[
    {
        "audio": "4449269.mp3",
        "file_id": "4449269",
        "ticker_symbol": "ERJ",
        "country_by_ticker": "Brazil",
        "un_defined": "Latin America and Caribbean",
        "major_dialect_family": "Other",
        "language_family": "Spanish/Portuguese",
        "file_length": "2656",
        "sampling_rate": "22050",
        "transcription": "Good morning, ladies and gentlemen, and welcome to the ESG Flight Plan event in Embraer, second quarter 2021 financial results. Thank you for standing by. I'm Felipe Calzada and I'll be your host for today. At this time, all participants will watch our financial results presentation. Right after we'll conduct a question and answer session, and instructions to participate will be given at that time. If you should require any assistance during the event, you can do so using the chat box on the platform. As a reminder, this presentation is being recorded and webcasted at Writer's platform. Before we begin just a legal statement. This conference call includes forward-looking statements or statements about events or circumstances, which have not occurred. Embraer has based this forward looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward-looking statements are subject to risks, uncertainties, and assumptions, including among other things, general economic, political, and business conditions, in Brazil and in other markets where the company's present. The words believes, may, will, estimates, continues, anticipates, intense, expects, and similar words are intended to identify those forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statement because of new information, future events or other factors. In light of this risks and uncertainties, the forward-looking and circumstances discussed on this conference call might not occur. And the company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference are Francisco Gomes Neto, president and CEO, Antonio Carlos Garcia, chief financial officer and procurement, and Eduardo Couto, director of investor relations. And now, I would like to turn the conference over to Francisco Gomes Neto. Please go ahead, Francisco. Thank you, Felipe. Good morning to all, and thank you for joining our call today. I hope that, uh, all of you are well and safe, and thank you for your interest in our company. As you will see in Antonio's presentation, our results for the quarter were strong. The Q2 results are a clear example that our strategic planning has been well executed with the right focus and discipline showing significant improvement in our financial performance. Before we go into more details regarding the Q2 results, I'd like to highlight the good momentum we are going in the different business segments. In commercial aviation, we announce that a new firm order for third E195-E2 from the Canadian Porter Airlines' with, uh, purchase rights for 50 more aircraft. We also announce that new firm orders for 34 E175 jets to Horizon Air and Sky West to be operated for Alaska Airlines and the Delta Air Lines. These new orders and other activity campaigns reiterate the continuous interest in the E jet family as the best option in the regional aviation market. In as executive aviation, we keep up the momentum with the record sales in the quarter. We maintained our price discipline strategy and had a strong backlog growth with book to build in excess of two to one for this business. In the defense insecurity, we delivered seven Super Tucano aircraft in the first half of the year. Also, we had strong performance in our cybersecurity and systems integration companies with double digit revenue growth in the first half of this year, compared to the first half of last year. Further, in the second quarter, the KC-390 Millennium reached an important milestone by successfully performing unpaved runway tests. Although we are currently in negotiations with the Brazilian Air Force on the KC-390 Millennium contract, we're continuing to be focused on the new export sales campaigns for this aircraft, as well as the Super Tucano. In services and support, we are pleased with the strong second quarter results with better revenues and higher margins as traffic recovery and a strong maintenance activity drove 55% revenue growth in the second quarter. It is exciting to see the continued positive sales activity in services with due signed with several important customers across all markets and at OGMA, driving backlog, backlog expansion for this segment during the period. This was further highlighted by the contract we signed with Porter Airlines for a 20 year total support program. With respect to innovation, we continue to make progress on partnerships in the urban air mobility ecosystem through our subsidiary, if in a segment with a strong growth potential in the years to come. In addition, our service collaborative platform Beacon, signed agreements with key customers, such as Republic for its maintenance applications. Finally, on the operations front, we continue to see great improvements. We expect a 16% increase in inventory returns compared to 2020 and a 20% reduction in production cycle time of our aircraft this year, positively impacting working capital and production costs. I will now hand it over to an Antonio Garcia, our CFO, to give further details on the financial results and I will return in the end. Thank you. Thank you, Francisco. And good morning, everyone. I will start for our backlog for the quarter. On slide seven, the graph shows we ended the second quarter at 59 billion up 1.7 billion or 12% from the prior quarter. This represent a return to the same 15.9 billion we were at in 2020 before the pandemic began. In our commercial aviation business, we closed 48 aircraft sales in the quarter, is spread across several different airlines, In executive aviation, we had to record second quarter sales, a solid backlog as demand for light and larger business that continue to grow. Backlog service and support and defense and security also grew from the prior, prior quarter level. In summary, it was the best sales quarter since mid June, 2019. This give us confidence in our plans for future revenue growth and improvements. Moving to slide eight, you can see the continuous improvement in aircraft delivers compared last year and both commercial aviation, executive aviation. In commercial aviation, we delivered 14 aircraft in the quarter. This represents a 56% increase compared to the prior quarter and 250% increase compared to the second quarter in 2020. Year to date delivers, we were at 23, almost two and a half times higher than the same period in the prior year. Of these 23 delivers, 14 were each choose compared to four each choose in the same period last year. Sales continues to perform very well for the two as the most efficient right side of single oil aircraft for the world post-pandemic. In executive aviation, we delivered 12 l- jets, light jets, and eight larger jets for a total of 20 aircraft in the second quarter. This represents 54% increase compare to both first quarter, 2021 and the second quarter part of the prior year. Year to date delivered, uh, executive aviation delivered 33 aircraft, a 50% increase compared to the first half of 2020. As noted in the guideline, the guidelines 2021, we published this morning, we expect delivers of commercial jets to reach between 45 to 50, 50 aircraft and executive jets to reach between 90 to 95. Aircraft. On the slide nine, we show Embraer net revenue. Embraer had the solid revenue growth in the quarter as all four business units rebrand is stronger from the pandemic. Our top line more than doubles compared to the second quarter of last year. Growth came primarily from higher deliveries in commercial aviation, although all our segments showed much improved growth during the quarter. Year to date narrow, net revenue was just under 2 billion, that's 767 million or 65% increase over 2020. Net revenue breakdown by business show Embraer diversification, with commercial aviation representing 34% of the total revenues, service and support at 28, executive aviation, 22, and defense 16%. It's important to highlight the strong recovering commercial aviation as this b- The strong recovering commercial aviation, as this business was severely impacted by the pandemic last year, is like, 10 SG&A expenses reduction continues to trend very favorably over the last six quarters. We remain highly focused on SG&A efficiencies that are being implemented since the component inaudible last year. Although the second quarter has a slight increase in SG&A this was primarily driven by increase in provision for inaudible and performance based inaudibleprogram due to better expected results for the company 2021 as compared to 2020 Combined with consolidation of expenses from Pampus, our new cyber security component acquired in the end of 2020. Selling expenses remains an historical low levels compared to the prior quarters, selling expenses increased 4% while net revenue increased over 40% sequentially. As percentage of net revenue, selling expenses was 4.2% in the second quarter compared to 5.7% in the first quarter. We achieved this results by leveraging our sales activity as volume increased combined with some more cost efficiency digital sales effort. It is like, a 11 shows are adjusted EBIT and adjusted EBITDA. We are very encouraged by this stock market performance across all business segments in the second quarter. Our adjusted EBIT margin was 9.3% up 13 percentage points over the first quarter. Our adjusted EBIT margin was in double digits at 14% or up over 16 percentage points from the first quarter. Both of these profitability matrix have recovered to the level that was seen before 2020. For the first half of 2021, our adjusted EBIT margin was 0.9% and our adjusted EBITDA margin was 9.2%, both well above prior year level. This improvement comes from several factors including higher delivers, resulting in higher revenue, better growth margin on improved pricing, mixed product efficiency, fixed cost leverage on higher volumes and favorable tax obligation, reversal of this quarter of approximately 25 million. All of our segment has much better performance in the second quarter, adjusted EBIT margin by segment in the second quarter were as follows. Commercial aviation was at 1.7% negative, which although negative, shows a great improvement from last year. Executive aviation was at positive 8% with a strong price discipline and consistent profitability. Defensive security was at positive 25% led by Super Tucanos delivers along with positive adjustments on certain defense contracts. And serves and support was at 19% as a strong contribution from the spare parts programs. inaudible shows our adjusted net income. It was positive for inaudible in the second quarter. This represents the first net profit on a quarterly basis since 2018. They are recovering against net income, is primarily driven by improved operative margins, reduction in financial leverage also contributes to improved profitability and any future that redemption would naturally have any additional positive impact on earnings. inaudibleI would like to begin with free cash flow. Free cash flow in the second quarter was positively 45 million, 272 million higher than first quarter and 570 million higher than the same period of last year. This is a remarkable achievement. Although, here to-date the cash flow is negative 181 million, this is compared if you have free cash flow built of around a billion of the first half of 2020. We expect positive free cash flow from the second half of the year of 2021 as indicated in this morning guidance. Now to investments. Our total investments were 50 million in the second quarter and 89 million year-to-date both of which are in line with last year levels. This is important because it shows we continue to invest in our future. We have been very adjusting the balancing the need to invest our future with the need to preserve cash. It is like inaudible shows our cash and liquidity position. We end up the quarter with two points, 49 billion cash and cash equivalents. I like to increase it from the end of the first quarter. Our debt balancing was at 4.3 billion, a light decrease from 3 months ago. Our average debt maturity remains at 4 years. We expect to continually generate cash in the second half of 2021 and beyond so our leverage will naturally decrease. This will correspondingly reduce our net interest and expense and have an additional positive impact on net income. Finally, inaudible Embraer has published 2021 financial delivers guidance for the first time since the start of pandemic. Despite of risks of economy recovery, vaccination rates around the world and with the solid first half and good visibility for the remaining of the year, we decided to share the inaudible our targets for 2021. We expect to deliver between 54 to 50 at commercial jets, just to correct 45 to 50 commercial aircraft in 2021 and 90 to 95 ejector jets in the year. We have good confidence in both figures as our skyline are inaudible filled for both segments combined with the inaudible credit and continue to recovering the services support inaudible recover globally, we expect consolidated revenues to be between 4 and 4.5 billion dollars this year, representing a low inaudible which grow at the media point compared to the last year. Adjusted inaudiblemodule should be in the range of 3 to 4% and adjusted inaudible for 2021 should be between 8.5% to 9.5%. Embraer has had in the first half of 2020 margin in these ranges as we expect these good margins to repeat in the second half of the year. It is important to mention that those margins includes cost related to the integration of commercial aviation as well as expenses related to the arbitration process. Finally, our free cash flow guidance is arranged from free cash flow users of 150 million total break-even for 2021. We had 181 million of free cash users in the first half of the year, so we are anticipating Embraer to generate up to 180 million cash in the second half of 2021 without any cash inflows from inaudible. With that I conclude my presentation and hand it back over to Francisco for his final remarks. Thank you very much.Thanks Antonio. The second quarter results and the guidance for the year reinforce our confidence in our strategy and this confidence motivates us to accelerate the performance improvements then the delivery of our long term strategic plan with focus and discipline. As I had mentioned in the past, this year is one of recovery and next year and beyond we plan to capture, embrace full potential to grow with profitability. Looking ahead, we foresee in the mid-term the potential to double the size of the company and that doesn't include new strategic projects. We are going to be bigger and stronger, focusing not only on the top line, but also much higher profitability. We are already showing some positive results of the hard work our united and motivated teams of employees have done over the past several months. With expectation for positive operating profit this year and much better free cash flow performance with a clear potential to break-even for the year. This will be supplemented by partnerships and new programs to drive even higher growth opportunities. We are also advancing on our ESG journey and right after the Q and A session, we will share with you our new ESG commitments. I invite everyone; therefore, to remain online for this ESG event which will start just after the results Q and A. Also, we are looking forward to a new chapter of Embraer with our-\u2026 forward to a new chapter of Embraer with our extraordinary shareholder meeting scheduled for next Monday. We expect our shareholders to approve the election of two international board members with extensive global aerospace industry experience, following constructive feedback from analysts and shareholders to improve our corporate governance. These candidates have deep technical knowledge, strategic profiles, and an innovative thought process. Finally, I will close today by thanking everyone for this strong quarter. It always starts with our people and their focus and passion on executing our strategic planning. As I mentioned to you in the last earnings call, we are a different company today. We are in a process of transformation and we are moving fast. Thank you for your interest and confidence in our company. Over to you, Philippi. Thank you very much, Francisco. And before we continue, we'd like to show you a video. Check this out. The world is a different place to a year ago. Industries have changed, aviation perhaps more than any other, Embraer has changed too. We're leaner, more agile, and fit for growth. We're already on a path that will make us bigger and stronger, and with an all new product portfolio that are the most efficient and technologically advanced in their class, all built with the passion to improve sustainability, economics, cost efficiencies, and driving new innovations. We're better adapted to the challenges and opportunities of now. Like our customers, we're always looking above and beyond what was previously thought possible. That's why the world looks to Embraer. We are right for the world ahead, right now. Embraer, challenge, create, outperform. And now, let's move on to our questions and answers sessions we are preparing this side here, and remember that questions can only be sent to the writers platform. Eduardo Colto will be our moderator, and he already has some questions with him. Eduardo, over to you. Thanks. Um, thanks Philippi, we start now the Q&A. So let me see the questions that we have. Uh, a first question we have is, can you give an update on the SPAC negotiations with Eve? I don't know, uh, Francisco, Antonio, who wants to take that? Yes, thank you, I do. Thanks for the question. I mean, at this point of time, we can say that, uh, the negotiation is moving very well, I would say. We are very optimistic with this process. Okay. Uh, moving on the questions, second question we have, uh, what or- what work has Embraer been doing to develop electric aircraft in making this product more viable for customers? Uh, thank you, also good question. Well, we, we had our first technical flight recently with the Ipanema full electric. And, um, we hope to present this aircraft to the, to the public soon. And, uh, continue to, to invest in this, uh, electrification field as one of the, one of the innovations, uh, innovation fronts that we have, I mean, to be in line with the ESG, uh, activities that we are moving fast, uh, uh, in Embraer. Great. Uh, third question we have from investors is from, uh, Vitor Misosaki from Verbesco. He said, the inaudible showed a material gross margin expansion in the second quarter. Can you give a more details about that, Antonio? Uh, Vitor, thanks for the question. We, we had in the second quarter, two main facts, uh, on the defense side. First one was the Super Tucano deliver that we were not able to deliver in Q1, that flows to the Q2 figures. In addition to it, we have the, uh, uh, adjustment in the defense contract we have in the local inaudible in Brazil. I- I would say both effects, higher delivers in Super Tucano and the, uh, adjustments in the contracts lead us to this 25% margin in Q2. Okay. Very good. Uh, next question comes from, uh, UBS. Uh, could you comment on the 25 million reversal mentioned in the press release? Also, what was the positive cost base revision related, uh, uh, related on the results? So thanks for the question. First point, we, we built a provision 2018 for the Brazilian guys here, inaudible that we had a claim, discuss, been discussing 2018. And we, we were able to gain this, uh, this claim, uh, in second quarter, that's why we reversed the, this tax position. That was also already adjusted in 2018, that's why we also consider in our results. And the second question was in, in, in regards to the contracts. We have an adjustment here around $10 million in the second quarter, that were both effects. It's important also to mention that even that we have this tax reversal, 25 million, let's put first quarter, the second quarter. And we do have all the tax, of course, that we are not adjusting, that's also not, I would say, uh, for example, a reintegration of commercial aviation and arbitration costs, which is more or less net this 25 million, I would say. The numbers you are seeing right now, I would say, combined Q1 and Q2 is really, uh, for me describe the real performance of the company. Okay. Uh, we have several questions about, uh, about Eve. I will try to, to summarize them. So basically, any general updates on your Eve eVTOL initiatives? Would be very helpful, particularly all negotiations with Zanite. We already talk a little bit, but maybe an update of the eVTOL, uh, Francisco, Antonio? Yeah. Well, we, as I said, we are very excited with this, uh, with this initiative, with this product. I mean, we, we had, uh, the, the first flight with the prototype scale one to three, a successful test by the way. Now we are preparing the, the, the next, uh, next test with the prototype, uh, scale one to one. And, uh, technically, it's moving very well. We are, we are planning the certification by 2025, and entering service in 2026. And about the negotiation with Zanite, I mentioned already, that's moving very well. Okay. Very good. Now moving to business jet, we have a question from Credit Suisse. Um, uh, business jet has been very strong, uh, and in the first quarter results, you mentioned half, uh, of the delivers were for first-time buyers, in the second quarter, how much were first-time buyers? Maybe you an give an overview of the business jet market? Yeah, I can do it. Yeah. crosstalk I can say, uh, today in our backlog, the portion of first-time buyers, I would say, is a third, something like 30%. In our backlog in delivered for the whole year, we are talk about 30% first-time buyers. And we are growing with the market, if you see the industry book to be between one to five, to two to one, uh, one to five to one, and two to one to two. And we are, I would say, a little bit above that, and it's doing pretty well but for sure, the first buyers portion also inaudible in the light jets category. Uh, now there is a question on commercial from Credit Suisse. Uh, your guidance for commercial delivers of 45 to 50 seems low given your\u2026 you have already delivered 23, uh, jets. Uh, are there any supply chain issues that could prevent you from being above, uh, that range? Uh, also, they are asking, what do you see in terms of the numbers for 2022? Any, any color on that? Let's say, uh, let's take into account that commercial aviation is still suffering for the pandemic, huh? What we are giving as a guidance to deliver this year is now a little bit higher to last year. Last year, we delivered 44, and for sure, we are selling more, but it's going to impact more 2022. And the fact that we, we deliver already 23 aircraft is because it's really divided, no, uh, throughout the year. Uh, that's why the, the 47, uh, I would say between fif- uh, 45 to 50, is the number ha- we are having. And we do see, I would say, around 30% for next year, between the 65 to 70 aircraft. That has to be confirmed, but it's more or less the number we are seeing. It's important to mention, we do see commercial aviation coming back to historical levels at inaudible uh, from 2023 onwards. We are selling more but the sales quarter we are closing right now is going to fulfill this timeline starting 2022. And 2021 is more or less the same level from 2020. Uh, if inaudible Antonio, I'd like to, to, to make a link between this, uh, answer and the result of the company. It is true that, uh, in this first half of the year comparing to the first half of, uh, last year, we did much better in terms of deliveries, i- in terms of results. The numbers speak by themselves. But if you look at the, the gui- the guidance for the, for the entire year, you see that, uh, no, as planned, we won't see a huge increase in volumes in the, in the commercial or, or, or, or executive. Yes, we have seen some, some growth, now that growth gives you a compare to, to the last year. But the improvements in the results, I mean, either, uh, uh, the, the EBIT coming from almost minus 3% last year to something between 3 and 4% this year, or the free cashflow from minus 900 million last year to something between minus 150 and zero this year, all this good performance is, is came from efficiency gains, pure efficiency gains. We really did a good right size in the-\u2026 efficiency gains, pure efficiency gains. We really did a good right size in the organization, we are improving, uh, uh, I mean, a lot of activities on cost reduction, on inventory reduction, uh, uh, in all the company, you know? I mean, pushing the sales for the future. So again, I mean, from next year on, I mean, we, we expect that, uh, w- with a, with a, with a stronger growth in the, in the, in the volumes, in all the, the business units, and with this, uh, more efficient and agile company, there you see, uh, a much better performance. So that's why our result is coming from this year from efficiency gains from some additional sales, of course, but mainly from efficiency gains. And just to complete in the question from supply change issue, no? What we are put in the guidance and what we agreed with our customers for this year, at least for the commercial aviation having not seen any supplier chain, I would say, problems this year. Okay. We have, uh, several other questions, so the next one is related to margins and free cashflow. So the question is, how do we see margins per business in the long term? And, uh, and what sort of free cashflow conversion, EBITDA into free cashflow conversion does Embraer expect? Antonio. So I\u2026 in regards to margin, we do see, uh, let's in the long term perspective, we do see service and support double digit as it is today. We do see executive in the sales single higher digit area we are more or less in also today. And we so see the, the commercial aviation, I would say, uh, mid-single digit, close between 3 to 5% in the long term. That's what we see. In regards to profitability for the company and in regards to the cash\u2026 the conversion from EBITDA to, uh, EBIT, today I would prefer to talk, we are seeing today a 50% conversion from EBIT to cashflow. We still need d- to improve something, but it's more or less the inaudible use internally, we do see today in the longer run, 50% of the EBIT being converted into cash for the years to come. So the next question is, uh, from JP Morgan, inaudible. In what rate on the sales campaigns for commercial aviation could we see more orders during the second quarter? Yeah, good question. Yes, we, we have a lot of, uh, active, uh, sales campaigns ongoing on our commercial aviation. We, we just announced this sales for, for SkyWest with, uh, 16 aircraft, and, uh, yes, we are\u2026 we have more to come. By the way, the SkyWest, it's not part of the backlog in Q2, no? We are going to book this 17 aircraft in Q3. 17 aircraft, correct, aircraft, correct. Thank you, Antonio. Uh, there is a question here from Lucas, uh, from Santander, uh, talking about, you know, inflation. Can you please comment on how the company see the raw material inflation, and how is the company offsetting this impact? I would say, uh, we do see in our final products, inflation, I would say. On index, we have with our suppliers, between 2 to 3% for next year, and to, to the customer side, we have also the, the real adjustment clause with the index, I would say. Uh, our, uh, takeaway for next year is a balance between what we have internal inflation, and the passover to the customer base. That's more or less what we are seeing, but there is in some indicators, uh, a spark in deflation with the index for next year, that we, we are going to discuss for our customer base. Moreover, we do have, we did this year and we, we are doing this year, and we tha- we do have also a lot of design inaudible inside Embraer to reduce the base of the cost we have today, without any impact on any inflation or indicators. Very good. So now moving to new projects, there is a question from inaudible And what date are the partnerships for the turboprop aircraft? Also good question. Well, this front is also moving very well, especially with a, with the moves, uh, uh, with the recent interest of, uh, US airlines in that product. So we, we see that product as a, as a good alternative for, for that market and other market as well, and also, as a preparation for, for new technology in the future. So we are, we are very optimistic and working hard to, you know, to a- to accelerate this, uh, partnership front. Okay. Um, I think we have at least one final question. It's back to commercial aviation. What do you expect\u2026 It- It's from, uh, WTS, what do you expect in the mid to long term in commercial aviation as we are seeing recovery in demand for flights and also renewal for having more sustainable fleets? Yeah, good question. Thank you, sure. A- Again, we have, uh, you know, I mean, globally, 94% of the Embraer fleet back in the skies in the US, I mean, uh, uh, 97% of the Embraer fleet is, is, is flying again. So it shows that the, the recovery in the domestic market really is coming, and that's why we, we are working in very, in very, uh, serious camp- a lot of serious campaigns in that segment, for E1s and, uh, E2s as well. So we, we, we are working hard to take advantage of this moment. As Antonio mentioned that we see volumes growing, I mean, in 2020, but, uh, s- strongly from 2000\u2026 uh, uh, 2022, but strongly from 2023 onwards. Um, I think a final question, uh, it's related to defense. Can you please comment on the expectations for new inaudible orders? Well, it's, uh, uh, as I said in the, in the opening, we are working in the, in many, in many sales campaigns for, for employed sales campaigns for the inaudible. And also, I mean, we are working in the\u2026 to develop partnerships that will help us to open, uh, new markets for that great, uh, aircraft. Uh, I think that, that's what we had on the Q&A. Um, so I think, uh, that concludes the Q&A. Um, I wanna thank you all for, for the questions and the time. So now, yeah, Antonio or Francisco, no comments? Okay. Thank you all. Yeah, thanks a lot. Thanks a lot. So thanks for, for, for your interest in supporting our company. We are living a really a special moment. As I said before, this year is the year of, uh, recovery, the year of turnaround, and\u2026 for Embraer, and the numbers, as I said before, speak by themselves. We expect, uh, to have, uh, a much better year in 2021 compared to the, to the last year, coming from a very tough crisis, as you know. And we hope to, you know, we expect to capture the new Embraer, uh, potential from\u2026 to grow from 2022 onwards. So thank you very much for your support. Thank you. Thank you. So this concludes today's Q&A session, that in turn concludes Embraer's Second Quarter 2021 Financial Results Presentation. Thank you very much for your participation."
