OCFT OneConnect Financial Technology Co Ltd

Revenue Up by 24.3% and Adjusted Net Loss Ratio1 Improved by 9.6ppt YoY for First Quarter 2022

OneConnect Financial Technology Co., Ltd. (“OneConnect” or the “Company”) (NYSE: OCFT), a leading technology-as-a-service provider for financial institutions in China, today announced its unaudited financial results for the first quarter ended March 31, 2022.

First Quarter 2022 Financial Highlights

• Revenue increased 24.3% year-over-year to RMB1,019 million from RMB820 million.
• Gross margin was 34.3% as compared to 34.0% same period of the prior year; non-IFRS gross margin was 38.8%, as compared to 43.5% same period of the prior year.
• Operating loss was RMB355 million, as compared to RMB346 million same period of the prior year. Excluding the impact of listing expenses in connection with the Company’s proposed listing in Hong Kong, adjusted loss from operations1 amounted to RMB318 million, compared with RMB346 million for the same period in the prior year. Adjusted operating loss margin narrowed to 31.2% from 42.2% same period of the prior year.
• Net loss attributable to shareholders was RMB318 million, as compared to RMB305 million same period of the prior year. Net loss ratio narrowed to 31.2% compared to 37.2% same period of the prior year. Adjusted net loss to shareholders for the first quarter of 2022 amounted to RMB281 million, as compared to RMB305 million same period of the prior year. Adjusted net loss ratio narrowed to 27.6% from 37.2%.
• Net loss per ADS, basic and diluted, was RMB-0.86 as compared to RMB-0.83 same period of the prior year.

In RMB’000, except percentages and per ADS amounts

 

Three Months Ended

March 31

 

YoY

 

 

2022

 

2021

 

 

Revenue

 

 

 

 

Revenue from Ping An Group

 

548,682

435,851

25.9%

Revenue from Lufax

 

129,100

75,105

71.9%

Revenue from third-party customers2

 

341,156

308,809

10.5%

Total

 

1,018,938

819,765

24.3%

Gross profit

 

349,031

278,555

 

Gross margin

 

34.3%

34.0%

 

Non-IFRS gross margin

 

38.8%

43.5%

 

Operating loss

 

354,895

346,130

 

Adjusted operating loss1

 

318,409

346,130

 

Operating margin

 

34.8%

42.2%

 

Adjusted operating margin1

 

31.2%

42.2%

 

Net loss to shareholders

 

317,585

304,732

 

Net loss ratio

 

31.2%

37.2%

 

Adjusted Net loss ratio1

 

27.6%

37.2%

 

Net loss per ADS3, basic and diluted

 

-0.86

-0.83

 

1 Adjusted operation loss and adjusted net loss ratio excludes listing expense RMB 36.5 million in 2022Q1 in connection with the Company’s proposed listing in Hong Kong. 2 Third-party customers refer to each customer with revenue contribution of less than 5% of our total revenue in the relevant period. These customers are a key focus of the Company’s diversification strategy. 3 Each ADS represents three ordinary shares

Chairman, CEO and CFO Comments

“I am delighted to announce that we achieved strong financial results in Q1 notwithstanding impact from Covid outbreaks. We sustained a revenue growth rate of 24.3% and at the same time, narrowed adjusted net loss ratio by double digits,” said Mr. Ye Wangchun, Chairman of the Board. “We continued to implement our 2nd stage strategy of deepening customer engagement to focus on serving premium-plus customer and product integration in Q1, resulting in a growth in the number of premium-plus customers. Admittedly, this year will feature higher uncertainties from the macro environment, we, nevertheless, see strong demands from our FI customers for digital transformation. In addition, we have also seen favorable regulatory development, including the FinTech Development Plan (2022-2025), the Guidance on Digital Transformation of Banking and Insurance Sectors, highlighting the strategic importance of digital transformation. We remain fully confident in the potential and outlook of the FinTech industry.”

Mr. Shen Chongfeng, Chief Executive Officer, commented “Benefitting from ongoing execution of our 2nd stage strategy, integrated products in banking solution have successfully expanded large joint-stock bank customer base. As we sell more products to these customers, we are able to increase their value and improve contribution from premium-plus customers. Products in our relatively new solution-Gamma platform - core systems and AI customer service products - also demonstrated strong momentum, gaining more market share. We will continue to reinforce product integration and customer upgrade in 2022, to further solidify our position and fulfill our mission of supporting financial institutions to grow efficiently.”

