OneConnect Financial Technology Co., Ltd.

Ladies and gentlemen, thank you all for standing by and welcome to OneConnect's third quarter 2024 earnings call. Currently, participants are in a listen only mode. We will be facilitating a question and answer session at the end of today's call. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. 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 2024 First Quarter Earnings Conference call. Our financial and operating results were released earlier today and currently available on our RR website. Today, you'll hear from our chairman and CEO, Mr. Shen Chongfeng, who will give opening remarks and business highlights. Afterwards, our CFO, Mr. Michael Li, will offer a closer look into our financials, and then we will have a question and answer session. Our management team will be available to you, and we have our CFO, Mr. Li Jie, with the mic to join the call. In today's conference, our management team will present in both Mandarin and English. For those in Mandarin, a consecutive translation will be provided. In case of any discrepancy between the Mandarin version and the English version, our statement in the original language shall prevail. Let me quickly cover the state public statement before we start. As we will make forward-looking statements, which involve a number of risks and uncertainties, that could cause actual results to differ materially. Please note that we may present both IFRS and non-IFRS financial measures. With that, I'm now pleased to turn our call to our Chairman and CEO, Mr. Shen Qiongfeng. Mr. Shen, please. Hello, everyone. I'm Mr. Shen Qiongfeng. Thank you for joining us in the third quarter of this year. I'd like to thank the investors, analysts, Hello, everyone.

I'm Shen Chongfeng. Thank you for taking the time to join OneConnect's 2024 third quarter earnings release. On behalf of OneConnect, I would like to extend my warm welcome to all investors, analysts, and friends from media who are with us today. It's a great pleasure to take this opportunity to share with you OneConnect's earnings results in 2024 Q3.

China. China. China. China.

The People's Bank of China highlighted in its Q3 meeting that it is important to deepen the structural reform of the financial supply side and build an institutional mechanism for finance to effectively support the real economy. The central bank aims to guide large banks to become the key players to leverage financial services for the real economy. Focus small and medium sized banks on their main responsibilities and business. Support banks to increase capital and jointly maintain the stable development of the financial market. The meeting also encourages the development of five major articles, namely technology innovation in finance, green finance, financial inclusion, pension finance, and digital finance. On top of that, the meeting also promotes increased support in key areas and weak links, promotes faster development of new quality productive forces, and meet reasonable consumer financing needs in a more targeted manner. With digitalization becoming ever more relevant, financial institutions and the large SOEs are facing many challenges. WellConnect closely monitors policy and market development, and continue to leverage the unique advantages of technology plus business to improve its product capabilities in our three major business segments, namely digital banking, digital insurance, and gamma platform. So as to empower financial institutions to achieve digital transformation and contribute to the development of new quality productive forces in the financial industry.

Since 2024, our profit and loss situation has been further improved, and Taiwan's business continues to maintain a strong purchasing system. Q3 continued to operate business, from the same period last year, RMB 0.51 billion improved to RMB 0.3 billion, which is 41.9% of the total revenue. In addition, the third-party foreign customer revenue has increased by 23.4% compared to the previous three seasons of this year. These results are due to the active adjustment of product combinations, deepening customer cooperation, Since 2024, the company's profitability has further improved and overseas business has continued its strong momentum. Net loss from continuing operations attributable to shareholders improved to RMB 13 million from

51 million yuan in the same period last year, a significant year-on-year decrease of 41.9%. In addition, revenue from third-party overseas customers increased by 23.4% year-on-year in the first nine months of this year. Our solid performance is attributable to OneConnect's efforts in product portfolio adjustment, deepening customer engagement, continuous extension of domestic and overseas markets, disciplined cost control, and improving resource allocation efficiency, which also laid a solid foundation for us to achieve profitability in the medium term. 仅从价值供应高质量发展的经营理念,金融系统继续围绕聚焦产品升级,客户深耕,境外发展,三个核心要务开展工作。

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 overseas expansion. At this stage, we are accelerating export of team and group technology and upgrades of self-developed products and aggregating resources on high-value products. On top of that, OneConnect has also ramped up efforts in overseas markets, meeting international market demands by continuously improving our products based on the needs and preferences of local markets.