    },
    {
        "audio": "4481601.mp3",
        "file_id": "4481601",
        "ticker_symbol": "UBMRF",
        "country_by_ticker": "Canada",
        "un_defined": "Europe and Northern America",
        "major_dialect_family": "North American",
        "language_family": "English",
        "file_length": "2515",
        "sampling_rate": "24000",
        "transcription": "Maybe we can start, uh, Simon? Uh. Yeah. I just admit two more. I think we're, uh\u2026 Yeah, inaudible we have, uh\u2026 We can start, definitely. Perfect. All right. So, I will do the introduction. Thank you everyone for being with us today. I'm recognizing a lot of names that we, uh\u2026 That have been following Urbanimmersive for uh, quarter to quarter. So uh, it's a pleasure to, uh, see you again today. Uh, for those who don't know me, my name is Ghislain Lemire. I'm the CEO, co-founder of Urbanimmersive. Welcome to our fourth quarter financial result, end of year investors' conference call. Um, French. For a reason of being efficient inaudible efficient and respect our time, we'll be doing this uh, call in English. Uh, but we will take both English and French questions at the end. Joining me today, uh, as usual, uh, I have uh, Simon Bedard, our CFO. And I'm just looking at, uh, my screen, and I see Francois Liberge, our new, uh, executive vice president. During the call, we might make forward looking statements during future financial performance, operations, products inaudible. Although, we believe our expectations are reasonable, we cannot guarantee these results. So again, we caution to read and consider all the risks factors described in our last MD&A. If not, it's gonna be on SEDAR pretty soon or in our annual information form that you can find on SEDAR again. So, the agenda will be quite uh, different, slightly different\u2026 Sorry, uh, compared to the last quarter. So, what we wanna do is uh, Simon will, uh, start with by um, going to the uh, last quarter and year end financial highlights. He will talk about some business highlights as well. And then afterwards, what uh, we thought that could appreciate today\u2026 Because it's the end of the year, we're starting a new year, um, we thought that, you know, we will take 15 minutes and do a short, uh Urbanimmersive deck presentation so that, you know, we can put everyone on the same foot, uh, in regard our\u2026 In regards of the, how the management is seeing Urbanimmersive, how we describe it, and what is, you know, our focus and goals uh, going forward. So, without further ado, I will turn the call to Simon. Simon. Hi, good afternoon, everyone. Uh, we see have a lot of uh, participants, investors, today. So, thanks for uh, your interest in being uh, present on that uh, on that call today. Um, so, what I'd like to do is similar to what I've done in the last quarter, just maybe put some uh, some color into uh, the uh, the uh, financials that were, uh, published in the press release morning. Um, I want to apologize. The i-\u2026 We don't have the, the SEDAR filing yet. But the French version should be available uh, within the next hour from, uh, my friend inaudible telling me. Uh, sorry, they had some, some quality issues, uh quality control issues this morning. And the English version should follow uh, within 48 uh, hours. That said, if you have more detailed questions with regards to those financial statements, wer- once they're available in SEDAR, really feel free to contact me, uh, by my phone or email. And I will answer uh, all questions you have uh, with regards to our uh, our financials. So, um, in terms of uh, our, our uh, Q4 and 2021 uh, financial result. To start with, uh, if we talk about revenues, uh, for the next year, we end up, uh\u2026 We closed the year at slightly above 4 million in revenues compared to 4, 4.6 uh, last year. So, it's a 11% uh, decrease. Uh, that decrease is uh, I would say, i- is explained in most cases by the, uh, the decrease in sales of 3D uh, photography equipment. Uh, that was expected, uh, by the way, by, by, by 600,000. If you remember, last year, uh, well, we were pretty happy to have, to have acquired, uh ImmerSolution, uh, and benefit from the good\u2026 A, a solid year of demand for c- 3D cameras, uh, at, at the beginning of the pandemic. But we knew that the crosstalk uh, it won't be sustainable uh- crosstalk. uh, over the year. Sorry. There's someone, uh- inaudible. Okay. We're back. Uh, yeah. So uh, so, that was expected, uh that, of course, we'll, we'll go back to a, a normal level of sales. Uh, what is this normal level? Maybe next year, we can expect some, sometime- something around two to $400,000, but not what we've seen in the beginning of the pandemic where people were, had time to, to buy cameras and try it. And basically uh, uh, that was a, a, a, a boom. But that was a onetime thing. So, we don't expect this to continue. Um, uh, uh, on the side, uh, if we look at the SaaS, uh, SaaS sales, we're uh, we're down 7% uh, compared to last year. But uh, of course, we, we\u2026 You may know that we're uh\u2026 Our company's, still today, uh, uh, mostly transactional, uh, driven. Uh, but, you know, in terms of the revenues, transactional based, meaning that yes, we're progressively moving to s- some uh, some revenue um, recurring streams with the new subscription package that we have inaudible we'll talk about a bit later. But still, today, we, we're heavily transactional based. And, and, and the fact that the market is uh, in terms of number of transaction, in terms of number of listings, uh, is down just this year compared to last year, 30, near to 30% or 23%. That's in, uh, Canada with Centrist. But in the US, it's also in that range, so between 25 to 30%. And if you remember last year, we were down 30%. So, if you can accumulate that, we're basically down 60% over two years in terms of uh, again, uh, inventory and number of transactions. Uh, i- and if you combine this to a, a very quick turnover ratio where properties and, and houses sold most of the time, within 24 to 48 hours, uh, they don't need that much of marketing tools uh, because they sell it inaudible. That's just another factor, uh, that uh, we're facing right now. We, we think that inaudible of course, should be temporary. We don't have a crystal ball, Well, we're gonna be back to, a normal market. But just to um, to uh, put things in perspective, I was talking about Centrist. We're uh\u2026 Right now, I think we have around 35,000 listings, um, uh, on uh, on Centrist. We used to have 120 at that time, usually. So, it's uh\u2026 Of course, we, we're affected by this. But the fact that we're 7% down uh, in that type of market, uh, I think it's, it's positive. We uh, we're even gaining customers. We're not losing customers inaudible we're gaining customers, uh, with our new subscription package inaudible all different fronts. So uh, so uh, that's why, uh, it's important to understand, uh, the, the market here when we, uh, we look at the, at our uh, at our numbers. Also uh, also, what you have\u2026 What's important this\u2026 In the last quarter is that you'll see that we have our first quarter of uh, s- photo service. Uh, we have revenues of 307, 300- uh, 7000 of uh, photo service. We had, uh\u2026 Those acquisition, if you remember, were on June 30th. So, we only one quarter, uh, this year. But uh, but the ones that were, uh, acquired in June have maybe, uh, uh\u2026 Represent approximately 1.8 million on an annual basis of revenues plus, uh, of course, the one that you've seen that we acquired in Q1 2022, in November and December, meaning that today, uh, I'm not here to, to make guidance of what's gonna be our revenues next year.But based on what the- those, all those company that we acquired has done in the 12 months, we're\u2026 As we posted on our website, we uh, we are at, uh, run rate revenues of approximately uh, 11 million. And out of this 11 million, we have roughly 3 million in SaaS. Uh, as I said, half a million maybe in hardware, uh, and uh, and the seven and a half million remaining is uh, is, is photo service. Uh, so, even Q1 uh, 2022, you can expect that we'll have maybe, uh, two to four weeks of revenues of those uh, new acquisitions that were done in November, December, we, we have the full inaudible do have, in uh, in Q2. So, um, and if we uh, and if we talk about Q4, Q4, we're uh\u2026 Our revenues were 1.1 million compared to 1.4 last year. So, we're down uh, 24 uh, percent on Q4. But we've seen number of the listing have decreased more in Q4 this year. But overall, over the year, as m- as mentioned, we're, we uh\u2026 There was\u2026 In terms of the number of listing and inventory, that was down 30%. So, still, I think we're doing pretty good, uh, in this very challenging market. Um, talking about, uh, 3D tours, uh, that's, that's a positive thing uh, on our end is that uh, we see\u2026 We experience a lot, a lot of growth in the number of 3D tours. Uh, in fact, two- 237% compared to Q4 last year. Uh, we're talking maybe in dollars, around uh, roughly around 70 to $80,000 on new, uh, uh\u2026 Of revenues of 3D tours this year. And that should continue to grow fast because we uh\u2026 You may have seen a few uh, few updates. We provided that before Christmas with regards to new contracts including inaudible for instance. Uh, that should scale up, uh, and deploy uh, m and more cities over, over the month. So, we should uh, that trend should continue to uh, in terms of number of 3D tours to grow, uh, fast in the next, in the next month. That's what we expect. Uh, talk, in terms about gross margin, uh, we're pretty stable compared to last year. Uh, for the three months period, we were at 61% overall compared to 63, uh, last year. And for the year, uh, we're at 65 compared to 68. So, pretty stable. Of course, it depends on the mix of the revenues, uh, because on the SaaS, SaaS portion, our, our gross margin is somewhere 82 and 87%. And on the service, photo service, uh, more 35 to 40. And on the equipment, it's a bit lower. So, depending, depending on the, uh, the, uh, the mix, of course, that will affect our gross margin. But basi-\u2026 um, the, uh, the mix, of course, that will affect our gross margin, but basically this should be representative of next year. And even probably we could improve that a little bit. Uh, when we gonna talk about, uh, some efficiency gains that we'll, we will have, uh, with the, uh, synergies and acquisitions that you say will cover a bit more, uh, a bit more or later. Um, in terms of, uh, net income, uh, there's a lot of noise this year, uh, on the, uh, you know, we can see, we have a, a loss of 3.7, uh, million for a year, but, uh, uh, including 3.2 million of other expenses and out, out of that 3.2 there's 3 million or 2.9, in fact, that comes from, uh, all the adjustment made with regards to the conversion of the, the venture, the, the convertible ventures that are all done as you know, uh, as of today. So, uh, this is, is none a recurring, so, uh, won't be there next year, but, uh, there was just a one time, uh, uh, uh, journal entries this year, but of course that, uh, uh, that explained most of why we, uh, we have that, that loss for, uh, for the year. Um, in terms of, uh, balance sheet. Uh we're uh, we're, we're still in pretty good shape. In fact, uh, as you know, we, we did a, a 3 million private placement in April. Uh, we, uh, that we use for, uh, for, in part for our acquisitions. Um, we, uh, at the end of September, we had 2 million of liquidities. I can, I can tell you that as of today, we're near 1 million. So we use that, uh, an additional 1 million for the acquisition that were done completed in November and December. Uh, so we're, uh, we're pretty, we, we're still in good shape. We have enough to operate and execute our, our, uh, our business plan. No problem there, of course, with that 1 million that will serve as a, as a, as a cushion going forward. So, uh, we don't expect to use more than that on, on acquisition, unless we, uh, we, we, we, we, we, uh, you know, raise additional capital or, or, or debt or, or, or some external funding. Um, uh, and other than that, uh, as you know, throughout the year, we've, uh, we've eliminated our convertible debentures. That was, uh, we reduce our debt in fact by 4.7 million, uh, throughout the year, including 4.5, uh, just for the convertible debentures. Uh, so, so basically again, I think our balance sheet is in good shape and, uh, yeah, that's pretty much the point I wanted to cover. Um, there's in dm, DNA and financial, you'll have some information by segment, uh, where we now track three different segment. Uh, one is the software. Uh, one is the, uh, photo equipment, and one it is the service. So, uh, so again, uh, hopefully I'll be able to, to, to post it on Cedar pretty soon. So you can come back to each after your questions and on that, uh, I think I'll turn the mic to you, Josiah, if you, uh, if you want to maybe give a, a, a bi- a quick business update through the presentation. Absolutely. Yeah. Simon, but just before we jump to the next point on the agenda, uh, is there anyone would like to ask a specific questions about financial that, uh, Simon just covered? Or, uh, you still think about your questions and you're gonna keep it for the end. It's like you want, you know, we can take a couple of minutes just to go over and, uh, clear the, uh, the financial side of it, if you want, otherwise, you know, we're just gonna keep in continuing. So we're seeing any question right now, I will say, raise your end, but you're just, everybody is kind of, uh, closing his camera. So <laugh> I'm not seeing eve- anyone. I just have one, uh, question. crosstalk. Okay. It's Mathew here. Yes, sir. Um, uh, Simon, you mentioned that, uh, you currently have about 1 million in cash and you're not, uh, using any more cash for acquisitions. So, um, how should we think about the, the acquisition strategy going forward? Um, since, you know, the, the, there's been a decline, the stock price, so, um, maybe it's not as attractive, uh, anymore, um, to pay, to pay in shares inaudible more cash by issuing new shares. So how do you think about that? Uh, yeah, but I mean, we're not, uh, as you've seen with closed eight acquisition, uh, or six acquisition just in December, so right now we're on the interg- integration phase. It's going very well, as you say, we'll cover that in the, in the sec. Uh, so we're, we're not, we're not a week or two to basically, uh, uh, uh, announce a new, uh, acquisition. So, and we, we do have a lot of, uh, things on our plate really, so we're pretty optimistic about what's coming and, and of course, hopefully the, uh, uh, the, the market will also be, uh, more on the red than on the green. So basically all to say is that we, uh, by that time, we, uh, we're back on track with acquisition we, we think and we hope that, uh, our, our stock price would be at higher levels. <laugh> Yeah. Perfect. Thank you. And if it's not, then we can also, you know, kind of, uh, just delay some of the deals or, or look for, uh, any, uh, any other kind of structure, uh, to close those deals. Any other question, or we move forward to, uh\u2026 just open your mic, if you wanna ask the question to, uh, Simon and, uh, just ask your question, you're more than welcome. And like I said, you know, we are gonna keep answering questions, uh, at the end. So I promise, right? I'm going to go into a deck. It's very seldom that we're doing that on the conference call, investor conference call. I think it might be the first time if I do, uh, remember, but I promise we'll be short. I'll try to do it in 10 minutes. Hopefully I will not lose everyone, but, uh, 10 to 15 minutes, just covering 15, 20 slides. And the reason why we wanted to do it is that we were getting a lot of calls Simon and I, uh, and, uh, through those calls, we are realizing that, um, we often have to, um, uh, kind of realign the storytelling with some investors. We think we're, uh, some investors think we are middle business. Some investors think that we're just a path business and so on and so forth. So I think that, uh, the goal of this, uh, this deck is, is kind of a redefining for, uh, for everyone. You know, I see defining for everyone, you know, on the same page, uh, what it is Urbanimmersive and where we're going. So I'm gonna share my screen in a second. Hopefully you all gonna see it, except if you, you on your cell phone and what's, um, on a smaller device, you might have some problem seeing it, so I'm gonna comment those slides here. Just gonna click on the part presentation. So, like Simon said, this is, um, the way we describe Urbanimmersive on, on the, the share specs on our website. Um, we're basically a technological business, a te- a technology business that provides services in the market of real estate precise. Um, put it not a word, I like to say that we're a tech-powered real estate supply business. That's inaudible. Um, run rates of $11 million and today, you know, including the photographers who are on their payroll, um, paper job, and on their payroll, we turning around 115 employees, if you can do the head office, but the developers and the management, everything, we're probably turning around of the employees. We based in Montreal. Uh, and of course, we're listed in Montreal inaudible. So this is, <laugh> I don't wanna go in detail, but I just wanna remind people that we're not as startup. I mean, we've been in this business for, uh, more than 10 years. And the first thing that my brother and I did, uh, 10 years ago was to design this spaceship kind of prototype of mill to end camera, but it was a real prototype by the way. And in 2009, we tried to, um, raise money to commercialize business. And, uh, this is why 2012 to kind of jump in a tears adventure at that time. And here in Canada and inaudible per clearly, we were adding access to a, a tax kind of advantage for an investor called Ryan, so to, uh, to raise money, but, uh, this camera never s- the light. So we kind of, uh, um, create all the software, uh, surrounding 3D tour. But, you know, we're not in newcomers. We've, we've been trying a lot of things in the real estate supply business, uh, from developing camera software, business solutions, so on, so forth. So we know, you know, the business pretty well. And some of the engineers working with me to develop those software, I've been working with them for more than 25 years. So this is our stats. This is not something you gonna find on market, but, you know, when we sit down and try to evaluate what is the size of our market. And our market is real estate or core market, of course, at the end of the deck, we'll talk about addressable markets, but our core market is real estate photography, for the purpose of marketing. So basically, you know, to sell a house. So when we considering that activity for residential, commercial and rental, we are estimating that this is a, a niche market of $4 billion just in the, uh, in North America, potentially in our estimation, something about 7 to $8 billion worldwide. Here in north America, we're estimating about 30 million shoots a year, shoot for us as photographer taking a star and go and shoot a house and bring back 25, 35, uh, images with all the, uh, media that comes with that. And roughly that provide generates 1 billion images per year. So that's our, this is our market. Like Simon said, this is a transactional market. I mean, our business is linked to the housing inventory. So if the housing inventory ramp up, we're gonna ramp up if it's going down, because our business model, as we gonna see in this slide is mostly 9% transactional-based, we're gonna follow the trend. And unfortunately, right now the trend is a history, actually it historic. Uh, they, uh, most of the, unless we talk with, they never saw such a low inventory of house for sales. Uh, you know, I'm not sure I like those numbers the way I'm presenting it today, but those are real. I mean, the market is down 23%. Urban, Urbanimmersive is down 11% year over year. And our new acquisition, or are just coming to, you know, our pipeline of revenue in the last quarter. So if you take just the stats like Simon said, minus 7% overall, we feel we're winning clients. Uh, we don't feel- We feel we're winning clients. Uh, we don't feel that we're losing clients, but we, we, what we're saying is that our photographers, our clients are doing less business overall. So this is why, I mean, you know, it's kind of, um, uh, of a, uh, a bad place to be right now, but, you know, I'm a positive person and, um, I don't think it's gonna get worse. Uh, and, uh, we're hearing that, you know, the interest rate should increase. So that will kind of, uh, uh, hopefully, uh, slow down a little bit, you know, the, um, uh, some of the interest of the buyers, uh, or people sending our house in any cases. I think we kind of the, uh, where the bottom, the, of the barrier right now. So I think it, that dissertation will just come, go start and ramping up again. And of course, like, uh, Simon said, you know, we potentially 60%, uh, down compared to what numbers should usually be in terms of, uh, listings in terms of house for sales. So inaudible should follow the trends and, and potentially just, you know, uh, beat the transaction because we believe right now we're beating, you know, we're kind of, uh, succeeding in that very, very difficult market. I can tell you what's certain, I'm talking to a lot of, uh, entrepreneurs in the real estate, uh, states and they all in the same position right now. All right. So the stock business in itself, it's a, it's a business that is transforming a lot, and it's definitely shifting to a technology driven, high volume business. So basically you have to do a lot of transactions per day because it's a highly competitive landscape and you need to bring a lot of value in terms of technology. So basically we kind of, you know, spread all the parts that we need to succeed in product business. Like you need to have online booking system. You need to have the capture hardware, not just the camera, but the, you might need the 3D camera. You might need a, a drone. So you need to have those visualized hardware. You need to, uh, post it di- images to increase, you know, the, the, the, the, the wide balance to put a blue sky on, on the external, uh, facade, uh, images. So you need to have this service. You need to create YouTube video slideshow, because YouTube is one of the, the most popular search and giant in real estate. Of course, you need to provide 3D tours. It's the must have today. And floor plan is kind of, I will say, basically more important in the 3D tours right now in the market. There's a lot of interest, even in some states like here in Canada, floor plans are mandatory. Uh, this is a common product. It's a, you know, you definitely need to provide website. We call it Property Website. So it's a website data to showcase one house for sale. You need a system to deliver 100 images, high quality images. You know, it, images cannot be just transferred by emails. So you need to have some sort of a study system to transfer your image, and you need a very performance, uh, payment system to get paid. When you look at all those things that you need to run a photography business today, Urban Asset is the only company offering and owning every part of, uh, the, uh, the, every, every portion, every technology required to the business right now. And that's giving us, uh, a lot of advantages over, over our competition. I will start from the bottom. Of course, the after sale support is easier for Urban Assets to do because we're providing each part. We're not relying to third party for 3D tours, for floor plans, for photo editions, everything is done internally. So of course we have a pretty difficult to beat turnaround every time. We can deliver, uh, faster than our competitors, because they're fewer, uh, parties involved. We can, we have more flexibility in our packages. We can offer and deal with our, our clients. We keep our margins pretty high for the value we bring. And, and, you know, we, we like to tell the market that we, uh, we are one of the most competitive, uh, business right now in terms of pricing. So being a one stop shop is definitely bringing a lot of value to our clients and it's positioning or been immersive for winning, uh, many deals, many contracts with real estate agents and other offers, The business model, when you look at each of the parts, there's some portion of those, um, those, uh, required, um, elements that you need to run a, a photo business that are not technology, like, you know, taking a picture, you need to have a human doing that you need to have a photographer. Uh, photo is ed- editing and image is, you know, even if AI is super well advanced, and you know, a lot of people tell that they are photo editing images with computer, you still have some human, the human will do a better job. And the floor plans, you need to dr- somebody draw to draw floor plans w- and put furnitures, write the rooms name, and stuff like that. Those services we offer, bring it to our clients. So we call them Service on Demand, and it is transactional based. So each time somebody wants to have a photographer on, on, on site, uh, the, the, the client pay, send a photographer sending for photo edition and floor plan. And the rest is mostly technology. So, and we still offering it every part, even if there's no, uh, line with the booking system. We, we are offering it, and it's still transactional, uh, most of, uh, for most of the parts. So we're charging, for example, $5 to render a slide to bill, $4 to render a 3D tours, uh, $15 to trade a property website and, uh, $3 to transfer the images. So think about this part here as a Dropbox, Dropbox kind of, uh, platform to transfer the high quality images. We added this year, a new service that Simon that briefly talked during the financial ally, what we call the Prime Subscription. So the Prime Subscription is basically for $ 30 a month. Agents can subscribe to that plan. And each time we order one of our photographers, we're gonna bundle all the technologies, uh, we can offer to them. So this is a very popular, um, subscription right now where it's, uh, and well will talk a little bit later in the deck about it. Simon briefly talked about the distribution of revenues. So $3 million in stock, $8 million in, uh, services. I just want to add, uh, for the stock is still, um, serving around 1700, uh, real estate photographers. So this number here is our end, end photographers using our technologies to serve their agents, their clients is generating around 206,000 probably website per year. In terms of services, so we're talking about our photographers. We're serving around 12,000 real estate agents and doing around 50,000 shoots a year, call it shoots a year. So basically this is including our acquisition that we've done, uh, during 2021. When we talk about technology and new site from the, uh, history, uh, the timelines of urban immersive, you know, we started with the 360 camera design, we still passion, passionate, hi- highly passionate about 3D technology. We're always kind of keep that, uh, in our products and, and, and really kind of, uh, hope that someday, you know, 3D tours will, will get back on the market. And this is definitely what COVID-19 has created, generated a demand for 3D tours. This is our core technology. And we believe that we have right now, um, one of the most complete 3D tour solution on the market. If you look at, uh, the, all the features we are offering, uh, few companies can, um, can, uh, uh, state that they have have all this in their 3D solution. So of course, we're each time we're doing a 3D tour, we are providing a dollhouse\u2026 This is the way, you know, we commonly, uh, call all this of, uh, 3D tours and room limitation. We can measure, uh, um, on the floor and, and with tape, uh, we're having our own builtin floor plan drawing software built in, in the 3D tour itself. So even our clients can play with it and can change the, uh, the four plan if they want. So there it, we are not using other card. We're not using a third party software to create a floor plan. We use, uh, the AI powered, um, the classification system, uh, that we acquired from Toolbars in 2018 to, uh, automatically, uh, uh, put a ta- a tag in rooms to say, this is a fitness room, a kitchen, so on and so forth. Uh, we, you have those tag also that you can put some, uh, graphic and links. Um, some are calling that hotspot, 3D hotspot. This is pretty unique to urban immersive. So we are showing an interactive map of people within a room. This is not picture of people, actually, it's a real video. So you can see, you know, people in their, um, in their livestream video on the map. And of course we have the avatars. So the 3D social spaces where you can visit with friends and interact with them. So whether you can interact, uh, by chatting, or