Q4 2022 OneConnect Financial Technology Co Ltd Earnings Call
Speaker 2: Hello everyone and welcome to the OneConnect Financial Technology, 4th Quarter and full year 2022 earnings release call.
Speaker 2: My name is Bruno and I will be operating your call today.
Speaker 2: During this presentation you can ask a question by pressing star 1 on your telephone keypad.
Speaker 2: I will now hand over to your host, Daniel Gao, Head of Investors Relations. Please go ahead.
Speaker 3: Thank you, operator. Hello, everyone, and welcome to our 2022 first quarter and full year earnings conference call. Our financial and operating results were released earlier today and are currently available on our IR website.
Speaker 3: Today, you will hear from our Chairman and CEO , Mr. Shen Chongfeng, who will give opening remarks and business highlights. Afterwards, our CFO , Mr. Luo Yongtao, will offer a closer look into our financials. And then in question and answer session, our management team will be available too.
Speaker 3: We have our CTO Mr. Li Jie, Head of Digital Banking Ms. Ellen Jiang, and the Chief Executive of Ping Wang, Wang Kine Bank, Mr. Michael Fei. In today's conference, our management team will make statements in Mandarin or in English. For those in Mandarin, a consecutive translation will be provided.
Speaker 3: If any discrepancy, our statement in the original language would prevail. Let me quickly cover the safe harbor statements before we start. As we will be making for policy statements, which involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that we may present both FRS and non-FRS financial measures.
Speaker 3: So with that, I'm now please turn the call to our Chairman and CEO Mr. Shen Chongfeng. Shen Chong, please.
Speaker 4: Hi, I'm
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Speaker 4: Hello everyone, thank you for taking the time to join One Connect 2022 Q4 and full year earnings release.?
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Speaker 3: Economic headwinds in 2022 have been a challenge to all technology companies. Despite impacts on parts of our businesses, we still achieve solid growth in our results. Revenue from third-party customers reached 148 million four years.
Speaker 3: representing a year-over-year growth of 6.5%. Premium plus customers increased by nine year-over-year to 221. Significant improvements in operational efficiency also narrow our losses by a big margin. Thank you for your attention.
Speaker 4: and I hope to see you again soon.
Speaker 3: 2022 was a crucial year for broadening customer engagement in our Stage 2 strategy. Thank you. Now, could you please go to page 4?
Speaker 3: crucial year for broadening customer engagement in our stage 2 strategy. Now could you please go to page 4.
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Speaker 3: In our second stage, we continue to execute One Body, Two Wings initiative that is focusing on financial institutions while expanding ecosystem and overseas.
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Speaker 3: higher efficiency in configuration for customized demand, as well as greater coverage of business scenarios.
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Speaker 4: Thank you for your attention.
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Speaker 3: In digital banking, we updated our cloud-native based banking system 2.0. The latest version comes with over 400 APIs and is fully adapted to self-controlled technology.
Speaker 3: In digital insurance, we collaborated with the global top 50 insurer in the omni-channel agent solution project, which also marks our first success with this product. In the Gama platform, we continue to upgrade product scenarios, flows, and features in AI customer services.
Speaker 3: and has achieved multiple technological breakthroughs in key functionality, such as multimodal machines, human-robot collaboration, as well as dialogue analysis insights.
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Speaker 3: Thanks to OneConnect's consistent product innovation capacity, customer recognition is also improving. In 2022, our new products have demonstrated strong momentum in revenue, new customer acquisition, and customer stickiness.
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Speaker 3: Home development technologies or self-controlled technologies have become an important investment for financial institutions in recent years. One Connects products and integrated solutions fully accommodate home-developed technologies. All our products in three business segments are 100% adapted to meet customers' demands would increased fraud.
Speaker 3: So far, over 30 customers have implemented our products and solutions.
Speaker 3: I'll show you it. I'll show you it on page 7.
Speaker 4: Finally, a retirement day. Thank you for your attention.
Speaker 4: There is only one communist and one hour airflow gauge which COMMUNITYGame provides an average of 40 to 61,000 hours, and I hope to see you soon.
Speaker 4: Please watch this video few more times to watch our videos.
Speaker 4: You could always subscribe to my channel.
Speaker 3: The omni-channel agent solution in digital life insurance is a key product in 2022. Targeted at the International Life Insurance Transformation Market, we see huge potential in this offering.
Speaker 3: We collaborated with the global Top 50 insurer, who is also an insurance giant in emerging markets in the Omni Channel Agent Solution project. Our solution, stemming from integration of business-plus technology, offers end-to-end empowerment in agent transformation.