At present, we are in the critical period of stage

Stage two strategy of broadening customer engagement. The company will continue to focus on financial institution customers by integrating and optimizing our products and services and improving product capability in three main business segments, that is digital banking, digital insurance, and gamma platform, so as to empower financial institutions to improve quality and efficiency and successfully achieve digital transformation.

Through comprehensive customer management, accurate product recommendation, and smart channel operation, we continue to promote customer, product, channel, and digitalization, and assist retail smart management. In terms of comprehensive customer management, we emphasize group management, and through standard standardization, In digital retail banking, we continue to empower smart operations in retail businesses by enhancing digitalization of customers, products,

and channels through our strategies in three key aspects. That is comprehensive customer group management, accurate product recommendation, and intelligent channel operation. In terms of comprehensive customer group management, OneConnect emphasizes operation by segments. By grouping customers with standard indicators, we are able to unify operation perspectives The company also uses customer portraits to gain in-depth insight into customer needs and preferences to achieve precision marketing. Our customer journey strategy map can block in business objectives and ensure that marketing strategies are closely aligned with the customer journey, providing customers with a personalized service experience and helping them find the most suited product.

With regard to the application of AI large models, we have helped improve the quality and efficiency in sales and marketing through the index application of a series of auxiliary

tools such as AI Outbound Assistant, AI Self-Assistance, AI Process QA, and AI Asset Distribution.

The standardization of the implementation is also second-hand, so that the review and review are 50% more efficient. In terms of modernization, the advantages and opportunities of our cooperation with foreign companies have also emerged, and many foreign companies have become partners. For example, CNB has cooperated with J&J for many years, and the two sides have always strived to jointly develop individualized systems to improve customer experience. SBF is also one of the important customers of OC overseas. Online use of OC's core system and SLP modernization and greatly enhance the efficiency and efficiency of customer credit flow. In addition, we and PB Bank have maintained a good cooperation with each other, and we have further deepened our cooperation this year. On the other hand, we have carried out strategic cooperation in business and operation with the top foreign banks in China. Through one-to-one digital credit products, we provide software and infrastructure for banks in opening, signing, and small and medium credit projects, and assist banks in implementing customer experience improvement, credit product innovation, and system-based digital transformation.

As for credit lending digital banking, the company strives for financial inclusion by building intelligent credit management capabilities through the application of a lightweight credit management system and the construction of an out-of-the-box inclusive financial platform. One of the leading internet banks we serve, which offers mainstream credit services covering retail, small and micro enterprises, corporate credit, et cetera, has achieved long approval and release by seconds for their standardized businesses, improving review and approval efficiency by 50%. We also noted growing advantages and opportunities in foreign banks as we have become partners with a number of such customers. For example, we continue the longstanding operation with DMC as we jointly innovated our cooperation model to co-develop personalized products and to improve customer experience. SBF, another OneConnect important overseas customer, has launched our core banking system and our SLP credit system, which has greatly improved the efficiency and effectiveness of the customer credit process. In addition, we have maintained a good partnership with TP Bank and further deepen our engagement this year. On top of that, we have established strategic cooperation with leading foreign banks operating in China at both business and operation level and provided software and technical services in account opening, signature, and small and micro credit projects through OneConnect's digital credit products. which helps banks improve customer experience, innovate credit products, and digitalize their systems.

In the speedy insurance version, the company has been working on a wide range of cooperation projects in the past year, including the solution of the problem of discharging and servicing services for a state-owned property insurance company.

Turning to digital insurance, the company has been working on several end-to-end fast-development deployment corporation benchmark cases. This includes providing a state-owned PNC insurer with an end-to-end PNC insurance system to solve the pain points of claim settlement, underwriting, and servicing. helping customers reinforce risk control for client settlement, enhance underwriting quality, and improve customer experience.

In addition, we are also accelerating the transformation technology of Hong Kong market customers' online保湿. We have fully integrated the system provided by a large-scale保湿 in Hong Kong, involving more than 100 cooperating economic companies and more than 1,000 economic people. to help the insurance company cover a wider market and drive its business efficiency. After launching, the average usage rate of each channel's e-Pulse system has exceeded 8%. This fully demonstrates that the system has been widely applied and recognized within the insurance company. For insurers, customers have improved the efficiency and customer experience of e-Pulse system with more than 50% of the demand for online insurance through e-Pulse system. This further proves that we have achieved high-quality speed and products to serve customers and their needs in real time.