you can interact with video conferencing. Um, the next slide is, uh, something pretty special for us because, you know, we are, we are running a photography business. Uh, we are offering, uh, photography services and we want to be highly efficient. And the only way you can achieve, um, profitability and keep your margins by going fast, you need to do a shoot super fast. Being two hours in the house, you know, it's, uh, it's, it's too long. So we want our photographer to do six to seven shoots per, per day. And in order to do that, we develop our own capture app that is three times faster than anything else that we've seen on the market to, to, uh, scan a house. It works on iPhone, iPad. It use advanced computer vision alignment system to, uh, create those map when you shoot. It's fully integrated within our workflow. So it's definitely, uh, improving, uh, the productivity of our people and it, so we also add some features, uh, that enables offers to add, uh, additional, uh, information on the map, uh, for, uh, adding value, um, improve production. W We recently launched this, uh, this, what we call the automated, uh, building and site and report. So for every tour we, uh, providing with our Prime Subscription, people will receive a detailed report about the property. So they will know how many sink, showers the, uh, that the building has, how many doors, uh, outside doors, inside doors and so on and so forth. So it's, uh, highly detailed, and, uh, really appreciated with, uh, some of our clients like Offerpad, for instance, that are refurnishing, uh, many of- Clients like inaudible, for instance, that are refurnishing many of their homes. They, they're buying to resell them. Um, this is inaudible. Uh, we call it inaudible. So basically, it's, uh, the added side is, you know, you can see people visiting the home with you in the 3D space. And we just opened the video camera, so it becomes some sort of 3D video conference. And I'll tell you, uh, that we're presenting inaudible to many, um, uh, industry leaders and, uh, it's making a lot of noise right now, and we're expecting to have some, um, significant, uh, partnership to announce soon. Um, many of the people within the industry, and as you see I'm not using that word today, but we've been told, and people are telling us that it might be the Verkshum 1.0 after all, of Metaverse. You know, being able to be all together, within an environment, visually interacting, uh, where you are, within the space. What you're looking at, and with the view system, uh, it's, uh, definitely something that, um, has a lot of value for our clients, partners, inaudible, brokers, and so on. And we have filed for provisional patents on that and basically the reason why we, uh, we used a provisional patent is basically because we wanted to go fast in protecting our idea and also we wanted to make sure that nobody will patent something on top of our ideas that, you know, basically will force us to not promote this technology. So, so far, uh, we have four provisional patents on that. We're working on a fifth one, and basically related, so we were presenting inaudible when there are multiple people on the inaudible, the way we controlling, uh, user, control user loop experiences so far. And, um, about a 3D tour, uh, we have today what we believe one of the most complete 3D marketing websites suite on the market. So, basically, those are websites dedicated to show, to showcase the best way possible 3D tours. Uh, we have more than 20 customizable designs. Uh, act upon the media, like stills, still pictures, video and so on. So, if it's, uh, so we understand that it's highly appreciated by our clients. Because once you have a 3D tour, you need to distribute it, you need to promote it, and we have complete solutions for that. The way, you know, we run inaudible business, we, uh, we're years, inaudible actually, we started developing our own business solution, ERP or CRM, whatever you want to call it, it's a system that helps managing, uh, the inaudible business. And today we're using it to manage our own inaudible business. And what is particular with our solution is that we've deblocked over the years a business intelligence allowing to, uh, treat instant booking. What does it mean? It means that we can, in real time, without any delays, find a inaudible with the next shoot. So, when an agent comes our platform and you want to book a photographer at 2:00, Saturday, the system will find the right photographers for the right services for the right client at 2:00, and the booking is confirmed. There's no other communication. They will be assured that the photographers will be there. So the system calculates the uh, the uh, the, the travel time, calculate the service time, and at the end of the day, give us, you know, the possibility to, uh, to, uh, improve the productivity of the businesses we are acquiring. To give you an example, one of the business we acquired, were doing 3.5 shoots a day, uh, and today they were running at seven shoots a day with this system. So, we feel radically the difference, uh, using our system. Oh, and, I'd like to say, this is a autonomous algorithm. You know, behind that, we don't, we don't use Google, uh, Map, or any other, uh, software. It's, uh, it's our own business intelligence. In terms of on demand services, to recap, so, we are going to be inaudible services for inaudible. It's all pay per job, uh, and, uh, in terms of product fee, we have, uh, around 130 realistic offers, difficult to know, you know, the exact numbers because some offers are working 20 hours, some offers are working 40 hours, so are they full time, part time, whatever. But they're offering the, uh, complete package of, uh, you know, visual conference capturing, 3D planning. On one appointment visit, inaudible are equipped to deliver all the services of inaudible. Floor plan drawing is done offshore. Most of the floor plan drawing is done in Paris. Uh, um, I want to say most, maybe 50 50. 50% is done here in Quebec, using our own software, and, uh, we like to say that we've deblocked some sort of a marketplace where we can engage really rapidly new people to work on our system and to help, you know, with the volume. inaudible is the same, uh, and right now, as we speak, we are dobbling our, uh, photo addition, uh, teams in Paris. Um, the reason is that because, uh, some of the businesses that we have acquired, uh, we currently are paying with, uh, offshore, uh companies three times what it cost us to, uh, inaudible. So, we expect to increase the margins of the, uh, of our, uh, one, some of our biggest acquisitions that we've done recently. Photo additions can be anything from crosstalk. inaudible. No, I'm trying to. It looks like you succeeded to shut it down, and we're terribly sorry about that. It's the first time it's happening. We've been hacked, uh, on that call. Uh, are you hearing me? Yeah, okay. So, first time, first experience. So it's not us, it's not inaudible, so at least you know that. And hopefully those young guy that had a lot of fun. But it's, uh, trying to mute inaudible, if you can. inaudible, can you just slide down? Uh, what? And Marie, also. Yeah. So, sorry for that. We're gonna try to get back to our meeting. Otherwise we're gonna have to terminate that. So, are we good to continue or are we gonna have other people\u2026 inaudible, I think you can inaudible. Can you stop, I think, I don't know how it works, Zoom, but can you stop the people getting on the call? Yeah. So, all right, let's close it, uh, Simon, let's close the call. Sorry everyone, and next time we'll use, uh, we'll use something else. Close the call. crosstalk Good bye."
    },
    {
        "audio": "4446796.mp3",
        "file_id": "4446796",
        "ticker_symbol": "CCU",
        "country_by_ticker": "Chile",
        "un_defined": "Latin America and Caribbean",
        "major_dialect_family": "Other",
        "language_family": "Spanish/Portuguese",
        "file_length": "1682",
        "sampling_rate": "24000",
        "transcription": "inaudible and press the pound or hash key. Please wait for the tone, then say your company name or affiliation and press the pound or hash key. Thank you. This statement should be taken in conjunction with the additional information about risk and uncertainty set for in CCU's annual report in form 20F, filed with the US Security and Exchange Commission and in the annual report submitted to the CMF and available on on our website. It is now my pleasure to introduce Patricia Jottar. Thank you Carl, Claudia, and thank you all for joining us today. In the second quarter of 2021, CCU continued with a positive momentum by posting strong improvement in volumes and financial results, not only versus last year, but also versus pre-pandemic figures. The latter has been the result of our capability to adapt and operate in a challenging scenario with the COVID-19 pandemic, pandemic through the execution of a regional plan with three points, the safety for people, operation continuity; and financial health, and the successful implementation of our strategy, which focus in maintaining and gain business scale and market share along with a gradual recovery in profitability, as we have shown since the fourth quarter 2020. Regarding our consolidated performance, revenues jumped 14.6% during the quarter, boosted by a 30.5% growth in volumes, and 13.2% higher average prices in Chilean pesos. The sharp volume expansion was explained by a recovery in consumption. A solid sales execution and the strength of our portfolio of brands. In terms of a financial results, consolidated EBITDA more than tripled versus last year, and EBITDA margin improved from 6.2 to 13.1 percent. The better financial result was mainly driven by the increase in consolidated volumes, as mention above, efficiency gains from the Excellence CCU Program with MSD&A expenses sub-percentage of net sales, decreasing from 45.8 to 39.6 percent and 463 basis points expansion in gross margin, mainly due to positive mixed effects and the implementation of revenue management initiatives, and positive net external effects from the appreciation of the Chilean peso against the US dollar affecting favorably our US dollar denominated cost, partially compensated by wine export revenues in foreign currencies and higher cost in raw material in line with the short rally of the commodities during the year. In all net, income totalized a gain of 18,968 million Chilean pesos, versus a loss last year. The Chile operating segment, our top line expanded 54.3% due to 40.2% growth in volumes driven by all main categories and 10.1% higher average prices. The high average prices were associated with both positive mixed effects, mainly based on a strong performance of premium brands in beer and revenue management initiatives. Gross profit grew 65.7% and gross margin improved from 46.1 to 49.5 percent, mainly as a result of the revenue expansion mentioned above, efficiencies in manufacturing and the positive next journal effect from the appreciation of the Chilean peso against the US dollar, affecting favorably our US dollar denominated cost. This was partially offset by higher cost in raw material. MSD&A expenses grew 32.3% consistent with the high, higher volume and marketing activities in line with pre pandemic levels. Although, as percentage of net sales, MSD&A improved from 42.4 to 36.4% due to cost-control initiatives through the Excellence CCU Program. In all, EBITDA expanded 136 points on percent, on perc- six\u2026 Excuse me. In all, EBITDA expanded 136.1%, and EBITDA margin improved from 12 to 18.3 percent. In additional, business operate\u2026 In international business operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, posted, uh, 58.2% rise in revenues due to an increase of 39.1% in average prices in Chilean pesos and 13.7% higher volumes. Volume growth was mostly driven by Argentina, although all the other countries posted positive growth. The better average prices in Chilean pesos were explained by revenue management initiatives and positive mix effects in the portfolio, which more than offset negative currency translation effects. In addition, our efforts in pricing allowed us to compensate higher US dollar-denominated costs from the depreciation of the Argentine peso against the US dollar and higher cost in raw materials, posting a gross profit expansion of 114.4% and an improvement in gross margin from 32.7% to 44.43%. MSD&A expenses as a percentage of net sales improved from 69% to 54.4% due to efficiencies from the Excellence CCU Program. Altogether, EBITDA improved 18.2% versus last year. The wine-operating segment reports an 11% rise in revenue, due to a 7.4 expansion in volumes and a 3.4% growth in average prices, volumes were driven by domestic markets and exports, both posting metal single, middle single, single-digit growth. The higher price including pesos were mainly a consequence of a better mix which more than offset the appreciation of the Chilean pesos against the US dollar and its negative impact on exports re- on export revenues. Gross profit was up 6.5%, and gross margin decreased from 39.5% to 37.9% in line with a higher cost of wine, due to the harvest level of 2020. MSD&A expenses as a percentage of net sales improved from 26.8% to 25.6%, thanks to efficiencies driven by the Excellence CCU Program. In all, EBITDA recorded a 4.1% increase, while EBITDA margin increased from 17.8 to 16.7 percent. In Colombia, finally, where we have a joint venture with Postobon, we finished a positive first half of the year with a volume, with a volume expansion over 40% gains in market share and an improvement in our financial results. Specifically, during the quarter, we expanded volumes over 50% with growth in all main brands and categories standing out the performance in premium beer. Now, I will be glad to answer any questions you may have. Thank you. If you would like to ask a question, you may signal by pressing star, one on your telephone keypad. If you're using a speaker, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star, one for questions. We'll take our first question from Fernando Olivier with Bank of America. Hi, inaudible. Hi. Good morning, everyone. Thanks for taking my questions. I have two, so I made\u2026 The first one is related to Chile. Uh, in your opinion, what explains the solid volume growth in inaudible? So, in terms of this, can you comment what was the volume growth between alcoholic and non-alcoholic beverages, and how you expect them to behave the remaining of the year? And I have a, another question. inaudible. Thank you, Fernando. I listened to your voice with a lot of echos. Did you understand the question? Yeah, he's asking about our solid growth in, during, uh, during the quarter, I think, Fernando. And on the other hand, I think, how, how crosstalk- How we expect for the rest of the year. Okay. Okay. Thank you. Again, I, listened to you with a lot of echo. This is the reason why I, I didn't understood you. I, I didn't understand you perfectly. But, I mean, as you know, Fernando knows the group, uh, Chilean consumers and Chilean population have been receiving, um, a lot of, uh, money in our pockets for two reasons, I mean, number one because of all the expenses of the government and the direct subsidies to, to people, and secondly because we have been allowed to retire money or to withdraw money from our pension fund. Altogether, I mean, pay, money retired from pension funds has been $50 billion and, uh, but, and, uh, subsidies from government about, around $20 billion. Altogether, $70 billion is equivalent to the total expenses of government in a, in a regular year pre-pandemic. So it's, it's a lot of money on one hand. And on the other hand, there are many expenses that have been restricted as restaurants, the travels, vacations, etc. etc. So that most of that money has been concentrating, concentrated on, on consumption, and this is the reason why our volumes has been extraordinary high. I mean, at the same time, of course we are doing, we are doing our job. We are executing the correctly. We are keeping and gaining market share in the different, uh, categories. But the, the real reason behind the, behind this expansion is what I'm explaining. How much is going to, it's going to last? Probably for, probably for semester, a year, 18 months is, but no more than that, so, but I think that, uh, it's wise to imagine that, uh, this trend will not, uh, continue in the future. Having said that, we are gaining scale, and, uh, we expect to keep our scale and not to lose our scale, and we're going to make our best effort, uh, to continue growing. But, uh, I think that, um, that it's more wise and serious to, to imagine that this trend probably is going to last in Q3, eventually in Q4. But for 2022, my recommendation is to be much more careful regarding, regarding this. Okay. I, I ho- I hope you hear me better. Uh, can you comment me- Yes. Excuse me, Fernando. Yes? Now, I'm listening you perfectly. Oh, okay. Great, thank you. Uh, can, in that sense, can you comment what was the, the growth between alcoholic and non-alcoholic beverages? I mean\u2026 Yes. Um, we grew, we grew\u2026 I mean, as you know, we present the segmento Chile, the Chilean segment together. Because we operate Chile as one segment, multicategory, same sales, sales force same, same track, same managers. Having said that, uh, we are growing a lot in both segments. In Q2 we grew a little bit less than 40% in beer and little, and a little bit more than 40% in non-alcoholic. Okay. Great. And my, my second question is related to cost. Uh, can you tell me what is your outlook for the remaining of the year and 2022, and what are the different measures that you are implementing to mitigate the increase in raw material cost? Thank you so much. inaudible, I mean, I, I will give you a general answer, and then I will ask Felipe Dubernet to discuss on, on the details on, on cost. I mean, as you know perfectly, and as I mentioned in my introduction, we are facing strong pressures in cost of raw material on one hand and on exchange rate on the other. I mean, exchange rate in Q, in Q2 was not too high, but today, exchange rate in Chile, be- be- before the beginning of this conference, the, the Chilean pesos was 785, I mean, to buy a dollar, which is very high. So in order to offset this, we need to do revenue-management initiatives, number one, to improve our mix, number two, and to be very efficient in terms of, in terms of MSD&A, and we have doing this. I mean, as we know that the, the current level of volume is something transitory, and that sooner than later we'll move to a much normal growth, we have been very careful on, on this, on, on, on hiring people, on keeping our MSD&A, and the tight control, as i- I mean, we are, we are managing MSD&A, as if, as if we were not growing in our volumes, in order to be, to be prepared for the future. And regarding direct, direct cost also, we are doing our best effort in order to make revenue management initiatives, in terms of promotions, discounts to increase the percentage of premium products in our portfolio. So as an example, here, I have the figures. Premiumization, yeah, for example, in Q2\u2026 Here I have, in beer, in Chile, premium accounted for more than 40% of our, of our volumes, while in Q2 of 2020 represented just 23% of our volumes, and same thing in all the different categories. Because, again, like, we need to be prepared for a, for a future scenario which is not going to be as good as as 2021, mm? Having said that, and regarding particularly, particular mat- raw material, I prefer, Felipe, you to, to discuss this. As, as you probably know, Fernando, it's a global pressure on raw material cost. For example, aluminum, year-on-year, increase 60% PT, or resting, more than 40%, and so on. You have also international freight, uh, increasing a lot. We saw, uh, containers from China, uh, the actual cost is about $10,000 per, per container, so, uh, this will last, at least, for more than one year, this is what we, we expect, uh, so this outlook. Along with this, we are facing a compared to last year, a more favorable, uh, exchange rate that somewhat compensate that, uh, but it's not, uh, in an, in, in our control. But by saying that, uh, especially the Chilean peso and also the Argentine peso are very volatile, so, uh, the exchange rate in Chile is volatile for, uh, other, uh, process more than international So, so at at the end, we will continue to face inflationary pressures, uh, due to raw materials. So, so, and, and, and the actions are the ones that Patricio highlighted. Great, great. Thank you so much. Thank you, Fernando. We'll take our next question from Felipe Ucros with Scotiabank. foreign language, Patricio, Felipe, inaudible, congratulations on the results. Um, maybe let me start with, one, on the implied price mix, uh, and maybe I can follow up on on Chilean market shares. H, so on the first one, obviously, ve- very solid on your international operation. Um, when I look at it on a currency basket basis, it looks like you were able to increase prices in Argentina very aggressively, but obviously there's also a mixed effect in there. Um, so I was just wondering if you could break that out for us and give us a bit of color on what's happening on, on, on price enforcement or controls in, in Argentina. And then, then I'll follow up with Chilean market shares. Thanks. Yes, I mean, in, in, in Argenti- in Argent- Thank you Felipe for your question. In Argentina, we have been able to cope with, with inflation in our structural prices. And at the same time we're improving, we are improving our mix, um, both on premium which is growing, and we have a shift from returnable bottles to cans. And cans are more expensive per liter than returnable bottles, as you know, but the margin is, is less attractive than, than than bottle. So altogether, we are moving along with the, with inflation, along with, with our costs. Excellent and maybe on, on Chilean Market shares, I'm just wondering. I, I know this is difficult because Nielsen and the other surveyors are having a tough time delivering an apples-to-apples comparison, um, but just wondering how you're seeing the the market share picture in beer in Chile, given the distribution changes at your competitor. Thanks. Yes, maybe, you're right. I mean, Nielsen, it's not completely precise because they have, they have a good reading on what happens in supermarket, but not the best reading on what happens then in mom and pop. Having said that, um, uh, if you compare up our market in Q2, 2021, it's slightly higher than our market share in Q2, 2020. But I prefer to say that our market share has been stable in the, uh, in the last many months, as in, and years, and we have been able to, to cope against, uh, the competition with its new distribution. Excellent call, thank you. And, and you know what? I'll, I'll stop it here, so other analysts can ask questions. And maybe I'll get back on the queue, if they don't ask my third question. Thank you. Indeed. Thank you, Felipe. As a reminder, star, one if you would like to ask a question. We'll take our next question from Mohammed Ahmad with FGP. inaudible. Hi, guys. I hope you guys are all well. Um, thank you for taking my question. Um, just comparing to 2019, I know you, uh, you answered to Felipe that you're stable. So partly that question's answered already, but if you could confirm some of the volume changes versus 2019, Q2, actually first half 2019 versus first half 2021. Because even there, I see 18% growth, which is impressive, as you've given reasons for it. But I just wanted to know if, if the market has grown that much, or maybe in certain segments you've grown faster, uh, to, to get that in your numbers, particularly, you know, beer versus non-beer. Thank you. Yes, indeed. Looking the Chile operating segment, we grew our volumes. This is first half, no? Yes. Yes. First half, six months, inaudible, here I have it. Here, I have the, the answer, Mohammed. Yeah. Regarding, uh, regarding volumes from the Chile operating segment, this is non-alcoholic, beer, and spirits, first half of 2021, compared with the first half of 2019, we grew our consolidated volumes by 17.7%; in international business, by 2%; and in the wine operating segment, by 16.8%. And in Chile operating segment, that was a stable margin, so the market grew that much, so through stable market share? Yes, market share but in a sligh- with slight, slightly higher, and we have been rather stable in beer, growing a little bit on, on non-alco- on non-alcoholic. In fact, do, do we have the breakdown of these figures in, in beer- Yeah. and non-alcoholic here, gentlemen? I can inaudible it. inaudible. Let me check, but we have grown more in beer than in, than in non-alcoholic, having said that, because the per capita for beer has been, uh\u2026 Yeah. Growing, yeah. Yes. Yeah. But in both, in non-alcoholic and, and beer, we are growing, Mohammed, uh, against, uh, 2019. Yes. In fact, here, we here have in beer, we have grown in two years, roughly speaking, a little bit more than 40%. Okay. 2020- 20\u2026 Um, thank you guys. Quarter two. I know this\u2026 Uh, excuse me. This is quarter two, 2021 compared with 2019, quarter two, Yeah. And year-to-date, both, and year-to-date, 31. The first semester compared with first semester 31. Yeah. Uh, quarter compared with quarter 41. Yeah. Okay. Sorry the voice was breaking up a little bit, so am I to understand that you said beers grown 31% versus first half of 2019? Yes. Yes, and not alcoholic, roughly 11%. That's it. Yeah. Remember that, Mohammad, that non-alcoholic suffer much than beer last year also, mm? Okay. When are we also have spirits. crosstalk. inaudible. But we do not know crosstalk. Okay, inaudible. Hello? Hello, yes. Okay. I have it. That's okay. Thank you. I'll, I'll\u2026 Thank you very much for your answer. I'll get back in queue. Okay. Perfect, thank you. Once again, star, one for questions. We'll take a follow-up from Felipe Ucros with Scotiabank. Oh great, uh, thanks guys. So, so I can do a follow-up. Uh, maybe in Colombia you guys had very strong results on the operation with the, with, with a very strong rise in volume. So I was just wondering if you can give us a little more of color on what's going on in the ground there, in terms of market share, price, um, and maybe utilization of the plant. All those would be, uh, great if we could get some color. Thank you. Thank you, Felipe. As we mentioned, the, when we entered into Colombia, we design our plan for, our plant for 3.2, 3.3, 3.4 depending on mix volume or hectoliters of total volume. And we are running this year but a little bit more than two million hectoliters. Now, this is what we expect to sell in, in this year. So we have a 60% utilization of, of the plant. Um, we have been growing market share. As I mentioned before, margins are good in the, in the industry. Prices are growing in line with inflation. And again, we are doing our best effort to, to, to increase our volumes and to complete the, the capacity of the plant because if we do this, we will be having a good profitability. That was\u2026 We began this opera- operation, still our purpose, and we are moving in the right dire- direction. OK, great, thanks for the color, guys. Congratulations again. Thank you, Felipe. Remember that in Colombia we operate in those segments, beer and malt. Um, beer representing plenty, more than 80% of the total volume and malt less than 20%. When they say that this is the total volume, this is the total volume of the plant for both categories, beer and, and malt. And when I- Understood, Tha- thanks for the clarification. Okay. Good. Thank you, we'll take our next question from Antonia Weeman with Lorraine Val. Antonia Weeman, you can go ahead. Thank you for taking my question, but I was also want to know a little bit more about Colombia, but I think that everything is clear. <laugh> Thank you. Thank you Antonia. With no additional questions in queue, I'd like to turn the call back over to our speakers for any additional or closing remarks. Thank you very much. For closing, I'd like to say that during the second quarter of 2021 in a steel challenge scenario, due to the pandemic, CCU delivered a solid performance in volumes and financial results, improving versus both last year and pre-pandemic figures. Looking ahead, we'll continue investing in the key aspects of the business, in order to keep executing the strategy that we have been carrying out, which is continue building strong brands and portfolio, and putting our efforts in maintaining and gaining business scale and market share, while recovering profitability, the latter, through revenue-management initiatives and efficiencies, particularly in an inflation, in an inflationary scenario. Thank you very much again. That will conclude today's call. We appreciate your participation."
