typhoons could destroy the Internet infrastructure, disrupt our services, and increase repair and purchasing costs, as well as risks to employee health and safety. • Continuous heavy rainfall may lead to secondary disasters such as floods and mudslides, damaging Internet infrastructure and resulting in service interruptions, which in turn increase operating costs. • We continuously monitor geographical and climatic information to enhance our emergency response plans for typhoons, rainstorms, and floods. We also strengthen emergency drills to protect equipment and facilitates, and ensure employee safety. As a result, the negative impacts and potential losses on business operations can be reduced. Chronic Increase in average temperature A warming climate could increase thermal stress for our campuses and data centers, resulting in higher repair and energy costs due to facility damage. We promote the efficiency of energy and ventilation systems in both office spaces and data centers by integrating the IoT energy management platform. Sea level rise Rising sea levels could cause flooding at operational sites, damaging our internet infrastructure and lead to asset depreciation and additional maintenance costs. We continuously monitor geographical and climatic information and take preventative measures to protect our facilities before flooding occurs. If necessary, we activate our emergency response plans.
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Environmental, Social and Governance Report 83 NetEase Cloud Music Annual Report 2024 2.4.3 Risk Management We regularly identify, analyze, assess, and address climate-related risks that could impact our operations and financial performance, ensuring our business remains resilient and sustainable. We have established a comprehensive climate risk identification and monitoring mechanism to effectively manage climate risks, which includes a structured cycle of risk identification, impact assessment, response strategy planning, and ongoing monitoring and improvement. 2.4.4 Metrics and Targets NetEase Cloud Music strictly manages its resource consumption and greenhouse gas management across its operations. Related targets are established to promote the implementation of our climate response plans and strategies. Details of NetEase Cloud Music ’s greenhouse gas emission target can be found in the section 2.1 Environmental Targets. We continuously monitor our environmental performance and greenhouse gas emissions to ensure progress of related targets. Data on resource consumption and greenhouse gas emission for the reporting period can be found in Appendix 2: ESG Performance Indicators section. Risk identi/f_ication •W ei dentify potentialt ransitional and physical risks that mayi mpact our operations by collecting and analyzingi nformation related to climater isks (such as weatherp atterns, climate change data, regulatory updates,m arket trends, etc.). Impact assessment •B ased on internal and external experto pinions, as well as industry best practices and the characteristics of our operations, we analyze and prioritize the potentiali mpactso fv arious climater isks on our key business operations to allocate our efforts effectively. Response strategy planning •B ased on the assessment results,w e establish targeted responsep lans for different risks, andi ntegrate these plans with the Company's development strategy to form our climater esponses trategy, ensuring that our climate governancei s closelya ligned with our daily operations. Monitoring and improvem ent •W ee stablish a dynamic monitoring mechanism that regularly reviews changes in climater isks and implementationo f climates trategies, which ensures that our responsem easures are effective and forward- looking. •W er egularly collect feedback and review the executiono f our climate strategies to continuously optimize our risk management processes, enhancing our adaptability to climate change and resilience against risks.
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Environmental, Social and Governance Report 84 NetEase Cloud Music Annual Report 2024 3 TALENT DEVELOPMENT NetEase Cloud Music places our people at the core of our values. We respect and care for all the employees, while safeguarding their rights and welfare. We are committed to fostering a healthy, safe, harmonious and fair workplace that supports work-life balance. By providing diverse development opportunities, we enable our employees to fully realize their potential, achieve greater satisfaction at work, and grow with us. 3.1 Employment and Labor Practices NetEase Cloud Music strictly complies with relevant laws and regulations in its recruitment and employment processes to protect employee rights. We continually optimize our compensation and benefits system to build an inclusive, diverse, and transparent workplace. 3.1.1 Compliant Workplace NetEase Cloud Music strictly complies with the Labor Law of the People’s Republic of China , the Labor Contract Law of the People’s Republic of China, and other relevant laws and regulations. We formulated internal policies, such as the recruitment system and the employee handbook, to ensure legal compliance of our employment practices. We guarantee that the recruitment process is fair and transparent, and the promotion and dismissal processes are clear and consistent, thereby protecting the legal rights of our employees. During recruitment, we comply with relevant legal requirements. With the candidates ’ consent, their identification documents and personal information are carefully verified to ensure compliance with the statutory minimum working age, preventing the employment of child labor. During employment, we ensure that our employees are engaging in work activities voluntarily without any forced labor. If any violations of employment regulations are discovered, immediate investigation will be launched, and corrective measures are taken. During the reporting period, no incidents of forced labor or child labor have occurred. 3.1.2 Diverse Workplace While complying with the related employment regulations, NetEase Cloud Music is dedicated to creating an equitable and diverse workplace. We standardize our job descriptions with neutral and inclusive description that does not contain any barrier or prejudice against any specific group. In addition, our interviewers strictly adhere to the principles of diversity and anti-discrimination during the interview and feedback processes, objectively assessing candidates based on their professional competence, prior experience, and role suitability. We welcome talented individuals from diverse backgrounds to apply for roles of their interest through targeted recruitments. We also collaborate with domestic universities to attract outstanding talents through campus presentations and study tours. During the reporting period, we standardize our studio training processes and performance criteria, leading to an increase in both the quantity and quality of full-time hires onboarded from campus recruitment. Looking ahead, we plan to increase campus recruitment quotas for our original content studios to expand our talent pool.
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Environmental, Social and Governance Report 85 NetEase Cloud Music Annual Report 2024 3.1.3 Enjoyable Workplace NetEase Cloud Music values the contributions of every employee and offers competitive compensation and benefits to improve their satisfaction and fulfillment. Our cash compensation system includes fixed pay, variable pay, and long-term incentives, as well as employee benefits such as health care insurance, canteens, holiday gifts, family allowances, and housing loans. Our employee handbook specifies the leave entitlements, such as statutory annual leave, full-pay sick leave, and special provisions for marriage, maternity, and parental care, medical care, and the Spring Festival. We ensure our employees work in compliance with the legal working hours while providing flexible arrangements to support them with special needs. The well-being of our employees is of utmost concern for us. We foster a comfortable work environment that emphasizes the value of teamwork and organize a series of activities to promote work-life balance. During the reporting period, we celebrated the 11 st anniversary of NetEase Cloud Music with the theme of passion, providing employees an opportunity to unwind and enjoy music. Through a series of other activities that are centered around the theme of passion, our employees gained a deeper understanding of our company culture and a stronger sense of identity and cohesion. 3.2 Health and Safety NetEase Cloud Music is committed to ensuring workplace safety and health. We continually strengthen security measures and improve the overall health of our work environment. In addition, we emphasize employee mental well- being by leveraging both internal and external resources to relieve stress and create a positive workplace. 3.2.1 Safe Workplace NetEase Cloud Music adheres to the Fire Protection Law of the People’s Republic of China and the Work Safety Law of the People ’s Republic of China to create a safe working environment and conditions. In accordance with our internal standards, we conduct regular fire safety inspections, routinely test our security systems, and reinforce food safety supervision in our staff canteen to ensure comprehensive protection for our employees. 3.2.2 Healthy Workplace We organize annual checkups for all employees and provide health insurance, including coverage for employees’ children. We also proactively promote healthy workplace practices through targeted awareness campaigns and first aid training for common workplace diseases. Our campus is equipped with sports and fitness facilities, and we invite professional traditional Chinese medicine and rehabilitation teams and doctors from time to time to address any physical ailments. For mental healthcare, our Employee Assistance Program (EAP) support employees to cope with psychological stress and emotional issues. In the past three years, there were no fatalities caused by work-related incidents in NetEase Cloud Music. 3.3 Development and Training NetEase Cloud Music attaches great importance to employee development. We offer diverse career paths alongside a robust training program to help employees achieve their career goals. Our comprehensive performance assessments provide clear guidance and motivation for employee continuous improvement, ensuring we maintain a competitive talent pipeline.
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Environmental, Social and Governance Report 86 NetEase Cloud Music Annual Report 2024 3.3.1 Employee Performance NetEase Cloud Music established an integrated performance assessment system that combines objective setting, process management, and result appraisal to evaluate and enhance employee performance. We conduct regular staff appraisals to provide employees with timely results and data-driven feedback. Through effective communication and coaching, we guide employees towards self-improvement and stronger teamwork performance. We conduct internal technical tests tied to employees ’ performance results to further foster a professional workplace. During the reporting period, certification assessments for AI coding and basic development skills were conducted for 400 development team members, strengthening their technical knowledge. We refined our promotion process by enhancing the experience for both the evaluators and our employees. Three initiatives were implemented to enhance the promotion experience, including increased preliminary communication, dedicated presentation room arrangements, and evaluation training with feedback channels. During the reporting period, we received over 100 valid feedback submissions, providing valuable insights for further process optimizations. We implemented incentive programs to recognize and award teams and individuals who achieve significant business breakthroughs, exceed targets, and excel in innovation and collaboration with outstanding contribution award, outstanding team award and other awards to encourage them to strive for excellence. 3.3.2 Employee Training NetEase Cloud Music established a distinctive talent training system that offers customized training courses tailored to the career development needs of all employees to enhance their professional skills and competence. To improve training flexibility and coverage, we upgraded our management training mini-program and transitioned from traditional offline training to online formats. Courses such as the DEMO Management Basics and the MUST for New Managers are designed to enhance the managerial capabilities and proficiency of our management team. We are committed to strengthening the professional skills of our employees. Business unit heads design specialized training courses based on the respective needs of various roles, including operations, technology, and business intelligence to enhance our employees ’ project experience, soft skills, professional methodologies, and industry research. During the reporting period, 106 employees participated in a design course, accumulating a total of 789.54 training hours. We value the cultivation of our employees ’ musical literacy and initiated a music knowledge exchange project during the reporting period, which included a knowledge accumulation platform and a quiz platform to deepen our employees’ understanding of the music industry through the sharing of music theories and industry knowledge. We fully respect our employees ’ personalized development and encourage them to obtain professional certifications, including agent and editor certificates. We provide them with reimbursements for their exam and study fees. During the reporting period, several employees obtained agent or editor certificates and received reimbursements and small cash rewards.
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Environmental, Social and Governance Report 87 NetEase Cloud Music Annual Report 2024 3.4 Communication and Interaction NetEase Cloud Music values the voice of our employees and respects their opinions. We established a two-way communication mechanism through all-staff meeting and feedback channels. We regularly communicate our strategic direction and business priorities to our employees during these meetings. Employees can also provide suggestions through our internal communication platform, HR interviews, one-on-one meetings with senior executives, and engagement and satisfaction surveys. Additionally, direct supervisors maintain regular communication with our employees to discuss work-related issues and personal development. We also organize regular interactive events, such as executive lunch meetings and celebration parties, and provide music-related benefits to employees. During the reporting period, we conducted the 2024 Employee Engagement Survey, which showed an overall improvement compared to the previous year, particularly in employee communication and employee benefits. We also set up a mechanism to encourage our employees to identify potential improvements in workflows and explore effective solutions. Based on the importance of the information provided, employees are rewarded with gifts or recognized with achievement awards, ensuring they receive timely and meaningful responses for their insights and suggestions. NetEase Cloud Music's Employee Training System •"Music Knowledge Exchange"K nowledge Accumulation Platform: Shares knowledge in areas sucha sm usict heories, musici ndustry, technology, and commercialization; Quiz Platform:P romotesl earning through weekly, monthly, and quarterly quizzes and assessments. All-staff Training •H elps new hires blend in with the team andl earn aboutt he business through onboarding programs and exclusive courses. NewS taffT raining •Supportsj unior managers to transition into their new roles, enhancess enior managers' team leadership, and cultivates a businessm indseta mong managers through onlinem ini-programsa nd conductingD EMO basic management courses and MUSTt raining for new managers. Management Training •C overs content sucha sj ob experience sharing, soft skills training, professional methodology teaching, and industry research sharing for different positions in operations, technology, and designt o help our employeese nhance their professional and practical skills. BusinessT raining
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Environmental, Social and Governance Report 88 NetEase Cloud Music Annual Report 2024 4 SUPPLY CHAIN MANAGEMENT NetEase Cloud Music is committed to building a responsible supply chain management system. We continuously strengthen high-quality partnerships through comprehensive policies, clear review and assessment mechanisms, and multi-dimensional evaluation methods that take environmental and social risks into account. 4.1 Supplier Management We established a supplier lifecycle management system that strictly follows internal bidding and procurement regulations during the supplier selection and onboarding processes. As part of the requirements, we review the qualifications, competencies, and credit status of our suppliers, while proactively managing related environmental and social risks. We regularly evaluate the overall performance of different types of suppliers with a tiered review system, which cover core indicators related to quality assurance, cost control, on-time delivery, service standards etc. We also implement the Performance Improvement Plan (PIP) that requires suppliers who fail to meet standards to take improvement actions with ongoing monitoring. During the reporting period, we optimized the supplier review mechanism and linked delivery acceptance to supplier performance to ensure compliance with our quality standards. As the end of the reporting period, NetEase Cloud Music had 67 centralized procurement suppliers, with 64 in the Chinese mainland and 3 in other regions. 4.2 Responsible Supply Chain NetEase Cloud Music incorporated ESG-related factors into the supplier management process and endeavor to minimize environmental and social risks related to procurement operations. We prioritize suppliers that provide eco- friendly products and services, impose compliance requirements on employment practices in procurement agreements, and promote business ethics management and integrity culture. Conveying Integrity RequirementsConveying Integrity Requirements Building Integrity CultureBuilding Integrity Culture • We regularly conduct integrity training and assessments for suppliers to ensure they understand and comply with ethical business standards. • As of the end of the reporting period, the pass rate for supplier integrity assessments is 100%. • We communicate our integrity requirements to suppliers through contract terms, phone calls, meetings, and other channels.
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Environmental, Social and Governance Report 89 NetEase Cloud Music Annual Report 2024 5 PRODUCT RESPONSIBILITY NetEase Cloud Music always puts user experience first. By constantly analyzing users’ needs, we enhance our products and services quality to create a vibrant and reliable music community platform. In addition, we prioritize data security and privacy protection to safeguard user rights. 5.1 Products and Services We maintain strict quality standards across our products and services, providing healthy, safe, and compliant offerings. By implementing structured processes for service quality, content safety, and user support, we provide a secure, stable, and efficient platform that enhances user satisfaction and brand loyalty. 5.1.1 Product and Content Quality NetEase Cloud Music complies with the Administrative Measures for Internet Information Services and related laws and regulations. We have implemented robust content quality controls, including enhanced self-testing protocols and optimized review procedures, maintaining industry-leading standards for our products and services. Product Quality Assurance During the product development phase, NetEase Cloud Music focuses on achieving content safety through strict quality control testing and self-assessment processes to optimize product quality and performance. As for review processes, we constantly improve our content review procedures through intelligent tools and optimized manual processes, reducing processing time while improving review accuracy. During the reporting period, we improved our product review mechanisms through structured internal reviews, which assess product compliance and operational feasibility. We also incorporated critical feature considerations into internal review, resulting in improved product functionality and compatibility. Responsible marketing NetEase Cloud Music strictly adheres to relevant laws and regulations such as the Advertising Law of the People ’s Republic of China and Measures for the Administration of Internet Advertising. We have established a cross-functional oversight system and internal standards of advertising review to effectively detect violations involving pornography, vulgarity, violence, and false advertising. We also strictly verify the authorization for portrait usage, trademarks, and intellectual property for advertising collaborations to ensure full compliance across all marketing activities and client service.
