Ladies and gentlemen, thank you for standing by, and welcome to OneConnect's Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions]. Please note this event is being recorded. Now I would like to hand the conference over to your speaker host today, Mr. Rick Chan, the company's Head of Investor Relations. Please go ahead, Mr. Chan..

Thank you, operator. Hello, everyone, and welcome to our 2023 four quarter earnings call. Our financial and operating results are released earlier today and currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Shen Chong Feng, who will give opening remarks and business highlights. Afterwards, our CFO, Mr.

Luo Yongtao will go over a closer look into our financials. And then in question-and-answer session, our management team will be available to you. We have our CTO, Mr. Li Jie; Head of Digital Banking, Ms. Ellen Jia; and Head of Corporate Planning and Product Management, Ms. Jessie Shen.

In today's conference, our management team will make statements in Mandarin or in English. For those in Mandarin, a contracted translation will be provided. In case of any discrepancy between the Mandarin version and the English version, our statement in the original language should prevail.

Let me quickly cover the safe harbor statement before we start. As we are making forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to defer materially. Please note that we may present both IFRS and non-IFRS financial measures.

With that, I'm pleased to turn our call to our Chairman and CEO, Mr. Shen Chong Feng. Mr. Shen, please..

[Foreign Language] Hello, everyone. I'm Shen Chong Feng. Thank you for taking your time to join our 2023 four quarter and annual results earnings call. Firstly, on behalf of OneConnect, I'd like to extend a warm welcome to investors, analysts and friends from media or with us during this call.

It's a great pleasure for me to share with you the results we've achieved in the fourth quarter and last year. [Foreign Language] In 2023, the Central Financial Work Conference proposed for the first time to build up China's financial strength, reaffirming the importance of financial sector as the lifeblood of the national economy.

The conference pointed out that technology capacity in many small- and medium-sized banks remains to be improved, and the high-quality development of these institutions is imperative.

At the same time, vigorously developing technology, innovation in finance, green finance, financial inclusion, pension finance and digital brands finance, which are known as the five major articles unveiled at the Central Financial Work Conference are also included in the government work report for the first time.

With cutting-edge technologies such as artificial intelligence and big data and the unique advantages of technology plus business, OneConnect continues to improve its product capabilities in our three major business segments, namely digital banking, digital insurance and gamma platform for us to encourage the development of new quality productive forces in the financial industry.

[Foreign Language] In 2023, we achieved significant milestones in loss reduction with net loss attributable to shareholders improving to CNY363 million from CNY872 million in the previous year.

The past year also saw proactive adjustments in product portfolio, continuous expense control and improved operational efficiency with the resources effectively allocated to R&D in key products. These efforts will provide a solid foundation for profitability in the medium term. [Foreign Language] Next, please go to the Page 4 of our slides.

[Foreign Language] Committed to our business philosophy of value, win-win cooperation and quality development, we achieved significant progress in three core priorities, namely product upgrade, customer expansion, as well as loss reduction and efficiency improvement.

At this stage, we are accelerating export of Ping An Group technology and upgrade of self-developed products. In addition to aggregating resources on high-value products.

At the same time, the company also fine-tuned our project ROI management and cost control, which will put us closer to the medium-term strategy of breaking even and becoming profitable. [Foreign Language] Next page. [Foreign Language] In 2023, we achieved satisfactory progress and results in products, customers and cost control.

[Foreign Language] The company focused on product upgrade, product standardization, accelerating the export of Ping An Group experience, strengthening product portfolio and aggregating our resources on high-value and high threshold products.

[Foreign Language] OneConnect also strengthened customer engagement, the company has expanded the business pipeline, developed a deeper understanding of customer needs, improved revenue structure and now can better meet the needs and the expectations of our customers. And we have established long-term cooperation with them.

[Foreign Language] At the same time, expense control, per capita revenue, product ROI management have all been improved, which translates into higher operational efficiency. [Foreign Language] In 2023, non-IFRS gross profit margin exceeded 40%.

The number of premium plus customers of the company was over 200 and net loss attributable to shareholders was narrowed by about CNY510 million. [Foreign Language] Next page.

[Foreign Language] Last year, we secured a cooperation with many large customers at both home and abroad, landing contracts with financial institutions such as SBF, Hong Kong Stock Exchange, Well Link Life and Old Mutual.

There were 75 customers with a total contract value of over CNY5 million and the average contract value of such customers increased by 6% year-over-year. [Foreign Language] Centered on the strategy of deepening customer engagement, we continue to strengthen relationship with existing customers.