    },
    {
        "audio": "4473238.mp3",
        "file_id": "4473238",
        "ticker_symbol": "RLX",
        "country_by_ticker": "China",
        "un_defined": "Eastern and South-Eastern Asia",
        "major_dialect_family": "Other",
        "language_family": "Asian",
        "file_length": "2430",
        "sampling_rate": "24000",
        "transcription": "Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc's. third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded and is expected to last for about 45 minutes. I will now turn the call over to your host. Mr. Sam Tsang, Head of Investor Relations of the company. Please go ahead, Sam. Thank you very much. Hello, everyone, and welcome to RLX Technology's third quarter 2021 earnings conference call. The company's financials and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.relxtech.com. Participants on today's call will include our Co-Founder, Chairperson of the Board of Directors, and Chief Executive Officer, Ms. Kate Wang; Chief Financial Officer, Mr. Chao Lu; and myself, Sam Tsang, Head of Investor Relations. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, belief, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company, its affiliates, advisors, representatives, and underwriters do not undertake any obligations to update this forward-looking information, except as required under the applicable law. Please note that RLX Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures, as well as unaudited non- GAAP financial measures. RLX's press release contains a reconciliation of the unaudited non- GAAP measures to the unaudited GAAP measures. I will now turn the call over to Ms. Kate Wang. Please go ahead. Thank you, Sam. And thanks, everyone, for making time to join our conference call today. Since the second half of the third quarter, there have been proactive regulatory developments through the global e-vapor space, including in China. Last Friday, November 26th, 2021, the State Council announced its decision to amend the detailed invitation regulations of the Tobacco Monopoly Law of the People's Republic of China by adding rule 65, which states that implementation rules for next generation tobacco products, including e-cigarettes, shall be referred to as relevant tools with respect to cigarettes on Brazil's implementation regulation of the Tobacco Monopoly Law. On Tuesday, November 30th, 2021, the State Tobacco Monopoly Administration released a consultation paper entitled Electronic Cigarettes: A National Public Service inaudible For Standards Information under the state's administration for market regulation, seeking public comment regarding na- national electronic cigarette product standards. Yesterday, December 2nd, 2021, the State Tobacco Monopoly Administration released a consultation paper entitled Administrative Measures for Electronic Cigarettes, seeking public comment regarding administrative measures on electronic cigarettes, covering various aspects, including production, distribution, and retail sales, import and export, and inspections. Uh, we firmly support this amendment to the detailed implementation regulations and have begun making any required change to fully comply with the new regulations and administrative measures. We believe the amendment will pave the way for long-term and sustainable growth in this sector. We are also aware of meaningful worldwide regulatory developments, which reflect similar trends globally. In the United States, the FDA has made substantial progress reviewing PMTA applications and granted its first e-vapor product authorization in October, demonstrating its reclamation of certain e-vapor products' harm reduction effect. We closely follow global regulatory developments and view regulation of e-vapor products as a global trend, and view growth, as countries worldwide recognize e-vapor products' harm reduction benefits for adult smokers. With these regulatory developments, especially in China, we believe the sector will enter a new era of development, an era marked, marked, marked by enhanced productivity and qualities, augmented social responsibilities, and an improved electoral property protection. As some of you may be aware, the third quarter was challenging on the commercial front for the entire industry value chain, which had been reflected in our key value chain partners' financial results previously. Misinformation from inaudible e-vapor sector and the Walgreen COVID-19 restrictions, in response to outbreaks in China, which we discussed during last quarter's earnings call, has had a significant adverse impact on the retail sales and product procurement of our branded stores, since the latter half of the second quarter. As a result, we have record, uh, 34% quarter-over-quarter decline in our net revenue. But we believe this revenue decline to be temporary and have a clean plan, clear plan to achieve long-term healthy growth, which Chao will explain in detail later. Despite those industry impediments, we continue to focus on building a solid foundation for sustainable success. In the third quarter, we redoubled our scientific research efforts and continue to attract and recruit top talent to strengthen our sales, supply chain, and R&D capabilities. We are committed to providing adult smokers with innovative harm reduction products of the highest quality. Also, at RLX, we also plan and act for the long-term. Corporate social responsibilities have been an integral part of values since day one. In the third quarter, we unveiled our 2020 to 2021 corporate social responsibility report, wherein we shared our progress with respect to our CSR initiatives. Some highlights include our industry-leading age verification system, Sunflower System 3.0, with enhanced features to prevent under-18 use. Our RLEX Care community service program to promote role revitalization and common prosperity. These accomplishments are a testament to our dedication to fulfilling our social responsibilities. We strive to positively impact our users, employees, and communities in which we live. With that, I will now turn the call over- With that, I will now turn the call over to our CFO, Chau Lu. He will elaborate on some of our last quarter's initiatives and go over our operational and financial results in more detail. Chau, please go ahead. Thank-you, Kate. And hello everyone. I will start by sharing some of the quarter's major initiatives and developments, and then walk you through our key financial metrics. We believe that offering the right products to the right user segments through the optimal route to market will be the key to our sustainable, high quality growth. To this end, we continue to expand our product offerings to meet the needs of diverse user segments and optimize our distribution and retail networks to ensure quality growth. With respect to products, we are focused on offering better and more tailored vaping products for various user groups to help engage new users with the right products. This quarter we introduced Yixiyun, a new brand targeting adult smokers with a long history of smoking. Our goal is to recreate an authentic smoking experience for adult smokers by launching eight tobacco flavored cartridges in our initial stage. At the same time, we further upgraded Qinfeng, a more accessible product line catering to price sensitive users' needs. We also recently relaunched Stella, or Xinghe in Chinese, a premium device line with upscale st- styling, including leather, lace, and other fashionable materials. We will continue to monitor users experiences very closely and launch innovative, targeted products at the right time. We also made several advancements in user retention and engagement during the quarter. We successfully upgraded our membership system, enabling members to enjoy more benefits as they accumulate rewards points. A growing number of users are scanning the QR code on their cartridges to collect reward points, which will allow us to empower users with instant product authentication. Separately, we have established more effective communication channels to provide unbiased, fact-based, scientific e-vape product information to our users and the community. Finally, we are concentrating on distribution and retail channel optimization. Instead of engaging more distributors, and extending the number of our RELX branded stores, this quarter we prioritized our existing distributors organizational upgrade. We encouraged our distributors to hire exceptional talent and refine their team structure within each department. We optimized existing RELX branded partner stores' location by identifying areas with high retail sales potential and encouraging store owners to adjust their operations accordingly. In addition, we provided online and off-line trainings for store owners and sales personnel to enhance their communication skills and enrich their product knowledge in order to counter the adverse effects from misinformation regarding from periodic negative publicity in all categories. We have also upgraded our digitalization system for branded partner stores, provided improved fun- functionality, and additional user portals to assist store owners and sales personnel in their daily operations. For our other retail outlets, our focus in the third quarter was to identify prime outlets for expansion through trials and various channels. These trials resulted in several initial successes, including some momentum in lifestyle channels and other key accounts. In addition to our emphasis on high quality growth, we are deeply committed to fulfilling our corporate social responsibility. We believe a healthy relationship between our products, users, shareholders, and the community has been essential to the growth we have achieved over RELX's four year history. With this in mind, we'll work tirelessly to introduce new technologies to tackle industry pinpoints. For example, minor protection is one of, uh, RELX's highest priorities. We spare no effort in our minor protection initiative, from product labels to trade channels, and technology innovation. In June 2021, we began upgrading Sunflower Systems, our technology driven minor protection system, to version 3.0, and currently equipped all of our branded store with the upgraded software. On the Sunflower Systems 3.0, all users are required to complete name, plus ID number, plus face recognition, three step verification, before purchasing. After the amendment to China's National Standards become effective, we will strictly comply with any upgraded product requirements. For example, we are prepared to include minor protection features such as child safety locks, similar to the feature which we have incorporated into our RELX i product line back in 2019. As a company that values long term, high quality growth, our commitment to social corporate responsibility is at the core of our daily operations. To echo what Kate has pointed out previously, our game has entered the second half. With the state council's decision to amend the detailed implementation regulations of the tobacco monopoly law, and the subsequent release of a consultation paper regarding national electronic cigarette product standard by the state tobacco monopoly administration, as well as last night's release of a convul- consultation paper regarding an administrative measure on electronic cigarettes covering various aspects including production, distribution and retail sales, import and export, and inspections. Different from the first half of the game, when the sector lacked clear regulatory guidelines, this second half is marked by enhanced product quali- safety and quality, augmented social responsibility, and improved intellectual property protection. The investment we made in product, talent, research, and compliance in the third quarter and beyond, will place us in an advantageous position on the new regulatory paradigm. We expect these investments to yield steady and sustainable growth soon, and to reward us and our shareholders in the long term. Turning to our financial results for the third quarter of 2021, net revenues decreased by 34% to RMB1 .368 billion, equivalent to U.S. $260.2 million in the third quarter of 2021 from RMB2 .54 billion in the second quarter of 2021. The decrease was the result of watered down market conditions including one, negative e-vaping industry publicity since the latter half of the second quarter. Two, the fact that the new, draft new rules announced on March 22, 2021 had not been formally confirmed, and no new information implementation details had been revealed during the quarter. And three, evolving restrictions in response to COVID-19 outbreaks in China, which had adverse impact on our sales and channel inventory management. Gross profit decreased by 42.8% to RMB656 million, equivalent to U.S. $1, uh, $101.8 million in the third quarter of 2021. From RMB1 .15 billion in the second quarter of 2021. Gross margin was 39.1% in the third quarter of 2021 compared to 54, sorry, 45.1% in the second quarter of 2021. The decrease was primarily due to, one, an increase in direct costs related to promotional activities, and two, an increase in inventory provisions. Operating expenses were positive RMB241 .3 million, equivalent to U.S. $37.5 million, in the third quarter of 2021, representing a decrease of 244.4% for RMB167 .2 million in the second quarter of 2021. This significant decrease in operating expenses was primarily due to a recognition of share-based compensation expenses of positive RMB523 .7 million, equivalent to U.S. uh, $81.3 million, consisting of one, share-based compensation expenses of positive RMB90 .8 million, equivalent to U.S. $14.1 million, recognized in some expenses. Two, share-based compensation expenses of positive RMB320 .1 million, equivalent to U.S. $49.7 million, recognized in general\u2026 Equivalent to US dollars 49.7 million recognized in general and\u2026 and administrative expenses. And three: share-based compensation expenses of positive R&D, 112.8 million, equivalent to US dollar 17.5 million, recognized in research and development expenses. The signif-date\u2026 The significance fluctuation in share-based compensation expenses were primarily due to the changes in fair value of the share in inaudible, that the company granted to its employees as effective by significant fluctuation of the company's share price. Some expenses decreased 65.1% to R&D, 56.5 million, equivalent to US dollar 818 million in February of 2021. From R&D in the 2nd quarter of 2021. The decrease was primarily driven by, first the fluctuation of share-based compensation expenses and second, a decrease in salaries and well-fare based benefits, partially offset by an increase in branding materials expenses. General and administrative expenses decreased by 649.8% to positive R&D, 253.2 million equivalent to US dollar 39.3 million in the 3rd quarter of 2021 from R&D 46.1% in the 2nd quarter of 2021. The decrease was primarily driven by the fluctuation of share-based compensation expenses and a decrease in salaries and well-fare benefits. Research and development expenses decreased by 808.3% to positive R&D 44.6 million, equivalent to US dollar 619 million in the 3rd quarter of 2021 from positive R&D 419 million in the 2nd quarter of 2021. The decrease was mainly driven by the fluctuation of the share-based compensation expenses and a decrease in salaries and well-fare benefits, partially offset by an increase in software and tech\u2026 and technical expenses, and second, an increase in software expenses. Income from operations was R&D 897.3 million, equivalent to US dollar 139.3 million in the 3rd quarter of 2021 compared with R&D 900\u2026 979.3 million in the 2nd quarter of 2021. Income tax expenses was R&D 121.4 million, equivalent to US dollar 18.8 million in the 3rd quarter of 2021 compared to R&D 204.2 million in the 2nd quarter of 2021. The decrease was primarily due to a decrease in taxable income. US Gap Net Income was R&D 976.4 million, equivalent to US dollar 159\u2026 151, sorry. 151.5 million in the 3rd quarter of 2021, compared to R&d 824.3 million in the 2nd quarter of 2021. Long Gap Net Income was R&D 452.7 million, equivalent to US dollar 70.3 million in the 3rd quarter of 2021, representing a decrease of 30.5% from R&D 651.8 million in the 2nd quarter of 2021. US Gap, uh, Basic and Diluted Net Income for ADX were R&D 0.724, equivalent to US dollar 0.112 and R&D 0.717, equivalent to US dollar 0.111 respectively in the 3rd quarter of 2021. Compared to US Gap basics and Diluted Net Income for ADX of R&B 0.595 and R&D 0.591 respectively in the 2nd quarter of 2021. Long Gap Basis and Diluted Net Income for ADX were R&B 0.336 equivalent to US dollar 0.052 and R&D 0. 333m equivalent to US dollar 0.052 respectively in the 3rd quarter of 2021. Compared to Non-Gap Basic and Diluted Net Income per ADX of R&D 0.470 and R&D 0.467 respectively in the 3rd quarter of 2021. As of September 30th, 2021, the company had cash and cash equivalent with crypto-cash, short-term bank deposits, short-term investments, and short-term bank deposits of R&D 14.72 billion, uh equivalent to US dollar 2.28 billion, compared to R&D 14.88 billion as of June 30th, 2021. As of September 30th, 2021, approximately US dollar 1.64 billion, equivalent to R&D 10.59 billion was it\u2026 was denominated in US dollars. When the 3rd quarter ended in September 30th, 2021, Net Cash used in work-creating activities was R&D 142.9 million, equivalent to US dollar 22.2 million. This concludes our compared remarks today. We will now open the call to questions. Operator, please go ahead. Thank you. We will now begin the Question and Answer Session. To ask a question, you will press star, then one on your touch tone phone. If you're using a speakerphone, we ask you to please pick up your handset before pressing the keys. To withdraw your question, do press star and then two. And for the benefit of all participants on this call, if you wish to ask your question to the management in Chinese, please immediate-ly repeat your question in English. Today's first question comes from inaudible. Please go ahead. Um, hi everyone, and inaudible Management, thank you for the presentation, and this is Lydia inaudible from inaudible. Uh, I have two questions, um, my first question is: Um, given the recent regulation uh, of inaudible developmental, uh, would you like to uh, share with us how will your product's portfolio involve going forward, and what changes can we expect to see in your existing product portfolio? And, my second question is: So, we saw the slow-down for uh, the first inaudible in the 3rd quarter, so could you actually share more color on your 1st quarter to date operations um, trends, and also your outlook for next year given the current, uh, uh, regulation update and, and also the\u2026 the COVID situation? Thank you. Uh, thank you very much Lydia. Um, so regarding your first question regarding our product portfolio, so we do have a very clear product development strategy, as mentioned in the opening remarks. We try to offer device products to the right future inaudible for the optimal route to market channel. So, we're full aware of the press conference uh, held by the State Tobacco Monopoly Administration yesterday and also the announced product consultation of the National Electronic Cigarettes Cross-Standards, so we've been in the transition period of our new requirements to become effective, they will strictly comply with regulatory guidelines. So, regarding uh, what will be changed to our current product offerings, uh if and or uh, when the draft National Electronic Cigarettes Cross-Standards become effective, we anticipate we may need to modify some of our current offerings; However, we are very confident that such changes won't be complex for our company, thankfully, and we believe inaudible will still continue to seek out and use our products at harm-reduction or current use. So, regarding your um, second question, uh about market outlooks at 2020, so the current state does not have any um, guidance for the quarter together with next year, so we hope uh, to share more when have the comparative. Thank you very much. Thank you, our next question today comes from Charlie Chen at China Renaissance. Please go ahead. Thank you, Management to take my questions. I have two questions here. The first one is: could you please share your observations on the current comparative landscape for this industry? Uh, are there any changes compared to the first half of this year? And also um, what are your thoughts on the retail pricing for the\u2026 the current environment? So that's the first question. And then my second question is: Um, regarding single sales. So, what are the single inaudible sales inaudible stores for now? From your perspective, where do you consider to be a healthy single-stores sales level? Thank you very much. Um, thank you very much, Charlie. So, I mean there are two questions, one is on the um, comparative landscape and the other one is on our inaudible stores. So, I mean, on the first one, um, as mentioned before, uh, during the latter half of the 2nd quarter, um, we do see that the industry developed\u2026 did not progress as expected. So, indeed, this has carried into the 3rd quarter and we still see that there are external factors affecting the entire industry, including our company and also-\u2026 impacting the entire industry, including our company and also our peers to varying degrees. But in this, uh, regarding inaudible landscape, we have observed reduced industry competition as compared to this first half of 2021. So, um, regarding, like, retail price that you have mentioned. So, we do have increase our promotional access in the first quarter, uh, trying to drive our retail sales and reduce inventory pressure, uh, of our chain. And we have also seen that, given the fourth quarter decline in general consumer spending in China, many other companies similarly in inaudible. For the overall inaudible of our subsidies our promotional efforts described inaudible compared to our consumer inaudible company in China. And we have start already, uh, reducing this further. So, going forward, we will continue to monitor our inventory inaudible, uh, together refuse demand and adjust our promotional efforts promptly to maintain, uh, reasonable retail price of our end users. So, regarding your second question about the, uh, single store sales and also how we mention, uh, healthy as an indicator. So, in these single store sales, um, together with the profitability and accurately operating metrics has been a really core focus in our day to day operations. Uh, as we are also aware of the industry-wide lead in retail sales starting in the second half on 2021. But, however, we also see that there have been recovery for many of our stocks in recent months. As our store's operating in a wide variety of location, some Arden in- in shopping malls and some Arden is on the streets, and they also face different local environments. We believe each store situation is very unique. So, indeed, the inaudible having healthy, uh, parameter for single store sales as we look at it one by one. So, um, for a, um, privately paid for company, we have been devoting resources and tools to assist store owners and sales personnel in their daily operations, including providing branding materials, TOSM, training resources, digital organization tools, and- and inaudible store site selection assistance. So, indeed, for this quarter, we have also launched several new products and also upgraded our membership system to drive user engagement and retention better. So, with these initiatives, we believe, uh, we can and we will continue to drive single store sales of products inaudible stores. Thank you very much. Thank you. Our next question and it comes from Louise inaudible at Bank of America. Please go ahead. Hi, hi management, I just wanted to give my question. So, my question is only for the, uh\u2026 also for the inaudible. So, I understand that you don't have the guidance, uh, but you- you just mentioned that you have certain recovery, uh, during the\u2026 during the past mo- mo- month. So, could you be\u2026 could you share ways as more color on the recovery, um, in terms of the single store sales? And, uh, what does that store count as for now and what is our target, uh, for the year end? And also, what is key course driver for the recovery inaudible? Uh, thank you very Louise. Um, so based on preliminary inaudible data, we do see sequential improvements, um, in retail sales and also channel inventory managements. So, we could share more about our strategies in the inaudible. So, um, for inaudible stores, uh, for inaudible, we have been focusing on increasing single store sales throughout inaudible mentioned. And up until now, we do see that initial success. And for our retailers, uh, we do see stronger momentum in store counts in multiple channels and our retial inaudible has become more diversified from inaudible dates. But of course, we are also keenly aware of the recent developments, uh, in the regulatory fronts, especially after they inaudible tobacco monopoly administration. So, we strictly follow to any new regulations and administrative measures. Thank you very much. Thank you. Our next question today comes from inaudible with CICC. Please go ahead. Hi good management and inaudible at CICC. I have one question. It's then what is the outlook for cartridge development and inaudible the nicotine inaudible of 2%? Thank you very much. Um, thank you very Jun-How. So, I believe, uh, you are, uh, actually referring to the inaudible cigarettes inaudible tenders. So, indeed, um, as a global\u2026 as a, um, inaudible company, we have been long been aware of product requirements globally. Including in the European union and also the initial draft of national product vendors. So, looking at the well-developed markets and operations, we believe lowering nicotine concentration will affect some users inaudible satisfaction. However, most of the inaudible could still satisfy with such nicotine content or limits in the long run. So, from the perspective of product developments or technology developments, we have inaudible progress rate to low nicotine concentration inaudible since 2019. And we do have inaudible and product research. So, currently, uh, as you many know, most of our cartridge nicotine concentration is 3%, if such, uh, national standards become affected, we will inaudible comply with all the requirements inaudible on the national product standards including our nicotine content. Thank you very much. Thank you. And ladies and gentlemen, this concludes our questions and answers session. I'm going to turn the conference back over to the company for final remarks. Thank you once again for joining us today. If you have further questions, please feel free to contact RX Technologies investor relations team. For the contact information provided on our websites inaudible relations. Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines and have a wonderful day."