Speaker 3: Rich, proven transformation experience together with our leading AI technology are the foundation to our success.
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Speaker 3: Product standardization remains a key initiative in 2022. Although this generates some R&D investments, we are convinced that product standardization is fundamental to our long-term product competitiveness.
Speaker 3: We standardized over 1200 modules this year, boosting delivery efficiency by nearly 30%. Looking ahead, we will remain committed to product standardization efforts, which we believe will reflect in gross margin improvement.
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Speaker 4: Thank you for your attention. We hope you will enjoy this session. We hope you will enjoy it. Thank you for your attention.
Speaker 3: We also noted encouraging results in broadening customer engagement, which is also a crucial part of our stage 2 strategy. Despite impact from the pandemic, One Connect still managed to achieve 221 Premium Plus customers, up by 9 compared with last year.
Speaker 3: Our cooperation with many financial institution customers saw new depths this year, including the National Development Bank, Bank of Ningbo Bank, China Guangfa Bank, China Continental Insurance, Guoran PNC Insurance. Our engagement with this institution demonstrates breakthroughs and progress in just next development
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Speaker 3: Overseas business as an important wing of our one Bobby two wing strategy also recorded rapid growth this year. In Singapore, we successfully replicated our SME financing platform in Guangdong province and jointly developed an SME digital financing platform with Abu Dhabi global market.
Speaker 3: construction industry. Our credit referencing agency officially qualified to commence business and is expected to launch in late 2023.
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Speaker 3: In technology and product front, we have been awarded by many renowned institutions this year including Wenzhong AI Science and Technology Award, National High-Tech Enterprise, IDC National Insight Innovation Award to name just a few.
Speaker 4: Thank you for your attention. Please enjoy the rest of your day. Please enjoy the rest of your day. Thank you for your attention.
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Speaker 3: Moving ahead into 2023, despite mild signs of economic recovery, operation and development remain challenging as it still takes time for businesses to fully restore their orders. For One Connect, we do expect the course of recovery to take a while as a result of the pandemic.
Speaker 3: I will be here. Take care. Next, I'll hand it over to Wosong to brief you on financial performance. Thank you. Next, I will Awesome.
Speaker 5: Okay, thank you. Good evening everyone.
Speaker 5: Just as Mr. Shen mentioned, despite the pandemic and the macro environment headwinds, we recorded the sorted results in 2022.
Speaker 5: In this presentation, I will spend more time on our four-year results.
Speaker 5: For the fourth quarter details, please refer to our without release.
Speaker 5: My portion starts from page 13.
Speaker 5: In 2022, our third-party revenue reached 1.48 billion RMB, improved by 6.5% on a year-over-year basis.
Speaker 5: Our top line revenue was 4.46 billion RMB, which was 8% higher than that in 2021. We benefited from continuous efforts on customer upgrade in Stage 2 development. The number of our Premium Plus customers was 5.4 billion RMB.
Speaker 5: increased to 221.
Speaker 5: Our adjusted net loss reduced to 802 million RMB.
Speaker 5: and corresponding profit margin improved by 12.7 percentage points to negative 18%.
Speaker 5: Next page, our revenue mix by customer type.
Speaker 5: remained stable in 2022.
Speaker 5: Revenue from third-party customers grew by 6.5% to 1.48 billion.
Speaker 5: representing 33.1% of our total revenue.
Speaker 5: We are glad to see that our products in Gamma Platform and overseas business continue to grow momentum along the whole year.
Speaker 5: making up the shortfalls of reduced usage from certain products and delayed implementation caused by the pandemic.
Speaker 5: Revenue from Lufex increased by 7.3% to 459 million.
Speaker 5: And revenue from PN Group increased by 9.1% to 2.53 billion.
Speaker 5: representing 10.3% and 56.6% of our total revenue, respectively.
Speaker 5: Moving to revenue mix by business type.
Speaker 5: Implementation revenue accounted for 19.3% of total reached 862 milli.
Speaker 5: and increased by 17.5%. Despite the pandemic-enclosed pressure on our product delivery to third-party customers,
Speaker 5: We were able to achieve the growth mainly attributable to ongoing digital transformation demands from PN Group.
Speaker 5: and overseas expansion of our life insurance business.
Speaker 5: Revenue from business origination decreased by 14.8% on a year-over-year basis to 384 million.
Speaker 5: Revenue from risk management decreased by 22.3% on a year-over-year basis to 415 million.
