[年报]三七互娱(002555):2023年年度报告摘要（英文版）
原标题:三七互娱:2023年年度报告摘要（英文版） 37 Interactive Entertainment Network Technology Group Co., Ltd. 2023 Annual Report (Summary) April 2024 Part I Important Notes, Table of Contents and Definitions The Board of Directors (or the “Board”), the Supervisory Committee as well as the directors, supervisors and senior management of 37 Interactive Entertainment Network Technology Group Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee the truthfulness, accuracy and completeness of the contents of this Report, and shall be jointly and severally liable for any misrepresentations, misleading statements or material omissions therein. Xu Zhigao, the Company’s legal representative, and Ye Wei, the Company’s Chief Financial Officer & Board Secretary, hereby guarantee that the financial statements carried in this Report are truthful, accurate and complete. All the Company’s directors have attended the Board meeting for the review of this Report. Any plans and other forward-looking statements in this Report shall not be deemed as promises to investors. Investors and other stakeholders shall be fully aware of the risk and understand the difference between plans, forecasts and promises. Most of these forward-looking contents can be found in “XI Prospects” of “Part III Management Discussion and Analysis” herein. The Company is subject to the disclosure requirements for listed companies engaged in software and IT services. The Board has approved a final dividend plan as follows: based on the total issued share capital (exclusive of shares in the Company’s account for repurchased shares) on the date of record, a cash dividend of RMB 3.70 (tax inclusive) per 10 shares is planned to be distributed to all the shareholders of the Company, with no bonus issue from either profit or capital reserves. Table of Contents Part I Important Notes, Table of Contents and Definitions ........................................................................................... 2 Part II Corporate Information and Key Financial Information ....................................................................................... 4 Part III Management Discussion and Analysis .............................................................................................................. 8 Part IV Corporate Governance ................................................................................................................................... 32 Part V Environmental and Social Responsibility ......................................................................................................... 50 Part VI Share Changes and Shareholder Information ................................................................................................. 54 Part VII Financial Statements .....................................................................................................................................62 Part II Corporate Information and Key Financial Information I Corporate Information
The independent auditor hired by the Company:
? Applicable □ Not applicable
Indicate by tick mark whether there is any retrospectively restated datum in the table below. ? Yes □ No Reasons for the retrospective restatement: Change to the accounting policies
on 30 November 2022, which stipulates the “accounting treatments for deferred income taxes associated with assets and liabilities arising from a single transaction to which the initial recognition exemption does not apply”. For a single transaction that is not a business combination and does not affect either accounting profit or taxable income (or deductible losses) at the time the transaction occurs, and where the initial recognition of assets and liabilities results in taxable temporary differences and deductible temporary differences in equal amounts (including lease transactions where the lessee initially recognises a lease liability on the commencement date of the lease term and records it in the right-of-use assets, and transactions where a provision is recognised and recorded in the cost of the relevant assets because of the existence of a disposal obligation for a fixed asset, etc., hereinafter referred to as a “single transaction to which this Interpretation applies”), the provisions pertaining to exemption from the initial recognition of deferred income tax liabilities and assets as stipulated in Articles 11.2 and 13 of Accounting Standard No. 18 for Business Enterprises - Income Tax shall not apply. An enterprise shall recognise the corresponding deferred income tax liabilities and deferred income tax assets at the time of the transaction in accordance with the relevant provisions of Accounting Standard No. 18 for Business Enterprises - Income Tax and other relevant regulations for taxable temporary differences and deductible temporary differences arising from the initial recognition of assets and liabilities in respect of the transaction. The Company has implemented the said accounting policy since 1 January 2023, and has adjusted the cumulative effect to the opening retained earnings and other related financial statement items. For details of the adjusted items and amounts, please refer to “35. Changes to Significant Accounting Policies and Accounting Estimates” under Item V of Part X herein. VII Key Financial Information by Quarter Unit: RMB