    },
    {
        "audio": "4448760.mp3",
        "file_id": "4448760",
        "ticker_symbol": "AVAL",
        "country_by_ticker": "Colombia",
        "un_defined": "Latin America and Caribbean",
        "major_dialect_family": "Other",
        "language_family": "Spanish/Portuguese",
        "file_length": "3660",
        "sampling_rate": "24000",
        "transcription": "Welcome to Grupo Aval's second quarter 2021 consolidated results conference call. My name is Yanni, and I'll be your operator for today's call. Grupo Aval Acciones Y Valores S.A. Grupo Aval, is an issuer of securities in Colombia and in the United States. As such, it's subject to compliance with securities regulation in Colombia and applical- applicable US securities regulations. Grupo Aval is also subject to the inspection and supervision of the superintendency of finance as holding company of the Aval financial conglomerates. The Consolidated Financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of calculations of non- GAAP measures, such as ROAA and ROAE among others, are explained when required in this report. This report includes forward-looking statements, in some cases, you can identify these forward-looking statements by words such as- Good morning and thank you all for joining our second quarter of 20- may, will, should, expects, plans, anticipates, believes, estimate\u2026 estimates, predicts, potential or continue, or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions. Changes in interest, interest and currency rates and other risks described from time to time in our filings with the Registro Nacional de Valores Y Emisores and the SEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presen- presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update, or correct information provided in this report, including any forward-looking statements, and do not intend to provide any of the for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subject discussed rather than a comprehensive description. When applicable, in this document, we've referred to billions as thousands of millions. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Mr. Luis Carlos Sarmiento Gutierrez, Chief Ex- Executive Officer. Mr. Sarmiento, you may begin. Good morning, and thank you all for joining our second quarter 2021 conference call. I trust that all of you and your families are keeping healthy. Today, it is my pleasure to present our strongest quarter ever. In doing so, I will cover the following: an updates, uh, on the macroeconomic environment of the regions where we operate, the status of the loan relief granted to our clients, the progress of our digital efforts, and the main highlights of our financial performance. Let's start with a macroeconomic scenario of the last few months. During the second quarter of the, the year, the global economy continued to recover. There are, however, material differences in the recoveries of countries depending on the effectiveness of this country's vaccination programs. Additionally, new variants of the virus, such as the Delta Plus and more recently, the Gamma variant continued to appear. For now, it is apparent that the vaccinations being administered are effective against these new variants. However, it is not the case, economic recoveries would be curtailed. In any case, clear evidence of the effectiveness of the vaccination programs recites in the fact that although people continue to get infected, the lethality of the virus has drastically dropped. Colombia has not been the exception to the economic recovery or to a well-administered vaccination program. To date, more than 30 million doses have been administered and more than 13 million people have been fully immunized. This progress in the vaccination program, along with better external conditions, have boosted the recovery of the Colombian economy. This recovery has not been devoid of headwinds, specifically, the violent demonstrations and strikes that plagued the country mostly during the months of April and May. However, after a drop in consumer confidence, not surprisingly, during April and May, as of July, this indicator has recovered and is now at its highest level since the start of the pandemic supported by the progress of the vaccination campaign, better unemployment numbers, renewed commercial activity, and higher prices of export commodities, such as coffee and oil. High frequency data, such as energy demand, suggests that business activity is advancing toward its pre-pandemic level. As a result, analysts have continued to raise their estimates of the GDP growth forecast for Columbia during 2021. The OECD, for example, now forecasts a GDP growth of 7.6% for 2021, and the IMF is expected to raise its projections in August given the positive outcome of recent months. In its latest meeting, the central bank revised its own growth forecast from six and a half percent to seven and a half percent, and in Aval, we now forecast that the economy will grow approximately 7% in 2021. Moving on to the labor market in June, the unemployment rate fell to 14.4%, and the number of jobs increased by 161,000. The average unemployment rate during the second quarter was 15%, compared to 15.8% during the first quarter, and 20.3% a year earlier. Of course, there is still a long way to go on this front. Despite the mentioned improvement, there are still approximately 1.4 million jobs that still need to be recovered to bring us back to the pre-pandemic levels of employment. If these jobs were recovered, the country would experience a drop of between 6 and 7% in unemployment. For now, as the recovery process continues, we expect the further decline in the unemployment rate to 12% by year's end, reaching an average of 14.8% for 2021. In June, 12 month inflation reached 3.63%, 204 basis points higher when compared to inflation during 2020. This year's number has been driven mainly by supply factors and by statistical base effect. In fact, the surge of food prices of five and a half percent in May was triggered by the disruptions of supply and logistics that arose from the strikes. As of July, 12 month inflation had risen by 34 basis points versus June to 3.97%. This increase was driven by food prices, which rose by 40 basis points, and by higher prices in service sectors, as a result of higher activity leisure industries such as restaurants, hotels, recreation, and culture. We expect that inflation for 2021 will reach 4% as food prices revert, offset by the pass-through of higher commodity prices and the shipping costs. Although, medium term inflation expectations remain well anchored at 3%, given the recent surge in consumer prices, the weaker peso, and the growth prospects, we expect that central bank will start monetary pilot\u2026 policy tightening cycle in the last quarter with a high probability of 225 basis point hikes before the end of the year. In that scenario, the repo rate will increase to two and a quarter percent from its current 1.75% level. Regarding the exchange rate, in the last few weeks, the peso has weakened to as high as 4000 pesos per dollar due to the strengthening of the dollar in international markets, as investors seek shelter and save assets caused by the renewed uncertainty owing to the spread of the Delta variant and also due to the increase in Colombia's risk premium. However, with the projection that the central bank will start the new monetary tightening cycle, and if as expected, Congress approves the proposed tax reform to which I will refer in a minute, it is likely that the Colombian peso will seek a level close to 3700 pesos per dollar in the next few months. The government has presented a new tax reform that seeks to increase tax revenues by 15 trillion pesos, or 1.2% of GDP. The additional revenue would mainly originate from increasing the corporate tax rate to 35% starting 2022 instead of reducing it to 30% as approved in the 2019 tax reform. The financial sector, however, will continue to pay a 3% surcharge over the corporate rate until 2025. The surcharge was expected to seize by 2023. Other components of the tax reform include reducing tax-deductible expenses and strengthening legal measures to fight tax evasion and of freezing government spending. This new tax reform has greater political support and is expected to be approved in Congress in the next few months In the meantime, the government expects the fiscal deficit to reach 2021 at 8.6% of GDP, with a primary deficit of 5.3% of GDP. Regarding the current account deficit, it is expected to widen to 4.4% of GDP by year's end, up from the 3.3% of GDP observed at the end of 2020. Pent-up demand should translate into a larger trade deficit that will be partially offset by larger and better priced oil and coffee exports. With respect to Central America, the IMF expects a 5.7% growth of the region's economy in 2021. As discussed in the past, Central America greatly benefits from the recovery of the US economy, as certain Central American countries are highly dependent on h- cash remittances incoming from the United States. Economic growth of the region should be positively impacted by the infrastructure sector as these countries that were affected by storms, Eta and Iota need to invest heavily in the reconstruction works. During the first two months of the second quarter, Panama estimated an annual GDP growth of sixteen and a half percent in during the same period, Costa Rica estimated GDP growth of 12.3%. Panama benefits from the reactivation of global trade and foreign investment given its role as a global maritime transportation hub, and the consequential increase in canal activity. In Costa Rica, 6 out of 15 economic sectors reached pre-pandemic production levels. Remittances have searched year and year 55% In El Salvador, 43% In Guatemala, and 44% in Honduras. Annual economic growth estimated for the first two months of the second quarter was 28.1% in Salvador, 15.8% in Guatemala, and 28.4% in Honduras. Guatemala, Honduras growth will be boosted, as I said before, by increases in fiscal spending to reconstruct damaged infrastructure after dimensioned storms. Finally, based on leading indicator year-on-year, economic estimated growth reached 15.2% in Nicaragua during the first two months of the second quarter. Despite internal and external favorable economic conditions, growth in Nicaragua could be limited by the challenging political context. Moving on to the status of our loan relief programs. As of June, we had active reliefs represented approximately eleven and a half percent of our total consolidated loan portfolio, or approximately 24.5 trillion pesos in loans. In Colombia, as of June 30, active relief amounted to 8 trillion pesos or 5.9% of the Colombian loan portfolio, including 7.7 trillion in structural agreements with clients. In Central America, reliefs amounted to sixteen and a half trillion pesos, representing 20.9% of the region's portfolio. These reliefs in Central America were driven by Panama, which accounted for more than half of the region's active reliefs. Of all loans in both geographies that have concluded the relief periods, those currently past due 90 days or more, represent only 1% of our total consolidated loan portfolio, and those currently past due 30 days or more represent 1.8% of our total consolidated loan portfolio. Our cost of risk as, it's been booked, reflect our estimation of losses related to the complete unwinding of these relief programs. We continue to execute our digital strategy in accordance with our expectations. Allow me to elaborate. As I have mentioned before, we have prioritized the transformation of our core products into digital solutions and the digitalization of core processes in our backs. We believe that both those efforts will yield additional net income via additional sales revenues and cost savings. We have successfully concluded the digitalization of most of our retail bank products, products and are now in the process of rolling those out to all our banks. This has led us to increase our digital retail sales substantially. In Colombia, 60% of all sales of retail products for which a digitalized solution has been developed are currently conducted through the di- digital applications and 40% of those are end-to-end digital sales without human intervention. These sales represent almost 40% of our total digitalized and non- digitalized retail products sold. In Central America, approximately 25% of total sales our sales of digitalized products. As part of our IT transformation process, our digitalization effort is cloud-based, allowing us to scale up faster and cheaper than with traditional IT infrastructure models. Allow me to explain. First, all of our digital products are already 100% in the cloud, or cloud-native. As a result, we do not need to further invest to migrate the infrastructure of our digital products to the cloud, because we're already there. Secondly, our centralized data platforms in our digital labs, such as Augusta and Matilda, are also in the cloud, allowing us to be more efficient in our processes, reduce operational costs, and increase our client penetration. Matilda is a marketing platform, which has led us\u2026 which has allowed us to acquire new digital clients and what we currently believe is the lowest acquisition cost in the market. These adds to the capabilities of our data platform Augusta, which has allowed us to improve our cost of client acquisition, cross-selling, customer retention, and risk mitigation, among others through advanced analytical models. As of June 2021, our active digital clients totaled 5.2 million, increase in approximately 31\u2026 5.2 million, increasing approximately 31% in the last 12 months. Even though adding active digital clients is a necessary step for digital transformation, obtaining long-term sustainable value as a result of this effort is the primary objective. High acquisition costs of digital clients have led us to be watchful of where we de- have denominated net loss growth associated with one transaction users or those that lack potential to be monetized. In Colombia, a country with very strict usury rate restrictions, transactional platforms with low or no fees will find it difficult to sell profitable banking products regardless of the number of digital customers. We have been working in alternative ways to acquire new digital clients that meet our profitability criteria, leveraging ecosystems that provide services that are valuable to our clients, and were profitable products of our banks are part of the solution. Among those, first, in Colombia, Aval Di- Digital Labs has been working to redesign popular existing websites such as Carulla, Metro Cuadrado, and Elempleo.com, and to add to those ecosystems additional products, including banking digital products to further our goal of adding profitability to digital growth. Being part of these ecosystems afford our banks the opportunity to increase digital clients through auto loans, mortgages, payroll loans and other products. These ecosystems currently serve over 10 million users. In Central America, we recently launched Kash, with a K, a transactional app available across the region that already has 100,000 digital clients, 70% of which are not bank clients, with more than 350,000 transactions to date. Soon, family remittances will be available through our Kash app. This will allow us not only to acquire at least 500,000 additional profitable digital clients by year-end, but also to increase our remittances' fee income and to make our app profitable. Finally, in Colombia, we're improving our digital channels to better fit our customers' needs. Banco Popular launched recently its banking app at the beginning of the year, and we expect Banco de Occidente and Banco AV Villas to launch their new apps in the next couple of months. These apps have a more modern, intuitive and secure design that will contribute to a better customer experience. In Central America, our focus has been primarily on customer service. In 2021, 54% of client interactions have been conducted through digital channels and 46% through our call centers and others. Customers have quickly adopted the mobile channel as the preferred means to make the requests. Almost 20% of those queries- queries are picked up and handled by chat bots and resolved without human intervention. To finish regarding our financial results, Diego will refer next in detail to our financial performance during the second quarter of 2021. However, allow me to highlight the following. To start with, Grupo Aval registered its best results ever for a quarter with attributable- attributable net income of approximately 950 billion pesos. Aval's attributable net income for the first half of 2021 was 1.74 trillion pesos. This resulted- resulted in a, in a return on average equity for the quarter of 18.2% and of 16.7% during the semester. Among the principal reasons for these results, I would include the following. First, 2021 has been a year with excellent results in the pure banking business, where we have been able to defend our intermediation spread mainly through pricing discipline while successfully growing our loan book. Our loan portfolio has been behaving better than expected, resulting- resulting in better cost of risk. In fact, cost of risk has moved to near pre-pandemic levels. Thirdly, we have benefited from a well-structured fixed income portfolio in terms of durations and yields. Fourthly, our non-financial sector was able to quickly regain momentum and return to pre-pandemic activity within a very short period, resulting in the recovery of significant income contribution to our bottom line. Next, our pension fund manager has been successful in defending its market leadership, in managing costs, and in obtaining healthy yield from the portfolios it administers. Lastly, throughout all our companies, we continue to stress the importance of a cost containment and/or cost reduction culture. I do thank you for your attention, and now I'll pass on the presentation to Diego who will explain in detail our business results. You have a good day. Thank you, Luis Carlos. I will now move to the consolidated results of Grupo Aval under IFRS. Before covering the following pages, bear in mind that, as of June 2021, MFG no longer affects the comparison of our volumes relative to a year earlier, given that its acquisition was completed on May 2020. However, the year-on-year comparisons of our P&L lines are still affected given that the second quarter of 2020 only included one month of MFG's operations. Now starting on page 9. Our assets grew 2.2% over the quarter and 3.4% year-on-year. Colombian asset growth continued strengthening, recording 2.3% increase during the quarter and 3.4% year-on-year, while Central American assets recorded a 0.1% quarterly and a 3.6% year-on-year growth in dollar terms. Quarterly depreciation of 1.9% and a 12-month appreciation of 0.2% take quarterly and annual growth in pesos of Central America to 2% and 3.4%, respectively. The share of Central America in our book remained at 36%. Moving to page 10. Loan growth continued to show a positive trend that now includes a rebound in Central America. In Colombia, the sustained growth of high-quality retail lending products was partially dampened by a still sluggish growth of commercial loans. The social unrest experienced during April and May in Colombia temporarily held back loan origination. Our total loans grew 2.1% over the quarter and 2.2% year-on-year. Colombian gross loan portfolio increased 1% during the quarter, slightly slower than the quarter earlier, while 12-month growth was 1.5%. Demand of consumer loans remained high in Colombia, resulting in a 1.7% increase during the quarter and 11.3% year-on-year. Competition remains high in low- risk products, such as payroll loans. However, as a new development, unsecured products have started to regain traction over the past couple of months. This may signal an increase in the risk appetite of banks. Payroll lending, that accounts for 61% of our Colombian consumer portfolio, grew 3.1% over the quarter and 21.3% year-on-year. In contrast, although performing better than a quarter earlier, credit cards contracted 1.6% and personal loans remained relatively stable. These products account for 12% and 20% of our Colombian consumer portfolio, respectively. As seen in other secured retail products in Colombia, mortgages remained dynamic, expanding 3.1% over the quarter and 12% year-on-year. Our Colombian corporate portfolio continued its mild recovery, growing at a still shy 0.4%. Our growth versus that of our peers continues to benefit by our pricing discipline where we privilege profitable customer relationships over market share. Cumulative 12-month growth was negative at minus 4.4% with a still high comparison base a year ago. Moving to Central America, our gross loan portfolio increased 2% over the quarter and 3.6% year-on-year in dollar terms. Quarterly performance in Central America, the strongest since fourth quarter 2019, was driven by a 2.9% growth of consumer loans. This performance resulted from a 4.4% growth in credit cards and a 1.3% growth in payroll loans. Quarterly growth in credit cards took the year-on-year growth to 5.8%, the first positive figure since second quarter 2020. Commercial loans and mortgages grew 1.7% and 1.1%, respectively, during the quarter in Central America. Looking forward, fundamentals for loan growth continues to strengthen in both geographies. We ex- expect commercial loan growth to be supported by improvements in economic activity and business confidence. In the retail lending front, we expect that the improvement in employment outlook will continue to allow an increase in our bank's risk appetite in products that were deemphasized during the shock. On pages 11 and 12, we present several loan portfolio quality ratios. The COVID-19 credit juncture continued unwinding- unwinding favorably for our banks during the second quarter, driven by a stronger and faster recovery in both economies than initially forecasted that has translated into a better evolution of reliefs and a stronger performance of the rest of our portfolio. This has resulted in a lower cost of risk than initially forecasted. Loan reliefs continued to expire and returned to active payment schedules. As expected, these loans have higher delinquency ratios than the average. In contrast, the remainder of our loan portfolio, 88.5%, continues to improve in line with a stronger economy offsetting the burden of the relief loans. As of June 30, we had 3% of our total gross loans under payment holidays and 8.5% under structural payment programs, together accounting for 11.5% of our loan portfolio. In Colombia, 5.9% of our loans have some type of relief. Only 0.2% of our Colombian gross loans are still under payment holidays. The remaining reliefs are under structural payment programs. In Central America, 20.9% of our loans still have some type of relief with 7.8% of gross loans under payment holidays and 13.2% under structural payment programs. Payment holidays persist mainly in Panama that account for 94% of those in the region. At end of period, 4.2% of our total loans that in the past had benefited either from payment holidays or were restructured and that had returned to active payment schedules were past due more than 90 days. These past due loans represent 1% of our total gross loans. These numbers were 7.3% and 1.8% for loans past due more than 30 days. In Colombia, 5.7% of loans previously relieved that had resumed active payment schedules were 90 days past due, representing 1.1% of gross loans. For 30 days past due loans, these numbers were 9.3% and 1.8%. In Central America, 2.6% of loans previously relieved that had returned to active payment schedules were 90 days past due, representing 0.9% of gross loans. For 30 days PDLs, these numbers were 5.3% and 1.8%. As mentioned before, the deterioration in relief loans was partially offset by the improvement of the rest of our loan portfolio. This resulted in the overall metrics for 30 days and 90 days PDLs remaining relatively stable during the quarter. Our allowance coverage of 30 days and 90 days PDLs remained flat as well as our- over the quarter. The ratio of charge-offs to average 90-day PDLs stood at pre- COVID levels. Regarding 30-day PDL formation, 76% was explained by retail products with credit cards and personal installment loans contributing 28% and 20% of PDL formation, respectively, despite representing only 8% and 5% of our gross loans. This behavior was mainly driven by relief loans that became delinquent. The quality of our loan portfolio was materially stable quarter-on-quarter at 4.76% on a 30-day basis and 3.42% at 90-day PDL basis. With 30-day and 90-day PDL\u2026 Sorry. Our 30-day and 90-day PDLs were 71 and 42 basis points higher than those a year earlier. Composition of our loan portfolio in term of stages shows an improvement in the share of stage 1 loans compensated by a decrease in stage 2 loans. As anticipated, part of the stage 2 loans migrated to stage 3. This improvement was mainly driven by our consumer loan portfolio in both geographies, which recorded a 146 basis points increase in the share of stage 1 loans and 155 basis points decrease in stage 2. Coverage of each stage remains relatively stable compared to a quarter earlier. Cost of risk, net of recoveries, was 2%, 23 basis points lower than the 2.2% in the previous quarter and 111 basis points lower than the 3.1% a year earlier. The quarterly improvement incorporates 58 basis points decrease in retail loans and a five basis points increase in commercial loans. Quarterly cost of risk improved by 34 basis points in Colombia and four basis points in Central America. In Colombia, the cost of risk of retail loans improved 84 basis points while that for commercial loans remained stable. In Central America, the cost of risk of retail loans fell 22 basis points and increased 17 basis points for commercial loans. On page 13, we present funding and deposit evolution. Funding growth during the quarter continued to reflect a high liquidity environment. Our deposits to net loans ratio and our cash-to-deposit ratio remained stable over the quarter at 110% and 15.8%, respectively. Our funding structure remained materially unchanged with deposits accounting for 78% of total funding. Deposits increased 1.7% during the quarter and 6.4% year-on-year. Colombia grew 1.4% during the quarter, while Central America grew 0.2% in dollar terms. For the 12-month period, Colombia grew 3.3% and Central America 11.6% in dollar terms. Annual growth of deposits above that of- of a loans reflects a conservative liquidity standing, particularly in Central America. On page 14, we present the evolution of our total capitalization, our attributable shareholders' equity and the capital adequacy ratios of our banks. Total equity grew 5% over the quarter and 8.2% year-on-year, while our attributable equity increased 5.3% and 7.6%, respectively, mainly driven by our earnings. 