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Environmental, Social and Governance Report 90 NetEase Cloud Music Annual Report 2024 Content Security Assurance NetEase Cloud Music strictly ensures content safety through an enhanced monitoring system and 24/7 emergency response protocols. During the reporting period, we strengthened our content risk control and special governance of false traffic. We gather risk information from multiple regulatory sources to ensure timely prevention, monitoring, and identification of potential content risks. We have established an ecosystem governance task force by integrating and enhancing existing specialized teams. This centralized unit oversees ongoing operations against illegal music activities and policy violations. In 2024, our risk assessment initiatives targeting legacy systems, including the web platform, resulted in a substantial decrease in fraudulent traffic. 5.1.2 Product and Content Innovation NetEase Cloud Music fosters an innovative culture that drives continuous exploration of product and service enhancements. During the reporting period, we strengthened personalized recommendations and community ecosystem development, delivering superior user experiences that reinforce our market position. Recommendation System Upgrade In 2024, we optimized the mobile app homepage with a user-centric approach, consolidating music, podcasts, and audiobooks into a unified discovery channel, resulting in growth in active user engagement. Examples of NetEase Cloud Music’s responsible marketing initiatives /g121Direct advertisers are subject to full manual review by our audit team. /g121Non-direct advertisers are reviewed by the upstream Demand-Side Platform (DSP). /g121Both direct and non-direct advertising undergo either 'full manual review' or 'machine review + manual verification'. Advertiser Approval Advertising Content • Regular business training, legal regulation updates, and sharing of classic case studies are provided for the review team. • Participate in the regular design and formulation of review standards. • Provide advisory for the daily work of the advertising review team. Manual Review + Machine Review Legal Department
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Environmental, Social and Governance Report 91 NetEase Cloud Music Annual Report 2024 Vinyl Player Interface Enhancement In 2024, we launched customizable themes on the playback page, featuring collaborations with the Palace Museum for Spring Festival, and customized skins developed in partnership with Pop Mart and NetEase Games. Additionally, the app supports personalized background images and record textures, offering premium members an elevated audio-visual experience through seamless vinyl player integration. Cross-Platform Ecosystem Development In 2024, our multi-terminal strategy expanded to PC, MAC, automotive, and IoT platforms, delivering consistent service quality and uninterrupted user experiences. Specifically, we optimized accessibility and music quality based on different terminal scenarios to achieve a consistent experience. 5.1.3 User Experience Improvement NetEase Cloud Music prioritizes service quality improvement and user feedback integration to drive satisfaction. During the reporting period, we implemented AI-driven service processes and streamlined complaint resolution, achieving measurable improvements in our service delivery system. Voice of the Customer (VoC) NetEase Cloud Music provides accessible complaint channels for prompt response and resolution. During the reporting period, while accepting customer feedback, we also proactively collected user complaints across major social media platforms to gain a comprehensive and accurate understanding of user feedback and sentiments, enabling faster response times and expanded issue coverage. Our closed-loop complaint handling system ensures thorough issue resolution and continuous improvement. Through strict quality control and timely reviews, we continuously optimize our products and services to enhance user experience. During the user complaint handling process, we ensure that each case undergoes quality review, contributing to product and service optimization. We have deployed AI-powered solutions for selected complaint categories, significantly improving processing efficiency. NetEase Cloud Music’s Customer Complaint Handling Process Receive Consultation Accept Case Escalate Case Intervene in Case Close Case Review & Improve
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Environmental, Social and Governance Report 92 NetEase Cloud Music Annual Report 2024 During the reporting period, we received a total of 1,704 user complaints, with a 100% resolution rate and a user satisfaction rate of 93.34%. User Experience Optimization NetEase Cloud Music is committed to enhancing emotional connections with community members through effective communication and attentive services. During the reporting period, we continued to optimize our user experience in different dimensions including: NetEase Cloud Music User Experience Optimization Measures Conducting User Experience ProjectsConducting User Experience Projects Building Self-Service Resolution CapabilitiesBuilding Self-Service Resolution Capabilities Continuous Optimizing SolutionsContinuous Optimizing Solutions Improving Service CapabilitiesImproving Service Capabilities • Implement intelligent service features such as ‘Service Prophet’ to predict issues users may encounter based on their behavior paths. • To address complaints related to automatic renewals, we launched an automatic refund feature using intelligent robots. • From the user ’s perspective, we review and summarize cases of user dissatisfaction, focusing on frequently occurring issues for targeted resolution. • We introduced an active outbound call mechanism to prevent users from having to revisit issues, which further improves the timeliness of complaint resolution. • We launched multiple service initiatives, including a tiered refund policy for performances, to provide thoughtful solutions that address user needs. • During the reporting period, we conducted training courses for professional service personnel to continuously enhance their professional capabilities. • We adopted a ticketing mechanism where frontline personnel handle complaints, and second-line personnel resolve them and provide feedback within one working day. • We initiated the ‘Tide Plan’ to ensure timely responses to customer needs outside of working hours, reducing the wait time of our users for a resolution. • We optimized product experiences across various scenarios, addressing issues at the source to elevate user satisfaction and overall experience.
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Environmental, Social and Governance Report 93 NetEase Cloud Music Annual Report 2024 5.2 Intellectual Property Rights NetEase Cloud Music strictly adheres to laws and regulations such as the Copyright Law of the People ’s Republic of China and the Patent Law of the People ’s Republic of China , and implement robust internal standards. Our dual-focused protection system combines rights enforcement and infringement prevention, effectively managing intellectual property risks. We strengthened partnerships with musicians and rights holders, fostering a sustainable music ecosystem. During reporting period, we implemented musicians ’ rights protection programs and established digital trading platforms to promote copyright compliance, ensure market fairness, and advance digital copyright transactions. We attach great importance to employees ’ awareness of intellectual property rights. We constantly organize cross- departmental training on core topics such as music copyright, patent applications, and legal knowledge, with the aim of enhancing the business team’s awareness of intellectual property protection and risk prevention. During the reporting period, by improving the complaint mechanism and expanding detection to non-music platforms (such as short and long videos, and audio websites), we efficiently identified and removed various infringement links, and processed hundreds of thousands of such links. NetEase Cloud Music Intellectual Property Protection Efforts • Copyright Application: We promptly apply for copyrights for works, software, trademarks, patents, etc. • Infringement Monitoring: We utilize an industry-leading music content infringement monitoring system and collaborate with professional rights protection suppliers to expand our monitoring scope and promptly address infringements to assert our rights. Rights ProtectionRights Protection • Protection Channels: We have channels for protecting rights and implement copyright protection and takedown mechanisms that align with laws, regulations, and industry standards. • Authorization Tags: We tag authorized music with authorization information to keep track of the latest authorization status of the music within the music library. • Tech-empowered Inspection: We employ technical means to monitor and block infringing content on NetEase Cloud Music. Avoiding InfringementAvoiding Infringement
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Environmental, Social and Governance Report 94 NetEase Cloud Music Annual Report 2024 5.3 Data Security and Privacy Protection NetEase Cloud Music is dedicated to upholding information security and user privacy, setting data security and compliance as the basement of our products and services. We consistently strengthen the data security and privacy protection management system, and we bolster management and safeguard data security and user privacy by refining internal procedures and monitoring systems. 5.3.1 Data Security NetEase Cloud Music is devoted to improving its data security management policies. During the reporting period, in addition to existing regulations such as the “NetEase Cloud Music General Rules of Data Security Management ”, “NetEase Cloud Music Policies on Data Classification and Grading ”, and “NetEase Cloud Music Background System Permission Management Standard ”, we introduced the “NetEase Cloud Music Data Storage Security Specifications”, defining the retention periods and the storage requirements for different data types, further reducing the risk of data leaks while ensuring data integrity and traceability. We continuously optimize security management model that encompasses data usage authorization management, multi-party review and assessment, effective protection measures, and multi-process data backup to minimize data security risks. During the reporting period, we upgraded data encryption management platform, transitioning the handling of false positive scenarios from manual processing to automated platform processing, leading to improved response times and operational efficiency. Data Security Audit NetEase Cloud Music conducts regular audits on data security to identify and rectify potential data security vulnerabilities, ensuring effective control over abnormal data security risks. We are committed to enhancing the internal optimization capabilities of the permission management system based on the “NetEase Cloud Music Backend System Permission Management Specifications ” and improving risk monitoring efficiency through technical means to proactively identify and effectively respond to related risks. During the reporting period, we strictly adhered to relevant regulations, conducted internal and external audits of information security, and regularly carried out special initiatives to enhance data security management and effectively prevent data security risks. Internally, our audit team follows the Telecommunications Network and Internet Data Security Evaluation Specification (YD/T-3956-2021) and the Information Security Technology – Personal Information Security Specification (GB/T-35273-2020) to conduct special audits, fix detected data security vulnerabilities, and enhance our data security audit efficiency. Externally, we have invited third-party organizations to certify and obtained the filing certificate of telecommunications network security level and the classified protection of cybersecurity certificate to maintain internal systems and products stable and compliant. During the reporting period, NetEase Cloud Music was completed in the assessment for Classified Protection of Cybersecurity (DJCP) level III certification in China and continuously strengthened its information security management system and data protection capabilities, ensuring the safety and compliance of business operations.
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Environmental, Social and Governance Report 95 NetEase Cloud Music Annual Report 2024 Data Security Drill During the reporting period, we updated the “NetEase Cloud Music Data Storage Security Specifications”, and improved our data security emergency response plans by distinguishing between types of incidents such as leaks and tampering. Based on the new version of the “NetEase Cloud Music Emergency Response Plan for Data Security Incidents ”, we optimized the definitions of different types of data security incidents and corresponding internal emergency handling processes and conducted data security emergency drills accordingly. Additionally, in 2024, we established a comprehensive disaster recovery mechanism for our servers at the Gui ’an Data Center, combining cloud backups with physical backups to prevent data loss. Data Security Training NetEase Cloud Music emphasizes the promotion and cultivation of data security awareness. To enhance employees’ awareness of privacy and data security protection, we constantly conduct related trainings. During the reporting period, we carried out various data security activities and regularly pushed compliance guidelines related to data security management to our employees through our online service account. 5.3.2 User Privacy Protection NetEase Cloud Music established a professional privacy protection team that employs advanced technology and management methods to comprehensively safeguard user privacy and personal information. We also continue to promote the revision and implementation of customer privacy policies to further standardize personal information protection efforts. While enhancing user privacy protection, we are also enhancing the accessibility for users to manage their own data. Users can efficiently manage their data information through communication with customer service, permission settings, and manual editing or removal. During the reporting period, we optimized the operation chain for revoking consent for different types of information and changed the way we notify users of privacy policy updates, from a mandatory pop-up to a less intrusive red dot prompt, to ensure a smoother user experience. NetEase Cloud Music’s Primary Management Measures on User Privacy Security Strict Management of User Data Collection Data Categorization and Classification Data Storage and Encryption Multi-level Access Control Data Masking
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Environmental, Social and Governance Report 96 NetEase Cloud Music Annual Report 2024 6 ANTI-CORRUPTION NetEase Cloud Music does not tolerate any acts of corruption that breach professional ethics. We strictly ensure that a culture of integrity and professional ethics is upheld in every aspect of our operations. 6.1 Integrity and Business Ethics Policies NetEase Cloud Music strictly adheres to related laws and regulations to prevent bribery, extortion, fraud, and money laundering, including the Criminal Law of the People ’s Republic of China , the Law Against Unfair Competition of the People ’s Republic of China , and the Anti-Money Laundering Law of the People ’s Republic of China . During the reporting period, we continued to strengthen our ethical management and combat corruption through implementation of new internal regulations on professional ethics and integrity behavior to create a transparent and honest business environment. We regularly update policies involving business ethics as needed. During the reporting period, we updated our code of business conduct, and thoroughly review and refine related policies to ensure the clarity and applicability, improving employees’ understanding and enforcing stricter compliance. We also implemented an internal whistleblower system and improved the procedures for handling feedback and reports on ethical issues. Through effective investigations and verifications, we conduct in-depth rectifications of risks that violate business ethics standards and perform detailed reviews to minimize business ethics risks. During the reporting period, there were no concluded legal cases regarding corrupt practices brought against NetEase Cloud Music or its employees. Acceptance of Complaint Assessment and Registration Investigation Disciplinary Actions Investigation Report Preliminary Case Report Rectification Case Review Archiving
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Environmental, Social and Governance Report 97 NetEase Cloud Music Annual Report 2024 We strictly adhere to whistleblower protection policies and require employees handling reports to sign confidentiality agreements, ensuring the confidentiality of personal information of whistleblowers and all materials provided. We firmly oppose any retaliation against whistleblowers, prohibit any checks or disclosure of their information, and continue to strengthen the penalties for such violations. Once receiving feedback or reports related to ethical risks, we conduct internal audits to manage and assess the related risks. We set up a professional team that monitors laws and regulations related to business ethics, and regularly reviews the coverage and enforcement of internal policies to mitigate these risks. During the reporting period, we further strengthened our anti-money laundering review system. Based on an in- depth analysis by the risk control department on high-spending users, we enhanced our supervision of irregularities, including large abnormal top-ups and excessive rewards. We also participated in multiple anti-money laundering research and seminars to minimize money laundering risks. 6.2 Integrity and Business Ethics Campaigns NetEase Cloud Music continues to strengthen integrity promotion and training to reinforce its integrity culture and effectively prevent business ethics risks. To foster a compliant, honest, and transparent business ecosystem, we introduced innovative internal training forms for integrity and business ethics during the reporting period, enhancing our employees ’ engagement and awareness of business ethics standards. We also implemented a multi-dimensional business ethics enhancement program for all directors and employees, including documentary screenings, analysis of real cases, in-depth interpretations by senior management, compliance training and certification assessments, and team integrity retraining. These efforts inspire our employees to uphold business ethics and integrity, promoting an overall improvement in our compliance culture. During the reporting period, the Company conducted 19 sessions of various integrity training, and more than 23 departments had team viewings of integrity documentaries voluntarily organized to enhance their compliance awareness. The passing rate for compliance certification exams for regular employees in 2024 was 100%. 7 COMMUNITY ENGAGEMENT NetEase Cloud Music believes that creating value for society is also beneficial to drive sustainable development of the Company. We are committed to driving societal and industrial progress through diverse public welfare projects and activities, promoting the joint development among all stakeholders. 7.1 Participating in Philanthropy NetEase Cloud Music pays close attention to social needs and expands its diverse public welfare efforts to address them. Leveraging the unique advantages of our music platform, we collaborate with external organizations to carry out various social welfare initiatives that target different groups to fulfill our social responsibilities. Guarding stray cats: “Musician donation” feather partners with an animal foundation to helps stray cats stay warm during winter On January 4, 2024, NetEase Cloud Music, in collaboration with the creator of the popular song “Jingwei” and “It Foundation”, an animal foundation, launched the guarding stray cat initiative to help stray cats stay warm during winter. The campaign, which was conducted both online and offline, donating revenues generated by “Musician donation” and “Cloud Promotion” features from the users of NetEase Cloud Music to the musicians on our platform to raise funds for the Qiming Animal Protection Center in Chengdu.
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Environmental, Social and Governance Report 98 NetEase Cloud Music Annual Report 2024 Boundless Girls: Empowering girls through sports in collaboration with Nike On June 6, 2024, NetEase Cloud Music partnered with Nike to launch the “Boundless Girls” campaign, inviting six female athletes to share inspirational songs and their personal stories. Participants can post high-quality reviews for the theme song “Boundless Girls” to win Nike backpacks, with selected reviews being showcased in rural schools. This initiative aims to foster the integration of music and sports, empowering girls to unlock their full potential and attracting widespread public attention. You Look Upset: Partnership with Shanghai Mental Health Center to create a space for emotional release On September 26, 2024, NetEase Cloud Music partnered with the Shanghai Mental Health Center to launch the “You Look Upset ” campaign, which involves collecting original music, providing emotional guidance, and creating special healing playlists based on advice from mental health professionals. The campaign was well- received for providing psychological comfort to users while raising social awareness of mental health issues. During the reporting period, NetEase Cloud Music ’s total investment in social welfare amounted to RMB351,800. We aim to leverage the power of music to create greater social value and contributes to the society. 7.2 Empowering Industry Development NetEase Cloud Music constantly explores innovations of music creation and sharing, and actively engages in different events to create and exchange value with our industry peers. “Ladder Program 2024”, Empowering musicians to move forward In April 2024, NetEase Cloud Music unveiled the new phase for its artist support program, the “Project Cloud Ladder 2024”. This program expands the scope of income incentives for artists and introduces exclusive services tailored to different artist needs. These external opportunities allow outstanding artists to reach out to a broader audience. First Podcast Conference, with a creator support program. In April 2024, NetEase Cloud Music hosted its first Podcast Conference with participants from leading industry organizations and groups. At the conference, we launched the “Seed Plan”, designed to support the growth and development of podcast creators. We also launched the industry ’s first support plan for video creators transitioning to podcasts – the “500 Video Host Ecosystem Support Plan ”. The initiative aims to encourage at least 500 video creators to become podcasters by 2024, fostering growth in the industry. 2024 China Digital Music Industry Conference: protecting original music At the China Digital Music Industry Conference held in September 2024, NetEase Cloud Music took part in initiatives against music plagiarism. We collaborated with the Digital Music Working Committee of the China Audio-Video Copyright Association, TME, and other organizations and companies to combat those unwanted behaviors. We issued the “Initiative for Promoting Healthy Competition and Sustainable Development in the Digital Music Market ”, which outlines eight key initiatives and multiple specific measures to tackle copyright infringements. The conference received strong support from stakeholders and fostered self-regulation within the industry.