? Applicable □ Not applicable Unit: RMB
Part III Management Discussion and Analysis I Industry Overview for the Reporting Period 1. The domestic market gradually picked up, while overseas markets saw further expansion According to the 2023 China's Game Industry Report issued by the Game Publishing Committee of the China Audio-video and Digital Publishing Association (CADPA), in 2023, the domestic game market recorded RMB302.964 billion in sales revenue, marking a year-over-year (YoY) increase of 13.95% and surpassing RMB300 billion for the first time. The total number of users reached 668 million, with a YoY increase of 0.61%, hitting a new record high. Specifically, mini-games reached a new milestone in development. Their total number skyrocketed in 2023, with multiple standing out. This helped the Company tap into previously unexplored user bases in the existing application scenarios. Characterised by easy accessibility, mini-games proved instrumental in attracting target players with precision. Their features, such as fragmented gameplay and portability, offered players a more lightweight gaming option, meeting players' demands for light and fragmented entertainment. This opened up new growth opportunities in the game industry. As to the overseas market, China's self-developed games achieved USD16.366 billion in sales revenue in 2023, marking the fourth consecutive year with a scale exceeding RMB100 billion. However, a YoY decline of 5.65% was observed in the statistics, reflecting increasing challenges and operating costs for overseas expansion. The US, Japan and South Korea remained the major overseas markets for China's mobile games, accounting for 32.51%, 18.87% and 8.18%, respectively. Among the top 100 self- developed mobile games in terms of overseas revenue, strategy games accounted for 40.31%, while role-playing games (RPGs) constituted 15.97%. Shooting and casual games represented 10.03% and 5.11%, respectively. Strategy games (SLGs) have been the main driver of overseas revenue in the recent three years, with the combined revenue of the top three games climbing from 63.87% last year to 66.31% this year, while the revenue share of shooting games declined. Casual games experienced notable growth in revenue share. 2. Industry regulations prioritised sustainability, aiming to advance the promotion of Chinese culture To enhance the guiding role of online games in disseminating positive values and uplifting content and drive the healthy and orderly development of the game industry, the National Press and Publication Administration (NPPA), in the second half of 2023, determined to initiate the Select Online Game Publishing Project. By selecting a range of online games that embody correct values and cultural depth and combine education and entertainment, this initiative was aimed at making positive energy the main tone of the development of online games. The unswerving pursuit of boutique, premium, and healthy products in the industry has led to a constant stream of exceptional works, substantially contributing to the preservation and promotion of traditional Chinese culture. In response to national policies, the Company has earnestly implemented management requirements and delved into the essence of traditional culture in game R&D and operational strategies. We have sought to integrate cultural significance into player experiences and apply innovative technologies, thereby empowering both cultural and industrial values. For example, the Company incorporated Peking opera facial makeup, Cantonese culture, and the ancient Maritime Silk Road into its globally published game The Road to Be Shopkeeper (叫我大掌柜), helping overseas players gain a deeper understanding of Chinese culture. Furthermore, we have launched an innovative model that combines the virtual character "CongMei" and real-world cultural tourism scenarios to facilitate the promotion of urban cultural tourism. The ultimate goal is to advance the digital promotion and preservation of traditional culture in the new era. The Company focuses on youth-oriented expression, integrated way through "Games+". 3. Active efforts were made to implement protective and anti-addiction measures for minors The State Council, in the second half of 2023, released the Regulation on the Protection of Minors in Cyberspace. This regulation has provided specific guidelines for the game industry to refine and implement protection for minors, advance minors' web literacy, enforce stricter regulations on online content, strengthen the protection of the personal information of minors, and curb Internet addiction among minors. In terms of protection for minors, apart from implementing the real-name authentication system and anti-addiction requirements required by competent authorities, the Company has strengthened protection for minors by consistently improving and upgrading its protection system for minors. We have always advanced various tasks in a proactive and positive manner to ensure minors are well-protected in cyberspace. The Company has rolled out an upgraded version