In addition, we are also accelerating transformation to online for our customers in Hong Kong. The ecosystem platform we provided for a large and medium-sized insurance company in Hong Kong has been fully put into use. Onboarded over 100 brokerage firms and more than 1,000 agents, the platform helps insurers cover a broader range of markets and drives faster business growth. After the launch, average utilization rate of EPO system among different channels of the insurance company exceeded 80%, which fully demonstrates that the system has been widely used and recognized within the insurance company. Policyholders can save up to 50% of the time for them to submit online insurance applications. which has significantly improved the efficiency of buying insurance online and the customer experience. This is further proof of our ability to create high-quality digital products and truly serve and meet the demands of our customers.

We have effectively integrated device fingerprint recognition, micro-image analysis, and other advanced AI technology through the comprehensive improvement of intelligent visual control and verification platform, which has significantly increased the anti-bombing ability and improved the financial security. The company successfully launched the AI face-to-face robot English version, which uses visual control, digital human technology, OCR recognition, and other 2G AI technology comprehensive applications to provide high-efficiency and accurate risk detection services for financial institutions in long-term banks, online banks, and other key industries. At the same time, Yizhang has also launched the EKYC Hong Kong Identification Certificate, a three-dimensional verification product. Through the optimization of the user operation process, the user operation market can be greatly reduced by 15%. At the same time as improving the user experience, the risk recognition rate of fake cards has also increased by more than 10% to quickly identify and deal with fraud.

In Gamma platform, OneConnect continues to deepen the financial, government, and large enterprise customer markets while vigorously extending overseas potential and remain committed to empowering digital decision-making, business, and management scenarios. With comprehensive upgrade of Gamma Vision, which is a risk management and verification platform, We have effectively harnessed cutting-edge AI technologies, such as device fingerprint identification and the microexpression analysis, which have significantly enhanced anti-fraud capabilities and improved financial security, utilizing 20-plus AI capabilities, such as visual risk control, digital humans, and OCR recognition. The company has successfully launched AI interview robot English version to provide efficient and accurate risk and identification services for financial institutions in key scenarios, such as remote banking and online lending, and effectively campaign overseas group-based fraud. At the same time, OneConnect has also launched the eKYC Hong Kong ID of single-angle verification products, which has halved user operation time by optimizing user operation process, improving user experience, and enhancing counterfeit card risk identification rate by more than 10%, providing strong support for institutions to quickly identify and respond to fraud.

Due to the rapid growth of overseas markets, Southeast Asia has become a strong source of growth for us. In 2024, the pre-pandemic base was able to upgrade the product, and the customer cooperation deepened. The third-party overseas customer revenue increased by 23.4% compared to the previous year. Among them, Southeast Asia has a continuous growth and growth system. Q3 successfully launched the SLP full-scale upgrade project, providing customers with even more powerful business expansion, and improving customer performance. Growing overseas market is especially important to OneConnect.

and the Southeast Asian region has become a strong growth agent. In the first three quarters of 2024, thanks to product upgrades and integration, as well as deepening customer engagement, revenue of third-party overseas customers increased by 23.4% year on year, of which the Southeast Asia business has seen remarkable growth momentum. In Q3, we successfully launched the SLP product upgrade project, which gave customers stronger business development capabilities and improved their operational efficiency. The SLP upgrade has successfully improved the customer experience and received customers' strong recognition and high appreciation, fully demonstrating OneConnect's technical strength and product value. At present, our products have been applied in many fields overseas, and benchmark cases cover regional banks, digital banks, and finance companies, so on and so forth. We will also target the six ASEAN countries in the future and leverage our product capabilities and technical strengths to further expand influence overseas. In the third quarter of 2024, Guang Connect won four awards from third-party institutions and renowned media outlets. Totaling 318 awards, these honors fully reflect social and industry recognition of our products, as well as our technical strengths and interests. Major awards in this quarter include IDC China Emerging FinTech 50, Forbes China FinTech Influential Enterprises Top 50, Forbes China FinTech ESG Practice Enterprises Top 10, and the Forbes NIFD DCITS FinTech Innovation Case by the National Finance and Development Laboratory.