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Environmental, Social and Governance Report 99 NetEase Cloud Music Annual Report 2024 APPENDIX 1: ESG REPORTING CODE APPLICABLE FOR THE REPORTING PERIOD Subject Areas, Aspects, General Disclosures and KPIs Chapter Environmental Aspect A1: Emissions General Disclosure Information on: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer relating to air emissions, discharges into water and land, and generation of hazardous and non-hazardous waste. 2.2 Waste Management A1.1 The types of emissions and respective emissions data. NetEase Cloud Music is a non- manufacturing enterprise. Based on the principle of materiality, the types of emission and relevant data are not reported or disclosed A1.2 Direct (Scope 1) and energy indirect (Scope 2) greenhouse gas emissions (in tonnes) and, where appropriate, intensity (e.g. per unit of production volume, per facility). Appendix 2: ESG Performance Indicators A1.3 Total hazardous waste produced (in tonnes) and, where appropriate, intensity (e.g. per unit of production volume, per facility). Appendix 2: ESG Performance Indicators A1.4 Total non-hazardous waste produced (in tonnes) and, where appropriate, intensity (e.g. per unit of production volume, per facility). Appendix 2: ESG Performance Indicators A1.5 Description of emission target(s) set and steps taken to achieve them. 2.1 Environmental Targets 2.2 Waste Management A1.6 Description of how hazardous and non-hazardous wastes are handled, and a description of reduction target(s) set and steps taken to achieve them. 2.2 Waste Management
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Environmental, Social and Governance Report 100 NetEase Cloud Music Annual Report 2024 Subject Areas, Aspects, General Disclosures and KPIs Chapter Environmental Aspect A2: Use of Resources General Disclosure Policies on the efficient use of resources, including energy, water and other raw materials. 2.3 Resource Management A2.1 Direct and/or indirect energy consumption by type (e.g. electricity, gas, or oil) in total (kWh in '000s) and intensity (e.g. per unit of production volume, per facility). Appendix 2: ESG Performance Indicators A2.2 Water consumption in total and intensity (e.g. per unit of production volume, per facility). Appendix 2: ESG Performance Indicators A2.3 Description of energy use efficiency target(s) set and steps taken to achieve them. 2.1 Environmental Targets 2.3 Resource Management A2.4 Description of whether there is any issue in sourcing water that is fit for purpose, water efficiency target(s) set and steps taken to achieve them. 2.3 Resource Management A2.5 Total packaging material used for finished products (in tonnes) and, if applicable, with reference to per unit produced. No packaging material is used for our business. Aspect A3: The Environment and Natural Resources General Disclosure Policies on minimising the issuer's significant impacts on the environment and natural resources. 2.3 Resource Management A3.1 Description of the significant impacts of activities on the environment and natural resources and the actions taken to manage them. 2.3 Resource Management
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Environmental, Social and Governance Report 101 NetEase Cloud Music Annual Report 2024 Subject Areas, Aspects, General Disclosures and KPIs Chapter Environmental Aspect A4: Climate Change General Disclosure Policies on identification and mitigation of significant climate- related issues which have impacted, and those which may impact, the issuer. 2.4 Responding to Climate Change A4.1 Description of the significant climate- related issues which have impacted, and those which may impact, the issuer, and the actions taken to manage them. 2.4 Responding to Climate Change Social Aspect B1: Employment General Disclosure Information on: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer relating to compensation and dismissal, recruitment and promotion, working hours, rest periods, equal opportunity, diversity, anti- discrimination, and other benefits and welfare. 3.1 Employment and Labor Practices B1.1 Total workforce by gender, employment type (for example, full- or part-time), age group and geographical region. Appendix 2: ESG Performance Indicators B1.2 Employee turnover rate by gender, age group and geographical region. Appendix 2: ESG Performance Indicators
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Environmental, Social and Governance Report 102 NetEase Cloud Music Annual Report 2024 Subject Areas, Aspects, General Disclosures and KPIs Chapter Social Aspect B2: Health and Safety General Disclosure Information on: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer relating to providing a safe working environment and protecting employees from occupational hazards. 3.2 Health and Safety B2.1 Number and rate of work-related fatalities occurred in each of the past three years including the reporting year. Appendix 2: ESG Performance Indicators B2.2 Lost days due to work injury. Appendix 2: ESG Performance Indicators B2.3 Description of occupational health and safety measures adopted, and how they are implemented and monitored. 3.2 Health and Safety Aspect B3: Development and Training General Disclosure Policies on improving employees' knowledge and skills for discharging duties at work. Description of training activities. 3.3 Development and Training B3.1 The percentage of employees trained by gender and employee category (e.g. senior management, middle management). Appendix 2: ESG Performance Indicators B3.2 The average training hours completed per employee by gender and employee category. Appendix 2: ESG Performance Indicators
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Environmental, Social and Governance Report 103 NetEase Cloud Music Annual Report 2024 Subject Areas, Aspects, General Disclosures and KPIs Chapter Social Aspect B4: Labor Standards General Disclosure Information on: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer relating to preventing child and forced labor. 3.1 Employment and Labor Practices B4.1 Description of measures to review employment practices to avoid child and forced labor. 3.1 Employment and Labor Practices B4.2 Description of steps taken to eliminate such practices when discovered. 3.1 Employment and Labor Practices Aspect B5: Supply Chain Management General Disclosure Policies on managing environmental and social risks of the supply chain. 4.2 Responsible Supply Chain B5.1 Number of suppliers by geographical region. Appendix 2: ESG Performance Indicators B5.2 Description of practices relating to engaging suppliers, number of suppliers where the practices are being implemented, and how they are implemented and monitored. 4.1 Supplier Management B5.3 Description of practices used to identify environmental and social risks along the supply chain, and how they are implemented and monitored. 4.1 Supplier Management 4.2 Responsible Supply Chain B5.4 Description of practices used to promote environmentally preferable products and services when selecting suppliers, and how they are implemented and monitored. 4.2 Responsible Supply Chain
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Environmental, Social and Governance Report 104 NetEase Cloud Music Annual Report 2024 Subject Areas, Aspects, General Disclosures and KPIs Chapter Social Aspect B6: Product Responsibility General Disclosure Information on: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer relating to health and safety, advertising, labelling and privacy matters relating to products and services provided and methods of redress. 5.1 Products and Services 5.3 Data Security and Privacy Protection B6.1 Percentage of total products sold or shipped subject to recalls for safety and health reasons. Product recalls are irrelevant to our business. B6.2 Number of products and service related complaints received and how they are dealt with. 5.1 Products and Services B6.3 Description of practices relating to observing and protecting intellectual property rights. 5.2 Intellectual Property Rights Protection B6.4 Description of quality assurance process and recall procedures. Product quality assurance and recalls are irrelevant to our business. B6.5 Description of consumer data protection and privacy policies, and how they are implemented and monitored. 5.3 Data Security and Privacy Protection
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Environmental, Social and Governance Report 105 NetEase Cloud Music Annual Report 2024 Subject Areas, Aspects, General Disclosures and KPIs Chapter Social Aspect B7: Anti- corruption General Disclosure Information on: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer relating to bribery, extortion, fraud and money laundering. 6.1 Integrity and Business Ethics Policies B7.1 Number of concluded legal cases regarding corrupt practices brought against the issuer or its employees during the reporting period and the outcomes of the cases. 6.1 Integrity and Business Ethics Policies B7.2 Description of preventive measures and whistle-blowing procedures, and how they are implemented and monitored. 6.1 Integrity and Business Ethics Policies B7.3 Description of anti-corruption training provided to directors and staff. 6.2 Integrity and Business Ethics Campaigns Aspect B8: Community Investment General Disclosure Policies on community engagement to understand the needs of the communities where the issuer operates and to ensure its activities take into consideration the communities ’ interests. 7.1 Participating in Philanthropy B8.1 Focus areas of contribution (e.g. education, environmental concerns, labor needs, health, culture, sport). 7.1 Participating in Philanthropy 7.2 Empowering Industry Development B8.2 Resources contributed (e.g. money or time) to the focus area. 7.1 Participating in Philanthropy
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Environmental, Social and Governance Report 106 NetEase Cloud Music Annual Report 2024 APPENDIX 2: ESG PERFORMANCE INDICATORS Indicator Unit 2024 Waste Non-hazardous Waste Kitchen Garbage Tonne 270.77 Other Waste Tonne 903.29 Hazardous Waste Electronic Waste Tonne 0.33 Other Waste Tonne 0.06 Non-hazardous Waste Discharge Intensity Tonne/Person 0.88 Hazardous Waste Discharge Intensity Tonne/Person 0.0003 Energy Consumption Direct Energy Consumption 1 Gasoline Tonne 2.18 Diesel Tonne 1.35 Natural Gas m3 101,655.00 Renewable Energy-Solar Power MWh 350.37 Indirect Energy Consumption 2 Electricity Purchased for Offices MWh 8,568.51 Total Direct Energy Consumption GWh 1.49 Total Indirect Energy Consumption GWh 8.57 Total Comprehensive Energy Consumption 3 GWh 10.06 Comprehensive Energy Consumption Intensity GWh/Person 0.0076 Carbon Emissions Scope 1 4 Emissions Tonne of CO 2e 696.58 Scope 2 5 Emissions Tonne of CO 2e 3,875.14 Scopes 1 + 2 Tonne of CO 2e 4,571.72 Scope 3 Tonne of CO 2e 4,715.23 Per Capita Emissions from Operations (Scopes 1 + 2) 6 Tonne of CO 2/Person 3.43 Total Per Capita Emissions (Scopes 1 + 2 + 3) Tonne of CO 2/Person 6.98 1 Direct energy consumption includes gasoline consumption, diesel consumption, electricity from renewable energy, and natural gas consumption of self-owned properties. 2 Indirect energy consumption includes the consumption of purchased electricity in self-owned properties. 3 The total comprehensive energy consumption is calculated based on the General Rules for Calculation of the Comprehensive Energy Consumption (GB/T 2589-2020). 4 Direct (Scope 1) greenhouse gas emissions are calculated based on the 2019 Refinement to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories published by the Intergovernmental Panel on Climate Change (IPCC). 5 Indirect (Scope 2) GHG emissions are calculated based on the 2022 CO 2 emission factors of electricity issued by the Ministry of Ecology and Environment of the People's Republic of China and the National Bureau of Statistics of China. 6 During the reporting period, as a result of the use of our infrastructure and a reduction in external leasing, some scope 3 carbon emissions were reclassified as scope 2. This led to an increase in per capita operational carbon emissions (scope 1 + 2). However, the change in total per capita carbon emissions (scope 1 + 2 + 3) remained within a reasonable range.
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Environmental, Social and Governance Report 107 NetEase Cloud Music Annual Report 2024 Indicator Unit 2024 Water Consumption 7 Total Water Consumption Tonne 46,825.25 Water Use Intensity Tonne/Person 35.18 Supplier Management Number of Centralized Suppliers Quantity 67 Number of Centralized Suppliers by Geographical Region Chinese Mainland Quantity 64 Other regions Quantity 3 Employees Employees by Gender Male Person 781 Female Person 550 Employees by Age Group 30 and under Person 433 31 to 50 Person 895 Over 50 Person 3 Employees by Geographical Region Chinese Mainland Person 1,329 Other regions Person 2 Number of Employees by Employment Type Full-time Employees Person 1,331 Contractual Employees and Others Person 357 Employee Turnover Rate 8 % 23 Turnover Rate by Gender Male % 23 Female % 23 Turnover Rate by Age Group 30 and under % 21 31 to 50 % 24 Over 50 % 0 Turnover Rate by Geographical Region Chinese Mainland % 23 Other regions % 0 7 Water usage mainly comes from the municipal water supply and there are no issues in sourcing water. 8 Employee turnover rate = (Number of full-time employees who left during the reporting year/Average number of full-time employees at the beginning and end of the reporting period) * 100%. Employee turnover reflects the number of full-time employees who have left (due to voluntary resignations, dismissals, retirement).
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Environmental, Social and Governance Report 108 NetEase Cloud Music Annual Report 2024 Indicator Unit 2024 Employee Training Percentage of Trained Employees % 100.00 Trained Employees by Gender Male % 62.02 Female % 37.98 Trained Employees by Employee Category Middle and senior management % 1.54 Junior management % 1.61 Non-management % 96.85 Average Training Hours Hour/Person 39.30 Average Training Hours by Gender Male Hour/Person 41.43 Female Hour/Person 35.80 Average Training Hours by Employee Category Middle and senior management Hour/Person 26.14 Junior management Hour/Person 29.65 Non-management Hour/Person 39.66 Health and Safety Indicator Unit 2022 2023 2024 Number of work-related fatalities occurred Person 0 0 0 Work-related fatality rate % 0 0 0 Indicator Unit 2024 Lost days due to work injury Day 6
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Independent Auditor’s Report 109 NetEase Cloud Music Annual Report 2024 To the Shareholders of NetEase Cloud Music Inc. (formerly known as Cloud Music Inc.) (incorporated in the Cayman Islands with limited liability) OPINION What we have audited The consolidated financial statements of NetEase Cloud Music Inc. (formerly known as Cloud Music Inc.) (the “Company”) and its subsidiaries (the “Group”), which are set out on pages 114 to 185, comprise: • the consolidated balance sheet as at 31 December 2024; • the consolidated statement of profit or loss for the year then ended; • the consolidated statement of comprehensive income for the year then ended; • the consolidated statement of changes in equity for the year then ended; • the consolidated statement of cash flows for the year then ended; and • the notes to the consolidated financial statements, comprising material accounting policy information and other explanatory information. Our opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2024, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRS Accounting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing ( “ISAs”). Our responsibilities under those standards are further described in the Auditor ’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants ( “IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code.
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Independent Auditor’s Report 110 NetEase Cloud Music Annual Report 2024 KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matter identified in our audit is related to revenue recognition. Key Audit Matter How our audit addressed the Key Audit Matter Revenue recognition Refer to notes 2.2.12 and 5 to the consolidated financial statements. The Group ’s revenue is primarily from the provision of online music services and social entertainment services, which includes revenue from membership subscriptions and sales of virtual items in social entertainment platforms operating by the Group. During the year ended 31 December 2024, total revenue of the Group amounting to approximately RMB7.95 billion which is recognised when or as the control of the services or goods is transferred to the customers. We performed the following procedures to address the key audit matter: • Evaluated the appropriateness of the revenue recognition policies as adopted by management; • Understood, evaluated and tested, on a sample basis, the key internal controls in relation to recognition of revenue from membership subscriptions and sales of virtual items in social entertainment platforms operating by the Group; • Understood, evaluated and tested, on a sample basis, the key controls in relation to the general control environment of the IT Systems and the underlying automated controls relevant to recording and processing of data and transactions supporting the corresponding revenue;
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Independent Auditor’s Report 111 NetEase Cloud Music Annual Report 2024 Key Audit Matter How our audit addressed the Key Audit Matter We focused on revenue from membership subscriptions and sales of virtual items in social entertainment platforms operating by the Group as significant efforts were spent on auditing the revenue recognised due to magnitude of the revenue amount and the significant volume of revenue transactions processed through the information technology systems ( “IT Systems ”). • By using computer-assisted audit techniques, tested the mathematical accuracy and the completeness of the system generated reports that summarised the key inputs for the calculation of revenue; and compared data from these reports to the relevant revenue amount recognised; and • Tested revenue transactions, on a sample basis, by comparing the key terms and attributes of the underlying contracts, the services consumed and cash receipts, where relevant, against the underlying data recorded in the relevant IT Systems used in transaction processing and recalculated the revenue amount recognised. Based on the procedures performed, we found revenue from membership subscriptions and sales of virtual items in social entertainment platforms operating by the Group to be supportable by available evidence. OTHER INFORMATION The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
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Independent Auditor’s Report 112 NetEase Cloud Music Annual Report 2024 RESPONSIBILITIES OF DIRECTORS AND THE AUDIT COMMITTEE FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group ’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The Audit Committee is responsible for overseeing the Group’s financial reporting process. AUDITOR ’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor ’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
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Independent Auditor’s Report 113 NetEase Cloud Music Annual Report 2024 AUDITOR ’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) • Conclude on the appropriateness of the directors ’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor ’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor ’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Xu Yi Jing Vivian. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 14 March 2025
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Consolidated Statement of Profit or Loss FOR THE YEAR ENDED 31 DECEMBER 2024 114 NetEase Cloud Music Annual Report 2024 Year ended 31 December Notes 2024 2023 RMB’000 RMB’000 Revenue 5 7,950,146 7,866,992 Cost of revenue 8 (5,268,634) (5,764,322) Gross profit 2,681,512 2,102,670 Selling and marketing expenses 8 (611,533) (758,235) General and administrative expenses 8 (184,651) (165,102) Research and development expenses 8 (779,659) (868,699) Other income 6 27,859 71,799 Other gains/(losses), net 7 37,319 (52,253) Operating profit 1,170,847 330,180 Share of results of investments accounted for using equity method 18 (6,544) (63) Finance income 11 406,191 437,879 Finance cost (239) (317) Profit before income tax 1,570,255 767,679 Income tax expense 12 (4,886) (33,497) Profit for the year 1,565,369 734,182 Profit for the year attributable to: Equity holders of the Company 1,561,507 734,182 Non-controlling interest 3,862 – 1,565,369 734,182 Earnings per share attributable to equity holders of the Company (expressed in RMB per share) Basic earnings per share 13 7.48 3.49 Diluted earnings per share 13 7.40 3.47
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Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER 2024 115 NetEase Cloud Music Annual Report 2024 Year ended 31 December 2024 2023 RMB’000 RMB’000 Profit for the year 1,565,369 734,182 Other comprehensive income: Items that will not be reclassified to profit or loss Currency translation differences 99,175 105,712 Items that will be reclassified to profit or loss Currency translation differences (1,075) – Total comprehensive income for the year 1,663,469 839,894 Total comprehensive income for the year attributable to: Equity holders of the Company 1,659,607 839,894 Non-controlling interest 3,862 – 1,663,469 839,894
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Consolidated Balance Sheet AS AT 31 DECEMBER 2024 116 NetEase Cloud Music Annual Report 2024 As at 31 December Notes 2024 2023 RMB’000 RMB’000 Assets Non-current assets Property, plant and equipment 15 20,080 33,022 Right-of-use assets 16 6,165 6,313 Investments accounted for using equity method 18 72,425 78,969 Prepaid contents royalties 21 107,173 166,054 Prepayments, deposits and other receivables 22 24,221 3,034 Bank deposits 23 1,400,000 – 1,630,064 287,392 Current assets Accounts and bills receivable 20 1,054,653 923,464 Prepaid contents royalties 21 335,144 589,231 Prepayments, deposits and other receivables 22 305,139 186,056 Amounts due from group companies 33 32,993 98,315 Financial assets at fair value through profit or loss 19 6,515 – Bank deposits 23 6,420,669 5,484,688 Restricted cash 24 1,862 21,005 Cash and cash equivalents 24 3,795,210 4,020,400 11,952,185 11,323,159 Total assets 13,582,249 11,610,551 Equity Equity attributable to equity holders of the Company Share capital 25 139 137 Other reserves 26 18,708,160 18,532,229 Accumulated losses (8,530,648) (10,091,464) 10,177,651 8,440,902 Non-controlling interest 3,862 – Total equity 10,181,513 8,440,902 Liabilities Non-current liabilities Contract liabilities 30 83,889 66,539 Lease liabilities 16 4,762 3,358 88,651 69,897
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Consolidated Balance Sheet AS AT 31 DECEMBER 2024 117 NetEase Cloud Music Annual Report 2024 As at 31 December Notes 2024 2023 RMB’000 RMB’000 Current liabilities Accounts payable 28 24,015 171 Accruals and other payables 29 1,976,447 2,015,242 Contract liabilities 30 1,235,473 1,001,013 Amounts due to group companies 33 73,702 76,196 Income tax payable 738 4,129 Lease liabilities 16 1,710 3,001 3,312,085 3,099,752 Total liabilities 3,400,736 3,169,649 Total equity and liabilities 13,582,249 11,610,551 The consolidated financial statements on pages 114 to 185 were approved by the Board of Directors on 14 March 2025 and were signed on its behalf: William Lei Ding Yong Li Director Director The above consolidated balance sheet should be read in conjunction with the accompanying notes.