Mr. Luo Yongtao, Chief Financial Officer, commented, “With more usage of our products by customers, revenue registered notable growth, at 24.3% year-over-year, fastest among last three quarters. Number of premium-plus customers, which is a key focus in our 2nd stage strategy, increased by 16% to 74, compared to 64 the same period of last year. In addition to high revenue growth, adjusted net loss ratio further improved by 9.6 ppts year over year from 37.2% to 27.6%. Covid outbreaks in 2022 have indeed brought uncertainties to the macro economy, but we remain unchanged in focusing on growing 3rd party revenue and retaining a sustainable growth. Meanwhile, our Q1 results reflect the effect of our disciplined cost and expenses management, marking another milestone in the path to profitability. We are ready to go further this year.”

Recent Developments of the Company’s Share Repurchase Program

In February 2022, the Company’s board of directors authorized a share repurchase program under which the Company is authorized to repurchase up to an aggregate of 2% of its outstanding ordinary shares during a specific period. As of April 29th, the Company had repurchased approximately 4.2 million ADSs for approximately US$5.9 million under this share repurchase program.

Revenue Breakdown

In RMB’000, except percentages

 

Three Months Ended

March 31

 

YoY

 

 

2022

 

2021

 

 

Implementation revenue

 

171,678

168,567

1.8%

Transaction-based and support revenue

 

 

 

 

Business origination services

 

114,793

118,499

-3.1%

Risk management services

 

106,951

99,290

7.7%

Operation support services

 

255,208

212,237

20.2%

Cloud services platform

 

295,834

180,512

63.9%

Post-implementation support services

 

11,427

13,236

-13.7%

Others

 

63,047

27,424

129.9%

Total

 

847,260

651,198

30.1%

Total

 

1,018,938

819,765

24.3%

Revenue in the first quarter of 2022 rose 24.3% to RMB1,019 million from RMB820 million for the same period in the prior year. Cloud services platform and operation support services were the key drivers. Revenue from cloud services platform surged by 63.9% year-over-year, majorly benefitting from on-going digital transformation within in Ping An Group. Revenue from operation support increased by 20.2%, benefiting from our gamma platform AI customer service products roll out and other products. Others, which included revenue from insurer ecosystem participants and oversea business, increased 129.9%. Notwithstanding the travel restrictions in major cities in response to the uptick in the COVID-19 pandemic, implementation revenue increased from RMB169 million to RMB172million.

First Quarter 2022 Financial Results

Revenue

Revenue in the first quarter of 2022 increased by 24.3% to RMB1,019 million from RMB820 million for the same period in the prior year, primarily driven by more demand for solutions in cloud services platform, operation support services and other services to insurer ecosystem participants and oversea business.

Cost of Revenue

Cost of revenue in the first quarter of 2022 was RMB670 million, compared with RMB541 million for the same period in the prior year, primarily driven by higher technology service fees and outsourcing labor cost as we continued to expand our businesss.

Gross Profit

Gross profit increased by 25.3% to RMB349 million from RMB279 million for the same period in the prior year. Gross margin was 34.3%, compared with 34.0% in the prior year, slightly increased by 0.3ppt, primarily due to improved gross margin from mature products, however, relatively new solutions showed lower gross margin at initial stage, which offset such improvement. Non-IFRS gross margin was 38.8%, compared with 43.5% in the prior year. For a reconciliation of the Company’s IFRS and non-IFRS gross margin, please refer to “Reconciliation of IFRS and Non-IFRS Results (Unaudited).”

Operating Loss and Expenses

Total operating expenses for the first quarter of 2022 amounted to RMB700 million, compared with RMB636 million for the same period in the prior year. As a percentage of revenue, total operating expenses decreased to 68.7% from 77.6%

• Research and Development expenses for the first quarter of 2022 rose to RMB363 million from RMB281 million, reflecting investment put into enhancing existing solutions and innovations. As a percentage of revenue, R&D expenses amounted to 35.6%, compared with 34.3% in the prior year.