of the "real-name registration and anti-addiction system for minors" for our proprietary platforms. Additionally, we have optimised the logo and wording of the "age-appropriate prompt". Meanwhile, the Company has refined and upgraded our "Parent Monitoring Platform", optimised our customer service procedures, and aided guardians in queries and verification, all aimed at creating a clean and healthy cyberspace for minors. Furthermore, during the Reporting Period, the Company participated in drafting association standards such as the Guidelines on Account Names of Internet Users, the Basic Requirements for Game Distribution and Promotion, and the Guidelines on the Implementation of Social Responsibilities of Online Game Enterprises, furthering the collective effort towards a community of shared responsibility. 4. The role of technologies in the industry became increasingly prominent, heightening the effects of cross-sector empowerment Technological innovation contributes to the boom of the game industry, and industry advancements inject fresh impetus into innovative technological breakthroughs. Empowering each other, they jointly propel constant technological innovation and breakthroughs and guide the industry to new heights. The Company adheres to technology-driven innovation, closely follows the latest trends in scientific and technological innovation, actively embraces cutting-edge technologies like generative AI, and explores the potential for deep integration of AI and other emerging technologies with the Company's business, continuously improving creative efficiency. At the same time, focusing on promoting the cross-industry integration of game technologies, the Company launched a series of popular science games with rich themes covering medicine, traditional Chinese medicine, aerospace, intangible cultural heritage, and more to maximise the positive social impact of games by leveraging the unique interactivity and vividness of games. Furthermore, the Company also ventures into the fields of computing power, optical displays, XR integrated devices, entertainment content, semiconductors and materials, space computing engines, artificial intelligence, new-type sensor and the AIGC gaming and social platform, among other entertainment technology domains. By strategically embracing "hard technology" investments and integrating ecological resources, the Company seizes opportunities for business innovation brought by cutting-edge technology, thereby further propelling the high-quality development of its corporate ecosystem. Amidst this industry trend, the Company has remained focused on its core business and deepened its "integration of R&D and operation" strategy. We have continued to enhance our capability of producing quality games, solidify our core competitive edge in overseas expansion, and explore possibilities of integrating technology into our business by leveraging resources both within and outside the technology domain. With steady strides, we have advanced high-quality and sustainable business development, dedicated to offering the public a wealth of premium cultural content. II Principal Operations of the Company in the Reporting Period The Company specializes in the development and publishing of games for global players, with the excellent game development brand “Three Seven Games”, as well as professional game publishing brands “37Mobile”, “37GAMES” and “37Online”. The Company precisely grasped the industry development trends, made continuous improvements in operation, and remained a top performer in the industry, while adhering to the "boutiqueization, diversification and globalization" strategy. 37 Interactive Entertainment
1. Breakthroughs in diverse game genres bolstered the Company's capability of long-term operation During the Reporting Period, multiple games of the Company, including The Soul Land: Hun Shi Dui Jue (斗罗大陆：魂师对 决), Puzzles & Survival, The Road to Be Shopkeeper (叫我大掌柜), Fan Ren Xiu Xian Zhuan: Ren Jie Pian (凡人修仙传：人界篇), Song of the Castle in the Sky (云上城之歌), Underground Kingdom (小小蚁国), Xun Dao Da Qian (寻道大千), and Ling Hun Xu Zhang (灵魂序章), exhibited outstanding performance, maintaining a notable presence in the market. In response to industry trends, the Company has consistently adhered to the "diversification" strategy, understanding the demands of diverse user bases and continuously expanding its user base. By tapping into new markets and nurturing new growth drivers, we have continuously pushed back the boundaries of our game genres. In addition to delving into the existing four primary genres: Massive multiplayer online role playing games (MMORPGs), SLGs, card games, and simulation games, we have developed games where RPG, casual, and puzzle elements are incorporated. These diverse and lightweight games have diversified player experiences. On one hand, the Company's R&D team avoids staying within comfort zones and actively expands into various categories, developing products with a global perspective. The Company carefully worked out details regarding gameplay design, art quality, music effects, etc., and continued to invest in product iteration, user experience and other aspects, formed professional layouts in