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118 NetEase Cloud Music Annual Report 2024 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2024 118 NetEase Cloud Music Annual Report 2024 Attributable to equity holders of the Company Notes Share capital Other Reserves Accumulated losses Total Non- controlling interests Total equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 26) Balance at 1 January 2024 137 18,532,229 (10,091,464) 8,440,902 – 8,440,902 Profit for the year – – 1,561,507 1,561,507 3,862 1,565,369 Other comprehensive income: Currency translation differences – 98,100 – 98,100 – 98,100 Total comprehensive income for the year – 98,100 1,561,507 1,659,607 3,862 1,663,469 Transactions with equity holders: Exercise of options 25, 26 2 161,547 – 161,549 – 161,549 Equity-settled share-based payment under the share option scheme of the Pre-IPO Share Incentive Plan 26 – 11,923 (249) 11,674 – 11,674 Equity-settled share-based payment under the share award scheme of the Pre-IPO Share Incentive Plan 26 – 48,008 (6) 48,002 – 48,002 Equity-settled share-based payment under the share award scheme of the Post IPO Share Incentive Plan 26 – 79,331 (436) 78,895 – 78,895 Repurchase of shares 26 – (222,978) – (222,978) – (222,978) Total transactions with equity holders 2 77,831 (691) 77,142 – 77,142 Balance at 31 December 2024 139 18,708,160 (8,530,648) 10,177,651 3,862 10,181,513
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119 NetEase Cloud Music Annual Report 2024 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2024 119 NetEase Cloud Music Annual Report 2024 Attributable to equity holders of the Company Notes Share capital Other Reserves Accumulated losses Total RMB’000 RMB’000 RMB’000 RMB’000 (Note 26) Balance at 1 January 2023 135 18,643,784 (10,823,860) 7,820,059 Profit for the year – – 734,182 734,182 Other comprehensive income: Currency translation differences – 105,712 – 105,712 Total comprehensive income for the year – 105,712 734,182 839,894 Transactions with equity holders: Exercise of options 26 2 78,126 – 78,128 Equity-settled share-based payment under the share option scheme of the Pre-IPO Share Incentive Plan 26 – 28,910 (1,075) 27,835 Equity-settled share-based payment under the share award scheme of the Pre-IPO Share Incentive Plan 26 – 34,176 – 34,176 Equity-settled share-based payment under the share award scheme of the Post IPO Share Incentive Plan 26 – 22,307 – 22,307 Appropriations to statutory reserves – 711 (711) – Repurchase of shares 26 – (381,497) – (381,497) Total transactions with equity holders 2 (217,267) (1,786) (219,051) Balance at 31 December 2023 137 18,532,229 (10,091,464) 8,440,902
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120 NetEase Cloud Music Annual Report 2024 Consolidated Statement of Cash Flows FOR THE YEAR ENDED 31 DECEMBER 2024 120 NetEase Cloud Music Annual Report 2024 Year ended 31 December Notes 2024 2023 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 31(a) 1,782,905 223,841 Income taxes paid (8,285) (34,788) Net cash generated from operating activities 1,774,620 189,053 Cash flows from investing activities Purchase of property, plant and equipment 15 (3,709) (5,545) Proceeds from disposal of property, plant and equipment 1,970 2,225 Placement of bank deposits (8,939,032) (7,247,979) Proceeds from maturity of bank deposits 6,697,853 8,061,199 Payments for investments in financial assets at fair value through profit or loss (16,975,000) – Proceeds from disposal of financial assets at fair value through profit or loss 17,003,461 – Interest received 275,675 417,166 Net cash (used in)/generated from investing activities (1,938,782) 1,227,066 Cash flows from financing activities Exercise of options 162,824 77,378 Repurchase of shares (222,978) (381,497) Principal elements of lease payments 31(b) (1,667) (3,240) Interest elements of lease payments 31(b) (239) (317) Net cash used in financing activities (62,060) (307,676) Net (decrease)/increase in cash and cash equivalents (226,222) 1,108,443 Cash and cash equivalents at beginning of the year 4,020,400 2,916,534 Exchange differences on cash and cash equivalents 1,032 (4,577) Cash and cash equivalents at end of the year 24 3,795,210 4,020,400
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121 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 121 NetEase Cloud Music Annual Report 2024 1 GENERAL INFORMATION AND HISTORY OF THE GROUP 1.1 General information NetEase Cloud Music Inc. (formerly known as “Cloud Music Inc. ”) (the “Company”) was incorporated in the Cayman Islands on 2 February 2016 as an exempted company with limited liability. The registered office of the Company is at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company changed its name from “Cloud Music Inc. ” to “NetEase Cloud Music Inc. ” and completed the registration in Registry of Companies in the Cayman Islands on 31 October 2024. The Company is an investment holding company. The Company and its subsidiaries (collectively, the “Group”) are principally engaged in the operation of online platforms to provide music services and social entertainment services in the People’s Republic of China (the “PRC”). NetEase, Inc. ( “NetEase ”) is the immediate holding company and the ultimate holding company of the Company. NetEase, Inc., its subsidiaries and consolidated affiliated entities, excluding the Group, are collectively referred to as “NetEase Group”. These consolidated financial statements are presented in thousands of unit of Renminbi (RMB ’000), unless otherwise stated. The Group operates its business primarily through contractual arrangements (the “Contractual Arrangements”) with Hangzhou Yuedu Technology Co., Ltd ( “Hangzhou Yuedu”), which enable the Group to exercise power over Hangzhou Yuedu, receive variable returns from its involvement in Hangzhou Yuedu and have the ability to affect those returns through its power over Hangzhou Yuedu. Therefore, the Group controls Hangzhou Yuedu and regards Hangzhou Yuedu as a controlled structured entity. Nevertheless, the Contractual Arrangements may not be as effective as direct legal ownership in providing the Group with direct control over the structured entity. Uncertainties presented by the PRC legal system could impede the Group’s beneficiary rights of the results, assets and liabilities of the structured entity. The directors of the Company, based on the advice from its legal counsel, consider that the Contractual Arrangements among the Group, Hangzhou Yuedu and its equity holders are in compliance with the relevant PRC laws and regulations and are legally binding and enforceable. Other contractual arrangements were also executed for another entity which is insignificant to the Group. All these operating companies are treated as controlled Structured Entities of the Group and their financial statements have also been consolidated by the Group. See details in Note 17.
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122 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 122 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION This note provides a list of the accounting policies adopted in the preparation of these consolidated financial statements. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with IFRS Accounting Standards ( “IFRS”) and the disclosure requirements of the Hong Kong Companies Ordinance Cap. 622. The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and financial liabilities, which are measured at fair value. The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group ’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. 2.1.1 New standards and amendments adopted by the Group The Group has applied the following amendments to standards for the first time for their annual reporting period commencing on 1 January 2024: Amendments to IFRS 16 Lease liability in a sale and leaseback Amendments to IAS 1 Classification of liabilities as current or non-current and non-current liabilities with covenants Amendments to IAS 7 and IFRS 7 Supplier finance arrangements
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123 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 123 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.1 Basis of preparation (Continued) 2.1.2 New standards and amendments to standards not yet adopted Certain new standards and amendments to standards have been issued but are not yet effective for the year beginning on 1 January 2024 and have not been early adopted by the Group. Effective for accounting periods beginning on or after Amendments to IAS 21 Lack of exchangeability 1 January 2025 Amendments to IFRS 9 and IFRS 7 Amendments to the classification and measurement of financial instruments 1 January 2026 IFRS 18 Presentation and disclosure in financial statements 1 January 2027 IFRS 19 Subsidiaries without public accountability: disclosures 1 January 2027 The directors have performed assessment on the new standards, and amendments, and has concluded on a preliminary basis that these new standards and amendments would not have a significant impact on the Group’s consolidated financial statements when they become effective, except for IFRS 18 which will impact the presentation of profit and loss. The Group is still in the process of evaluating the impact of adoption of IFRS 18. 2.2 Summary of material accounting policies 2.2.1 Principles of consolidation and equity accounting (a) Subsidiaries Subsidiaries are all entities (including Structured Entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
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124 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 124 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.1 Principles of consolidation and equity accounting (Continued) (a) Subsidiaries (Continued) Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (b) Subsidiaries controlled through Contractual Arrangements In order to comply with the PRC laws and regulations which prohibit or restrict foreign control of companies involved in provision of internet content and other restricted businesses, the Group operates its business operations within these areas in the PRC through a series of contractual arrangements entered into among the Company, its wholly-owned subsidiaries, and certain domestic entities (“Structured Entities”) that legally owned by certain management members of the Group (“Registered Shareholders”) authorised by the Group. The Contractual Arrangements include cooperation agreements and operation agreements, exclusive purchases option agreement, equity pledge agreements, shareholders ’ voting rights trust agreements and powers of attorney, which enable the Group to: • govern the financial and operating policies of the Structured Entities; • receive substantially all of the economic interest returns generated by the Structured Entities in consideration for the technical support, consulting and other services provided exclusively by the Wholly Foreign Owned Enterprise (“WFOE”), at the WFOE’s discretion; • obtain an irrevocable and exclusive right to purchase part or all of the equity interests in the Structured Entities at any time and from time to time, at the minimum consideration permitted by the relevant law in China at the time of transfer; • obtain a pledge over all of its equity interests from its respective Registered Shareholders as collateral for all of the PRC entities ’ payments due to the Group to secure performance of entities’ obligation under the Contractual Arrangements; and • exercise equity holder voting rights of the Structured Entities. Accordingly, the Group has rights to control these entities and they are accounted for as entities controlled by the Group. (c) Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (see (d) below), after initially being recognised at cost in the consolidated balance sheets.
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125 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 125 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.1 Principles of consolidation and equity accounting (Continued) (d) Equity accounting Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group ’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group ’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivables from associates and joint venture are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint venture are eliminated to the extent of the Group ’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in Note 2.2.5.
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126 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 126 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.2 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (the “CODM”), who is responsible for allocating resources and assessing performance of the operating segments and making strategic decisions. 2.2.3 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group ’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency ”). The functional currency of the Company is United States Dollars ( “US$”). The Company ’s primary subsidiaries and Structured Entities are incorporated in the PRC and the functional currency of these entities is Renminbi ( “RMB”). The Group determined to present its consolidated financial statements in RMB. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. (c) Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each statement of profit or loss are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income.
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127 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 127 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.4 Prepaid contents royalties Prepaid contents royalties represent the prepaid licence fee related to the music contents licensed from third parties. Prepaid contents royalties are carried at cost less impairment loss and are expensed to the consolidated statement of profit or loss within cost of revenue according to the pattern that the Group derives the benefit from the prepaid contents royalties, which is straight line over the relevant licence period as the benefits of its own use or revenue from sublicensing are both derived evenly throughout the period. Prepaid contents royalties are presented on the balance sheets as current and non-current based on estimated time of usage. 2.2.5 Impairment of non-financial assets Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset ’s fair value less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 2.2.6 Accounts and bills receivable Accounts and bills receivable are amounts due from customers for goods sold or services performed in the ordinary course of business. Accounts receivable are generally due for settlement within one year and therefore are all classified as current. Accounts and bills receivable are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the accounts receivable with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. See Note 20 for further information about the Group ’s accounting for accounts and bills receivable and Note 3.1(b) for a description of the Group’s impairment policies. 2.2.7 Cash and cash equivalents For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
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128 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 128 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.8 Current and deferred income tax The income tax expense or credit for the period is the tax payable on the current period ’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. (a) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries, associates and joint venture operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. (b) Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
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129 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 129 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.8 Current and deferred income tax (Continued) (b) Deferred income tax (Continued) Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. 2.2.9 Employee benefits (a) Short-term obligation Liabilities for wages and salaries, including non-monetary benefits and annual leaves that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees ’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the consolidated balance sheets. (b) Post-employment obligations The Group participates in various defined contribution retirement benefit plans which are available to all relevant employees. These plans are generally funded through payments to schemes established by government authorities. A defined contribution plan is a pension plan under which the Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee services in the current and prior periods. The Group ’s contributions to the defined contribution plans are expensed as incurred and not reduced by contributions forfeited by those employees who leave the plan prior to vesting fully in the contributions.
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130 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 130 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.10 Share-based payments The Group operates an equity-settled share-based compensation plan (i.e. share option scheme and share award scheme), under which the Group receives services from employees and others who provide similar services as employees ( “Service Recipients ”), as consideration for equity instruments of the Company. In addition, the controlling shareholder, NetEase, also operates certain share-based compensation plans (i.e. restricted share units (“RSUs”) plans) which may cover certain employees (the “Eligible Grantees”) of the Group. Share options, share awards and RSUs granted to the grantees of the Group are measured at the grant date based on the fair value of equity instruments and are recognised as an employee benefit expenses over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied, with a corresponding increase in equity as “share-based compensation reserve” if it is related to equity instruments of the Company or as “contributions from ultimate holding company ” if it is related to equity instruments of NetEase. At the end of each period, the Group revises its estimates of the number of options and RSUs that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. The total amount to be expensed is determined by reference to the fair value of the options and RSUs granted: – including any market performance conditions (e.g. the entity ’s share price), – excluding the impact of any service and non-market performance vesting conditions (e.g. profitability, sales growth targets and remaining as an employee of the entity over a specified time period), and – including the impact of any non-vesting conditions (e.g. the requirement for employees to save or hold shares for a specific period of time). For share options with a performance condition that affects vesting, the performance condition is not considered in determining the share option ’s fair value on the grant date. Performance condition should be considered when the Group is estimating the quantity of share options that will vest. The Group recognises compensation expenses for share options with performance conditions if and when the Group concludes that it is probable that the performance condition will be achieved, net of actual prevesting forfeitures over the requisite service period. The Group reassesses the probability of vesting at each reporting period for share options with performance conditions and adjusts compensation expenses based on its probability assessment.
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131 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 131 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.11 Share held under share award scheme Where any group company purchases the Company ’s equity instruments, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to equity holders of the Company as treasury shares until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to equity holders of the Company. Consideration paid for shares held under share award scheme is deducted from equity attributable to the equity holders of the Company and disclosed as “shares held under share award scheme”. 2.2.12 Revenue recognition The Group generates revenue primarily from provision of online music services and social entertainment services, such as music membership subscriptions, sublicensing of contents royalties, online advertising and sales of virtual items. Revenue is recognised when or as the control of the services or goods is transferred to the customer. Depending on the terms of the contract and the laws that are applied to the contract, control of the services and goods may be transferred over time or at a point in time. (a) Revenue from online music services Online music services mainly include revenue from membership subscriptions, sales of digital music album and songs, contents sublicensing and online advertising on the Group’s online platforms. The Group offers users subscription packages which entitled paying subscribers access to the Group’s relevant music contents and other privileged features on its platforms. The subscription fees for these packages are primarily time-based mainly from weekly to yearly and is collected upfront. The receipt of subscription fees is initially recognised as contract liabilities. The Group satisfies its performance obligations throughout the subscription period and revenue from the membership subscriptions is recognised over time. The Group also offers users to purchase exclusive digital music albums and songs which can listen both online and offline. The Group considers that the control has been transferred to customer at time of purchase. As a result, the performance obligation is satisfied and revenue is recognised at a point in time. The Group sublicenses certain music content to other music platforms for a fixed period of one to three years, which generally falls within the original license period.The Group determines that sublicensing of content represents a single performance obligation. When the sublicensing arrangement grants a right to other music platforms to access the content, revenue is recognised over time throughout the sublicense period. However, if the sublicensing arrangement grants a right to other music platforms to use the content, revenue is recognised at a point in time. Revenue from online advertising is primarily generated through display of advertisements on the Group’s online platforms.