7.6% respectively, mainly driven by our earnings. Sovereignty ratios under Basel III remain relatively stable, as net income provided support for risk-weighted assets growth over the quarter. On page 15 we present our yield on loans, cost of funds, spread and NIM. NIM performance during the quarter was driven by a stable NIM on loans and an improvement of NIM on investments. Nim on loans remained at 5.8% during the quarter as the spread between yields and loans and cost of funds remained flat at 6%. Yield on loans continue to keep decreasing, however, it was compensated by a similar decrease in cost of funds. NIM on investments was 1.4% during the quarter, returning to positive ground from the -0.4% recorded last quarter. The excess liquidity associated with the prudent liquidity standing continued to weigh on our NIM. On page 16, we present net fees and other income. On this page and the following, we will present several PNL lines and metrics. Please bear in mind that two factors limit the comparability of our results year-on-year. First, a low baseline, considering that the strongest effect of the pandemic and commercial activity was suffered during that quarter, and second, only one month of MFG operations was part of our second quarter, 2020 PNL. Now moving to the content of this page. First half gross fee income increased 8.7% year-on-year while quarterly year-and-year growth was 17.9%. Gross fees fell 3.6% during the quarter, affected by a temporary pause in recovery associated with the demonstrations held in Colombia during April and May. In addition, performance-based pension management fees in Colombia and bancassurance related expenses in Central America affected this quarter's performance. Income from the nonfinancial sector reflects the strong performance of the infrastructure and energy and gas sectors. Our infrastructure sector grew 17.5% over the quarter, mainly due to the, a strong performance in the construction of some of our inaudible. First half contribution from the inaudible infrastructure sector grew 48% year-on-year. Quarterly income from infrastructure was 3.8 times that, a, a year earlier, when the stringent lockdowns experience, March to May, halted construction. The energy and gas sector contribution increased 14% over the quarter due to positive results in gas distribution and pipeline construction. First half income from the energy and gas sector grew 60% year-on-year, while quarterly income was 2.1 times compared to a year earlier, when a decrease on, in, in industrial gas demand during the lockdowns affected our results. The bottom of the page, the quarterly decrease in other income is explained by lower contribution of OCI realization, of fair value, uh, fixed income, uh, portfolios and by the seasonally high income from dividends during the first quarter. On page 17, we present some efficiency ratios. First half, other expenses increased 2.4% year-on-year while quarterly expenses grew 4.5% year-on-year. Year-to-date expenses grew 0.6% in Colombia and fell 0.2% in dollar terms in Central America, excluding the effect of MFG. Quarterly expenses, uh, increa- increased year-on-year 3.3% in Colombia and 6.7% in dollar terms in Central America, excluding the effect of MFG. Compared to first quarter, other expenses increased 6.1%, with Colombia growing at 6.8% and Central America growing at 1.3% in dollar terms. In addition to an increase in cost associated with higher activity, this quarter included provisions of the remaining 50% of the penalty imposed to inaudible Colombiana by the Colombian Superintendency of Industry and Commerce in relationship, uh, to the inaudible investigation. Compared to a year earlier, cost-to-assets remains stable at 3.2% and improved 45%, down from 51.3% on a cost-to-income basis. Finally, on page 18, we present our net income and profitability ratios. Our tradable net income for second quarter, 2021 was 950 billion Colombian pesos, or 42.6 pesos per share, its best result ever for a quarter. This result was 19.9%, uh, higher than the previous quarter and 2.9 times that a year earlier. Our return on average assets for the quarter was 2% and 1.9% year to date. Our return on average equity for the quarter was 18.2% and 16.7% year to date. I will summarize our guidance for 2020. We expect loan growth to be in the 9 to 10% area. Net interest margin on loans to be 5.8 and total net interest margin to be in the 4.8 to 5% range. Cost of risk to be in the 2.1 to 2.2% range, net fees to grow in the 8% area, our nonfinancial sector to grow in the 5% area. Expenses growth to be in the 4% area. And return on average equity to be in the 15 to 15.5% range. We are now available to a- address your questions. Thank you. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the headset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. And our first question comes from Sebastian Gallego from Credicorp Capital. Please go ahead. Good morning. Uh, thank you for the presentation and congratulations on, on very strong results. I have, uh, several questions today. Uh, first of all, the, you just mentioned, uh, Mr. Diego mentioned an ROE guidance of 15 to 15.5% in 2021. Uh, can you discuss on how, uh, sustainable are, are, are these type of returns, uh, going into 2022, and on a long-term, uh, sustainability basis? Uh, second, uh, it caught my attention\u2026 Uh, Mr. Luis Carlos, uh, comments on the potential competition on digital platforms and how far those platforms could have trouble monetizing, uh, the, uh\u2026 Uh, I mean, their, their users. Can you, uh, discuss a little bit more, the, the competitive environment on, on that front, and, and why are you so confident that, uh, other, uh, players may not be able to monetize, uh, those, those users? And finally, if you could provide, uh, an outlook for loan growth, uh, breaking down per, uh, per region and breaking down, uh, per segments, uh, given the 9 to 10%, uh, guidance. Thank you very much. Okay. Yeah. Let, let, let me start with your question number 11 on, uh, on digital. Uh, wh- wh- wh- what I, what I meant is the following. Uh, the, the, what we see around the region with, uh, platforms, uh, fintech platforms that have been able to, uh, turn in net income, uh, is basically the, uh, uh, not charging fees but, uh, charging substantial interest rates, in one way or another. In Colombia, as I said, it's a little bit more complicated because we have very strict usury rate, uh, regulation. So, uh, here when, when you bring on digital clients, you have to consider how you're going to monetize them. And, uh, you can massively increase your digital clients in those sort of platforms, but if in that massification you acquire a lot of digital clients that will probably not transact too much. Like, for example, clients that are, just become so, to receive subsidies from the government or, uh, other types of clients that will probably not be subject to, uh, becoming, uh, debtors in, uh, uh, via loans, uh, it might be a little bit harder to monetize them, so I, you know, I don't have the, the solution. Uh, and I am sure that everybody who is, uh, coming up with a digital platform has thought about this. And, and obviously, most of it is going to depend on what your cost of funds is, if, if you are planning to take in funds to then try to make those customers into borrowers. It also depends on your, on your cost, uh, uh, structure. And, and obviously, some of these, uh, fintechs which are starting, uh, in, uh, from the beginning, as, as, uh, as solely digital platforms with no legacy of, of other types of costs, uh, have a, an easier time of, of keeping costs down, but all that I'm saying is, uh, in our case, when we think about, uh, massification of digital clients, uh, we always think in terms of what's that going to produce i- in, with respect to net income for the company. So, uh, in that respect we, we usually say, let's start with those actions that we know are gonna result in, in, in valuation and valuation via additional net income, because as you know we are basically valued based on, on a price to earnings ratio, and so we have to produce the earnings. And, uh, and, and that's why we're saying in our, in our, in our strategy, we first decided we would put a lot of emphasis on being able to offer our own legacy products in a digital manner so that new clients, uh, could acquire them that way. And secondly, we've been going through this digitalization of, of, of processes and operations in the banks, and, and that has resulted in cost savings. We will obviously not discard in any shape the idea of, of massifying digital clients, uh, but we have to make sure and, and that, that those clients have some future in terms of producing additional revenues for the company. Um, so, so that's, that's what I was referring to in, in, when, when I talked about our digital strategy. Yeah. And moving to your, your guidance questions, uh, regarding return on equity, even though we're not giving guidance on, on 2022 on this call, just to give you a, a, a, a framework to think around it, we have a few things that are still to continue improving into the future, particularly, uh, cost of risk still has room to, uh, improve throughout the year and into next year. Uh, that has been part of what has helped us in, uh, sustaining our stronger results than market, and we expect to continue seeing that, uh, improvement into a future. The other part that will be helping us as well, uh, is all that, that is related to, uh, increased, uh, macro activity in Colombia regarding stronger growth, regarding increases in rates that as, as you know, for banks a slight increasing rate is always a positive increase in fee income, uh, associated with activity. Uh, what could, uh, dampen the kind of positive numbers that I'm pointing into? It is the tax reform. It is building in what comes out from, from, from that reform is still to be seen. At this point with the tax reform that, uh, is currently in Congress, uh, the numbers might not change substantially compared to this here, but, uh, the expectation of, of having lower taxes into the future somehow has faded away. So we have a combination of improvement on the operational front a- and then the, the, uh, almost on the last line, we have, uh, the impact of taxes. That's a, a long way to, to tell you that even though we are not giving guidance, these kind of numbers are numbers that, uh, we could expect to continue seeing into the future. Then, regarding the breakdown of what is not going to happen with loan growth, uh, as mentioned, uh, we have a much better performance from the, the growth, uh, perspective on the consumer front. We could expect to see something in the 12 to 14 percent area growth. And on the commercial front, it should be somewhere between six and seven percent. If you break down that by, by regions, Colombia should be in the six to eight percent area growth. And Central America should be at a similar rate if you look at it in dollar terms, but you have to build in that we have already run through a, around, uh, an 11%, uh, depreciation, I mean, not as up to date, but up to the numbers that we believe could be numbers at, at the end of the year. Uh, so that will help, and that will propel what is happening with Central America. Our next question comes from Adriana Della Saba. Please go ahead. Hi, and congratulations on the results. Um, I wanted to see if you can help us have a better sense of the income growth. I know in the quarter there was a, a slight impact from, um, the protests. But if you can help us with, that would be great. I'm, I'm sorry. Were you referring to fee income or to income growth? I, I didn't hear you properly. Um, well, it could be talking about normalized levels of growth, but, um, it's you know, however you think it's best to formulate it. Okay. W- well, uh, regarding the, the loan side, I just mentioned it before. It is volume wise we have the dynamics I, I just covered, uh, when, when referring to Sebastian's question. Uh, regarding, uh, margins, uh, we're actually moving into a, a better ground for margins, given that we expect to see the Central Bank increasing rates. Uh, under fees side, we mentioned we are slightly short from loan growth because loan growth, uh, is starting to come, uh, stronger; therefore, if loans are growing in the nine to 10 percent area, we could be a couple percentage points below that and on the fees side. Uh, fees still has, uh, some room to, to increase, particularly for two reasons. And number one, on the pension side, uh, we had some impact during this quarter of, uh, volatility that, uh, implied that, uh, some\u2026 utility that, eh, implied that, eh, some of our fees that are related to, eh, to our, our profitability and the funds was affected, bear in mind that there's a lag between where, how we get those into our TNL and how they happen in the market, because we charge fees after, eh, returns have been obtained so are, we have some delay there. But then, eh, on the, on the\u2026 I would say the main driver will be economic activity. We're seeing, uh, a strong pickup, we're seeing a pickup in products that are very rich in fees such as credit cards and other, eh, consumer products that in the past we had deemphasized and at this point we're ready to, to, to start to, to open our, our risk a- appetite. So that will come, eh, with fees, eh, as well. I don't know if I covered, eh, what, what you were referring to, but, but those are the, the main drivers. Thank you. And as a reminder, if you have a question, please press * than 1 on your touch tone phone. Our next question comes from Brian Flores from ASA Investment. Please go ahead. Hi, thank you for the opportunity to ask a question. Can, can you please confirm what was the guidance you used for cost of risk? Uh, and then I'll give a second question. Thank you. Okay. Uh, regarding cost of risk, you might have known that we lowered our guidance. We had previously given\u2026 Initially, we started out with two and a half lowered it 2.3 to 2.4 and this time around we're lowering it to 2.1 to 2.2%. The reason for that, eh, is we're seeing a much better performance on our loan portfolio, particularly on the retail side, and then given the much stronger economy that we're looking into in Colombia and Central America, the remaining of the, remainder of the portfolio beyond what, what was a, um, benefited from reliefs is also performing much better. So, so that's the reason we're doing that. Eh, something there that we are still holding back from being more aggressive is, eh, provision fee in Central America, particularly in Panama, given that they're later in the process of finishing reliefs. In absence of that we might have had, uh, a positive bias on the numbers that I mentioned. My second question would be on, on 2022. I know it's still a bit early, but, uh, we're getting to closer to it. So just thinking about your guidance, uh, if you have any idea of how, you know, any of these lines would look like, and, uh, what are you aiming for in terms of sustainable ROE. Thank you very much. I, I, I would prefer to stick to, to the answer to Sebastian regarding guidance and what to expect on, on ROE. At this point, I, I would say we would be very happy to, to, to be able to, to transfer our optimism on the economy and performance into guidance, but we prefer to be prudent at this point. Thank you. Our next question comes from YudiFernandez from JP Morgan. Hi all, uh, first congrats on the results, very good quarter. Uh, I have a, uh, a question on margins, uh, actually on the liability side. Um, I guess we are seeing logbook accelerating in Colombia, right? But my, my question is regarding this funding, um, do you think you'll be able to keep growing deposits at a healthy pace because over the last one, two years, we saw you and Colombian banks in general, having a very good funding structure, right? Like the demand deposits growing, the funding costs coming down. So my, my question is, should we see an inflection point for funding cost and we start to see funding cost slightly moving up and how that could affect margins, because that, that could be negative if that's correct, if that assumption that maybe funding cost would be higher, that can penalize a little bit the needs. But on the other hand, uh, maybe stage 3 loans will pick and that will help a little bit, you have higher rates in Columbus. So I guess the bottom line here, uh it's, what should we expect for inaudible, uh, in, in, in the coming, in the coming quarter for you? Thank you. Yeah. Eh, trying to, to\u2026 I, I'm gonna give you first the short, uh, answer, and then I can go into detail. The short answer is deposit growth, uh, we, we should expect to continue sustaining that. However, I mentioned somehow, or I hinted twice that we've had excess liquidity that has been a burden on our net interest margin that's been a prudent way to manage it, particularly in Central America where there's no central banks we've taken excess deposits to what would be the normal way to run the back. So a deposit growth, we will have at least some time where we have the leisure of having excess deposits so we can be picky on prices and that will help us over several quarters. Uh, regarding margins, uh, we suffer when rates come down, particularly those from the central bank and we benefit when those go up. Something that we have already started to feel is that the IBR from, the basically, the interbanking, uh, rate in Colombia has already started to pick up reflecting expectations on increase of profits. If you, eh, recall, um, what, eh, we have in our, in our commercial portfolio in Colombia is substantially floating, eh, loans based on IBR. So, eh, we've started to feel that already it's benefiting us and expect to see that in the future. Then the other side of deposits is our retail franchise where, eh, those deposits are not as elastic to what is happening with the central bank and that's the main source of improvement in margin when, eh, rates go up. Um, there's two different types of cycles, eh, some cycles where, eh, rates are going up because risk is going up therefore the, the cost of risk is built into the pricing of the banks. However, this time around we're looking into a cycle where rates are going up with an improvement in cost of risk. So, eh, I would say that will be benefiting our margins and more so our margins after cost of risk. If I may ask just a quick follow up, do you have a sensitivity on rates that you can provide? Like, uh, if there is\u2026 I, I know it's not, the main is not a reference rate, but just as approx, like if the rates move up 100 beeps, what should we see for your, your inaudible? Well, yeah, uh, you have to build in cost of risk into that. Uh, we've\u2026 In the past, we used to disclose some sort of sensitivity around the, the, the 20 basis points, uh, uh, or the 20 cents per dollar kind of, of sensitivity, but that was pure interest rate sensitivity. However, pricing has become growingly intelligent in Colombia and you have to build in as well, uh, the cost of risk into those. So, so that has, has made a difference and, and perhaps that was what I was pointing out out before and it says cycles where you're seeing increases in rates, combined with improvement in, eh, cost of risk, eh, are perhaps the most positive and more, most sensitive, or, uh, elastic cycles to, to interest rates. However, we, we, we have ceased to do that because of, of that last factor and, and it depends very much on the speed at which, um, the, the risk premiums are built into pricing. Oh, perfect. Thank you. And again, congrats on the quarter. And our next question comes from JulioAlsike from Davivienda. Please go ahead. Hi everyone. And first of all, congratulations for the results. I would like to know if you can give us a little bit more color of your expectation for the second half of 2020, like you think the earnings is gonna beha- are gonna behave the same as the first half of the year. And also, I would like to know if you can give us a little bit more color about, eh, what are your expectation on long growth? Like if you can, eh, give us, eh, like the consumption, the consumer, the, the market segments, how they will grow if you have this detail, thank you. Well, I, I think we, we covered many of the key points as a guidance for 20, by the way, not 20- 2021 incorporates what is gonna happen over the, the, the second half of the year. We are quite positive on how the second the year will behave. As I mentioned, still prudent on the cost of risk side. That's the reason why, eh, we're guiding into 15 to 15 and half percent ROE for the year in spite of having already over performed, eh, those numbers. So, eh, we are, we are prudent on, on that side because the, the, the cycle is not over yet, but, eh, we are quite positive on, eh, the core banking side of how things are, are behaving. And regarding, eh, long growth, just to, to, to repeat, eh, what, eh, I answered Sebastian at the beginning, we're looking into, eh, commercial lending growing somewhere in the six, eh, to 8% area and, eh, the consumer side, the retail side, growing more in the 12 to 14%, eh, area. Perfect. Our next question comes from Andreas Soto from Santander. Please go ahead. Good morning and thank you, thank you for the presentation. Uh, my question is related to expenses. Uh, when I compare expenses this quarter with the second quarter of 2019, there is, uh, an 14% growth. Obviously, we, you have inorganic growth in the middle, bu it's still, um, uh, you have, uh, real expense growth over that period. So I would like to, to understand, uh, if there is any strategy to, uh, achieve efficiency. In the past, uh, you mentioned that this could be one of the opportunities, uh, that the digital transformation cou- could bring to, uh, a group of inaudible, uh, through the, uh, uh, backend int- integration of the, uh, different brands. So I would like to, to understand your thoughts about your, your expense performance. Eh, well, eh, I, I will start first with, uh, the, the quantitative, eh, discussion here, and then we can, we can move into the more strategic one. Eh, regarding expense growth, eh, I would say 19 is also a, a, a tricky year, it's a tricky year because we had a cost growth throughout the year. It was also affected by, eh, depreciation of, eh, the U.S. dollar and therefore we saw some effect coming from Central America that started to weigh much more inner costs, and also had the, the conversion. The numbers when you run them X, eh, FX impact are more positive than, eh, what, eh, you are looking into and I think that's perhaps the way to look at, eh, at those. Then, eh, you are absolutely right the MFG, eh, acquisition also has some impact there because we're talking of a larger bank. Therefore, perhaps the, the best way to look at it is more on the cost to assets or co- cost to income based to, to, to try to have that. Having said so, eh, part of what are the, the, the positive take aways from the pandemic is we had to go back and rethink a lot of the costs that we had. The digital front that you rightly mentioned is something that has allowed us to bring costs down but, eh, we have a lot of, of work still do and, uh, the pandemic evidence that we have still a lot of potential to improve costs. So, eh, we will continue working on that and the mandate for our banks is, is basically on those lines. Digital helps as, uh, an enabler to, to, to lower costs and that's part of what we've been using. Okay. Thank you ladies and gentlemen. I will not return a call to Mr. Sarmiento for closing remarks. Jenny, thank you very much. I thank you, uh, for the everybody's questions, thank you for the attendance. Uh, we hope to keep delivering and, uh, we hope to have, uh, to start giving guidance for 2022 on our next call. Uh, other than that, just, uh, hope to see you, uh, hope all of you can attend next call as well and, uh, thank you, Jenny and thank you everybody else. This concludes today's conference. Thank you for participating. You may now disconnect."