In terms of cross-selling and implementing new products for existing customers, we have signed contracts with financial institutions, including Huaxia Bank, Postal Savings Bank of China, Daga Insurance, China Continent Insurance, et cetera, they help them continue to succeed on their digital transformation journey. [Foreign Language] Next page.

[Foreign Language] While serving financial institutions in Mainland China, the company also exported successful experience abroad, actively expanding its overseas presence and remains committed to empowering a broader market with China's financial technology.

[Foreign Language] In 2023, revenue contribution from overseas customers increased by over 30% year-on-year and the proportion of overseas revenue as a part of third-party customer revenue increased by about 6 percentage points to 15.7%.

With strong growth momentum in Hong Kong, Southeast Asia, South Africa and the Middle East, we actively explored overseas market and continue to expand our sales network. OneConnect products are well received by overseas institutions.

For example, our comprehensive strategic partnership with Old Mutual proved to be a big success in the development of the South African market. We've also jointly developed a digital platform for SME financing with the Abu Dhabi Global Market to export digital and inclusive finance abroad.

[Foreign Language] So far, OneConnect's business have covered 20 countries and regions, including Singapore, Thailand, Malaysia, Indonesia and the UAE, the Philippines, Vietnam, South Africa and 185 overseas financial institutions, including a top three regional bank in Southeast Asia and two of the top 10 global insurance companies.

Our gradual expansion into the overseas market has undoubtedly paved the way for OneConnect to achieve its second stage strategic goals and achieve new top line growth points. [Foreign Language] Next page. [Foreign Language] 2023 remains a key year for Stage 2 strategy, that is broadening customer engagement.

During this stage, we are committed to unite the core and empower the wins where we focus on financial institutions while expanding ecosystem and overseas. [Foreign Language] Next page.

[Foreign Language] In the Digital Banking segment, our family trust system realized full close-loop services for family trust establishment, investment allocation and account management in 2023. Expanding the family wealth intelligent scenario for high net worth customers of private banks.

[Foreign Language] We have built a unified technology base and successfully upgraded our intelligent credit management system. This system not only realizes the comprehensive digital management of credit business but also provides strong support for credit decision-making through smart analysis.

The system has been successfully implemented in a number of non-banking and banking scenarios so far and has been highly recommended by our users. [Foreign Language] At the same time, OneConnect also continues to promote the adoption of self-controlled technology.

The company's self-developed portfolio management system have successfully accommodated home developed technology in 18 projects, providing some technical support for the sustainable development of the company's business. [Foreign Language] Next page.

[Foreign Language] In Digital Insurance segment, we have upgraded our claims core system over the past year. [Foreign Language] With advanced technology, we provide customers with more intuitive and convenient remote survey services which creates significant improvements in user experience during claims processing.

[Foreign Language] Our new online claims panel not only improves the efficiency of back-end claims adjusters, but also effectively reduces survey manpower and operating costs. [Foreign Language] Our innovative deployment model, combining in-house process and SaaS core engine, provides more flexible and efficient support for our claims core system.

At the same time, our remote operation platform has added a new core module for claims settlement, making settlement operation more convenient and efficient. [Foreign Language] Next page.

[Foreign Language] In Gamma platform, we fully apply AI capabilities in all business links to further empower customers in risk management and sales, improving both their risk management efficiency and service and sales conversion rate.

For example, our AI interview robot has over 20 AI vision and dialogue risk control capabilities and empowers customers to easily improve risk control efficiency with the vivid digital human interaction experience.

At the same time, we have also launched an AI wealth management robot with over 30 car content templates, supports preset scripts and provides personalized recommendation of wealth management products, helping account managers gradually improve conversion rate. [Foreign Language] Next page.

[Foreign Language] In 2023, the company has gradually expanded its services in Hong Kong, helping to accelerate Hong Kong's digital construction.

In terms of supporting regulators, the launch of FINI, the company's new IPO clearing platform for Hong Kong Stock Exchange has significantly shortened the time between pricing and trading of new shares from T+5 to T+2, marking another major milestone in the development of Hong Kong's capital market.

As for serving financial institutions, OneConnect has developed in-depth understanding of demand in banking and insurance customers from Hong Kong.

While providing e-KYC to over 10 financial institutions to establish our market reputation, we have also implemented solutions such as asset and liability management, management accounting and risk management system services in a number of financial institutions in Hong Kong.

The company's credit reference services agency also cross-sell with other business lines, now providing end-to-end solution of CRA report plus e-KYC certification plus account opening, plus loan system for two note issuing banks in Hong Kong. [Foreign Language] Next page.

[Foreign Language] We have continued to upgrade our products and enhance our competitiveness overseas in 2023, striving to provide customers with higher value product and service experience and creating overseas flagship projects.