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132 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 132 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.12 Revenue recognition (Continued) (a) Revenue from online music services (Continued) The Group derives its advertising revenue principally from short-term online advertising contracts. Advertising service contracts may consist of multiple performance obligations with a typical term of less than three months. In arrangements where the Group has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Group generally determines standalone selling prices based on the prices charged to customers. Considerations allocated to each performance obligation is recognized as revenue over the advertisement display period, which is usually within three months. The Group also enters into performance-based advertising arrangements with customers. For example, for cost per mile ( “CPM”), or cost per thousand impressions, advertising arrangements with customers, the Group recognizes revenue based on the number of times that the advertisement has been displayed. Certain customers may receive volume rebates, which are accounted for as variable consideration. The Group estimates annual expected rebate volume with reference to their historical results and reduce revenues recognized. (b) Revenue from social entertainment services and others The Group operates live streaming platforms whereby users can view live stream performance provided by live streaming performers and interact with them on a real time basis free of charge. The Group sells virtual items to users at pre-determined price, which users can gift the virtual items to live streaming performers to show their support and appreciation. The Group also operates social networking platforms whereby users can access to basic functionalities on the platforms, such as view other users ’ sharing and private messaging, free of charge. The Group sells virtual items to users at pre-determined price, which users can purchase virtual items and send them to other users for better interaction and social networking experience. The Group generates revenue from the sale of virtual items, which are produced and delivered by the Group in these platforms. Majority of revenue from sales of virtual items are recognised when the virtual items are gifted by users to live streaming performers in the live streaming platforms or other users in the social networking platforms, which is considered as the point when the Group ’s performance obligation is satisfied and the Group has no further obligations related to the virtual items after they are consumed by the users. The Group allocates revenue to each performance obligation on a relative stand-alone selling price basis, which are determined based on the prices charged to customers. Proceeds received from the sales of virtual items before they are being gifted in the live streaming platforms or social networking platforms are recorded as contract liabilities. The Group shares with the gift recipients a portion of the revenue from sale of virtual items. Revenue from sale of virtual items are generally recorded at the gross amount with the portion remitted to gift recipients as cost of revenue as the Group considers itself as the principal for the sale of virtual items as the Group controls the production and price setting of the virtual items before they are transferred to the customers. Further consideration about principal versus agent consideration in relation to recognising revenue on a gross or net basis is disclosed in note (c) below.
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133 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 133 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.12 Revenue recognition (Continued) (c) Principal agent consideration The Group reports revenue on a gross or net basis depending on whether the Group is acting as a principal or an agent in a transaction. The determination of whether to report the revenue on a gross or net basis is based on an evaluation of various factors, including but not limited to whether the Group (i) is the primary obligor in the arrangement; (ii) has latitude in establishing the selling price; (iii) changes the product or performs part of the service; and (iv) has involvement in the determination of product and service specifications. (d) Contract liabilities A contract liability is the Group ’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. 2.2.13 Research and development expenses Research expenditure is recognised as an expense as incurred. Costs incurred on development projects are capitalised as intangible assets when recognition criteria are met, including (a) it is technically feasible to complete the intangible asset so that it will be available for use or sales; (b) management intends to complete the intangible asset and use or sell it; (c) there is an ability to use or sell the intangible asset; (d) it can be demonstrated how the intangible asset will generate probable future economic benefits; (e) adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and (f) the expenditure attributable to the intangible asset during its development can be reliably measured. Other development costs that do not meet these criteria are expensed as incurred. There were no development costs meeting these criteria and capitalised as intangible assets as at 31 December 2024 and 2023. 2.2.14 Earnings per share (a) Basic earnings per share Basic earnings per share is calculated by dividing: • The profit attributable to equity owners of the Company, excluding any costs of servicing equity other than ordinary shares. • By the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period and excluding treasury shares.
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134 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 134 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.2 Summary of material accounting policies (Continued) 2.2.14 Earnings per share (Continued) (b) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: – The after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and – The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. 2.3 Summary of other accounting policies 2.3.1 Separate financial statements Investments in subsidiaries, associate and joint venture are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable. Impairment testing of the investments in subsidiaries, associate and joint venture is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary, associate or joint venture in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill. 2.3.2 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset ’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.
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135 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 135 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.3 Summary of other accounting policies (Continued) 2.3.2 Property, plant and equipment (Continued) Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives as follows: Servers and network equipment 3 – 5 years Office furniture, equipment and others 3 – 5 years Leasehold improvements Shorter of expected lives of leasehold improvements and lease term The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each financial period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset ’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss. 2.3.3 Investments and other financial assets (a) Classification The Group classifies its financial assets in the following measurement categories: • those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and • those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (“FVOCI”). The Group reclassifies debt investments only when its business model for managing those assets changes.
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136 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 136 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.3 Summary of other accounting policies (Continued) 2.3.3 Investments and other financial assets (Continued) (b) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (c) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss (“FVPL”) are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payments of principal and interest. Debt instruments Subsequent measurement of debt instruments depend on the Group ’s business model for managing the asset and the contractual cash flow characteristics of the asset. There are three categories into which the Group classifies its debt instruments: • Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are classified as and measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in “other gains/(losses), net” together with foreign exchange gains and losses. Impairment losses are charged to profit or loss. • FVOCI: Financial assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets ’ cash flows represent solely payments of principal and interest, are classified as and measured at FVOCI. Movements in the carrying amount of these financial assets are taken through other comprehensive income, except for the recognition of impairment losses or reversals, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and recognised in “other gains/(losses), net” in the consolidated statements of profit or loss. Interest income from these financial assets is recognised using the effective interest rate method. Foreign exchange gains and losses are presented in “other gains/(losses), net” and impairment loss are charged to profit or loss.
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137 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 137 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.3 Summary of other accounting policies (Continued) 2.3.3 Investments and other financial assets (Continued) (c) Measurement (Continued) Debt instruments (Continued) • FVPL: Financial assets that do not meet the criteria for amortised cost or FVOCI are classified as and measured at FVPL. A gain or loss on a debt investment measured at fair value through profit or loss which is not part of a hedging relationship is recognised in profit or loss and presented in “other gains/(losses), net” for the period in which it arises. Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group ’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group ’s right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in “other gains/(losses), net ” in the consolidated statements of profit or loss as applicable. Impairment losses/(reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. (d) Impairment The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For accounts and bills receivable, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised since initial recognition. For other financial assets, the Group applies the general approach permitted by IFRS 9, which requires the 12-month losses when there is no significant increase in credit risk since origination.
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138 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 138 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.3 Summary of other accounting policies (Continued) 2.3.4 Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated balance sheets where there is a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.3.5 Restricted cash Cash that restricted from withdrawal, use or pledged as security is reported separately on the face of the consolidated balance sheets, and is not included in the total cash and cash equivalents in the consolidated statements of cash flow. The Group ’s restricted cash mainly represents the deposits restricted in relation to legal claims. 2.3.6 Accounts and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. Accounts and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. 2.3.7 Provisions and contingent liabilities Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management ’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.
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139 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 139 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.3 Summary of other accounting policies (Continued) 2.3.8 Interest income Interest income is presented within “finance income” when it is earned from financial assets that are held for cash management purposes. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit – impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance). 2.3.9 Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate. 2.3.10 Leases Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. The right-of-used assets of the Group all represent the lease of offices for operation purpose. Contracts may contain both lease and non-lease components. For leases of rentals of offices for which the Group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the fixed payments (including in-substance fixed payments). Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. The Group uses the incremental borrowing rate, for the implicit rate cannot be readily determined, which is the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
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140 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 140 NetEase Cloud Music Annual Report 2024 2 SUMMARY OF ACCOUNTING POLICY INFORMATION (Continued) 2.3 Summary of other accounting policies (Continued) 2.3.10 Leases (Continued) Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liabilities; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs; and • restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset ’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Payments associated with short-term leases of office buildings and servers are recognised on a straightline basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. 3 FINANCIAL RISK MANAGEMENT 3.1 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 Group ’s overall risk management strategy seeks to minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out by the senior management of the Group. (a) Market risk (i) Foreign exchange risk The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US$. Foreign exchange risk arises when future commercial transactions or recognised assets and liabilities are denominated in a currency that is not the functional currency of the respective entity of the Group. The functional currency of the Company is US$ whereas the functional currency of the subsidiaries which operate in the PRC is RMB. The Group currently does not hedge transactions undertaken in foreign currencies but manages its foreign exchange risk by performing regular reviews of the Group’s net foreign exchange exposures. As at 31 December 2024 and 2023, the impact of foreign exchange fluctuations is not material as the Group ’s entities had no material financial assets or financial liabilities denominated in a currency that different from its functional currency and therefore no sensitivity analysis is presented for foreign exchange risk.
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141 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 141 NetEase Cloud Music Annual Report 2024 3 FINANCIAL RISK MANAGEMENT (Continued) 3.1 Financial risk factors (Continued) (a) Market risk (Continued) (ii) Price risk The Group is exposed to price risk mainly relating to certain investments held by the Group, which were classified as financial assets at fair value through profit or loss, including investments in wealth management products. The Group is not exposed to commodity price risk. See Note 3.3 for details. (iii) Interest rate risk The Group’s interest rate risk primarily arises from bank deposits and certain cash at bank. Those carried at floating rates expose the Group to cash flow interest rate risk whereas those carried at fixed rates expose the Group to fair value interest rate risk. If the interest rate of cash and cash equivalents and bank deposit had been 50 basis points higher/ lower, the profit before income tax for the year ended 31 December 2024 would have been higher/ lower RMB58.1 million (2023: RMB44.5 million). The Group regularly monitors its interest rate risk to ensure there is no undue exposure to significant interest rate movements. (b) Credit risk (i) Risk management Credit risk arises from financial assets at fair value through profit or loss, bank deposits, cash and cash equivalents and restricted cash as well as credit exposures on amounts due from group companies, accounts and bills receivable, other receivables and deposits. The carrying amount of each class of these financial assets represents the Group ’s maximum exposure to credit risk in relation to the corresponding class of financial assets. Credit risk is managed on a group basis. Bank deposits and cash and cash equivalents are mainly placed with reputable financial institutions in the PRC and reputable international financial institutions in Hong Kong, which management considers being of high credit quality. For accounts and bills receivable, the Group assesses the credit quality of the receivables by taking account of various factors, including past operational and financial performance and other factors. (ii) Impairment of financial assets The Group has following types of financial assets that are subject to the expected credit loss model: • Accounts and bills receivable • Bank deposits • Cash and cash equivalents • Restricted cash • Amounts due from group companies • Other receivables and deposits
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142 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 142 NetEase Cloud Music Annual Report 2024 3 FINANCIAL RISK MANAGEMENT (Continued) 3.1 Financial risk factors (Continued) (b) Credit risk (Continued) (ii) Impairment of financial assets (Continued) Accounts and bills receivable The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all accounts and bills receivable. To measure the expected credit losses, accounts and bills receivable have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the historical payment profiles and historical loss rates, adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of customers to settle the receivables. The Group has identified the Producer Price Index (“PPI”) and Purchasing Managers ’ Index ( “PMI”) of the PRC to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. On that basis, the loss allowance as at 31 December 2024 and 2023 was determined as follows for accounts and bills receivable: As at 31 December 2024 2023 RMB’000 RMB’000 Gross carrying amount 1,061,927 930,415 Loss allowance provision (7,274) (6,951) Expected loss rate 0.68% 0.75% The loss allowances for accounts and bills receivable as at 31 December 2024 and 2023 reconcile to the opening loss allowances is as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 At 1 January 6,951 3,321 Net impairment loss during the year 323 3,630 At 31 December 7,274 6,951
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143 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 143 NetEase Cloud Music Annual Report 2024 3 FINANCIAL RISK MANAGEMENT (Continued) 3.1 Financial risk factors (Continued) (b) Credit risk (Continued) (ii) Impairment of financial assets (Continued) Accounts and bills receivable (Continued) Accounts and bills receivable are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery, include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and indicators of financial difficulties. Impairment losses on accounts and bills receivable are charged to profit or loss, and subsequent recoveries of amounts previously written off are credited against the same line item. Other financial assets at amortised cost To manage credit risk, bank deposits, cash and cash equivalents and restricted cash are mainly placed with reputable financial institutions in PRC and reputable international financial institutions in Hong Kong. There has been no recent history of default in relation to these financial institutions. For impairment on amounts due from group companies, other receivables and deposits, it is measured as either 12-month expected credit losses or lifetime expected credit loss, depending on whether there has been significant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivables has occurred since initial recognition, then impairment is measured as lifetime expected credit loss. Management makes periodic collective assessments as well as individual assessment on these financial assets based on historical settlement records and past experience. The expected credit loss on other financial assets at amortised cost is insignificant to the Group. (c) Liquidity risk The Group intends to maintain sufficient cash and cash equivalents. Due to the dynamic nature of the underlying business, the policy of the Group is to regularly monitor the Group ’s liquidity risk and to maintain adequate liquid assets such as cash and cash equivalents and short-term time deposits or to retain adequate financing arrangements to meet the Group’s liquidity requirements. The table below analyses the Group ’s non-derivative financial liabilities into relevant maturity grouping based on the remaining period at each balance sheet date to the contractual maturity date. The amounts disclosed in the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
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144 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 144 NetEase Cloud Music Annual Report 2024 3 FINANCIAL RISK MANAGEMENT (Continued) 3.1 Financial risk factors (Continued) (c) Liquidity risk (Continued) On demand Less than 1 year Between 1 and 2 years Between 2 and 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 31 December 2024 Accounts payable – 24,015 – – 24,015 Accruals and other payable (excluding non-financial liabilities) – 1,664,855 – – 1,664,855 Amounts due to group companies 73,702 – – – 73,702 Lease liabilities – 1,887 1,264 3,805 6,956 At 31 December 2023 Accounts payable – 171 – – 171 Accruals and other payable (excluding non-financial liabilities) – 1,729,170 – – 1,729,170 Amounts due to group companies 76,196 – – – 76,196 Lease liabilities – 3,196 2,136 1,314 6,646 3.2 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. The Group monitors capital (including share capital and share premium) by regularly reviewing the capital structure. As part of this review, 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 at 31 December 2024 and 2023, the directors of the Company consider that the capital risk of the Group is minimal as the Group ’s capital structure is mainly financed by ordinary and preferred shares with net cash and there is no material external interest bearing debts during the years ended 31 December 2024 and 2023.
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145 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 145 NetEase Cloud Music Annual Report 2024 3 FINANCIAL RISK MANAGEMENT (Continued) 3.3 Fair value estimation The table below analyses the Group ’s financial instruments carried at fair value as at each balance sheet date by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorised 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 at 31 December 2023, the Group had no financial assets or financial liabilities that are measured at fair value. The following table presents the Group’s financial assets that are measured at fair value at 31 December 2024: Level 1 Level 2 Level 3 Total RMB’000 RMB’000 RMB’000 RMB’000 At 31 December 2024 Assets Financial assets at fair value through profit or loss – Wealth management products – – 6,515 6,515 There were no transfers between level 1, 2 and 3 of fair value hierarchy classifications during the year ended 31 December 2024.
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146 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 146 NetEase Cloud Music Annual Report 2024 3 FINANCIAL RISK MANAGEMENT (Continued) 3.3 Fair value estimation (Continued) (a) Financial instruments in Level 3 If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Quoted market prices were used to value financial instruments. The following table presents the changes in level 3 items of financial assets at fair value through profit or loss for the year ended 31 December 2024: RMB’000 At 1 January 2023, 31 December 2023 and 1 January 2024 – Additions 16,975,000 Disposals (17,003,461) Change in fair value through profit or loss 34,976 At 31 December 2024 6,515 Description As at 31 December Unobservable inputs Range of input As at 31 December Relationship of unobservable inputs to fair value2024 2023 2024 2023 RMB’000 RMB’000 Wealth management products 6,515 – Expected rate of return 1.52% N/A The higher the expected rate of return, the higher the fair value. Investments in wealth management products are measured at fair value through profit or loss. If the fair value had increased/decreased by 1%, the profit before income tax for the year ended 31 December 2024 would have been approximately RMB65,000 higher/lower (2023: Nil). Financial instruments at amortised cost The carrying amounts of the Group ’s other financial assets measured at amortised costs, including long-term bank deposits, short-term bank deposits, cash and cash equivalents, restricted cash, amounts due from group companies, accounts and bills receivable, other receivables and deposits and the Group ’s financial liabilities, including accounts payables, accruals and other payables and amounts due to group companies, approximate their fair values due to their short maturities or the interest rates are close to the market interest rates.
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147 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 147 NetEase Cloud Music Annual Report 2024 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies. Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (a) Impairment assessment of non-financial assets Non-financial assets, mainly including prepaid contents royalties, property, plant and equipment, investments accounted for using equity method, right-of-use assets and other prepayments, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts have been determined based on value-in-use calculations or fair value less costs to disposal. These calculations require the use of judgements and estimates. Management judgement is required in the area of asset impairment particularly in assessing: (i) whether an event has occurred that may indicate that the related asset values may not be recoverable; (ii) whether the carrying value of an asset can be supported by the recoverable amount, being the higher of fair value less costs to sell and net present value of future cash flows which are estimated based upon the continued use of the asset in the business; (iii) the selection of the most appropriate valuation technique, e.g. the market approach, the income approach, as well as a combination of approaches, including the adjusted net asset method; and (iv) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management in assessing impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test and as a result affect the Group’s financial condition and results of operations. If there is a significant adverse change in the projected performance and resulting future cash flow projections, it may be necessary to take an impairment charge to the consolidated statement of profit or loss.