    },
    {
        "audio": "4479741.mp3",
        "file_id": "4479741",
        "ticker_symbol": "CHYHY",
        "country_by_ticker": "Denmark",
        "un_defined": "Europe and Northern America",
        "major_dialect_family": "Other",
        "language_family": "Germanic",
        "file_length": "3665",
        "sampling_rate": "24000",
        "transcription": "Good morning and welcome, everyone. Together with our CFO, Lisa Mortensen, inaudible team, we would like to wish everybody a happy new year and hope you and your families are healthy and safe. As always, we will start this conference call with a short presentation on our recent quarter's results. In addition, this time, we would like to also take the opportunity to present our new science based climate targets that were published in November. This will take approximately 20 minutes, and then we will move on to Q&A. Before we begin, please take notice of the Safe Harbor statement on Slide 2. Let's turn to Slide 3, please. Chr. Hansen delivered a solid start to the fiscal year ' 22, with 9% organic growth, with Euro growth reached 10%. Growth was fully volume driven and supported by solid growth in food cultures and enzymes, as well as a strong rebound in health and nutrition. Our EBIT margin before special items was 24.4% compared to 25.2% last year. Excluding HMO, which was not fully reflected in Q1 last year, we both have seen a margin improvement, a scalability from solid sales performance more than offset the inflationary pressure and the general ramp up of activities. Absolute EBIT before special items amounted to EUR 65 million, up 7% from the EUR 61 million in Q1 last year. Free cash flow before acquisitions and special items was EUR 65 million compared to minus EUR 7 million last year. Let's turn to Slide 4 for the strategic and operational highlights. During the first quarter, in-person engagement with customers picked up again and we saw good traction on our commercial pipeline and strategic initiatives. Our core businesses, food cultures and enzymes, human health and animal health grew 7% for our growth areas, which account for approximately 10% of group revenue. Buyer protection, fermented plant basis, plant health and HMO grew 35%. Lighthouses are expected to outgrow the core business for the year, but please note that the very strong growth in Q1 was in part positive due to other timing. In line with our 2025 strategy, we continue to reinvest in our core business and lever our tech- technology platforms to expand into new areas while further reaping the benefits of our recent acquisitions. Let me briefly comment on the key highlights for the quarter. In food cultures and enzymes, we saw very good sales project execution in EMEA, as well as continued strong growth in the cheese market in North America, which led very solid volume growth in Q1. Human health exceeded our expectations for the first quarter and deliver a very strong start to the year, supported by a rebound in the traditional sales channel in Europe and North America and positive order timing from Q4. Further, I am pleased that with our expanded strength to solution offering and our strong supply chain performance, we were able to mitigate supply strength successfully and win new business, which will have a positive impact in the first half of the year. Our HMO business also reported good progress in the first\u2026 uh, with the first launches of the five HMO mix in the U.S. market, which had an extraordinary impact in Q1 as customers ramped up ahead of their product launches. And lastly, plants have entered into a partnership with the Indian act player, UPL, to develop and commercialize microbial crop protection solutions. Another highlight during Q1 was related to Bacthera, our joint venture with Lonza. Please turn to Slide 5. In November, Bacthera signed a commercial manufacturing agreement with Seres Therapeutics. It's an important milestone and therefore, allow me to say a few words about the agreement. After we have successfully established our setup in H\u00f8rsholm and Basel to service customers in the clinical supply market, we are now accelerating investments into commercial manufacturing capabilities based on the long-term commitment from Seres Therapeutics, whose lead candidate, Seres 109, has the potential to become the first ever live biotherapeutic products in the market. As part of the agreement, we will build a new production site in Visp, Switzerland, which is expected to be inaugurated in 2024. Once the commercial supply market is materializing faster than we expected, we are seeing that the clinical supply market is developing slower due to delays in clinical trials and patient intake during the COVID pandemic. These developments will require additional funding into Bacthera, but we are very confident in our ability to establish a living player in the field which can count on our expertise and capabilities from both JV partners. With these words, let's turn to Slide 6 to dive a bit more into the sales performance during the first quarter. If we look at the top line performance across the sexment\u2026 the segments, growth was fully volume driven. Food cultures and enzymes delivered 7% organic growth in Q1, driven by volume and with solid growth in dairy and very strong growth in food and beverages. The contribution from Euro pricing was insignificant. Health and nutrition recovered after a very soft quarter, reaching 13% organic growth in Q1. Human health and HMO delivered very strong growth. As already mentioned, the inaudible was largely driven by human health while inaudible HMO was in line with expectations. That said, I'm very pleased that a large part of our fiscal year ' 22 orders for HMO is already inaudible through long-term contracts. If we look at our animal and plant health business, growth was solid and driven by plant health, we benefited from early orders while animal health faced a tough comparable from last year. Across our businesses, we are in close collaboration with our customers to implement price adjustments to reflect the current inflationary prof\u2026 pressures. The implementation is progressing as planned and we will start to see the impact here from the beginning of Q2. If we look at the regional picture, please turn to next slide, uh, Slide 7, growth was largely driven by developed markets. Europe, Middle East and Africa delivered 10% organic growth, supported by good execution of the sales pipeline in food cultures and enzymes, and our recovering of the traditional dietary supplement channel in Europe. North America, uh, grew strongly, with 12%. Growth in health and nutrition was positively impact by order timing as Q4 was very soft. I already mentioned launches in HMO while FC&E continued to benefit from continued solid momentum in the cheese market. Latin America reported 8% organic grown, of which approximately 1 / 3 came from Euro pricing. Food cultures and enzymes grew solidly despite continued soft fermented milk markets, and health and nutrition was driven by very strong inaudible plant health. Lastly, in Asia Pacific, after a soft year-end, will return to growth, driven by food cultures and enzymes, that saw a positive growth in China. The fermented milk market in China though is still not developing favorably, and our outlook for China is still to be flat to slightly positive in fiscal year ' 22, driven by the low comparable from last year and specific customer projects. Health and nutrition was on par with last year. Both human health and animal health face a tough comparable baseline from last year. In total, these resulted in 4% organic growth for Asia Pacific. And with these comments, I would like to hand over to Lisa for the financial review. Thank you, Mauricio, and welcome also from my side. Uh, please turn to Slide 8. Looking at the development, um, profitability, the EBIT margin ended at 24.4% for Q1, down from 25.2% last year. The drop was in line with our guidance, driven by, first, the full inclusion of HMO, which was only partly reflected in last year's numbers as the acquisition closed mid-October. Secondly, the general ramp up of activities, including travel, and thirdly, higher input costs from the inflationary pressure, which we only expect to see recovered in sales price increases as we progress through Q2. This was in partly offset by positive contribution from production efficiencies and scalability from the sales growth, combined with synergies from our probiotics acquisitions. If we exclude the impact, uh, from HMO, then the EBIT margin would have been above last year by approximately half of the inaudible. Total EBIT before special amo\u2026 items amounted to EUR 65 million, which is 7% up compared to last year, driven by food cultures and enzymes, while EBIT in health and nutrition was at the same level as in Q1 of last year due to the negative impact from HMO. If we look at the segments, food cultures and enzymes EBIT margin before special items was 30.8% and on par with last year, with production efficiencies and scalability effects from volume growth being offset by higher input costs not yet reflected in the sales prices, and a general ramp up of activities. Health and nutrition's EBIT margin before special items was 11.9%, which is 1.7 percentage points below last year, driven by HMO. Excluding HMO, our health and nutrition EBIT margin would have been above last year. The profitability improvements were driven by scalability effects and acquisition synergies that were partly offset by higher input costs and the general ramp up of activities. Let's look at the cash flow on the next slide, Slide 9. The free cash flow before acquisitions and special items came in at EUR 55 million compared to a negative of EUR 7 million in Q1 of last year. The increase was due to both an improved cash flow from operating activities and lower operations investments. The increase in the operating cash flow as driven by improved operating profit and a positive impact from working capital compared to Q1 of last year. And cash flow use for operational investing activities was EUR 18 million, down from EUR 52 million in FY ' 21. The decrease in spending was driven by the acquisition of the cannonball facilities last year. The return on invested capital, excluding goodwill, was 20.0% compared to 20.6% last year, and the decrease was driven by health and nutrition due to the inclusion of HMO while the return on invested capital in food cultures and enzymes was on par with Q1 from last year. And with these remarks, let's move to next slide, Slide 10, to recap our guidance for the year. Following the encouraging first quarter, we keep the outlook for the year. Group organic growth is expected to be in the range of 5% to 8% and will inaudible volume driven but with some positive impact from pricing to reflect the inflationary development. Food cultures and enzymes is expected to deliver solid mid-single digits organic growth throughout the year and despite an insignificant contributions from Euro based pricing. Organic growth in health and nutrition is still expected to be volatile across the quarters but is now expected to be more front-end loaded than earlier estimated. As already mentioned, plant health ben- plant health benefited from early orders in the first quarter, which will negatively affect Q2. For HMO, as Q1 benefited from customers ramping up for the U.S. launches, the growth momentum will be lower, the rest of the year though still in a range above 20%. And for human health, our ability to serve customers has resulted in some extraordinary wins in Q1 and we also see good momentum going into Q2. When it comes to EBIT margin before special items, this is still expected to be around the same level as last year, between 27% and 28%, as cost synergies from the probiotics acquisitions, production efficiencies and a small positive impact from the U.S. dollar exchange rate will be offset by continued ramp up of activities, investments into HMO business and the inflationary pressure on certain input costs. The latter we expect to largely recover during the course of the year as price adjustments become effective. The free cash flow before special items is expected to be around EUR 140 million to EUR 170 million as improved operating profit is expected to be more than offset by significant increases in taxes paid as FY ' 21 was positively impacted by acquisition-related one-offs. The free cash flow outlook assumes a CapEx in line with FY ' 21. As you remember, we updated our long-term financial ambitions last quarter\u2026 We updated our long-term financial ambition last quarter to reflect the divestment of natural colors and the acquisition of Genui. And I would like to emphasize once more, that Christian Hansen remained committed to delivering industry-leading profitable growth under strong cash flow with focus on spending discipline and capital efficiency. Until FY25 we aim to deliver mid to high single-digit organic growth average over the period. An increase in epic margin before special items over the period to above 30%, and average growth in free cash flow before special items to grow faster than eBid before special items. And with this, I would like to hand back over to Mauricio to present our new climate target. Thank you, Lisa. I'm very happy to present Christian Hansen's new carbon reduction targets that were published in November, 2021. Following the validation by the Science Based Target initiative. Please turn to slide 11. Christian Hansen's microbial solutions enable healthier living for humans, animals, and plants, leaving a positive hand print in society and our planet. At the same time, we are committing to reducing our footprint. Taking climate action that is rooted in the lesser scientific census is a natural next step for Christian Hansen. By 2030, Christian Hansen aims to reduce its scope into emissions by 42%, and its scope free emissions by 20%. To reach these ambitions goals, we have launched a new program called Think Climate Naturally. Under which we will pursue a number of initiatives, including converting local, uh, electricity supply to renewables, reaching a 100% recyclability of our key packaging materials and 100% circular management of our bio waste, working smarter with heat supply, and switching to refrigerants with limited climate impact. Engaging with suppliers to address low carbon practices and renewable energy, and by minimizing air freight and moving to sea freight and pursuing partnerships on low carbon fuels. Some of these initiatives are already paying off not only on our footprint, but also on our cost. Converting to renewable energy sources like solar panels here in Denmark, for example, has kept a negative impact from the\u2026 in energy prices down. And with this, let me wrap up this presentation and summarize. That Christian Hansen delivered an encouraging start to the fiscal year 22 and will keep our outlook unchanged. 21 / 22 is a year of execution for Christian Hansen and will remain focused on advancing our 2025 strategic agenda. Driving commercialization of new innovations and delivering synergies from our recent acquisitions while mitigating any potential disruptions from supply chain constraints and implementing price adjustments in close collaborations with customers to offset inflationary pressures. Times continue to be uncertain with high volatility from COVID-19, increased focus from customers on business continuity and cost savings, potentially new travel restrictions which could impact our ability to advance our commercial pipeline and low visibility to end market demand. But I am optimistic that as a company, Christian Hansen is well positioned to deal with these challenges. Thanks to our robust and resilient business model. Thank you for the\u2026 For your attention, and with this, I would like to hand over to the Q and A. Thank you. If you have a question for the speakers, please press zero, one on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find your question has been answered before it's yours turn to speak, you can dial zero two to cancel. Uh, in the interest of fairness and time, please limit yourselves two questions per turn. You can then rejoin the queue to ask further questions if you need to. Please hold for the first question. And our first question comes from the line of Soren Samsoe of SEB. Please go ahead, your line is open. Yes. Good morning, everyone. Uh, two questions first regarding, uh, the input cost. If you could say, what is the negative impact, uh, of input cost in Q1 versus last year. And then secondly, if you can comment on the price increases. You're seeing the level of price increases, which you'd expect, um, and, uh, what will be the effect of that, uh, down on the eBid, will that all be absorbed by, you can say by input cost increases? Uh, how do you see it? Thank you. Thank you Soren, and, um, good, um, good morning. Um, I will pass some of the\u2026 Just recapping your question is about the input cost, our process for price increases. And, um, I would you say we, uh, have a very strong methodology overall to reflect, uh, price increases, um, uh, with customers, and we expect to, uh, fully pass on the inflationary price increases, uh, to customers. So we have no margin dilution. Uh, I will pass it on to Lisa to comment on, you know, your specific question about, uh, our input, uh, costs. Well, so on in, input cost and the inflationary pressure is so obviously something, uh, that is unprecedented and that we are observing very closely. Uh, we have seen a higher cost and it's also, uh, impacted our results for Q1. Uh, we do not wish at this point in time to be very specific on it, uh, but it is, uh, it is part of the, you know, uh, the view that we look at, uh, landing the 24.4%, uh- uh, for- for Q1. And it's also important to say that, uh, we are actually very happy to see that if we exclude HMO, we have been able to offset, uh, inflationary pressure and other, uh, cost coming from the higher activity level, uh, through our, uh, productivity and- and scalability efforts. Okay. Thank you. Thank you. And our next question comes from the line of Las Toppan of Carnegie. Please go ahead, your line is open. Yes. Hello. Congrats with the, a very strong quarter, uh- uh, quite impressive and good to see a couple of questions on- on- on- on my side, so, uh, looking at your unchanged full year guidance, you need to grow 4 to 7% for the rest of the year. And given you probably get one 1 to 2% from pricing, that means organic growth will only have to be of- of\u2026 The volume growth will only have to be 2 to 6%. So- so I just wonder when you don't lift the lower end of your guidance range, is there any specifics we simply can't see? Or is it more function of you, uh, preferring to be conservative in a, in a scenario where- where visibility might not be so big. And then I have a question on HMOs because, uh, Abbott has launched their five HMO, uh, similar product. Uh, which you supply as upload cost that's the- the- the-the big thing for- for your HMO business in the quarter. Uh, first of all, I would like to understand when you sell to a product that contains 2'FL and then instead sell to a product that contain all five HMOs, eh, how much does your\u2026 Uh, what do you say, you- your revenue proportion, uh, increase? Is it five times up or is 2'FL still the main revenue contributor? And then I wonder what this implies for, uh, the HMO revenue in the quarter. You mentioned lighthouses are 10% of sales. Uh, if we assume bioprotectants and plant health is- is, uh, sorry, uh, plant health is 10% of- of food process and enzymes. That means, uh, p- p- plant health and HMO has to be 10% of, uh, health and nutrition. Uh, I just wonder how that is split between plant and- and HMOs. Thank you. Good morning, uh, Lash. Thanks for your, uh, positive comments on the encouraging start of the year. So- so two questions you had on guidance and on HMO. Uh, let me try to provide some, uh, light into those. So- so for sure, an encouraging start of the year with good momentum across our two business areas. And as I stated in the call, we also see good momentum going into Q2. But, uh, but you are right, it's still a very volatile environment, so I think, uh, we're only, uh- uh, let's say three months into the year of, uh, 12 months. And I think it's good to recognize that while we are in a good position in Q1, we maintain our guidance, uh- uh, for the, uh, for the year and- and- and that is the position. Yes, you know, pricing, um, uh, we expect the, uh, uh, the, uh, growth to be mainly volume driven, pricing will contribute, uh, you know, north of the, uh, uh, 1.5% or around the 2% that you mentioned, but we, um, uh, expect to continue to see a good, uh, performance of our business and hope that provides some, uh, visibility into, um, into our, uh, current, uh, guidance. Now on, um, on HMO, so, um, uh, HMO, the HMO mix tries to reflect more the physiological level of the five, uh, different HMOs. So, um, uh, you know, without getting\u2026 Going into confidentiality or distortion, we expect the different HMO mixes for different customers may have a slight different component. Uh, uh, 2'FL is- is the largest component of the, uh, of the mixes, but we see good presence of the other, um, uh, uh, HMO ingredients, uh, there. And- and- and talking about the, um, about the lighthouses, uh, you know, all of them contributed to these strong performance of 35% in- in, uh, Q1, but obviously as we mentioned, uh- uh, particularly plant health and HMO benefited from all the timing in Q1. Yeah. That- that- that I understand Maurice but my- my- my question is if, uh, plant health and HMO is 10% of health and nutrition turnover, that is 9 million euros combined. If it's 50, 50, then, uh, HMOs contributed 4.5 million euros and you have a big product launch from -from Abbott. So- so given that, uh, in Q2 and Q4 last year, uh, HMOs were 6 and 7 million in revenue respectively, I just wonder if sort of the underlying run rate for HMOs was in fact weak, given that, uh, you- you- you have this big, uh, product launch fro- from Abbott. I'm just trying to- So a couple-\u2026 to understand the- the numbers. So a couple of comments, I think- I think your calculation of HMO is, um, uh, not 100% correct. HMO was- was more than that, but also consider that while we had the launch of, um, HMO in the US, Abbot has not yet done a- a national launch. Is it was launched online and it was, let's say what would be called a prelaunch. So, um, we- we do not consider the, um, you know, HMO performance to be, uh, below expectation, is on target and we are confident to deliver the above 20% growth, uh, for the year based. Uh, most of those orders being secured by our long term contracts. That's very clear Maurice, so thank you very much. Thank you, Lash. Thank you. Our next question comes from the line of Christian Reim of Nodia markets. Please go ahead, your line is open. Hi, good morning and- and thank you for taking my questions. I have two as well. The first is- is the clarification on the HMO topic that we just touched on. Uh, can you, can you clarify whether, uh, in terms of absolute revenues, uh, Q1 here was your best quarter yet for HMO, uh, revenues. Uh, and then my second question goes to the, uh, sort of guidance for, uh, the health and nutrition business where's\u2026 Where I understand that you say that the growth will now be more front and loaded for the full year. Um, should we understand that to, uh, be a reflection of some pull forward, uh, of demand for, uh, the\u2026 For the following quarters, uh, or from the following for the next quarters. Or, uh, should we may earlier understand this as a- a reflection of a high growth rate in- in Q1 that will not necessarily repeat, uh, in subsequent quarters, but not, um, a matter of, uh, growth having been pulled forward. Thank you. Yes. So- so, um, first question on- on, uh, HMO, uh, um, I will pass them on to Lisa. I think it'll be important to clarify if you're talking sort of the absolute in absolute Terence being the largest quarter in invoicing that we, uh, have had. And- and then to, um, health and nutrition, I will take that on. So, you know, health nutrition had a- a strong start of the year, uh, 13%, uh, stronger than we expected. Uh, basically driven by the, uh, good momentum, reopening of the traditional sales channel in North America and Europe. And also by our ability to, um, uh, win new project based on the good, uh, execution of our supply chain. As I said, we go into Q2 with a good momentum in health and nutrition. And that's why we said that the, um, you know, growth will be front and loaded because we expect a solid, uh, first half of the year for health and nutrition. Um, while some people think there are low comparables in the second half of the year, I would just remind everyone that the low comparables in the second half of the year was for our. The non comparables in the second half of the year was for our inaudible business but that our acquired business, that were not part of organic growth in H2 had a very strong performance so the comparables are not as easy as people might, might think. Lisa onto you for the, uh, question of uh, HMO. Yes. Um. And let's, let's be clear. We, we, we, we would like to avoid to give you absolute numbers on the revenue from, from HMO. What, what we can confirm is that uh, the ambition for this year is at 20% plus organic growth on, on the baseline from last year. And yes, we do- we did see some impact, some positive order timing in, in, in Q1. Okay, but, but you cannot say, whether say Q1 was better than Q4 in terms of revenue for the HMO business? No. Okay. Thank you. inaudible next question comes from the line of Georgina Frazer at Goldman Sachs. Please go ahead, your line is open. Um, thank you for taking my questions. Morning. Um, so my first question is um, if you are able to quantify to any extent just how much of the organic growth in human health was front end loaded in the first quarter? Think it can be quite helpful to have that kind of aggregate number. Um, and then my second question is, um, I noticed that you have reduced your market expectations for human health over the course of 2020 to 2025 on the back of lower infant formula outlook. Can you explain why that assumption has not changed your expectations for the total addressable market for HMO's? Thanks. Hi Georgina. Good, good morning. Um, I will take the first part of your question in relation to what part of the uh, growth on health and nutrition was sort of underlying growth vs um, a one off and then I'll pass it on to Lisa in relation to the, uh infant formula, uh in market potential. So you know most of our growth in, in human health as I said came from the strengthening of the momentum. Uh, given the, uh, uh positive development we saw in the traditional sales channel in North America, in Europe, as well as the new wins. So you know, order of magnitude less than uh, uh, one third of the health and nutrition growth would be related to one off benefits. Um, um, related to Q4 orders that we were able to fulfill in Q1 or, or other non repeatable. And most of the growth came from this momentum that we have seen in Q1, and we see maintained going into Q2. Uh, Lisa. Yeah, um. You know, when, when we think about HMO, I think it is important to, to, uh, to recognize that the penetration is very, very low. Uh, this is a business and, and the market that only growing and emerging now as we speak. Uh, and, and we do still believe that as this is, you know, uh, the secret ingredient that the IF players are definitely looking into with high, high interest. It will be, uh, the ingredient that creates the premium product. We still believe in, in the full potential. But it is, you know coming from a very low penetration. Okay, that was really helpful. Thank you. And that is for inaudible Georgina with what we have said both for HMO and probiotics. That obviously, you know, a better momentum in, in infant formula growth will always be positive but let's say the, um, our business plans are based on the penetration of probiotics and HMO into the existing volumes of infant formula. Great, thank you both. Thank you. Our next question comes from the line of Heidi of Exane BNP Paribas. Please go ahead, your line is open. Good morning. Um, so I have got a few questions. Um, we see that milk and animal production is slowing relative to last year and bird flu is emerging. Is this a concern at all in either segments? What are your expectations? Um, and then secondly, we saw that, um pricing was negative in health and nutrition. Could you explain why that was and um, will that, uh improve you know as you lift pricing in the coming quarters? Thanks. Hi, good, good morning. So I'll take the first one on animal health and then pass it to Lisa on the pricing for health and nutrition that was more related to uh, to a one off, uh, situation that she cane explain. But good, good questions. Thank you for that. So you know we have seen pretty strong development in dairy farming. So we have not seen that impact our business in cattle, and particularly in dairy farming for animal has been strong and I think it is driven basically by, uh, uh the innovation and the products we have put out. Particularly you know, uh, uh, in, in, in our probiotics solutions. I, I think on Asian swine fever there you're right. You know animal, um, animal health had a very strong quarter in the Q1 last year as the population of swine in China was, you