OneConnect's life insurance team provided [indiscernible] insurance system for well-linked life insurance to reshape their policy insurance process.

Our Southeast Asian team upgraded the professional configuration of AI assistant to help overseas customers make informed decisions and innovate embedded AI intelligent translation module to greatly improve the adaptability and acceptability for multilingual customers in different countries and regions. [Foreign Language] Next page.

[Foreign Language] In 2023, our hard work has also won a number of recognitions and honors from third-party institutions and renowned media outlets. For example, the company has won KPMG's China Fintech Enterprise Excellence Award and being included in IDC FinTech Global Top 100 for many years in a row.

Named as the 2023 Chinese Banker Top Fintech Innovation Institution and won the 2023 Cailian Press ESG Pioneer Award. [Foreign Language] Since the beginning of 2024, we have seen a new round of scientific and technological revolution and industry transformation continue to deepen.

New quality productive forces with artificial intelligence as the core is accelerating to lead the high-quality development of industries. We firmly believe that the financial industry has the best use cases for artificial intelligence plus and will be a strategic focus for new quality productive forces.

OneConnect will continue to empower the upgrade and transformation of the financial industry with technological innovation focused on serving premium plus customers and product improvement and satisfy the core demand of financial institutions for various business productivity improvements.

We also aim to develop products featuring new quality and productive forces such as AI voice assistant and omni-channel agent solution for us to improve efficiency and service, reduce costs and risk for financial institutions. Thank you. [Foreign Language] Next, I will hand it over to Mr.

Luo to give you a detailed introduction of OneConnect's financials in Q4 and full year 2023..

Thank you, Shen Chong. Good evening, everyone. I'm pleased to present our financial results for the year of 2023. We have accomplished a solid financial performance marked by significant progress in reducing losses. This achievement aligns with our strategic objectives of obtaining midterm profitability.

While it is true that we encountered a decline in revenue over the past few months, it's during challenging periods like this that we have the opportunity to exhibit our resilience and capacity to adapt.

We are steadfast in the commitment to exploring new opportunities, evaluating our existing processes and implementing necessary adjustments to position ourselves for renewal growth in the future. Now let's turn to our financial results.

In 2023, we delivered revenue of RMB 3.67 billion, decreased by 17.8% compared to the last year, primarily due to a decline in transaction-based and support revenue. Revenue generated from third-party customers decreased by 11.5% to CNY1.31 billion.

We are glad to see gross margin of 2023 was 36.8% and improved by 0.2 percentage points on a year-over-year basis. Non-IFRS gross margin was 40.3%, improved by 0.2 percentage points as well. We are thrilled to see net loss attributable to shareholders was CNY363 million as compared to CNY872 million for the prior year.

Net margin attributable to shareholders improved by 9.7 percentage points to negative 9.9% compared to negative 19.5% for the prior year. Now let's turn to our revenue mix by customer. In 2023, our third-party revenue was CNY1.31 billion, contributing 35.6% of total revenue. Third-party revenue growth remains a key focus of our second stage strategy.

We will continue to seek opportunities that align with our growth objectives, fueling further expansion of our third-party revenue streams. Revenue from Lufax decreased 41.4% to CNY269 million and contributed 7.3% of our total revenue.

The revenue decline from Lufax was mainly due to Lufax's business operation optimization, resulting in lower demand for our business origination and risk management services. Revenue from Ping An Group decreased 17.2% to CNY2.09 billion and contributed 57% of the total revenue.

Revenue decline from Ping Group was primarily due to a decline in transaction volume, such as operational support and risk management products. The services provided to Ping An Group are core technology solutions, which have been deeply embedded into Ping An Group's daily operations.

Looking ahead, we will continue to fully support Ping An Group's business reform and look for new cooperations. Moving on to revenue mix by business type.

Implementation revenue decreased by 3.2% on a year-over-year basis to CNY835 million, mainly due to the lower revenue contribution from new customers as financial institutions recovering from the pandemic still takes time.

Revenue from business origination services decreased by 65.6% year-over-year to CNY132 million, primarily due to declined transaction volumes and our proactive actions of phasing out low-value products in the digital banking segment.

Revenue from risk management services decreased by 22.8% year-over-year to CNY320 million mainly due to reduced transaction volume in banking loan solutions because of lower-than-expected banking activities.

Revenue from operation support services decreased by 24.5% on a year-over-year basis to CNY861 million which was primarily caused by reduced demand from auto insurance customers and banking customers. Revenue from cloud services platform decreased by 5.3% on a year-over-year basis to CNY1.25 billion.