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148 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 148 NetEase Cloud Music Annual Report 2024 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (b) Contractual arrangements As disclosed in Note 2.2.1(b), the Group exercises control over certain Structured Entities and has the right to recognise and receive substantially all the economic benefits from them through the Contractual Arrangements. The Directors consider that the Group controls these Structured Entities notwithstanding that it does not have direct or indirect legal ownership in equity of these entities as the Group has power over the financial and operating policies of these entities and receives substantially all the economic interest returns generated from the business activities of these entities through these Contractual Arrangements. Accordingly, all these Structured Entities are accounted for as controlled Structured Entities and their financial statements have also been consolidated by the Company throughout the years ended 31 December 2024 and 2023. Nevertheless, the Contractual Arrangements may not be as effective as direct legal ownership in providing the Group with direct control over the Structured Entities. Uncertainties presented by the PRC legal system could impede the Group ’s beneficiary rights of the results, assets and liabilities of the Structured Entities. Significant judgement is involved in determining whether the Group is able to control these entities through these Contractual Arrangements. The Directors of the Company, after taking into account of the advice from its external legal advisors, consider that the Contractual Arrangements entered into by the Group are in compliance with the relevant PRC laws and regulations and are therefore legally binding and enforceable. (c) Share-based payments The Group measures the cost of equity-settled transactions with employees and others who provide similar services as employees with reference to the fair value of the equity instruments at the date at which they are granted with estimated forfeiture rate of eligible grantees. Significant estimates are involved in the determination of forfeiture rate, which include the use of the most appropriate calculation model and inputs based on the actual forfeiture rate of the Group. (d) Current and deferred income taxes The Group is subject to income taxes in the PRC and other jurisdictions. Significant judgement is required in determining the provision for income taxes in each of these jurisdictions. There are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provision in the period in which such determination is made. Deferred income tax assets relating to certain temporary differences and tax losses are recognised when management considers it is probable that future taxable profits will be available against which the temporary differences or tax losses can be utilised. When the expectation is different from the original estimate, such differences will impact the recognition of deferred income tax assets and taxation charges in the period in which such estimate is changed.
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149 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 149 NetEase Cloud Music Annual Report 2024 5 REVENUE AND SEGMENT INFORMATION (a) Disaggregation of revenue from contracts with customers Year ended 31 December 2024 2023 RMB’000 RMB’000 Type of goods or services: Online music services 5,354,517 4,350,913 Social entertainment services and others 2,595,629 3,516,079 7,950,146 7,866,992 Timing of revenue recognition: At a point in time 3,108,034 3,633,357 Over time 4,842,112 4,233,635 Total 7,950,146 7,866,992 (b) Segment information The CODM has been identified as the Board, who reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group as a whole. For the purpose of internal reporting and management ’s operation review, the CODM considered that the Group ’s businesses are operated and managed as one single segment and no separate segment information was presented for the years ended 31 December 2024 and 2023. During the year ended 31 December 2024, the Group principally operated in the PRC and substantial all of its revenue was generated in the PRC. All of its non-current assets were located in the PRC during the years ended 31 December 2024 and 2023. (c) Information about major customers Revenue from an external customer contributed over 10% to the total revenue of the Group for the year ended 31 December 2024 is as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Customer A 797,590 N/A* * Less than 10% of the total revenue of the Group in the respective year.
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150 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 150 NetEase Cloud Music Annual Report 2024 6 OTHER INCOME Year ended 31 December 2024 2023 RMB’000 RMB’000 Government grants and value-added tax subsidies 27,859 71,799 7 OTHER GAINS/(LOSSES), NET Year ended 31 December 2024 2023 RMB’000 RMB’000 Net foreign exchange losses (2,396) (2,043) Gain on fair value changes of financial assets at fair value through profit or loss 34,976 – Others (Note) 4,739 (50,210) 37,319 (52,253) Note: In connection with an investigation initiated by local authority on certain individuals ’ activities through the use of the online platform operated by the Group, certain of the Group ’s bank balances of RMB122,975,000 were restricted during the year ended 31 December 2023. As at 31 December 2023, the restricted bank balances were fully released while RMB50,000,000 (the “Amount”) was seized by the local authority as evidence in connection to the aforesaid investigation. Based on the understanding of the nature and development of the investigation, management considers there is no reasonable expectation of recovering the Amount. Therefore, a loss was recognised accordingly. Based on the legal opinion obtained from the Group ’s external legal counsel and management ’s assessment, management is of the view that the Group ’s relevant business operations are in compliance in all material respects in relation to the relevant applicable laws and regulations in the PRC. As at 31 December 2024, there was no further development concerning the amount and hence management assessment remained unchanged.
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151 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 151 NetEase Cloud Music Annual Report 2024 8 EXPENSES BY NATURE Year ended 31 December 2024 2023 RMB’000 RMB’000 Content service costs (Note) 4,008,896 4,598,724 Technology costs 395,577 483,114 Employee benefit expenses (Note 9) 1,215,752 1,154,001 Promotion and advertising expenses 519,759 688,312 Payment channel fees 485,234 417,296 Net impairment losses on financial assets 4,280 3,895 Depreciation of property, plant and equipment 14,906 16,474 Auditors ’ remuneration – Audit services related to the Group 5,300 5,820 – Other audit related services and non-audit services 980 980 Legal and professional fees 20,063 13,546 Others 173,730 174,196 Total cost of revenue, selling and marketing expenses, general and administrative expenses and research and development expenses 6,844,477 7,556,358 Note: Content service costs mainly comprise of content licensing fees and revenue sharing fees. 9 EMPLOYEE BENEFIT EXPENSES Year ended 31 December 2024 2023 RMB’000 RMB’000 Salaries and bonuses 892,022 882,748 Welfare and other employee benefits 185,159 186,935 Equity-settled share-based payments (Note 27(e)) 138,571 84,318 1,215,752 1,154,001 Note: The employee benefit expenses included labour outsourcing services from NetEase Group during the years ended 31 December 2024 and 2023 of RMB16,860,000 and RMB14,494,000, respectively.
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152 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 152 NetEase Cloud Music Annual Report 2024 9 EMPLOYEE BENEFIT EXPENSES (Continued) During the years ended 31 December 2024 and 2023, employee benefit expenses were charged to the consolidated profit or loss as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Cost of revenue 443,295 398,662 Selling and marketing expenses 83,327 62,817 General and administrative expenses 131,738 117,969 Research and development expenses 557,392 574,553 1,215,752 1,154,001 (a) Five highest paid individuals The five individuals whose emoluments were the highest in the Group during the years ended 31 December 2024 and 2023 include one director in 2024 and 2023, whose emoluments were reflected in the analysis presented in Note 10. The emoluments paid and payable to the five individuals during the years ended 31 December 2024 and 2023 are as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Salaries 8,309 8,270 Bonus 13,697 9,093 Pension costs-defined contribution plans 221 202 Welfare and other employee benefits 551 538 Equity-settled share-based payments 9,924 10,590 32,702 28,693
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153 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 153 NetEase Cloud Music Annual Report 2024 9 EMPLOYEE BENEFIT EXPENSES (Continued) (a) Five highest paid individuals (Continued) The emoluments fell within the following bands: Number of individuals Year ended 31 December 2024 2023 Emolument bands (in HK$) HK$4,000,001 to HK$4,500,000 – 2 HK$4,500,001 to HK$5,000,000 1 – HK$5,000,001 to HK$5,500,000 1 – HK$5,500,001 to HK$6,000,000 1 1 HK$7,000,001 to HK$7,500,000 1 – HK$8,000,001 to HK$8,500,000 – 1 HK$9,000,001 to HK$9,500,000 – 1 HK$12,500,001 to HK$13,000,000 1 – 5 5 10 BENEFITS AND INTERESTS OF DIRECTORS The remuneration of every director during the years ended 31 December 2024 and 2023 is set out below: For the year ended 31 December 2024: Emoluments paid or receivable in respect of a person ’s services as a director, whether of the Company or its subsidiary undertaking Name Fees Salary Estimated money value of other benefits Employer ’s contribution to a retirement benefit scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 William Lei Ding – – – – – Yat Keung Li – – – – – Yong Li – 3,996 1,300 44 5,340 Yanfeng Wang – 1,539 1,038 44 2,621 Dewei Zheng (Note (ii)) – – – – – Xianfeng Gu – 500 – – 500 Ying Kit Caleb Lo – 500 – – 500 Zhong Xu – 500 – – 500 Ran Wang (Note (iii)) – – – – –
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154 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 154 NetEase Cloud Music Annual Report 2024 10 BENEFITS AND INTERESTS OF DIRECTORS (Continued) For the year ended 31 December 2023: Emoluments paid or receivable in respect of a person ’s services as a director, whether of the Company or its subsidiary undertaking Name Fees Salary Estimated money value of other benefits Employer ’s contribution to a retirement benefit scheme Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 William Lei Ding – – – – – Yat Keung Li – – – – – Yong Li – 4,020 1,130 40 5,190 Yanfeng Wang – 1,449 1,048 40 2,537 Feng Yu (Note (i)) – – – – – Dewei Zheng (Note (ii)) – – – – – Xianfeng Gu – 500 – – 500 Ying Kit Caleb Lo – 500 – – 500 Zhong Xu – 500 – – 500 Ran Wang (Note (iii)) – – – – – Notes: (i) Resigned since Jun 2023. (ii) Resigned since Feb 2024. (iii) Appointed as non-executive director since Jun 2023 and resigned since May 2024. (a) Directors ’ retirement or termination benefits None of the directors received or will receive any retirement or termination benefits during the years ended 31 December 2024 and 2023. (b) Consideration provided to third parties for making available directors ’ services During the years ended 31 December 2024 and 2023, the Company did not pay consideration to any third parties for making available directors’ services. (c) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate by and connected entities with such directors During the years ended 31 December 2024 and 2023, there is no loans, quasi-loans and other dealing arrangements in favour of the directors, or controlled body corporates and connected entities of such directors.
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155 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 155 NetEase Cloud Music Annual Report 2024 10 BENEFITS AND INTERESTS OF DIRECTORS (Continued) (d) Directors ’ material interests in transactions, arrangements or contracts No significant transactions, arrangements and contracts in relation to the Group ’s business to which the Company was a party and in which a director of the Company had a material interest whether directly or indirectly, subsisted at 31 December 2024 or at any time during the years ended 31 December 2024 and 2023. 11 FINANCE INCOME Year ended 31 December 2024 2023 RMB’000 RMB’000 Interest income from bank deposits 406,191 437,879 12 INCOME TAX EXPENSE The income tax expense of the Group is analysed as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Current income tax – PRC corporate income tax 4,886 33,497 Deferred income tax – – 4,886 33,497 (a) Cayman Islands Under the current laws of the Cayman Islands, the Company is not currently subject to tax on income or capital gains. (b) Hong Kong Subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax at a rate of 16.5%. No provision for Hong Kong profits tax has been made as the Group has no estimated assessable profit in Hong Kong. (c) PRC Under the Enterprise Income Tax ( “EIT”) Law, foreign invested enterprises and domestic enterprises are subject to a unified EIT rate of 25%, except for a subsidiary of the Group in the PRC that was approved as High and New Technology Enterprise ( “HNTE”) which enjoys a preferential tax rate of 15% from 2022 onwards and subject to re-approval by the related authorities in every three years.
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156 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 156 NetEase Cloud Music Annual Report 2024 12 INCOME TAX EXPENSE (Continued) (c) PRC (Continued) Under the Enterprise Income Tax ( “EIT”) Law, finance income from financial institutions located in mainland China earned by foreign investors is subject to withholding tax of 10%. The taxation on the Group ’s profit before income tax differs from the theoretical amount that would arise using the tax rate of 25% for the years ended 31 December 2024 and 2023, being the tax rate of the major subsidiaries of the Group before enjoying preferential tax treatments, as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Profit before income tax 1,570,255 767,679 Tax calculated at a tax rate of 25% 392,564 191,920 Effect of different tax rates applicable to different companies within the Group (30,176) (58,259) Effect of preferential income tax rate of a subsidiary (119,703) (59,915) Expenses not deductible for tax purposes 1,043 12,899 Income not subject to tax (54,337) (7,743) Super deduction for research and development expenses (30,092) (48,996) Withholding tax on finance income 1,843 30,581 Utilization of previously unrecognised tax losses (115,085) (58,666) Tax losses and other temporary differences not recognised (42,132) 31,875 Others 961 (199) 4,886 33,497 The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be available to utilise those tax losses. Taking into consideration of all relevant factors and circumstances, management assessed and concluded that no deferred income tax assets in relation to unused tax losses and unused tax credits would be recognised for the Group as at 31 December 2024 and 2023. Management will continue to assess the recognition of deferred income tax assets in future reporting periods. As at 31 December 2024 and 2023, the Group had unrecognised tax losses to be carried forward against future taxable income amounted to RMB5,765 million and RMB7,395 million respectively. These unrecognised tax losses will mainly expire within 5 to 10 years. As at 31 December 2024 and 2023, the potential deferred income tax assets in respect of the above unrecognised tax losses amounted to RMB882 million and RMB1,127 million, respectively. Unrecognised tax assets in respect of other deductible temporary differences are relatively insignificant.
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157 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 157 NetEase Cloud Music Annual Report 2024 13 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 shares outstanding during the year. Year ended 31 December 2024 2023 Profit for the year attributable to equity holders of the Company (in RMB ’000) 1,561,507 734,182 Weighted average number of shares outstanding 208,846,525 210,413,914 Basic earnings per share (in RMB) 7.48 3.49 (b) Diluted earnings per share The share options and awarded shares granted by the Company have potential dilutive effect on the EPS. Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding by the assumption of the conversion of all potential dilutive ordinary shares arising from share options and share awards granted by the Company (collectively forming the denominator for computing the diluted EPS). Year ended 31 December 2024 2023 Profit attributable to equity holders of the Company for the calculation of diluted EPS (in RMB ’000) 1,561,507 734,182 Weighted average number of ordinary shares in issue 208,846,525 210,413,914 Adjustments for share options and share awards 2,204,498 1,405,291 Weighted average number of ordinary shares for the calculation of diluted EPS 211,051,023 211,819,205 Diluted earnings per share (in RMB) 7.40 3.47 14 DIVIDENDS No dividends have been paid or declared by the Company during each of the years ended 31 December 2024 and 2023.
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158 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 158 NetEase Cloud Music Annual Report 2024 15 PROPERTY, PLANT AND EQUIPMENT Servers and network equipment Leasehold improvements Office furniture, equipment and others Total RMB’000 RMB’000 RMB’000 RMB’000 As at 1 January 2023 Cost 111,732 5,522 19,724 136,978 Accumulated depreciation (79,311) (1,800) (10,031) (91,142) Net book amount 32,421 3,722 9,693 45,836 Year ended 31 December 2023 Opening net book amount 32,421 3,722 9,693 45,836 Additions 2,095 61 3,389 5,545 Disposals – – (1,885) (1,885) Depreciation charge (9,708) (1,009) (5,757) (16,474) Closing net book amount 24,808 2,774 5,440 33,022 As at 31 December 2023 Cost 113,827 5,583 17,817 137,227 Accumulated depreciation (89,019) (2,809) (12,377) (104,205) Net book amount 24,808 2,774 5,440 33,022 Year ended 31 December 2024 Opening net book amount 24,808 2,774 5,440 33,022 Additions 1,564 – 2,145 3,709 Disposals (523) – (1,222) (1,745) Depreciation charge (8,939) (1,991) (3,976) (14,906) Closing net book amount 16,910 783 2,387 20,080 As at 31 December 2024 Cost 100,355 1,858 16,400 118,613 Accumulated depreciation (83,445) (1,075) (14,013) (98,533) Net book amount 16,910 783 2,387 20,080
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159 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 159 NetEase Cloud Music Annual Report 2024 15 PROPERTY, PLANT AND EQUIPMENT (Continued) During the years ended 31 December 2024 and 2023, depreciation was charged to the consolidated statements of profit or loss as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Cost of revenue 3,027 2,452 Selling and marketing expenses 147 123 General and administrative expenses 488 574 Research and development expenses 11,244 13,325 14,906 16,474 16 RIGHT-OF-USE ASSETS/LEASE LIABILITIES Items recognised in the consolidated balance sheet As at 31 December 2024 2023 RMB’000 RMB’000 Right-of-use assets At 1 January 6,313 7,824 Depreciation (Note) (2,313) (2,896) Addition 6,669 1,605 Modification 14 (220) Termination (4,518) – At 31 December 6,165 6,313 Lease liabilities At 1 January 6,359 8,399 Addition 6,669 1,605 Modification 14 (405) Payments (1,906) (3,557) Interest expenses 239 317 Termination (4,903) – At 31 December 6,472 6,359 Current 1,710 3,001 Non-current 4,762 3,358 6,472 6,359
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160 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 160 NetEase Cloud Music Annual Report 2024 16 RIGHT-OF-USE ASSETS/LEASE LIABILITIES (Continued) Items recognised in the consolidated balance sheet (Continued) Note: Depreciation of approximately RMB2.3 million (2023: RMB2.9 million) was included in cost of revenue. The total cash outflow for leases in 2024 was RMB12.9 million (2023: RMB12.3 million). The short-term lease payment in 2024 was RMB11.0 million (2023: RMB8.7 million). 17 SUBSIDIARIES The Group’s principal subsidiaries (including Structured Entities) during the years ended 31 December 2024 and 2023 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interest held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Name of entity Place of incorporation and kind of legal entity Principal activities Particulars of issued/registered share capital Effective interest held 2024 2023 Subsidiaries directly held: Cloud Village Limited Hong Kong, limited liability company Investment holdings HKD1 100% 100% Dream Studio, Inc. Cayman Islands, limited liability company Investment holdings US$1 100% 100% Indirectly held: Hangzhou NetEase Cloud Music Technology Co., Ltd. PRC, limited liability company Provision of online music streaming services in the PRC US$1,000,000,000 100% 100% Structured Entities/consolidated affiliated entities (Note) Hangzhou Yuedu Technology Co., Ltd. PRC, limited liability company Provision of online music streaming services and social entertainment services in the PRC RMB10,000,000 100% 100% Hangzhou Rege Culture Creativity Co., Ltd.* PRC, limited liability company Dormant RMB100,000 100% 100% * English names are translated for identification purpose only.