Speaker 5: The decreases of these two types of revenue are mostly due to reduced transaction volume from insurance claims system products and banking loan products.
Speaker 5: as a result of the pandemics, as well as less customers demands.
Speaker 5: Revenue from operations support increased by 3.9% on a year-over-year basis to 1,141 million.
Speaker 5: which was mostly benefited from increased demands for AI customer service products in the gamma sector.
Speaker 5: Revenue from cloud services platform grew by 25.3% on a year-over-year basis to 1,316 million from 1,000 to 1,000 years ago.
Speaker 5: 15 million in the same period last year.
Speaker 5: It was largely benefited from increased demands from PN Group.
Speaker 5: It was also worthwhile to mention that revenue from third-party customers continued a strong momentum along the whole year.
Speaker 5: Post implementation and other revenue was up by 3.8% on year-over-year basis to 241 million.
Speaker 5: We recorded strong revenue growth performance from our virtual banking business in Hong Kong in 2022.
Speaker 5: which increased by 210% to 107 million from 34 million in the prior year.
Speaker 5: which made a strong contribution to our above-average growth of overseas business.
Speaker 5: Let's tune to revenue mix by product sectors.
Speaker 5: Gamma Platform Sector, our focus of product innovation in Stage 2 strategy.
Speaker 5: contributed the biggest chunk of our revenue.
Speaker 5: recording a 24.1% growth in 2022 and accounting for 45.2% of total revenue.
Speaker 5: Digital banking sector, which accounted for 32.6% of total revenue, reduced by 12.1% on a year-over-year basis.
Speaker 5: which was mainly caused by a reduction in transaction volume of our loan products.
Speaker 5: as a result of the pandemic and adverse macro-circumstances.
Speaker 5: Digital Insurance Sector
Speaker 5: which accounted for 19.8% of total revenue, increased by 8.4% on a year-over-year basis.
Speaker 5: benefited from newly launched LifeInchons agent products in the overseas market.
Speaker 5: While having the shortfall of deduction in transaction volume from insurance claims system products,
Speaker 5: We were able to achieve overall revenue growth in digital insurance sector.
Speaker 5: Last but not least, our virtual banking sector, which I have mentioned before, accounted for 2.4% of our total revenue.
Speaker 5: On the next page, we are very glad to see our gross profit reached 1.64 billion in 2022 where the gross margin achieved 36.6%
Speaker 5: which was 1.8 percentage points higher than that in the same period of last year.
Speaker 5: However, on a non-IFR basis,
Speaker 5: North Margin was 40.1%
Speaker 5: compared with 42.1% in the prior year.
Speaker 5: compared with 42.1% in the prior year. At least you mentioned
Speaker 5: In 2022, we have developed more than 1,200 standardized modules.
Speaker 5: and have improved about 30% delivery efficiency.
Speaker 5: such ongoing product and delivery
Speaker 5: Standardization efforts helped us improve our gross profit margin and will be one of the main drivers for one connect to achieve our midterm target of profitability.
Speaker 5: Moving to our expenses and net profit.
Speaker 5: You can see that we are well on track to our breakeven meeting target First of all our research and the development expenses came to 1.42 billion from 1.35 billion As a percentage of revenue it amounted to
Speaker 5: 31.8% compared with 32.7% in the prior year.
Speaker 5: We continued to implement our state-2 strategy focusing on product integration.
Speaker 5: Our upgraded products are more mature and will further improve our product development efficiency. Looking forward, we will keep investing in research and development to enhance our product competitiveness against our competitors. Sales and marketing expenses for 2022.
Speaker 5: decreased to 411 million compared with 588 million in the prior year.
Speaker 5: As a percentage of revenue, sales and marketing expenses decreased to 9.2% from 14.2%.
Speaker 5: Such improvement was benefited from enhanced sales capability and efficiency.
Speaker 5: Meanwhile, onsite marketing and travel-related expenses also decreased.
Speaker 5: compared with that in 2021, which was mainly caused by COVID travel restrictions last year.
Speaker 5: Regarding our adjusted general and administrative expenses, in which we have deducted our one-off Hong Kong listing expense incurred in 2022, it came to $755 million from $829 million in the same period of last year.
Speaker 5: As a percentage of revenue, it decreased to 16.9% from 20.1%.
Speaker 5: Based on all these bugs, our adjusted net profits improved to negative 802 million.
Speaker 5: from negative 1269 million in the same period last year.