Revenue for post-implementation support and other services decreased by 47% year-over-year to CNY127 million. The decline was primarily due to lower demand for auto ecosystem services. Revenue from POB Virtual Banking business in Hong Kong increased by 37% to CNY146 million as compared to last year.

As you can see, we have been diligent in identifying and improving underperforming areas of our business and are focused on enhancing revenue structure. We will remain committed to integrating our product mix and adopting a stable and sustainable stock-based charging model. Let's turn to revenue mix by product sectors.

Gamma platform sector, the focus of product innovation in recent years contributed to the biggest chunk of our revenue, declined 4.8% in 2023 to CNY1.92 billion and accounted for 52.4% of total revenue. The decline was mainly caused by reduced transaction volume of our open platform products.

Digital banking sector, which accounted for 25.7% of total revenue, reduced by 35.3% on a year-over-year basis to CNY942 million.

That was mainly caused by a reduction in transaction volume of our business origination and risk management services, which are related to our initiatives to phase out lower-value products and the impacts from the lower-than-expected banking activities.

Digital insurance sector, which accounted for 17.9% of total revenue, decreased by 25.5% to CNY657 million in 2023, primarily due to reduced demand in auto ecosystem services. In each sector, we phased out products with low margins.

Products with no technological value-added features as well as those with limited potential for the growth in the future. In addition, virtual banking sector, as I just mentioned before, accounting for 4% of total revenue. Premium Plus customers.

In 2023, the number of Premium Plus customers decreased to 208 as compared with 221 for the same period last year, primarily due to fewer customers in digital banking sector. We believe as we continue to advance our initiatives, we expect our customer base further spend and more Premium Plus customers, we use our products and services.

Now let's take a look at the gross margin. We are glad to see our gross margin -- our gross profit reach CNY1.35 billion in 2023. Gross margin improved by 0.2 percentage points to 36.8%. On non-IFRS basis, gross margin reached 40.3% as we continued our product integration and standardization.

In the whole year of 2023, the continued efforts in product integration and delivery efficiency, together with execution on quality growth, helped improve our gross profit margin. We will stick to that strategy and continue the endeavor of achieving higher margins. Moving on to expenses and net loss attributable to shareholders.

You can see that we are well on track to our midterm breakeven target. First of all, our research and development expenses came down 32.6% to CNY955 million, from CNY1.42 billion in the same period of last year. As a percentage of revenue, it decreased to 26%.

In 2023, our continued investment in technological innovation and organizational capability remains unchanged. As our products were upgraded and integrated, we further improved our product delivery efficiency.

Looking ahead, we will keep investing in research and development at a more measurable and suitable pace to enhance our product competitiveness in the market. Our sales and marketing expenses decreased 33% to CNY275 million compared with CNY411 million in 2022.

The improvement in sales and marketing expenses mainly benefited from our continued efficiency improving efforts and a decrease in marketing and advertising activities. Our general and administrative expenses decreased 39% to CNY505 million from CNY825 million in the prior year. As a percentage of revenue, it decreased to 13.8% from 18.5%.

The decline in general and administrative expenses was primarily due to stringent cost control measures and reduced labor cost.

It is worth mentioning again that under a challenging business environment, our net loss attributable to shareholders improved substantially to negative CNY363 million from negative CNY872 million last year, and its corresponding net margin to shareholders improved 9.6 percentage points to negative 9.9%.

This achievement reflects our commitment to enhancing our financial health and demonstrates the effectiveness of our actions on our journey towards profitability. The next page demonstrates the trend of our net margin improvements to shareholders in the past few years.

From this page, you can see a clear trajectory of our path to profitability over the years. Our results of the whole year continue to reflect that the effects of our disciplined execution of cost control accompanied by improved operational efficiency, marking another milestone in the path to breakeven.

We will continue our product integration efforts and strive to improve operating efficiency and business margin. Looking ahead, we acknowledge the prevailing uncertainties about the pace of full economic recovery. Despite these challenges, our primary focus remains on bolstering third-party revenue streams.

Our commitment to improving gross profit margins, emphasizing cost control measures and enhancing operational efficiencies remains unwavering as we strive towards sustainable profitability. Our dedication to achieving our long-term objectives and creating enduring value for shareholders remains resolute.

The ongoing efforts to optimize operational efficiency and leverage our resources will persist as integral components of our strategic roadmap. With a proactive mindset and unwavering resolve, we are well positioned to surmount the current obstacles and emerge stronger in the forthcoming quarters. Next page, we list key financial metrics of 2023.

We summarized IFRS and non-IFRS gross margin results for reference. Lastly, and once again, I would extend my sincere appreciation to our employees, shareholders and partners for their invaluable support and trust in our vision. Together, we will navigate through challenges, capitalize on opportunities and drive sustainable growth and success.