• Sales and Marketing expenses for the first quarter of 2022 decreased to RMB109 million, compared with RMB167 million in the prior year, mainly due to a decrease in marketing and telecommunication expenses. As a percentage of revenue, sales and marketing expenses decreased to 10.7% from 20.4%.

• General and Administrative expenses for the first quarter of 2022 amounted to RMB211 million, compared with RMB180 million in the prior year, primarily due to cost disciplines. As a percentage of revenue, general and administrative expenses decreased to 20.7% from 22.0%. After excluding listing expense in connection with the Company’s proposed listing in Hong Kong, adjusted general and administrative expenses as a percentage of revenue for the first quarter of 2022 was 17.2%.

• Net impairment losses on financial and contract assets for the first quarter of 2022 totaled RMB17 million, compared with RMB7 million for the same period in the prior year, reflecting enhanced periodic review and management efforts in trade receivables and contract assets. As a percentage of revenue, net impairment losses were 1.7%, versus 0.9% in the prior year.

Loss from operations for the first quarter of 2022 amounted to RMB355 million, compared with RMB346 million for the same period in the prior year. Operating loss margin decreased to 34.8% from 42.2% in the prior year. After excluding the listing expenses in connection with the Company’s proposed listing in Hong Kong, adjusted loss from operations for the first quarter of 2022 amounted to RMB318 million, compared with RMB346 million for the same period in the prior year. Adjusted operating loss margin narrowed to 31.2% from 42.2% in the prior year.

Net Loss

Net loss attributable to OneConnect’s shareholders totaled RMB318 million for the first quarter of 2022, versus RMB305 million for the same period in the prior year. Net loss attributable to OneConnect’s shareholders per basic and diluted ADS amounted to RMB-0.86, versus RMB-0.83 for the same period in the prior year. Weighted average number of ADSs for the first quarter was 370,012,917.

Cash Flow

For the first quarter of 2022, net cash used in operating activities was RMB1,119 million. Net cash generated from in investing activities was RMB1550 million. Net cash used in financing activities was RMB557 million.

Conference Call Information

Date/Time

Wednesday, May 25, 2022 at 9:00 p.m., U.S. Eastern Time

Thursday, May 26, 2022 at 9:00 a.m., Beijing Time

Online

registration

https://www.incommglobalevents.com/registration/q4inc/10962/oneconnect-financial-technology-co-ltd-1q22-earnings-release/

An archived recording and the transcript of the conference call will be available at OneConnect’s investor relations website at ir.ocft.com.

About OneConnect

OneConnect Financial Technology Co. Ltd. is a technology-as-a-service provider for financial institutions. The Company integrates extensive financial services industry expertise with market-leading technology to provide technology applications and technology-enabled business services to financial institutions. The integrated solutions and platform the Company provides include digital retail banking solution, digital commercial banking solution, digital insurance solution and Gamma Platform, which is a technology infrastructural platform for financial institutions. The Company’s solutions enable its customers’ digital transformations, which help them improve efficiency, enhance service quality, and reduce costs and risks.

The Company has established long-term cooperation relationships with financial institutions to address their needs of digital transformation. The Company has also expanded its services to other participants in the value chain to support the digital transformation of financial services eco-system. In addition, the Company has successfully exported its technology solutions to overseas financial institutions.

For more information, please visit ir.ocft.com.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident” and similar statements. Such statements are based upon management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company’s control. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company’s limited operating history in the technology-as-a-service for financial institutions industry; its ability to achieve or sustain profitability; the tightening of laws, regulations or standards in the financial services industry; the Company’s ability to comply with the evolving regulatory requirements in the PRC and other jurisdictions where it operates; its ability to maintain and enlarge the customer base or strengthen customer engagement; its ability to maintain its relationship with Ping An Group, which is its strategic partner, most important customer and largest supplier; its ability to compete effectively to serve China’s financial institutions; the effectiveness of its technologies, its ability to maintain and improve technology infrastructure and security measures; its ability to protect its intellectual property and proprietary rights; risks of defaults by borrowers under the loans for which the Company provided credit enhancement under its legacy credit management business; its ability to maintain or expand relationship with its business partners and the failure of its partners to perform in accordance with expectations; its ability to protect or promote its brand and reputation; its ability to timely implement and deploy its solutions; its ability to obtain additional capital when desired; disruptions in the financial markets and business and economic conditions; the Company’s ability to pursue and achieve optimal results from acquisition or expansion opportunities; the duration of the COVID-19 outbreak and its potential impact on the Company’s business and financial performance; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Company’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and the Company undertakes no obligation to update any forward-looking statement, except as required under applicable law.