MMORPGs, SLGs and light games, remaining "Dedicated to Making Premium Games". On the other hand, based on our self- developed brands, the Company has deepened our cooperation with external R&D teams through investments to bolster our self-development capabilities. This approach has allowed us to accumulate abundant external R&D reserves, which is conducive to our diversified arrangements for product supply. During the Reporting Period, the most anticipated MMORPG mobile game, Fan Ren Xiu Xian Zhuan: Ren Jie Pian (凡人修仙 传：人界篇), distributed by the Company as the agent, became a big hit among MMO players. This success can be attributed to the game's respect for and full reconstruction of the original storyline, its creative and engaging gameplay, and diverse artistic expressions. Meanwhile, we adopted an innovative marketing approach combined with top-tier celebrity endorsements for Ba Ye (霸业), one of our self-developed strategy mobile games on the theme of the Three Kingdoms. With a constant stream of creative materials, this game exhibited robust performance after being launched, helping the Company stabilise the structure of its SLG portfolio. The Road to Be Shopkeeper (叫我大掌柜), a Chinese-style simulation mobile game rolled out by the Company in 2020, has successfully converted new players through an engaging and nostalgic marketing approach and intellectual property (IP) collaborations. By creating a long-term ecosystem with a focus on user interactions, this game has consistently sparked a boom and achieved long-term operation. During the Reporting Period, this game still performed robustly in gross billing, solidifying the Company's expertise in the long-term operation of simulation games. The 3D realistic ant-themed strategy mobile game, Underground Kingdom (小小蚁国), has earned continuous player favour since its launch in 2022. Its success is attributed to its unique theme and gameplay and its launch on both mini-game platforms and applications. It has maintained a trend towards robust long-term operation. The Chinese-style fun cultivation game Xun Dao Da Qian (寻道大千) has secured constant breakthroughs in user pool, and achieved long-term operation through brand empowerment and social interaction. This game helps the Company garner leading experience in the mini-game domain and lay a solid foundation for future products. Additionally, the self-developed game based on the Soul Land IP, Ling Hun Xu Zhang (灵魂序章), has displayed robust potential since its launch, further reinforcing the Company's competitive edge in the mini-game industry. The Company consistently adheres to long-term operation, providing players with meticulous and comprehensive long-term services. It deeply integrates the highlights of its intellectual property (IP) to continuously innovate in terms of reflow methods and activities, consistently prolonging the product life cycle and igniting product vitality. Games that have been launched for years, such as The Road to Be Shopkeeper (叫我大掌柜), The Soul Land: Hun Shi Dui Jue (斗罗大陆：魂师对决), and Song of the Castle in the Sky (云上城之歌), have maintained enduring popularity. During the Reporting Period, 8 products operated by the Company globally each recorded monthly average gross billing exceeding RMB100 million. In terms of the monthly gross billing achieved by mobile games the Company launched globally, the highest amount surpassed RMB 2.3 billion. 2. Effective global market expansion contributed to the promotion of excellent Chinese culture According to the 2023 China's Game Industry Report, the actual sales revenue of China's self-developed games in overseas markets was USD16.366 billion, down 5.65% YoY. The main reasons are that the consumption willingness and capacity of users in major overseas markets have been adversely affected by economic downturn, and the market competition has become increasingly fierce, leading to higher overseas market marketing costs. This has increased hurdles for overseas expansion. Against this backdrop, the Company, drawing upon its years of experience in overseas expansion, has continuously explored its overseas markets in line with the "tailored games" strategy. We have consolidated our strengths in sectors such as MMORPGs, SLGs, card games, and simulation games, and opened up opportunities in the casual game market, thereby boosting the steady growth of our overseas business. According to Sensor Tower's rankings, the Company secured a spot among the top three Chinese mobile game publishers in terms of overseas revenue in 2023, firmly establishing itself as a frontrunner among Chinese game developers expanding into overseas markets. Overseas Revenue of 37 Interactive Entertainment between 2017 and 2023(RMB'00,000,000) 59.94 58.07 47.77 21.43 10.49 9.20 9.27 2017 2018 2019 2020 2021 2022 2023 During the Reporting Period, the Company achieved overseas operating revenue of RMB 5,807 million. In the global market, it has established a product portfolio anchored in MMORPG, SLG, card games, and simulation games. Multiple benchmark products for overseas expansion such as Puzzles & Survival, The Road to Be Shopkeeper (叫我大掌柜), ?? M, Song of the Castle in the Sky (云上城之歌), The Soul Land: Hun Shi Dui Jue (斗罗大陆：魂师对决), and