Since 2024, we have deeply felt the transformation of the technology revolution and industry. AI as a new core production area is accelerating the promotion of all industries, especially the high-quality development of the financial sector. We believe that the financial sector will become an important strategy implemented by AI strategies. This is the key to the development of new production areas. Yidangpeng will continue to drive the innovation of technology, focusing on product development and improving high-quality services. As we go further into 2024, technology and industry revolution continues to evolve. New quality productive forces with artificial intelligence at the core

is accelerating to lead the high-quality development of different 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 its focus on product upgrades and quality services driven by technology innovation. remain committed to improving efficiency and services, reducing costs and risks, and provide core solutions for financial institutions and enterprises to satisfy their diverse demands in business development. Thank you again for your attention and support. 接下来请林总为大家介绍公司二十年三季股的具体财务表现。 Next, I'll hand it over to Mr. Lin to give you a detailed introduction of OneConnect Financials in Q3 2024.

Thank you, Chairman Shen. Good evening, everyone. My name is Michael Lin, Chief Financial Officer of OneConnect. In this session, I'll walk you through some financial results of OneConnect. As previously reported, we completed the disposal of our virtual banking business. to LUFEX for consideration of HK$933 million in cash on April 2nd, 2024. As a result of this disposal, the historical financial results of the virtual banking business segment have been reflected as a discontinued operations for third quarter of 2024 and for the comparative period in 2023. On the other hand, the historical financial results of the remaining business have been reflected It's a continual operations. The financial information we'll soon cover is presented on a continuing operations basis, unless otherwise specifically stated. In the third quarter of 2024, we'll debute the revenue of 417 million RMB, decreased by 48.3% compared to the same period last year, primarily due to our strategic position to phase out cloud service business. Revenue generated from third-party customers decreased by 12.4% to $236 million in the third quarter. But it's worth mentioning that revenue contributed by overseas third-party customers in the past three quarters increased by 23.4% year over year, a proof to the effectiveness of our overseas market expansion strategy. Gross margin. of continuing operations was 32.7% compared to 36.6% in the prior year. The decrease in gross margin of continuing operations was mainly due to reduction in economy of scale caused by decrease in revenue. Non-IFRS gross margin of continuing operations was 35.6% compared to 40.7% in the prior year. Net loss from continuing operation attribute to the shareholders was 30 million RMB compared to 51 million RMB during the same period last year. Net margin of continuing operations to shareholders was minus 7.1% compared to minus 6.3% during the same period last year. Net profit for the period to shareholders was 110 million RMB compared to minus 281 million RMB during the same period last year. Net margin for the period for shareholders was 6.6% compared to minus 10.7% during the same period last year. Moving to our expenses and net loss, we can see that we are on track to reach our break-even mid-term target. First of all, Our R&D advances from continuing operations were 70 million RMB in the third quarter of 2024, compared to 260 million RMB during the same period last year. The decline was mainly due to the company's proactive adjustment of its business structure and its return on investment-driven approach to manage R&D projects. As a percentage of revenue, R&D expenses from continuing operations decreased to 6.7% from 28.5% in the prior year. Our sales and marketing expenses from continuing operations were 46 million RMB in the third quarter of 2024, compared to 66 million RMB during the same period last year. The decline was mainly due to a decrease in personnel costs associated with the enhancement of sales efficiency capabilities. As a percentage of revenue, sales and marketing expenses from continuing operations slightly increased to 10.9% from 8.2% in the prior year. Our G&A expenses from continuing operations were 75 million RMB in the third quarter of 2024, compared to 68 million RMB during the same period last year. As a percentage of revenue, General and administrative expenses from continuing operations increased to 7.9% from 8.4% during the same period last year. As a result, our operating loss from continuing operations was 60 million RMB in the third quarter of 2024, compared to 56 million RMB during the same period last year. Operating margin. of continuing operations was minus 12.1% compared to minus 6.9% in the prior year. Now, looking forward to the rest of the year, we continue to see a degree of volatility and uncertainty in the market. Meanwhile, as previously announced, we started to phase out our cloud service gradually from July and expect that this continuation will impact our top-line performance of 2024. Despite that, our focus remains on improving customer experience by strengthening the competitiveness of our products and services. We will continue to enhance our product offerings, focus on cost controls, and expand overseas markets to stay on our path to achieving mid-term profitability. That concludes our prepared remarks. Thank you very much.