Speaker 5: and our adjusted net prop margin improved by 12.7 percentage points.
Speaker 5: from negative 30.7% to negative 18%.
Speaker 5: Despite a very challenging business environment last year, we again managed to deliver a double-digit narrowing of net loss margin.
Speaker 5: The next page represents a comparison of loss ratio in the past four years.
Speaker 5: From this page, we can see a very clear trajectory of our path to profitability.
Speaker 5: We will further upgrade our product standardization to boost our gross profit margin.
Speaker 5: and will further improve operating efficiency to reduce expenses. We are very confident about breaking even by mid-term.
Speaker 5: Lastly, we summarized the adjustments in NIN IFS gross margin for reference. Thank you. Thank you, Lozo. Operator, we are ready for questions. Please open the line.
Speaker 2: Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now.
Speaker 2: Please do also remember to unmute your microphone.
Speaker 2: Our first question is from Timothy Zao from Goldman Sachs.
Speaker 2: Timothy, your line is now open. Please go ahead.
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Speaker 4: Thank you Madhav for taking my question.
Speaker 4: First question is about the IT spending of financial institutions in 2003. Could you mention and share any outlook of the recovery pace and the recovery pace difference between different financial institutions and customers of your IT spending recovery?
Speaker 4: The second is about our third-party revenue growth. I saw in the fourth quarter last year that third-party revenue.
Speaker 4: pretty well could measurement share your outlook on the growth rate of third-party revenue into 2003 and what kind of products growth rate Thank you, Jim of the channel will take your question. Oh, what's happening? I see the one who don't see me now open to you. Go now
Speaker 4: President Tsai's remarks are not up for a conversation.
Speaker 3: I will answer your first question now. Over the short term, we do expect that some financial institutions will be more prudent with their IT spending. However, over the medium to longer term, we expect that some financial institutions will be more prudent with their IT spending.
Speaker 3: Financial institutions need technologies and digital transformation to bolster their business development and growth. Therefore, we expect that in 2023, starting from the second quarter of 2023 and onto the second half of this year, IT spending will pick up.
Speaker 4: Entlemen, Wolfe V and I hope to see you in the next video.
Speaker 3: WellConnect is uniquely positioned to satisfy the digital transformation demands from banks in the following front.
Speaker 4: Thank you for your attention.
Speaker 4: This concludes the conference, and I will leave you with the repeating Chinghes Online
Speaker 6: All right.
Speaker 3: In summary, technology such as self-controlled risk management, data security, digital operation as well as the shift to home developed technology will be the key areas where banks will have demands and one can have products to
Speaker 3: have attracted quite a lot of investment in the financial institutions. And we see the IT budgets in banks to pick up because of the shift to home-developed IT.
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Speaker 3: For medium to large sized banks, they will have higher demands for data security as well as home developed IT. For medium and small sized banks, they have higher demands to help them satisfy regulatory requirements as well as to improve their operational efficiency.
Speaker 4: from the broadening of customer engagement in our Stage 2 strategy.
Speaker 4: of customer engagement in our Stage 2 strategy.
Speaker 3: Two of the key metrics for our, for 2023 are improvements in third-party revenue as well as improvement in growth profit margin.
Speaker 4: So, you know I know Researchers are Thank you.
Speaker 3: If we look at the product by segment, thanks to our consistent investment and efforts in product innovation, we do see positive trends in all of our products.
Speaker 3: Risk management and smart management in the banking segment.
Speaker 4: We are also looking for new products. Life insurance products in digital insurance, AI customer services in the gamma platform, are expected to be the key drivers for growth in 2023.
Speaker 4: OK, click that.
Speaker 3: Over the long term, our overseas business, our financial cloud business as well as our push for home developed technologies will also become our long term growth driver.
Speaker 3: Over the long term, our overseas business, our financial cloud business as well as our push for home developed technologies will also become our long term growth driver.
Speaker 7: Thank you.
Speaker 2: Our next question is from Tianan Zhao from...
Speaker 2: Okay, Tianan, your line is now open. Please go ahead.
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Speaker 3: Thank you, Kim. Our CTO, Lee Jie, will take your first question and Logan will take your second and third question.
Speaker 5: Thank you.
Speaker 5: Gua Yixin, China.
Speaker 2: Thank you for your attention.
Speaker 4: past and 12, 2020.atherine, please set the alarm andff activists who other.
Speaker 3: The development of self-control technologies in the financial industry has been one of the most relevant trends in the industry. And we see huge market potential.