Use of Unaudited Non-IFRS Financial Measures

The unaudited consolidated financial information is prepared in accordance with International Financial Reporting Standards (IFRS). Non-IFRS measures are used in gross profit and gross margin, adjusted to exclude non-cash items, which consist of amortization of intangible assets recognized in cost of revenue, depreciation of property and equipment recognized in cost of revenue, and share-based compensation expenses recognized in cost of revenue. OneConnect’s management regularly review non-IFRS gross profit and non-IFRS gross margin to assess the performance of our business. By excluding non-cash items, these financial metrics allow OneConnect’s management to evaluate the cash conversion of one dollar revenue on gross profit. OneConnect uses these non-IFRS financial to evaluate its ongoing operations and for internal planning and forecasting purposes. OneConnect believes that non-IFRS financial information, when taken collectively, is helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations, and assists in comparisons with other companies, many of which use similar financial information. OneConnect also believes that presentation of the non-IFRS financial measures provides useful information to its investors regarding its results of operations because it allows investors greater transparency to the information used by OneConnect’s management in its financial and operational decision making so that investors can see through the eyes of the OneConnect’s management regarding important financial metrics that the management uses to run the business as well as allowing investors to better understand OneConnect’s performance. However, non-IFRS financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with IFRS, and may be different from similarly-titled non-IFRS measures used by other companies. In light of the foregoing limitations, you should not consider non-IFRS financial measure in isolation from or as an alternative to the financial measure prepared in accordance with IFRS. Whenever OneConnect uses a non-IFRS financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with IFRS. You are encouraged to review the related IFRS financial measures and the reconciliation of these non-IFRS financial measures to their most directly comparable IFRS financial measures. For more information on non-IFRS financial measures, please see the table captioned “Reconciliations of IFRS and non-IFRS results (Unaudited)” set forth at the end of this press release.

ONECONNECT

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three Months Ended March 31

 

2022

 

2021

 

RMB'000

 

RMB'000

 

 

 

Revenue

1,018,938

819,765

Cost of revenue

-669,907

-541,210

Gross profit

349,031

278,555

 

 

 

Research and development expenses

-363,013

-281,299

Selling and marketing expenses

-108,907

-167,054

General and administrative expenses

-211,301

-180,457

Net impairment losses on financial and contract assets

-17,214

-7,104

Other income, gains or loss-net

-3,491

11,229

Operating loss

-354,895

-346,130

 

 

 

Finance income

2,446

18,157

Finance costs

-12,124

-26,235

Finance costs – net

-9,678

-8,078

Share of losses of associate and joint venture

11,537

4,547

Loss before income tax

-353,036

-349,661

 

 

 

Income tax benefit

20,728

26,871

 

 

 

Loss for the period

-332,308

-322,790

 

 

 

Loss attributable to:

 

 

- Owners of the Company

-317,585

-304,732

- Non-controlling interests

-14,723

-18,058

 

 

 

Other comprehensive income, net of tax

 

 

Items that may be subsequently reclassified to profit or loss

 

 

- Foreign currency translation differences

-23,193

50,099

- Changes in the fair value of debt instruments at fair value through other comprehensive income

12,523

1

Total comprehensive loss for the period

-342,978

-272,690

 

 

 

Total comprehensive loss attributable to:

 

 

- Owners of the Company

-328,255

-254,632

- Non-controlling interests

-14,723

-18,058

 

 

 

Loss per ADS attributable to owners of the Company

 

 

(expressed in RMB per share)

 

 

- Basic and diluted

-0.86

-0.83

ONECONNECT

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31

 

December 31

 

 

2022

 

2021

 

 

RMB'000

 

RMB'000

 

 

 

 

ASSETS

 

 

 

Non-current assets

 

 

 

Property and equipment

 

259,506

244,412

Intangible assets

 

653,232

687,194

Deferred tax assets

 

707,342

683,218

Financial assets measured at amortized cost from Virtual bank

 

 

674

Investments accounted for using the equity method

 

196,883

185,346

Financial assets at fair value through other comprehensive income

 