Thank you, Mr. Lin. Operator, we are open for questions. Please open the line.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind at any time and would like to remove that question, please press star then 2. And as a reminder, it is star followed by 1 to register for a question. We will pause here briefly as questions are registered. We have a question on the line from Laura Lee with CGS International. Please go ahead. Hello, Laura, can you hear me?

Hello, can you hear me?

Yes, yes, we can hear you. We can hear you.

Okay, thanks. Hello, thank you for giving me this opportunity to ask a question. I'm Laura from UCGSI. I have two questions I'd like to ask the management. First, about the related transaction service procurement agreement announced on November. From the information announced, we can see that OCFT has a 10% drop in the amount paid to the group and the amount paid to the income. Can we understand that OCFT has a plan to further improve the profit rate? So let me translate my two questions. So firstly, based on the recent announcement, we see that the payment received, payment to and from the PM group, this ratio has fall by 10 percentage points. versus the past two, three years. So does that mean that the OCFT is planning to improve the profit margin? And secondly, what are the latest overseas expansion efforts in terms of rehiring and staffing, or in which section of business can we expect more focus on the overseas expansion grants?

Thank you for your question. So the first question will be taken by Mr. Li about the change of revenue, as well as the . And the second question, I believe Mr. Shen can share with you some highlights as to our overseas .

OCFT is the only financial technology outsourcing company in P&M Group. We will greatly contribute to the rapid change of P&M Group. Next, we are actually pursuing the quality of our revenue. We focus on reducing some of the low-end and customized levels of water. Of course, this is related to our strategy. And including the line-up, the company issued an announcement in the month of September. Currently, we suggest that the Ping An Group to purchase the products and services of our company, and the amount of related transactions online. During the evaluation, we consider many factors, including the historical transaction amount of both parties, and the changes in the needs of various members of the company and the group in the future. What we see at present is that we suggest that the online is going to rise gradually from the year 2021. The needs of Ping An Group and various members of the company to purchase the products and services of CFT will actually continue to increase, because we also see the recovery of the current financial situation. I'll translate that in English just to repeat my answer to that question. So first of all, I want to emphasize that our Penang Group is still our most important partner and shareholder and the most important third-party, non-third-party customer. And also I want to emphasize that One connected to the sole FinTech exporter within the group. We'll continue to play a very key role in PR groups information. So, if you look at our business, we are eventually faced our low gross margin products. We continue to pivot towards college earnings by proactively facing our low cost, low gross margin, high customization of business. And if you look at the EGM Securitas released this month, the cap we set on the amount of transactions related to the purchase of companies' products and services by P&M Group has taken into account different factors, including the historical transactions amounts of both parties and changes in our future business requirements. Also, you can see that the proposed operating limit will increase year over year, starting from 2025. That reflects that the recovery of the whole financial industry and the parent group's main core business. So we expected that the parent group's overall demand of our products and services will eventually increase from year 2025 onwards. Thank you.

Next, Mr. Shen will address the question about overseas recruitment and staffing.

We will allocate resources and recruitment strategies based on the progress and needs of our overseas business and make sure that our development is in line with our strategy.

Our main offerings to overseas include

core banking, SLP platform, and EKYC. 还有受险的全能代理人, as well as our omni-channel agent platform for life insurance business, 以及大模型及智能语音等, as well as AI large models and AI voice assistants. 重点的地区主要是东东,南非,香港和东盟六国, Our main target market includes the Middle East, South Africa, Hong Kong, China, and other countries. So far, we have equipped ourselves with capabilities in sales and marketing solutions, research and development, as well as implementation.

As our presence continues to expand overseas, we intend to further increase our team in solutions, R&D, as well as delivery.

Our recruiting strategy includes recruiting from local markets, develop ecosystem partners overseas, as well as deploy our team at home to overseas offsets. Thank you.

Thank you. As a reminder, if you would like to ask any further questions, please press star followed by one on your telephone keypads now. As a reminder, star followed by one to ask any questions. We have no further questions currently, so I would like to hand it back to Rick for any closing remarks.

Thank you, operator. Thanks, everyone, for joining the call today. If you have any questions, feel free to contact us and contact our RRT. I appreciate your interest and time in following us and look forward to speaking with you again. Thank you very much. Have a good day.

Thank you all for joining. I can confirm that does include today's call. Please enjoy the rest of your day and you may now disconnect.