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161 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 161 NetEase Cloud Music Annual Report 2024 17 SUBSIDIARIES (Continued) Note: The Company does not have direct or indirect legal ownership in equity of the Structured Entities. Nevertheless, under certain Contractual Arrangements entered into with the Structured Entities and their registered owners, the Company and its other legally owned subsidiaries have rights to exercise power over the Structured Entities, receive variable returns from its involvement in the Structured Entities, and have the ability to affect those returns through its power over these Structured Entities. As a result, they are presented as Structured Entities of the Group. 18 INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD As at 31 December 2024 2023 RMB’000 RMB’000 Associates 72,425 78,969 Movement of investments in associates is analysed as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 At 1 January 78,969 79,032 Share of results (6,544) (63) At 31 December 72,425 78,969 Details of the principal associate are as follows: Name of entity Date of incorporation Place of business/ country of incorporation Percentage of ownership attributable to the Group Principal activities2024 2023 Indirectly held: AIVA Technologies S.A.R.L 23 September 2016 Luxembourg 20% 20% Provision of online AI soundtrack creating services
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162 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 162 NetEase Cloud Music Annual Report 2024 19 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS As at 31 December 2024 2023 RMB’000 RMB’000 Wealth management products 6,515 – For the fair value measurement of financial assets at fair value, please refer to Note 3.3. 20 ACCOUNTS AND BILLS RECEIVABLE As at 31 December 2024 2023 RMB’000 RMB’000 Accounts receivable 1,061,705 928,942 Less: loss allowance (7,274) (6,951) Accounts receivable, net 1,054,431 921,991 Bills receivable 222 1,473 1,054,653 923,464 The Group generally allows a credit period of 0 to 180 days to its customers depending on different revenue streams. Aging analysis of accounts receivable based on invoice date is as follows: As at 31 December 2024 2023 RMB’000 RMB’000 Up to 3 months 1,053,927 909,174 3 to 6 months 3,179 440 Over 6 months 4,599 19,328 1,061,705 928,942 The carrying amount of accounts and bills receivable approximated their fair values and were denominated in RMB. Information about the impairment of accounts and bills receivable and the Group ’s exposure to credit risk can be found in Note 3.1.
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163 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 163 NetEase Cloud Music Annual Report 2024 21 PREPAID CONTENTS ROYALTIES As at 31 December 2024 2023 RMB’000 RMB’000 Current 335,144 589,231 Non-current 107,173 166,054 442,317 755,285 Prepaid contents royalties represent the prepaid licence fee related to the music contents licensed from third parties. 22 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES As at 31 December 2024 2023 RMB’000 RMB’000 Non-current assets Deposits 300 300 Prepayments 1,847 2,734 Interests receivable in relation to bank deposit 22,074 – 24,221 3,034 Current assets Interests receivable in relation to bank deposit 194,837 83,636 Prepaid payment channel fees 77,781 69,016 Prepaid promotion, advertising and other expenses 16,858 17,447 Value-added tax recoverable 9,246 13,088 Rental and other deposits 350 800 Others 10,193 4,578 309,265 188,565 Less: loss allowance (4,126) (2,509) 305,139 186,056
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164 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 164 NetEase Cloud Music Annual Report 2024 23 BANK DEPOSITS As at 31 December 2024 2023 RMB’000 RMB’000 Current 6,420,669 5,484,688 Non-current 1,400,000 – 7,820,669 5,484,688 The weighted average effective interest rate on bank deposits of the Group with initial terms of over three months as at 31 December 2024 and 2023 was 4.82% and 5.63% per annum, respectively. The carrying amounts of bank deposits with initial terms of over three months approximated their fair values and were denominated in the following currencies: As at 31 December 2024 2023 RMB’000 RMB’000 US$ 6,420,669 3,484,688 RMB 1,400,000 2,000,000 7,820,669 5,484,688
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165 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 165 NetEase Cloud Music Annual Report 2024 24 CASH AND BANK BALANCES (a) Cash and cash equivalents As at 31 December 2024 2023 RMB’000 RMB’000 Cash at bank 3,795,210 4,020,400 Cash and cash equivalents are denominated in the following currencies: As at 31 December 2024 2023 RMB’000 RMB’000 US$ 126,781 2,787,812 RMB 3,634,151 1,210,144 HK$ 34,278 22,444 3,795,210 4,020,400 The conversion of the RMB denominated balances maintained in the PRC into foreign currencies is subject to rules and regulations of foreign exchange control promulgated by the PRC government. (b) Restricted cash As at 31 December 2024 2023 RMB’000 RMB’000 Restricted cash, denominated in RMB 1,862 21,005 Restricted cash of RMB1,862,000 (2023: RMB21,005,000) mainly represents cash restricted in relation to certain legal claims.
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166 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 166 NetEase Cloud Music Annual Report 2024 25 SHARE CAPITAL Authorised: Total number of ordinary shares Total nominal value of shares ’000 US$’000 At 1 January 2023, 31 December 2023, 1 January 2024 and 31 December 2024 1,000,000 100 Issued and fully paid: Number of ordinary shares Nominal value of share capital RMB’000 As at 1 January 2023 211,906,086 135 Exercise of share options 2,383,340 2 As at 31 December 2023 and 1 January 2024 214,289,426 137 Exercise of share options 2,432,935 2 As at 31 December 2024 216,722,361 139
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167 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 167 NetEase Cloud Music Annual Report 2024 26 OTHER RESERVES Share premium Treasury shares Contributions from ultimate holding company Share-based compensation reserve PRC statutory reserve Exchange reserve Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note (c)) (Note (a)) (Note (b)) As at 1 January 2024 17,285,792 (397,533) 32,364 353,570 4,430 1,253,606 18,532,229 Exercise of share options 272,115 – – (110,568) – – 161,547 Release of shares from the Trustee for the share award scheme (6,236) 73,707 – (67,471) – – – Equity-settled share-based payment under the share option scheme of the Pre-IPO Share Incentive Plan – – 4,089 7,834 – – 11,923 Equity-settled share-based payment under the share award scheme of the Pre-IPO Share Incentive Plan – – – 48,008 – – 48,008 Equity-settled share-based payment under the share award scheme of the Post IPO Share Incentive Plan – – – 79,331 – – 79,331 Currency translation differences – – – – – 98,100 98,100 Repurchase of shares – (222,978) – – – – (222,978) As at 31 December 2024 17,551,671 (546,804) 36,453 310,704 4,430 1,351,706 18,708,160
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168 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 168 NetEase Cloud Music Annual Report 2024 26 OTHER RESERVES (Continued) Share premium Treasury shares Contributions from ultimate holding company Share-based compensation reserve PRC statutory reserve Exchange reserve Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note (c)) (Note (a)) (Note (b)) As at 1 January 2023 17,113,324 (30,388) 28,812 380,423 3,719 1,147,894 18,643,784 Exercise of share options 163,343 – – (85,217) – – 78,126 Release of shares from the Trustee for the share award scheme 9,125 14,352 – (23,477) – – – Equity-settled share-based payment under the share option scheme of the Pre-IPO Share Incentive Plan – – 3,552 25,358 – – 28,910 Equity-settled share-based payment under the share award scheme of the Pre-IPO Share Incentive Plan – – – 34,176 – – 34,176 Equity-settled share-based payment under the share award scheme of the Post IPO Share Incentive Plan – – – 22,307 – – 22,307 Repurchase of shares – (381,497) – – – – (381,497) Appropriations to statutory reserves – – – – 711 – 711 Currency translation differences – – – – – 105,712 105,712 As at 31 December 2023 17,285,792 (397,533) 32,364 353,570 4,430 1,253,606 18,532,229 Notes: (a) Contributions from ultimate holding company The contributions from ultimate holding company represent deemed contribution from NetEase as a result of NetEase granting restricted share units to Eligible Grantees of the Group. (b) PRC statutory reserve According to the Companies Laws of the PRC and the articles of association of the relevant subsidiaries established in the PRC, PRC subsidiaries are required to transfer not less than 10% of their net profit to PRC statutory reserves before distributions are made to the equity owners. Such a transfer is not required when the balance of the PRC statutory reserve reaches 50% of the subsidiaries’ registered capital. The PRC statutory reserves shall only be used to make up losses of the subsidiaries, to expand the subsidiaries’ production operations, or to increase the capital of the subsidiaries. Upon approval by the resolutions of the subsidiaries’ shareholders in general meetings, the subsidiaries may convert their PRC statutory reserves into registered capital and issue bonus capital to existing owners in proportion to their existing ownership structure.
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169 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 169 NetEase Cloud Music Annual Report 2024 26 OTHER RESERVES (Continued) Notes: (Continued) (c) Treasury shares Number of treasury shares Amounts RMB’000 As of 1 January 2023 627,193 30,388 Shares repurchased under the Trustee 5,258,100 381,497 Release of shares from the Trustee for the share award scheme (376,651) (14,352) As of 31 December 2023 and 1 January 2024 5,508,642 397,533 Shares repurchased under the Trustee 2,251,650 194,938 Shares repurchased under the Company 331,550 28,040 Release of shares from the Trustee for the share award scheme (962,308) (73,707) As of 31 December 2024 7,129,534 546,804 Note: As at 31 December 2024, 6,797,984 number of treasury shares were repurchased under the Trustee for the share award scheme (31 December 2023: 5,508,642). See details in Note 27.
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170 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 170 NetEase Cloud Music Annual Report 2024 27 SHARE-BASED COMPENSATION During the years ended 31 December 2024 and 2023, the Group has a Pre-IPO Share Incentive Plan and a Post-IPO Incentive Plan in place, and the Group was also a party to the Restricted Share Unit ( “RSU”) plan of NetEase whereas restricted share units may be issued to eligible grantees of the Group. (a) Pre-IPO Share Incentive Plan of the Company During the year ended 31 December 2016, the board of directors of the Company approved the establishment of a Pre-IPO Share Incentive Plan (the “Pre-IPO Share Incentive Plan”) with the purpose of motivating, attracting and retaining those individuals for outstanding performance to generate superior returns to the shareholders of the Group. The Pre-IPO Share Incentive Plan is valid and effective for 10 years from the date of the approval of the board of directors. The maximum aggregate number of Shares which may be issued pursuant to the Pre-IPO Share Incentive Plan is 15,000,000 ordinary shares. (i) Share options The share options under the Pre-IPO Share Incentive Plan have graded vesting terms, and will be vested from the grant date over four years to five years on the condition that employees remain in service together with a performance requirement. The options may be exercised at any time after the IPO of the Company provided the options have vested and subject to the terms of the Pre-IPO Share Incentive Plan. The options are exercisable for a maximum period of seven years after the date of grant. Set out below are summaries of options granted under the plan: Number of share options Weighted average exercise price per share option US$ Outstanding as of 1 January 2023 7,162,040 8.20 Exercised during the year (2,383,340) 4.67 Forfeited during the year (403,300) 10.74 Outstanding as of 31 December 2023 and 1 January 2024 4,375,400 9.89 Exercised during the year (2,432,935) 9.35 Forfeited during the year (101,725) 11.00 Outstanding as of 31 December 2024 1,840,740 10.55 Vested and exercisable at 31 December 2024 1,606,540 10.49 Vested and exercisable at 31 December 2023 3,654,800 9.68
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171 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 171 NetEase Cloud Music Annual Report 2024 27 SHARE-BASED COMPENSATION (Continued) (a) Pre-IPO Share Incentive Plan of the Company (Continued) (i) Share options (Continued) Share options outstanding at the end of the year have the following expiry date and exercise price. Grant date Expiry date Exercise price Vesting year* Year ended 31 December 2024 2023 10 July 2017 10 July 2024 US$8 4 years from grant date – 180,400 23 November 2017 23 November 2024 US$8 4 years from grant date – 222,900 12 February 2018 12 February 2025 US$8 4 years from grant date – 82,000 21 May 2018 21 May 2025 US$8 4 years from grant date 169,650 853,400 17 August 2018 17 August 2025 US$8 4 years from grant date 71,000 142,000 19 November 2018 19 November 2025 US$8 4 years from grant date 5,000 25,000 2 March 2019 2 March 2026 US$8 4 years from grant date 30,000 80,000 21 May 2019 21 May 2026 US$8 4 years from grant date – 26,500 25 September 2019 25 September 2026 US$11 4 years from grant date 463,871 777,000 22 November 2019 22 November 2026 US$11 4 years from grant date 82,000 186,000 1 March 2020 1 March 2027 US$11 4 years from grant date 108,000 154,000 20 May 2020 20 May 2027 US$11 4 years from grant date 39,900 65,400 30 September 2020 30 September 2027 US$11 4 years from grant date 166,150 314,000 24 November 2020 24 November 2027 US$11 4 years from grant date 90,694 161,500 19 February 2021 19 February 2028 US$11 1 year from grant date 4,700 5,000 26 February 2021 26 February 2028 US$11 4 years from grant date 25,750 77,000 27 May 2021 27 May 2028 US$11 4 years from grant date 535,875 880,900 15 June 2021 15 June 2028 US$11 1 year from grant date – 2,400 15 June 2021 15 June 2028 US$11 4 years from grant date 48,150 140,000 Total 1,840,740 4,375,400 Weighted average remaining contractual life of options outstanding at end of the year 1.75 years 2.55 years * 20% to 100% of the options, depending on different vesting terms and performance requirements, are vested on the first anniversary of the grant date, and remaining options shall be vested in equal tranches at the anniversary of remaining vesting periods. Based on fair value of the underlying ordinary shares, the Group has used Binomial model to determine the fair value of the share option as of the grant date.
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172 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 172 NetEase Cloud Music Annual Report 2024 27 SHARE-BASED COMPENSATION (Continued) (a) Pre-IPO Share Incentive Plan of the Company (Continued) (ii) Share awards The aggregate number of awarded shares currently permitted to be awarded under the share award scheme is limited to 1,781,250 new shares under the Pre-IPO Share Incentive Plan (adopted in 2016 and amended from time to time) in the form of awards (other than options). During the years ended 31 December 2024 and 31 December 2023, the Company granted certain share awards to eligible grantees following the terms of the Pre-IPO Share Incentive Plan, subject to the satisfaction of certain performance requirements as set out in the award agreements. The share awards are granted without consideration, and the vesting period is one to three years in equal tranches. Movements in the number of share awards granted to eligible grantees of the Group for the years ended 31 December 2024 and 2023 are as follows: Number of share awards Weighted average grant date fair value HK$ Outstanding as of 1 January 2023 1,086,400 71.72 Granted during the year 361,499 85.70 Vested during the year (376,651) 71.98 Forfeited during the year (225,157) 73.48 Outstanding as of 31 December 2023 and 1 January 2024 846,091 77.11 Granted during the year – – Vested during the year (398,203) 75.22 Forfeited during the year (99,294) 78.86 Outstanding as of 31 December 2024 348,594 78.78 The fair value of the share awards was calculated based on the market price of the Company ’s shares at the respective grant date.
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173 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 173 NetEase Cloud Music Annual Report 2024 27 SHARE-BASED COMPENSATION (Continued) (b) Post-IPO Share Incentive Plan of the Company During the year ended 31 December 2022, the board of directors of the Company approved the establishment of a 2022 RSU Plan (the “Post-IPO Share Incentive Plan ”) with the purpose of motivating, attracting and retaining those individuals for outstanding performance to generate superior returns to the shareholders of the Group. The Post-IPO Share Incentive Plan is valid and effective for 10 years from the approval of the board of directors. The maximum aggregate number of Shares which may be issued pursuant to the Post-IPO Share Incentive Plan is 10,462,280 ordinary shares. Share awards During the year ended 31 December 2024, the Company granted certain share awards to eligible grantees following the terms of the Post-IPO Share Incentive Plan, subject to the satisfaction of certain performance objectives as set out in the award agreements. The share awards are granted without consideration, and the vesting period is three years in equal tranches. Movements in the number of share awards granted to eligible grantees of the Group for the years ended 31 December 2024 and 2023 are as follows: Number of share awards Weighted average grant date fair value HK$ Outstanding as of 1 January 2023 – – Granted during the year 1,880,924 79.98 Forfeited during the year (37,943) 81.52 Outstanding as of 31 December 2023 and 1 January 2024 1,842,981 79.95 Granted during the year 1,733,785 92.16 Vested during the year (564,105) 80.03 Forfeited during the year (366,612) 87.39 Outstanding as of 31 December 2024 2,646,049 86.90 The fair value of the share awards was calculated based on the market price of the Company ’s shares at the respective grant date.