735,926

640,501

Contract assets

 

145

868

Restricted cash

 

9,000

 

Total non-current assets

 

2,562,034

2,442,213

 

 

 

 

Current assets

 

 

 

Financial assets at amortized cost

 

 

3,515

Trade receivables

 

1,274,817

891,174

Contract assets

 

198,986

227,895

Prepayments and other receivables

 

890,640

749,152

Financial assets measured at amortized cost from Virtual bank

 

9,307

12,711

Financial assets at fair value through profit or loss

 

917,561

2,071,653

Financial assets at fair value through other comprehensive income

 

782,730

482,497

Restricted cash

 

475,314

1,060,427

Cash and cash equivalents

 

1,270,695

1,399,370

Total current assets

 

5,820,050

6,898,394

Total assets

 

8,382,084

9,340,607

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

Equity

 

 

 

Share capital

 

78

78

Shares held for share option scheme

 

-79,752

-80,102

Other reserves

 

10,513,082

10,512,631

Accumulated losses

 

-6,956,210

-6,638,625

Equity attributable to equity owners of the Company

 

3,477,198

3,793,982

 

 

 

 

Non-controlling interests

 

26,377

41,100

 

 

 

 

Total equity

 

3,503,575

3,835,082

 

 

 

 

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Trade and other payables

 

323,322

313,834

Contract liabilities

 

19,041

19,418

Deferred tax liabilities

 

8,347

9,861

Total non-current liabilities

 

350,710

343,113

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

2,107,183

2,137,099

Payroll and welfare payables

 

314,429

515,067

Contract liabilities

 

164,269

153,844

Short-term borrowings

 

294,829

815,260

Customer deposits

 

1,424,078

1,350,171

Derivative financial liabilities

 

223,011

190,971

Total current liabilities

 

4,527,799

5,162,412

Total liabilities

 

4,878,509

5,505,525

 

 

 

 

Total equity and liabilities

 

8,382,084

9,340,607

ONECONNECT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended March 31

 

 

2022

 

2021

 

 

RMB'000

 

RMB'000

 

 

 

 

Net cash generated from / (used in) operating activities

 

-1,118,694

-460,783

Net cash generated from / (used in) investing activities

 

1,550,267

1,028,447

Net cash generated from / (used in) financing activities

 

-557,038

-1,264,659

Net increase /(decrease) in cash and cash equivalents

 

-125,465

-696,995

Cash and cash equivalents at the beginning of the period

 

1,399,370

3,055,194

Effects of exchange rate changes on cash and cash equivalents

 

-3,210

2,681

Cash and cash equivalents at the end of period

 

1,270,695

2,360,880

ONECONNECT

RECONCILIATION OF IFRS AND NON-IFRS RESULTS

(Unaudited)

 

 

 

Three Months Ended March 31

 

 

2022

 

2021

 

 

RMB'000

 

RMB'000

 

 

 

 

Gross profit

 

349,031

278,555

Gross margin

 

34.3%

34.0%

Non-IFRS adjustment

 

 

 

Amortization of intangible assets recognized in cost of revenue

 

44,436

76,746

Depreciation of property and equipment recognized in cost of revenue

 

812

600

Share-based compensation expenses recognized in cost of revenue

 

880

921

Non-IFRS Gross profit

 

395,159

356,822

Non-IFRS Gross margin

 

38.8%

43.5%

   

 

 

Three Months Ended March 31

 

 

2022

 

2021

 

 

RMB'000

 

RMB'000

 

 

 

 

Operating Loss

 

-354,895

-346,130

Operating loss margin

 

-34.8%

-42.2%

Net Loss to shareholders

 

-317,585

-304,732

Net loss ratio

 

-31.2%

-37.2%

Adjustment

 

 

 

Listing expense in connection with the Company’s proposed listing in Hong Kong

 

36,486

0

Adjusted Operating Loss

 

-318,409

-346130

Adjusted Net Loss

 

-281,099

-304,732

Adjusted Operating loss margin

 

-31.2%

-42.2%

Adjusted Net loss ratio

 

-27.6%

-37.2%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220525005544/en/

Investor Relations: OCFT IR Team OCFT_IR@ocft.com

Media Relations: Amy Ding PUB_JRYZTPR@ocft.com