Speaker 3: And the adoption is needed in both the application layer core system as well as in the infrastructure level. And the CBIRRC had launched a fully-fledged push for the home-controlled home development technology in 2022 and overall about 5,000...
Speaker 3: Welcome to fully accommodated self-control technologies at both the infrastructure level as well as the application level. Our financial clouds are 100% satisfied with the requirements for
Speaker 3: home for self-control technologies. At the application level, our products in the banking segment as well as in the Gamma platform are 100% adapted to self-control IT.
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Speaker 3: As...are they saying Khan...ong premieres... it is also closely involved in the push for self-control technology in the banking industry through our Consortium ability auction model. So far we not have over 30 customers using our solutions.
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Speaker 5: in Wipinkong. Okay, I will do the translation myself. First of all, we won't give the official guidance for 2023 due to the external and internal factors reasons because I think the...
Speaker 5: External factors are the recovery and the micro-schemastases are still uncertain and a lot of challenging factors. And internally we are experiencing the stage 2 transaction is still in the...
Speaker 5: still in that period. Having said that, we will communicate more information about our profitability by different regions. S Nemo.
Speaker 5: I think this year we would, well I, we said a midterm will be given for the whole company and first of all our business in mainland China will be given and we will.
Speaker 5: communicate with more information with markets on this site.
Speaker 5: And there are two points we want to emphasize again are the two main tasks in 2023. 1 is a
Speaker 5: quality or structure of the revenue improvement, where we will put more first priority on the third party value growth. And at the same time, we will make more deduction.
Speaker 5: of our loss making. I think we are well on track to the path of work even in mid-term.
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Speaker 5: Okay, by the end of 2022, we have
Speaker 5: cash available 2.6 billing.
Speaker 5: In 2022, all the deduction of the cash is due to the operating activities, mainly due to the operating activities. In 2022, the narrowing of the loss making and the acceleration of the receivable helped us a lot to get a very healthy cash position.
Speaker 5: And we are very confident that we have enough cash to support us to support our
Speaker 5: operation until we breathe even on the midterm. And within the 2.6 million, 520 million are in POV, Vito Bank in Hong Kong, and other almost 2.1 billion.
Speaker 5: is another business unit of one connect and we have no deposit in Silicon Valley back.
Speaker 5: business unity of one connect. And we have no deposit in Silicon Valley bank. Thank you.
Speaker 4: As a reminder, ladies and gentlemen, if you would still like to ask a question, please press star followed by one on your telephone keypad now. Our next question is from Lydia Lin from trois.
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Speaker 3: about all the business line or just the implementation. And the second question is about the operating expenses arrangement and allocation in 2023. Thank you, Lidia.
Speaker 3: Your first question, Lola will take your first question and also the second question. Thank you.
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Speaker 3: As I mentioned before, the drive for self-control technology ranges from infrastructure to the application level. Therefore, the implementation part is the biggest part of our efforts in self-control technology. The development part of our efforts is the biggest part of our efforts in self-control technology. The implementation part is the biggest part of our efforts in self-control technology.
Speaker 3: And as for the Consulting Plus implementation solution we offer, it is mostly about implementation and consulting is used as a tool for us to break into the bag.
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Speaker 3: Actually, our three main business segments are quite relevant to self-control technology.
Speaker 3: With the huge potential in both the application level, the core system level, as well as the infrastructure layer. Under the advice of the
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Speaker 5: I think in 2023 the hiring process actually is pretty much back to normal already.
Speaker 5: we started hiring new talents. Well, we will do some optimization related to the product optimization.
Speaker 5: we started hiring new talents while we will do some optimization due to the related to the to the products optimization
Speaker 5: According to the three expenses, we continue to put more...
Speaker 5: resources into research and development. And for the sales and marketing and general administrative expenses, we will continue to have a very cost control policy.
Speaker 5: And looking forward, the ratio of all three expenses will keep going down until we break even on the midterm.
Speaker 5: And looking forward, the ratio of all three expenses will keep going down until we break even on the midterm. Thank you.
Speaker 4: We currently have no further questions. I would like to hand back now to Daniel Gao for final remarks.
Speaker 4: We currently have no further questions. I would like to hand back now to Daniel Gao for final remarks. Please go ahead.
Speaker 3: Thank you everyone for joining the call today. If any questions, please feel free to contact our IR team. We appreciate your interest in following us and looking forward to speaking with you again. Thank you.
Speaker 8: Ladies and gentlemen, this concludes today's call. You can now disconnect your lines. Thank you.