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174 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 174 NetEase Cloud Music Annual Report 2024 27 SHARE-BASED COMPENSATION (Continued) (c) Treasury shares for the share award scheme Computershare Hong Kong Trustees Limited ( “CPM Trustees ”), a company incorporated in Hong Kong and authorised to undertake trust business in accordance with the laws of Hong Kong, was appointed as the trustee (the “Trustee”) for the administration of the share award scheme. The Trustee will hold the shares on trust for the eligible grantees. The Trustee and its ultimate beneficial owners are third parties independent of, and not connected with, the Group or its connected persons. The Trustee shall not exercise the voting rights in respect of any shares of the Company held under the Trust, including, inter alia, the awarded shares and further shares of the Company acquired out of the income derived therefrom. The following table represents the movements for number of shares under the Trustee for the year ended 31 December 2024 and 31 December 2023. Number of shares RMB’000 As at 1 January 2023 627,193 30,388 Repurchase of shares from market 5,258,100 381,497 Release of shares from the Trustee for the share award scheme (376,651) (14,352) As at 31 December 2023 and 1 January 2024 5,508,642 397,533 Repurchase of shares from market 2,251,650 194,938 Release of shares from the Trustee for the share award scheme (962,308) (73,707) As at 31 December 2024 6,797,984 518,764 (d) Restricted share units plan 2019 Restricted Share Unit Plan In October 2019, NetEase adopted a 2019 restricted share unit plan for the employees, directors and consultants of NetEase and its subsidiaries (the “2019 Plan ”). The 2019 Plan has a ten-year term and a maximum number of 322,458,300 ordinary shares of NetEase is available for issuance pursuant to all awards under the plan. NetEase granted certain RSUs (or the “NetEase share-based awards”) to certain Eligible Grantees of the Group. These RSUs will be vested from the grant date over one year to five years on the condition that employees and others remain in service with performance requirement. All, one-second, one-third, one-fourth or one-fifth of the relevant RSUs, depending on different vesting terms and performance requirements, are vested on the first anniversary of the grant date, and remaining RSUs shall be vested in equal tranches at the anniversary of remaining vesting periods.
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175 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 175 NetEase Cloud Music Annual Report 2024 27 SHARE-BASED COMPENSATION (Continued) (d) Restricted share units plan (Continued) 2019 Restricted Share Unit Plan (Continued) Movement in the number of RSUs granted to Eligible Grantees of the Group for the years ended 31 December 2024 and 2023 are as follows: Number of RSUs Weighted average grant date fair value US$ Outstanding as at 1 January 2023 23,221 80.54 Granted during the year 7,273 87.71 Vested and transferred during the year (16,336) 73.39 Forfeited during the year (3,123) 84.92 Outstanding as at 31 December 2023 and 1 January 2024 11,035 94.62 Granted during the year 4,203 106.17 Vested and transferred during the year (847) 93.90 Forfeited during the year (1,256) 98.05 Outstanding as at 31 December 2024 13,135 98.88 (e) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year as part of employee benefit expenses were as follows: Year ended 31 December 2024 2023 RMB’000 RMB’000 Share options issued under the Pre-IPO Share Incentive Plan 7,585 24,283 Share awards granted under the Pre-IPO Share Incentive Plan to Eligible Grantees 48,002 34,176 Share awards granted under the Post-IPO Share Incentive Plan to Eligible Grantees 78,895 22,307 RSUs granted under the NetEase Group Restricted Shares Units Plan to Eligible Grantees of the Group 4,089 3,552 138,571 84,318
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176 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 176 NetEase Cloud Music Annual Report 2024 28 ACCOUNTS PAYABLE As at 31 December 2024 2023 RMB’000 RMB’000 Accounts payable 24,015 171 Accounts payable are unsecured and are usually paid within 30 to 45 days of recognition and denominated in RMB. As at 31 December 2024 and 2023, the aging of accounts payable are all between 0 – 90 days based on invoice date. 29 ACCRUALS AND OTHER PAYABLES As at 31 December 2024 2023 RMB’000 RMB’000 Current liabilities Accrued content service costs 1,392,175 1,426,645 Accrued expenses 188,379 204,846 Accrued salaries and staff benefits 264,522 257,883 Deposits from customers 49,411 47,508 Other taxes payable 47,070 28,189 Others 34,890 50,171 1,976,447 2,015,242 30 CONTRACT LIABILITIES As at 31 December 2024 2023 RMB’000 RMB’000 Contract liabilities related to online music services 1,240,773 999,653 Contract liabilities related to social entertainment services and others 78,589 67,899 Contract liabilities 1,319,362 1,067,552 Less: Non-current portion (83,889) (66,539) Current portion 1,235,473 1,001,013
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177 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 177 NetEase Cloud Music Annual Report 2024 30 CONTRACT LIABILITIES (Continued) (i) Significant changes in contract liabilities Contract liabilities mainly represent advance payments received from customers related to music membership subscription, sublicensing of contents royalties and sales of virtual items. Contract liabilities increased by RMB251,810,000 and RMB298,049,000 during the years ended 31 December 2024 and 2023, respectively, mainly due to the increase of music membership subscription. (ii) Revenue recognised in relation to contract liabilities The following table shows how much of the revenue recognised in the year related to carried forward contract liabilities. As at 31 December 2024 2023 RMB’000 RMB’000 Revenue recognised that was included in the contract liabilities balance at the beginning of the year 1,001,013 714,259 (iii) Unsatisfied performance obligations The following table shows unsatisfied performance obligations mainly resulting from fixed-price contracts: As at 31 December 2024 2023 RMB’000 RMB’000 Within one year 1,235,473 1,001,013 Over one year 83,889 66,539 1,319,362 1,067,552 As at 31 December 2024 and 2023, the Group expects that the unsatisfied performance obligations resulting from the above contracts that will be recognised as revenue within one year amounting to RMB1,235,473,000 and RMB1,001,013,000 respectively. The remaining unsatisfied performance obligations are primarily expected to be recognised as revenue within the second year after the respective balance sheet dates.
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178 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 178 NetEase Cloud Music Annual Report 2024 31 CASH FLOW INFORMATION (a) Cash generated from operations Year ended 31 December 2024 2023 RMB’000 RMB’000 Profit before income tax 1,570,255 767,679 Adjustments for: Depreciation of property, plant and equipment (Note 15) 14,906 16,474 Depreciation of right-of-use assets (Note 16) 2,313 2,896 Net impairment loss on financial assets 4,280 53,889 Equity-settled share-based payments (Note 9) 138,571 84,318 Gains on disposal of property, plant and equipment (225) (340) Gains on termination of lease (385) – Gain on fair value changes of financial assets at fair value through profit or loss (34,976) – Share of results of investments accounted for using equity method 6,544 63 Finance income (406,191) (437,879) Finance cost 239 317 1,295,331 487,417 Changes in working capital: Changes in accounts receivable (133,567) (368,876) Changes in other operating assets 367,658 16,461 Changes in accounts payable 23,844 (40) Changes in other operating liabilities 210,496 101,566 Changes in restricted cash 19,143 (12,687) Cash generated from operations 1,782,905 223,841
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179 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 179 NetEase Cloud Music Annual Report 2024 31 CASH FLOW INFORMATION (Continued) (b) Reconciliation of liabilities arising from financing activities Lease liabilities RMB’000 Balance at 1 January 2023 8,399 Principal elements of lease payments (3,240) Interest elements of lease payments (317) Non-cash movements 1,517 Balance at 31 December 2023 6,359 Balance at 1 January 2024 6,359 Principal elements of lease payments (1,667) Interest elements of lease payments (239) Non-cash movements 2,019 Balance at 31 December 2024 6,472
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180 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 180 NetEase Cloud Music Annual Report 2024 32 FINANCIAL INSTRUMENTS BY CATEGORY The Group holds the following financial instruments: As at 31 December 2024 2023 RMB’000 RMB’000 Financial assets Measured at amortised cost Accounts and bills receivable (Note 20) 1,054,653 923,464 Deposits and other receivables 223,628 86,804 Amounts due from group companies (Note 33) 32,993 98,315 Bank deposits (Note 23) 7,820,669 5,484,688 Cash and cash equivalents (Note 24) 3,795,210 4,020,400 Restricted cash (Note 24) 1,862 21,005 12,929,015 10,634,676 Measured at fair value Financial assets at fair value through profit or loss (Note 19) 6,515 – 12,935,530 10,634,676 Financial liabilities Measured at amortised cost Accounts payable (Note 28) 24,015 171 Accruals and other payables (excluding non-financial liabilities) 1,664,855 1,729,170 Amounts due to group companies (Note 33) 73,702 76,196 Lease liabilities (Note 16) 6,472 6,359 1,769,044 1,811,896
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181 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 181 NetEase Cloud Music Annual Report 2024 33 RELATED PARTY TRANSACTIONS The following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties and the balances arising from related party transactions in addition to the related party information shown elsewhere in the consolidated financial statements: The following companies are significant related parties of the Group that had transactions and/or balances with the Group during the years ended 31 December 2024 and 2023: Name of related parties Relationship with the Group NetEase and its subsidiaries other than the entities controlled by the Group ( “NetEase Group ”) The Company ’s principal shareholder (a) Transactions Year ended 31 December 2024 2023 RMB’000 RMB’000 Purchase of property, plant and equipment from NetEase Group 1,847 2,077 Purchase of goods from NetEase Group 3,533 3,465 Purchase of technology and other services from NetEase Group 304,178 391,341 Provision of advertising services to NetEase Group 64,094 223,840 Provision of other services to NetEase Group 18,319 19,059 Sales of property, plant and equipment to NetEase Group 1,557 1,212 Transactions with related parties were determined based on prices and terms mutually agreed by the relevant parties involved.
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182 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 182 NetEase Cloud Music Annual Report 2024 33 RELATED PARTY TRANSACTIONS (Continued) (b) Balances with related parties As at 31 December 2024 2023 RMB’000 RMB’000 Amounts due from NetEase Group 32,993 98,315 Amounts due to NetEase Group 73,702 76,196 Note: Outstanding balances are in trade nature, unsecured, interest-free and are repayable on demand. (c) Key management personnel compensation Year ended 31 December 2024 2023 RMB’000 RMB’000 Salaries 3,638 3,966 Bonus 2,346 1,491 Welfare and other employee benefits 458 426 Equity-settled share-based payments 5,959 6,582 12,401 12,465 34 CONTINGENT LIABILITIES The Group, in the ordinary course of its business, is involved in claims, legal proceedings and arbitration that arise from time to time. As at 31 December 2024 and 2023, there were certain claims pending in the courts and arbitrations, or otherwise unresolved. Based on currently available information, management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is reasonably possible to have a material adverse effect on the Group ’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group ’s view of these matters may change in the future. Where an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Group ’s financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs.
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183 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 183 NetEase Cloud Music Annual Report 2024 35 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (a) Balance sheet of the Company As at 31 December 2024 2023 RMB’000 RMB’000 Assets Non-current assets Investment in an associate 8,653 17,575 Investments in subsidiaries 16,824,391 12,639,617 16,833,044 12,657,192 Current assets Prepayments, deposits and other receivables 594 439,314 Bank deposits – 587,864 Cash and cash equivalents 12,337 2,717,223 12,931 3,744,401 Total assets 16,845,975 16,401,593 Equity Equity attributable to equity holders of the Company Share capital 139 137 Reserves (35(b)) 16,835,623 16,395,707 Total equity 16,835,762 16,395,844 Liability Current liability Accounts payable 123 – Accruals and other payables 10,090 2,570 Income tax payable – 3,179 10,213 5,749 Total liabilities 10,213 5,749 Total equity and liabilities 16,845,975 16,401,593
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184 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 184 NetEase Cloud Music Annual Report 2024 35 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (Continued) (b) Reserve movement of the Company Share premium Treasury shares Share-based compensation reserve Exchange reserve Accumulated losses Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at 1 January 2024 17,285,792 – 353,570 1,403,749 (2,652,918) 5,514 16,395,707 Profit for the year – – – – 3,177 – 3,177 Exercise of share options 272,115 – (110,568) – – – 161,547 Release of shares from the Trustee for the share award scheme (6,236) – (67,471) – – – (73,707) Equity-settled share-based payment under the share option scheme of the Pre-IPO Share Incentive Plan – – 7,834 – (249) – 7,585 Equity-settled share-based payment under the share award scheme of the Pre-IPO Share Incentive Plan – – 48,008 – (6) – 48,002 Equity-settled share-based payment under the share award scheme of the Post IPO Share Incentive Plan – – 79,331 – (436) – 78,895 Currency translation differences – – – 242,457 – – 242,457 Repurchase of shares – (28,040) – – – – (28,040) As at 31 December 2024 17,551,671 (28,040) 310,704 1,646,206 (2,650,432) 5,514 16,835,623
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185 NetEase Cloud Music Annual Report 2024 Notes To The Consolidated Financial Statements 185 NetEase Cloud Music Annual Report 2024 35 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (Continued) (b) Reserve movement of the Company (Continued) Share premium Share-based compensation reserve Exchange reserve Accumulated losses Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at 1 January 2023 17,113,324 380,423 1,138,138 (2,920,957) 5,514 15,716,442 Profit for the year – – – 269,114 – 269,114 Exercise of share options 163,343 (85,217) – – – 78,126 Release of shares from the Trustee for the share award scheme 9,125 (23,477) – – – (14,352) Equity-settled share-based payment under the share option scheme of the Pre-IPO Share Incentive Plan – 25,358 – (1,075) – 24,283 Equity-settled share-based payment under the share award scheme of the Pre-IPO Share Incentive Plan – 34,176 – – – 34,176 Equity-settled share-based payment under the share award scheme of the Post IPO Share Incentive Plan – 22,307 – – – 22,307 Currency translation differences – – 265,611 – – 265,611 As at 31 December 2023 17,285,792 353,570 1,403,749 (2,652,918) 5,514 16,395,707
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186 NetEase Cloud Music Annual Report 2024 Five Year Financial Summary 186 NetEase Cloud Music Annual Report 2024 CONDENSED CONSOLIDATED INCOME STATEMENTS AND STATEMENTS OF COMPREHENSIVE INCOME Year ended 31 December 2020 2021 2022 2023 2024 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue 4,895,731 6,997,622 8,992,221 7,866,992 7,950,146 Gross (loss)/profit (595,335) 142,674 1,293,118 2,102,670 2,681,512 (Loss)/Profit before income tax (2,949,887) (2,051,423) (204,479) 767,679 1,570,255 (Loss)/Profit for the year attributable to equity holders of the Company (2,951,463) (2,056,092) (221,494) 734,182 1,561,507 Other comprehensive income for the year, net of taxes 426,610 169,800 519,465 105,712 98,100 Total comprehensive (loss)/income for the year attributable to equity holders of the Company (2,524,853) (1,886,292) 297,971 839,894 1,659,607 CONDENSED CONSOLIDATED BALANCE SHEETS As at 31 December 2020 2021 2022 2023 2024 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Assets Non-current assets 1,194,773 618,919 416,120 287,392 1,630,064 Current assets 6,862,629 8,768,719 10,475,272 11,323,159 11,952,185 Total assets 8,057,402 9,387,638 10,891,392 11,610,551 13,582,249 Equity Total equity holders ’ (deficits)/equity (5,306,766) 7,381,670 7,820,059 8,440,902 10,181,513 Liabilities Non-current liabilities 11,191,508 58,448 60,867 69,897 88,651 Current liabilities 2,172,660 1,947,520 3,010,466 3,099,752 3,312,085 Total liabilities 13,364,168 2,005,968 3,071,333 3,169,649 3,400,736 Total equity and liabilities 8,057,402 9,387,638 10,891,392 11,610,551 13,582,249
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NetEase Cloud Music Annual Report 2024 Definitions 187 “Board ” the board of directors of our Company “China ” or the “PRC” the People ’s Republic of China, and for the purpose of this annual report only, except where the context requires otherwise, excluding Hong Kong, the Macau Special Administrative Region and Taiwan “Company ” NetEase Cloud Music Inc., the shares of which are listed on the Main Board of the Stock Exchange under the stock code “9899” “Corporate Governance Code ” the Corporate Governance Code set out in Appendix C1 to the Listing Rules “Director(s) ” the director(s) of the Company “Group ” our Company and its subsidiaries, including consolidated affiliated entities, the financials of which are consolidated into our Company ’s accounts “IFRS” IFRS Accounting Standards, as issued from time to time by the International Accounting Standards Board “Latest Practicable Date ” 10 April 2025, being the latest practicable date for ascertaining certain information in this annual report before its publication “Listing ” the listing of our shares on the Main Board of the Stock Exchange “Listing Date ” 2 December 2021, the date on which our shares were listed and on which dealings in our shares were first permitted to take place on the Stock Exchange “Listing Rules ” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time “Model Code ” the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix C3 to the Listing Rules
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NetEase Cloud Music Annual Report 2024 Definitions 188 “Monthly paying users of online music services ” the average of the number of users whose membership subscription packages remain active as of the last day of each month in a given period. Monthly paying users of online music services for any given period excludes the number of users who only purchase digital music singles and albums during such period because these users ’ purchasing patterns tend to reflect specific hit releases, which fluctuate from period to period “NetEase ” NetEase, Inc., an exempted company incorporated in the Cayman Islands with limited liability on 6 July 1999 (Nasdaq: NTES; SEHK: 9999) and considered our controlling shareholder under the Listing Rules “NetEase Group ” NetEase and its subsidiaries and consolidated affiliated entities, and unless the context otherwise requires, excluding the Group “Prospectus ” the Company ’s prospectus dated 23 November 2021, a copy of which is available on the Stock Exchange ’s website at www.hkexnews.hk “Reporting Period ” the financial year ended 31 December 2024 “Shareholder(s) ” holder(s) of the Company ’s share(s) “Stock Exchange ” The Stock Exchange of Hong Kong Limited “subsidiary ” or “subsidiaries ” has the meaning ascribed to it thereto in section 15 of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), and includes our consolidated affiliated entities and any other entity the financials of which are consolidated into the accounts of the Company “treasury shares ” has the meaning ascribed to it under the Listing Rules