Ant Legion have shown steady performance. The Company has deeply integrated the gameplay themes and promotional materials of its products with excellent traditional Chinese culture. This approach creates a communication method that resonates with diverse regional, national, and audience groups, promoting the global expression of Chinese stories. Puzzles & Survival, a phenomenal product launched overseas by the Company, integrates "Match-3 gameplay + SLG". It demonstrates the continuous efforts made by the Company to explore the in-depth integration of creative elements and games. For example, the Company rolled out the "Kung Fu version" that revolves around traditional Chinese martial arts to immerse players in the charm of Chinese kung fu. This strategy has helped the Company continuously acquire more active users and prolong the product's life cycle. It has become a benchmark for long-term operation within the Company. Puzzles & Survival made innovative breakthroughs in the fusion of game genres and the integration of game themes and regional cultures. In April 2023, the game once again set a new record in monthly billing. From its launch in 2020 to February 2024, Puzzles & Survival has recorded over RMB10 billion in the cumulative total of gross billing. The Road to Be Shopkeeper (叫我大掌柜) adopted a localised publishing strategy in various regions worldwide. The Company collaborated with official cultural institutions in Guangzhou to promote Cantonese culture, authentically representing the prosperity of the ancient Maritime Silk Road. The game integrates gameplay such as treasure salvage and restoration to combine education and entertainment. By incorporating elements of traditional Chinese culture such as the lion dance, traditional festivals, Dunhuang Caves, and Peking Opera, players vividly experience the charm of ancient Chinese trade and culture, allowing overseas users to immerse themselves in the beauty of Chinese culture and achieving a historic breakthrough for historical simulation games in the European and American regions. The Company has also implemented a strategy of "lightening hardcore games and intensifying light games" to create differentiated competitive edges. For example,?? M focuses on highlighting the core enjoyment through "simplification", thus establishing a distinctive edge in the gaming experience. This approach has enabled the game to stand out in the fiercely competitive MMORPG mobile game market in South Korea, contributing to sustained and robust gross billing. Furthermore, plans are underway for its subsequent launch in Vietnam and Japan. Song of the Castle in the Sky (云上城之歌), an MMORPG mobile game focusing on adventures in different worlds, has emerged as the highest-grossing overseas game in the South Korean market in 2022. By offering a unique gaming experience coupled with its combined marketing and operational strategy of branding + sales effects, it has achieved remarkable success in the Japanese and South Korean markets, solidifying its position as the flagship product in the Company's overseas MMORPG segment. The Company has also continuously optimised its strategies for product content iteration and accumulated experience in long-term operation to consolidate its competitive edge in the overseas MMORPG market. The Company has made ongoing attempts to promote casual incremental games overseas. For example, the casual incremental mobile game Xiao Yao Wen Dao (小妖问道) has garnered exceptional market performance after its launch in regions including China's Hong Kong, Macao and Taiwan, Japan, South Korea, Southeast Asia, Europe and the US. This success can be attributed to its meticulously customised promotions in localities and thematic packaging. It has laid a solid foundation for the Company's expansion into overseas markets of casual incremental games. 3. Arrangements for both self-developed and agency games enriched the portfolio of products in the pipeline The Company focuses on its core gaming business, continuously expanding the boundaries of self-development capabilities, and delving into core genre tracks, accumulating a variety of refined self-developed mobile games. Furthermore, the Company consistently prioritises high-quality content as its strategic direction. Through multi-dimensional approaches such as investment empowerment and business support, the Company has carried out in-depth collaborations with reputable game developers such as EyuGame and Yanqu Network. These collaborations involve agency and customisation to enrich the Company's supply of high- quality products and deepen the diversification of its product portfolio. The Company has amassed a pipeline of over 40 premium self-developed or agency mobile games, covering various genres such as MMORPGs, SLGs, card games, simulation games, as well as incremental RPGs, casual and puzzle games. These products will be rolled out in global markets. Certain key games in the pipeline are presented below: Self-developed games: Code Soul MMO (代号斗罗 MMO), a Chinese comic oriental fantasy MMORPG; Code MLK (代号 MLK), a Japanese Chibi-style MMORPG; Code Xiu Xian SLG (代号休闲 SLG), a Chibi-style SLG integrating war elements; Code Zheng Qi SLG (代号正奇 