Thank you. Back to you, Rick..

Thank you, Mr. Luo. Operator, we are open for questions..

[Operator Instructions] We have a question from Lydia Lin of Morgan Stanley. Lydia, the line is yours..

[Foreign Language] So the first question is we have seen very impressive progress of cutting costs in 2023.

And how do we see the further space that the company can cut cost in 2024 and work for kinds of specific measures that the company has? And the second question is I would like to have the management help us to summarize the Generative AI application in the company's product profile? And what is the impact from this technology? Thank you..

Thanks, Lydia. The first question will be taken by Mr. Luo and the second one taken by our CTO, Li Jie..

[Foreign Language] Thank you for your question.

So in 2023, through headcount optimization improvement in delivery efficiency and reduction in expenses from R&D, sales and marketing and [Technical Difficulty] we have greatly improved our costs -- and we have greatly reduced our cost and improved metrics such as financial -- such as our gross profit margin and all this can be seen from our financial metrics.

[Foreign Language] For next year, we will continue with our cost control and efficiency improvement measures and reduced costs in R&D, S&M and as well as G&A. [Foreign Language] Additionally, for the investment of our resources. Next year, on the one hand, we will continue to improve resource allocation, efficiency and fine-tune our ROI management.

On the other hand, we will aggregate our resources on quality products, continue to develop and upgrade products according to our development demand and ensure our competitiveness in the market. [Foreign Language] Cost control ultimately comes down to the sustainable development of our business. Therefore, we will use our resources more efficiently.

That means we may invest in more promising business lines, for instance, our overseas business. Thank you..

[Foreign Language] I'll answer your question about the -- about OneConnect applications of AI and its impact. This year, the government's work report included AI Plus for the first time. which not only shows increasing importance of AI in China's development, but also bought more significant changes in our everyday life.

Artificial intelligence plus is the broader concept, which refers to artificial intelligence as a basic and driving technical force and the deep integration of manufacturing, finance, medical care, education, transportation, agriculture and other fields. So as to promote the transformation and upgrading of traditional industries.

[Foreign Language] The financial industry has the best use cases for Artificial Intelligence plus and will be a strategic focus for new force productivity.

OneConnect has been committed to empower financial industry upgrade and transformation, focused on serving our Premium Plus customers and product improvement as well as to satisfy the core demand of financial institutions for various business productivity improvements.

We provide products featuring new force productivity such as AI customer service and omnichannel agent solution so as to improve efficiency and service, reduce costs and risks for financial institutions. [Foreign Language] OneConnect has long developed strong capacity in artificial intelligence.

We have won the championship of well-known competition at home and abroad such as the third and fifth Chinese machine reading comprehension evaluation, the free tax extraction track of the international semantic assessment competition.

At a time when larger models see further breakthroughs, our AI team is also actively deploying the exploration and R&D of related technologies. Thank you..

Our next question comes from Yixuan Li of Guotai Junan. Yixuan, please go ahead..

[Foreign Language].

The first question will be taken by our CTO, Li Jie, and the second one will taken by Mr. Shen..

[Foreign Language] Firstly, I'll address your question about utilizing Generative AI. OneConnect aims to apply AI capacities in all links of the financial industry business. So we offer a fine-tuned financial scenario AI experience to our customers.

[Foreign Language] Our AI customer service solution covers customer service, sales and marketing as well as scenarios such as interviewing. For instance, our AI interview robot offers over 20 dialogue and image risk capacities through vivid human digital interactions, we help our customers to improve risk management efficiency.

Another example will be our wealth management tax robot, which offers over 30 content templates and support preset scripts. So all these solutions will help our customers to improve their conversion rate..

Go ahead, Mr. Shen..

[Foreign Language] The adjustments made by both Ping An Group and Ping An Bank are measures to cope with changing market trends. [Foreign Language] Our relationship and cooperation with both Ping An Group and its associated companies remains unchanged.

[Foreign Language] The group is still our most important internal customer and also our most important tech partner. [Foreign Language] Our in-depth cooperation with the group and its associated company aligns our interest together and it's sustainable but all sites are happy with our corporation and relationship.

[Foreign Language] Internal adjustments actually bring us new business opportunities as we will be involved in many important projects. [Foreign Language] Thank you..

We have no further questions on the line. So I'll hand back to Rick for closing remarks..

Thank you. Thank you, everyone, for joining the call today. If any questions, feel free to contact our IR team and appreciate your interest in following us and look forward to speaking to you again..

This concludes today's call. Thank you for joining. You may now disconnect your lines..