SLG), a realistic Three Kingdoms SLG; Code Battle Song M (代号战歌 M), a Western magic MMORPG; Code DQ (代号 DQ), a cartoon-style incremental RPG on a Japanese fantasy theme; Code M1 (代号 M1), a casual game with European and American cartoon elements; Code TD (代号 TD), a tower defence game set in a fantasy world. Agency games: Shi Guang Za Huo Dian (时光杂货店), a modern-themed simulation game; Zhui Xu (赘婿), a traditional Chinese ink painting-themed simulation game; Shi Guang Da Bao Zha (时光大爆炸), a picture book-style simulation game on a Chinese cultural theme; Yes Your Highness, a simulation game set in the medieval era; Code Shang Tu (代号商途), a simulation game focusing on temporal travel and business competition; Zhu Shen Huang Hun: Zheng Fu (诸神黄昏：征服), a Western magic MMORPG; Heroes of the Three Kingdoms: Hong Hu Ba Ye (三国群英传：鸿鹄霸业) and Battle of Chibi 2 (赤壁之战 2), two SLGs based on the Three Kingdoms; Mecha Domination, an SLG game featuring giant monsters; Primal Conquest: Dino Era, a cartoon- style SLG on the theme of dinosaurs; Abyss Survivor, a magical, cartoon-style SLG; Lost Star Ring (失落星环), an interstellar card game; Code Xiu Xian (代号休闲), a modern resort leisure game; Match Cozy 3D, a modern cartoon-style casual puzzle game; Code Dreamland (代号梦境), a realistic urban female-oriented game set in modern times. Several of the Company's key products have been officially licenced in China and are progressing towards launch. We hope to deliver diverse gaming experiences to players. 4. Artificial intelligence (AI) empowerment bolstered the Company's R&D and operations, improved its quality and efficiency, and optimised experiences With the rapid advancement of technology, AI has brought limitless possibilities and profound impacts to the game industry. Embracing the application of AI in the game industry, the Company has adopted a "Three-step AI" strategy. First, pioneering arrangements for AI applications have been made to progressively incorporate AI into various business processes. Second, leveraging accumulated experience, the Company has striven to achieve tool- and module-based development, thereby establishing a more automated and intelligent pipeline of game industrialisation. Third, the Company has explored more possibilities of enriching gameplay through AI. In 2018, the Company made ongoing efforts to explore the application of industrialised AI in gaming. By deeply integrating cutting-edge technologies such as AI and big data into its business, the Company effectively empowered various processes, ranging from product proposal, content generation, publishing and operation to asset accumulation. This has allowed the Company to enhance efficiency and accumulate a wealth of data and technological advantages over the years. Since then, we have bolstered the tool-based and module-based development of our capabilities in alignment with our business procedures, integrating discriminant AI and generative AI into each process of our business. This has culminated in the development of a digitalised and intelligent product portfolio that runs through our entire R&D and operational procedures. This portfolio covers nine platforms, including "Zeus", "Athena", "Poseidon", "Ares", and "Cupid" on the R&D end and "Turing", "Quantum", "Destiny", and "Yi Lan" on the ends of promotion and operations. Additionally, our self-developed internal AI Agent platform enables autonomous decision-making regarding the upgrading of each digitalised and intelligent product and enhances the efficiency of collaborative offices, improving the industrialisation of the game R&D and operation pipeline and the overall operational efficiency of the Company. At present, our generative AI technology has been well-applied in sectors such as 2D drawings, intelligent customer service, localisation and translation, copywriting, and collaborative offices, leading to significant improvements in human efficiency. For example, our art design platform "Turing" has substantially facilitated the collaborative management of art processes on the creativity end, art asset preservation and retrieval, and the intelligent generation of 2D images, significantly boosting asset reuse efficiency and design-production synergy. By carrying out consistent training of its proprietary art assets garnered over the years, the Company has experienced substantial efficiency improvements in 2D art-related tasks through AI empowerment, with a combined monthly output of over 280,000 AI-generated 2D drawings across R&D and publishing business lines. In the concept design process for characters, the Company has implemented a new process of AI-generated 2D drawings, resulting in an average saving of 60% to 80% in working hours. In terms of R&D, the Company has utilised its intelligent R&D platform "Cupid" to conduct a variety of technological studies language processing (NLP) public opinion analysis, and data trend forecasting. Moreover, AI algorithms have been employed to capture high-precision and high-performance motions, addressing the pain points such as high costs and overly long periods typically identified with specialised traditional motion capture equipment. This has enhanced both R&D efficiency and quality. （未完）  |