know growing again under better health conditions where our probiotics have played a role. And, and now face a larger comparable to that with uh, uh definitely an effect of the um, African swine fever. Um, Lisa on to you on the pricing question on health and nutrition. Yes, Heidi, it is related to the agreement we have on plant health with our, with our partner FMC. Uh, it's just a consequence out of the regular kind of settlements that we make with them. Um, an agreement, um in regards to how we recognize the revenues. So it's a one off, uh, for this quarter. So I would definitely not read that, not read from that, uh, anything in relation to our pricing ability or pricing pass through for our business, uh, as Lisa said, it is more related to a one off in connection to the uh, settlements in plant health with FMC. Just, just, just on my first question um, also we see milk production is slowing. Um, you know, cheese has been very strong for you in recent quarters. Um, could that have an impact in FCNE or um is that not a concern for this year? We don't view that as a concern for this year Heidi, but we closely monitor, um you know, the trends, uh, uh, uh in dairy development both for cheese and for the fermented segment. Thank you. Thank you. Our next question comes from the line of Alex Sloan at Barclays. Please go ahead, your line is open. Yeah, hi, good morning all. Congrats on the solid start, and two, two questions from me. The first one just on, uh pricing of the input cost inflation. I guess given the, you know, the small cost uh, percentage and strategic nature of your ingredients, it wouldn't be uh, you know too much trouble price increases with customers. But on the other side, I wonder you know what is your base case expectations in terms of your customers pricing action to offset inflation and could that uh, have any drag on FCNE and market volume growth, um for this year. Are you, are you expecting any pockets of slowdown due to this, in- inflation at all? Um, and the second question, just going back to HMO's and the five HMO uh, mix. I wonder I mean it's obviously early days but if you could give, uh, any color on how that product is actually performing on shelf in, in the US where it has been launched. Um, and more broadly on HMO's, are there any regulatory milestones that we might expect globally uh, this year um, that we should be looking out for? And any prospect of that five HMO mix, you know being launched in further new markets uh, over the next 12 months? Thanks. Thank you um, thank you Alex for your um, your questions. I'll, I'll take those two myself. So you know on, on your question around pricing. Uh, yes we have a very strong pricing methodology and in close collaboration with our customers uh, all, all I would say is like, uh, the pricing negotiations are advancing as planned and on target and we track those to you know conclusion of the negotiations, and uh completion of the uh, uh price increases and that is tracking on plan and, and on target. Uh, you know I don't want to mislead you. I mean pricing negotiations with customers are never easy but I think we have uh, a very good positive collaboration with customers on the understanding of the input cost and how then price led into uh, into price increases. But uh, uh, pleased, very pleased on how our organization is managing that and confident that we will deliver on the price increase targets that we have internally. On HMO, indeed too early, too early to tell on sell through. I- probably, um, um, you follow that market very closely. You'll be able to get a better read from the reports from our customers. I think what we are very pleased from the um, five HMO mix is that everything that we expected on this being a front panel ingredient and positioned as the um, let's say important ingredient to make infant formula closer to mother's milk, that has been uh, uh very clearly communicated in the product launches which I think is positive for the HMO market uh, uh, overall. On regulatory, I think the bigger, the biggest next step would be the regulatory approval of HMO's in China. Um, we are working on that but as we have faded we expect that to take place in 2023- 2024. Thank you. Thank you. Our next question comes from the line of Mathias of Handelsbanken. Please go ahead, your line is open. Good morning. Uh, two questions please. Uh, so first coming back to the uh, dynamics in the global probiotic supplement market which benefited from the rebound which you mentioned. So obviously consultants expected 2% organic growth for health and nutrition. In the quarter you come up strong as thought, 10%. You talk about volatility to remain but you also said, if I heard you correct that momentum from human health into Q2 remains strong. So, so what of this ability do you have and maybe help me frame what volatility here means. For example, can we rule out another negative quarter as we saw in Q4 last year? You have to put volatility into perspective. And then secondly, if you can shed some light of historical growth rate for the lighthouses you have to put a 35% growth rate into context. You talked about that not being representative for the full year but inaudible seen as a specific number for this. So maybe help me understand how strong that number is. Thank you. Absolutely, thank you Mathias. So um, you know health and nutrition uh, indeed we had, we had a strong quarter. We see good momentum going into the second quarter. But when we talk about volatility it's usually because it's a more concentrated business and the way that orders fall into one quarter or another can sometimes make a quarter you know stronger or weaker. I would not, I would not mention specifically could you, you know see a negative quarter. I think the benefit that we have now, that the acquisitions are integrated into our organic growth. If we definitely have a much better balance in our total portfolio of um, you know end markets um, portfolio strengths, end channels but you would still see uh, more volatility in health and nutrition as compared to food cultures uh, en- enzymes. Maybe, maybe adding to it. Uh, uh, it's also important again to highlight that the very strong situation we were able to deliver on supply in Q1 uh, was also part of the success formula so to say of human health. And when we look back at it in Q4 one of the things we were caught by was a raw material shortage so that we actually kind of left the business on the table that we couldn't execute on. And that's a part of our upside now. So we do have a dependency on our ability to supply. During COVID in general we have been quite successful. But also we are not immune uh, in the world we are operating in. And I think that's also talking a little bit to the uncertainty, uh, that we are looking into for the rest of the year but we are not having any concrete pointers. It's just that this is in the environment we are operating in. Just remind me uh, uh, Mathias was there a second part to your question that we haven't addressed? Uh, sorry. Yeah, yeah, well maybe you have to put the 35% growth rate for the lighthouse- Yeah, yeah. Oh the lighthouse question. So you know what we have always shared is that the lighthouses um, have a potential to reach in a 100 million and when will grow faster than the core business. So, that you know, if if you got to make, if you want to make an assumption on the lighthouses. I always talk about the lighthouses being double digit growth rate initiatives for us. And if you see um, you know for example bio protection. Bio protection is something that has consistently been growing above 10%. Um, I don't know that I would go and you know qualify a specific quarter on um, um, on the lighthouses. Because these are very, still very small businesses. So uh, you know percentage on a quarterly basis can be um, can be misleading. But we are, you know focused on delivering double digit growth for our lighthouses year over year. That's very clear. Thank you. Thank you our next question comes from the line of inaudible of Bank of America. Please go ahead your line is open. Yeah, morning everyone. Thanks for my question. So just a clarification on, on my side if you can. You, you've mentioned benefits from timing of orders in, in. if you can. Now, you- you've mentioned benefits from timing of orders in, in plant health and product launches in HMOs. So if you can clarify if there is any unwind here to be expected in Q2 or if it was just no repeatable benefits in Q1? So plant health and HMOs, as I understand, human health is, is just a one-time benefit there. Uh, and Lisa if you can give us an indication on the performance of bioprotection in the quarter, it would be great. Thanks. I will, uh, take the one on, uh, on bioprotection and, uh, pass it on to, um, uh, Lisa to comment on the one-offs, uh, uh, timing of orders. Um, so, so bioprotection grew around 15% in, in the first quarter, uh, which is, uh, which is only, uh, I would, uh, remind you that even though we launched in spring the, uh, Generation Tree, we are working in projects with customers and we should not expect a larger contribution for the first generation, for the third generation of bioprotection before our second half, uh, of the year. Yes. And, and, and building on your first question, Miru, um, you know, if we look at what was the one-offs in, in, uh, in, in, in human health in Q1 that will impact the rest of the year, as we said. Plant health was definitely, uh, a one-off in Q1, uh, and we expect to see, uh, a negative side of that in Q2. For HMO, uh, there was some order timing benefiting in Q1 which will just level out over the year, but ending the full year the, the 20 plus percent, uh, that we talked to. Uh, and apart from that, I would say from, from the rest of the rebound of human he- of human health, uh, it was a lot of, uh, new business, uh, opportunities that, uh, materialized and where we don't, uh, anticipate, uh, the negative side of it, uh, the rest of the year. Understood, thanks. And, and just following up on this. So on, on the plant health, I- I think you mentioned overall, the one-offs were one third of the performance in, uh, in, uh, health and nutrition. How much of that one third was the one-off in plant, in plant health? Uh, it's, it's not big, it- it's, it's not big. And then I also think, when you think about one-offs, also think about into that, we also include the benefit we have from, from Q- Q4, uh, right? So, um, it's not, uh, the largest, plant health. Oh, okay. Thank you. Thank you. Our next question comes from the line of Charles Eden at UBS. Please go ahead, your line is open. Hi, good, good morning, uh, Misha and good morning, Lisa. Uh, two questions for me, please. Firstly, can you quantify the China growth you saw, um, in SCNE in Q1? And, and maybe if you can remind us the comparison or just sort of a range, um, of the decline in, in the prior year quarter? And then, my second question is just a clarification to response on one of the earlier questions on pricing inaudible I think you said there would be no margin impact from the pricing. I just wanted to check I heard that right, um, because does your pricing model protect the gross profit or the gross profit margin? And I thought it was the former, but maybe I'm incorrect, so I just wanted to clarify. Thank you. Thank you, Charles, for the, um, uh, for the group, uh, questions. So on, um, on China, China had a, had a solid growth against, uh, uh, uh, low comparable, uh, from, from last year. I, uh\u2026 And, and, and that was mainly because, you know, uh, Q1 of last year for SCNE was particularly, uh, soft. So, so, um, uh, I- I- I wouldn't read, um, much more into that from China, but I do believe, uh, uh, our feeling is consistent with what we communicated in Q4, saying that, um, we expect China to be, uh, you know, flat to slightly positive for us for the year, despite the continued, uh, uh, negative development of the fermented category in, um, in China. Um, I will, I will pass it on to Lisa to comment on, on margin, but just to clarify my comment, I said when we passed, uh, prices with inaudible p- price, uh, uh, uh, passed on prices to make sure that we protect our profitability. So if, if, if we think about the pricing impact and, and looking at our financials for this year, I think it's important to also call out that our price increases does come with some delay. The ambition is that, uh, we can increase the prices to offset, uh, not only just the cost but also, uh, the margin impact, but it will come with some delay this year. And what do we base this on? We base this on that this is what we have usually done, and we are in a very good collaboration with the customers on it. Okay, thank you. And maybe I can just follow up quickly. So do you think, are you able to say when you think your pricing will be in a position, given where inaudible are today, to fully offset the headwind? Are you, are you able to give that detail? Well, it, it of course depends on whether we know the full magnitude of the headwinds at this point in time. It is very unprecedented times. Um, so I- I- I think, you know, uh, the overall conclusion is that what we're doing here is back into our EBIT guidance for the year, uh, which is, uh, a landing corridor between 27 and 28%. Um. And we see around the quarter delay between, you know, our, uh, uh, inflation cost input and our negotiations with customers. Yeah, that's crosstalk- I think under more normal conditions, we would usually have, uh, uh, one round of negotiation with customers. As inflation development continues to be more, um, uh, fluid at this year, we may have several negotiations of pricing, uh, with customers. Understood. Thank you very much. Thank you. Our next question comes from the line of Andre Tauman of Danske Bank. Please go ahead, your line is open. Yeah, hello, uh, both of you and thanks a lot for taking my question. Uh, first of all, um, uh, in terms of this good momentum, uh, you mentioned in human health, uh, I wonder if you could elaborate a bit on th- this momentum, and also on whether this is driven by, uh, the A- UAS, uh, combination, uh, that has happened? And, uh, and my second question is in terms of inaudible and enzymes, and the strong, uh, performance that, that you have seen, whether there is some kind of, uh, reopening, uh, effect, uh, that has affected these, uh, numbers, uh, positively? That's my questions, thanks a lot. Yes. Uh, so, um, let, let me start with the, uh, with human health. Uh, Andre, not, not much more that I can add to what we said. I mean, the strong performance in human health was really driven by the reopening of the, uh, traditional sales, uh, channel in North America and Europe. Uh, we are benefiting from our strength inaudible solution, uh, uh, strategy and the broader portfolio that we have in, uh, human health, where we are now, uh, able to commercialize, uh, uh, across the combined units. Uh, inaudible legacy are highly documented probiotics, and the addition of the, uh, strength from both, um, HSO and, uh, UAS labs. So it's largely inaudible driven, but I would say a, a strong execution of our human health, uh, uh, inaudible. We also highlighted, and I will repeat that again, that we have a strong supply chain performance that enabled us to capture business and have new wind, while also fulfilling others that were\u2026 we were not able to fulfill in Q4. And, and that combination puts us also in a strong position with human health into, uh, the second quarter of inaudible. Um, in SCNE, um, uh, you know, the\u2026 it, it was mainly volume driven and, uh, uh, mainly volume driven and mainly in the inaudible market. So very strong performance of pros- of, uh, projects, uh, in Europe, where, by the way, we were able to be more present with customers, and, uh, the chief market in North America partly driven by, you know, uh, uh, a larger presence in, in food service as well, but where we see some chief types, like mozzarella, continue to perform very strongly. So maybe we have time for, uh, for one more question, uh, before we, uh, uh, inaudible Thank you. There is only one further question in the queue, that's from the line of, uh, Sarinon Samsa at SUB. Please go ahead, your line is open. Um, yes, uh, I just had, uh, one followup, uh, regarding the lighthouse projects, uh, where you can say you have earlier been quite concrete on the p- absolute potential of these while you now seemed a bit less concrete, uh, which I completely understand. But maybe you can comment a bit, there must have been some delays in delivering on these sort of, uh, overall ambitions you have had there and because of COVID. Maybe you can elaborate a little bit more on what we should experience in the long term. I- I- I of course acknowledge that this is quite uncertain and difficult to predict, but maybe give, um, s- uh, s- your thoughts there. And then secondly, on animal health, uh, which I understand was quite weak in Q1 actually, I can't remember whether that's because of some particular high comparables or, or the timing, but just comment whe- what, what's the momentum in animal health in the underlying business going into Q2? Thank you. So Sarinon, on, uh, animal health, animal health basically saved a, uh, difficult comparable, and the only thing, uh, that we, uh, I mentioned as well was that in swine particularly, uh, we had a high comparable from Q1 last year because of the strong momentum of rebuilding the, uh, swine, uh, um, uh, population in China versus now, a little bit of return of, uh, African swine fever. But I think you could expect a normal momentum from animal health, uh, um, you know, going into Q2. And, and we have seen a strong performance on animal health throughout the last, um, uh, uh, uh, couple of years. So I'm very pleased with the, um, you know, how the team has turned the innovation into market execution and commercialization. On, on the lighthouses, uh, uh, Sarinon, uh, in, in our capital market toady, we basically provided what we view as the potential of those, uh, lighthouses, and then left it open to what our inaudible uh, would be. And, and I think that is a much better way to, um, you know, present these that are really business development opportunities where we leverage microbial and fermentation technologies that we know very well into new commercial spaces. So, uh, it's business building, it's bus- business building from a very, uh, slow\u2026 low base and, and\u2026 but w- areas where we see a large opportunity and we're very excited about. So, you know, uh, I- I would repeat what I just said, that the best way to think about out lighthouses is businesses that will grow faster than our, uh, core business, and where we can expect, you know, double digit, uh, growth rates, uh, um, uh, year- year-on-year. For sure, you may have quarters that are higher or, or lower, but I hope that, you know, provides some, uh, some perspective, otherwise, you know, we'll be able to, um, uh, uh, elaborate on this, uh, further as we, uh, uh, talk going forward. Okay. Thank you for that. Thank you. So with that, uh, this concludes today, uh, conference call and Q&A session. Thank you for joining and, uh, we look forward to continue our dialogue during the or- upcoming virtual roadshows. Uh, thank you, all."
    },
    {
        "audio": "4484146.mp3",
        "file_id": "4484146",
        "ticker_symbol": "DASTY",
        "country_by_ticker": "France",
        "un_defined": "Europe and Northern America",
        "major_dialect_family": "Other",
        "language_family": "Other Romance",
        "file_length": "4153",
        "sampling_rate": "24000",
        "transcription": "Good day and thank you for standing by. Welcome to the Dassault Systemes 2021, Fourth Quarter and four year earnings presentation call. At this time, all participant are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press Star and One on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance over the phone, please press Star Zero. I would now like to hand a conference over to a first speaker today, Francois Bordonado. Please go ahead. Thank you, Nadia. Thank you for joining us on our fourth quarter and fiscal year of 2021 earnings conference call with Bernard Charles, Vice Chairman and CEO, Pascal Daloz, Chief Operating Officer, and Rouven Bergmann, Chief Financial Officer. We also\u2026 We'll also join us Tarek Sherif Chairman, Dassault Systemes Life Sciences and Healthcare. Dassault Systemes results are prepared in accordance with IFRS. Most of the financial figures discussed on this conference call are on a non- IFRS basis with revenue growth rate in constant currency, unless otherwise noted. Some of our comments on this call contain forward-looking statements, which could defer materially from actual results. Please refer to today's press release and the risk factors section of our 2020 universal registration documents. All earnings material are available in our website, and these prepared remarks will be available shortly after this call. Bernard, the floor is yours. Thank you very much, Francois-Jose. Good morning, and good afternoon to all of you, and, uh, thank you for joining us. Uh, it's, uh, always a pleasure, uh, to review our full year result with you. We had an excellent 2021 year with a strong finish to the\u2026 to the year. The total revenue grows 11% for the year, uh, driven by a broad based demand across our end markets. The majority of which are growing double digit, by the way. Our strategy growth drivers perform well through the experience. Revenue increased 15 per- 15% with cloud revenue rising 23%. Our 3D experience platform has been a competitive advantage, driving new client wins. The cloud is a about inclusiveness and providing additional value to clients. Earning per share increased 26%, thanks to good revenue growth on high profitability. For 2022, we have set the target for 9 to 10 percent top line growth. As you can see, we have delivered very good results, but more importantly, we have the key elements in place to support sustainable growth. Our technology are changing the game for clients across our three major sector of the economy. We are expanding our footprint, deepening existing partnerships and adding new clients. We have invested in our team establishing the next generation of leader. The stage is set, therefore, for a good future. Now, I like to share some perspective on our vision and strategy for the coming years. You remember 10 years ago on February, uh, 2012, we unveiled a new brand identity for our company, the 3DEXPERIENCE Company and our corporate purpose built around organizing product nature on life. Today, the significance of our strategy is clear. Our clients and partners have embraced the experience economy. They have\u2026 They are transforming all sectors on industries with sustainability on human centricity as sample pillars of a new era. The experience economy accelerated by the pandemic triggers new categories of expectations, clearly, from citizens, passion, consumers, even workers. This is apparent in our everyday life. Tomorrow's mobility is no longer a matter of vehicles. It's a matter of desirable sustainable mobility experiences. Tomorrow's healthcare is much more than therapeutics. It's about the patient journey on precision medicine. Tomorrow's cities are not only a collection of building, streets, and facilities. It's about quality of life and quality of service. As a consequence, all our clients need to reimagine their offer. Our answer is the systematic use of virtual twin experience based on modeling, simulation, on real-world dividend, in this merger between the virtual and the real world. Our ambition, therefore, to help our client imagine, create, produce, experiences for their own clients. Unlike metaverse, we use virtual world 3D virtual world experiences to improve the real world. Only then the possibility of harmonizing product nature on life will emerge. I believe that innovators of tomorrows, and we see them have to think in terms of universes. They are, that is to say in terms of organic systems of systems that create, produce on play experience in a circular economy. With the 3D3DEXPERIENCE platform, we are creating this if we loop, we can provide this holistic view, combining value creation on value, experienced, design on usage to cover the full experience life cycle. We can extend virtual twin experiences across universes. It's about continuity of the what? The offer. The how are you make it on the use of it by people. This is a new revolutionary approach to innovation. It's in some way, the next generation of PLM. As we have done in the past with the early adopter, we will pave the way for the future across the three sectors of the economy we serve. Let's quickly look at implications. For example, in life sciences. Clinical research has moved beyond the hospitals and labs as more and more technology is used to decentralize trials. The entire clinical trial experience is transformed for all people involved. Patients can now participate in a trial from anywhere, especially from home. Doctors and researchers can now collect more data in different ways. If we connect the dots across clinical trials data, real-world data, and research on the development, we can close the loop on make precision medicine reality. As a consequence, elevate the patent journey. Dassault Systemes will be the only one capable of supporting end-to-end solution in life science. The ongoing advancement toward the sustainable economy will mark the <inaudible> also. We can reveal some of the dynamics we see progressing. I think it's clear that our passion for science-based, people-center innovation on the commitment we have for our very loyal clients is really a catalyst of that transformation. Let's have a few illustration of how we are enabling such kind of transformation today. And I think from there, you will see a lot of good reasons to believe. In the consumer industry, we have a very successful partnership with Ikea. With the 3DEXPERIENCE by Knee me platform, kin- kitchen planner on the cloud, Ikea is enabling customers to use virtualization to design their own dream kitchens. The pandemic has led individuals to invest in their homes, and has acted as an accelerator for eCommerce. The 3DEXPERIENCE by me platform kitchen planner has a allow Ikea to take full advantage of these trends. In some way, the by me kitchen platform was do\u2026 was used by 1 million people only a few months after being deployed. And today has reached over 4 million user, making it the most popular 3D consumer application in the world. This is the cloud advantage, but it's also the mob- mobile advantage. In mobility and also sector of the industry pur- purely is pursuing\u2026 is pursuing increasingly challenging goals in terms of sustainability, working on innovative materials on cutting edge production processes. They have selected smart tires on the 3DEXPERIENCE platform. They will leverage the capability of the virtual twin to foster innovation, reduce cost, increase circularity, and of course, reduce time to market through simulation modular design. It's great to be part of Purelee's adventure to move everyone forward through technology and social progress. In the healthcare, I could take the example of Perigo, uh, because the healthcare affordability is becoming essential. Today, the cost of healthcare is growing twice as fast as the overall economy. Perigo, 130 year old years old company has been improving patient life with affordable self-care products. The company is deploying several of our solutions, for example, license to cure, perfect formulation, perfect package on our 3DEXPERIENCE platform. As you noticed that you are describing the function, we are describing the value, even in the way we name our solutions. Their goal is to increase efficiency, quality, on time to market. We're very pleased to help Perigo have this positive impact. I guess they are very positive too. Now, you have some proof points. It's plain to see virtual twin experience powered by the 3DEXPERIENCE platform, uh, helping all our customers evolve and transform. We recently re- celebrating our 40 anniversary at Dassault Systemes two generation of innovators have revealed the power of virtual works to imagine, create, disruptive innovation. And this is a fact in all sectors we serve. Now, we are focused on our next horizon, 2040. Our objective is to do the\u2026 is to be the leader of in sustainable innovation and to continue to position our clients at the Vanguard of progress across manufacturing industries, life science, and healthcare, as well as in infrastructure and cities. To support our long term initiatives, we have established the next generation of executive leadership. I'm so happy to have Pascal Daloz now, fully focused on his mission as chief operating officer to connect all the dots on elevate and expand the value we provide to our clients, empower new generation of leader along the lines that I just described, at the same time, I'm equally delighted to welcome Rouven Bergmann to the executive committee of Dassault Systemes as chief financial officer. Rouven has played a critical role in integrating metadata. He has held the COO and CFO titles, and brings a mastering of financial matters related to software on cloud business model over. Rouven, it's wonderful to have you here. Thank you for being here, and giving us more time to meet with customers <laugh>. Ultimately, uh, all progress is human investing on our people and culture is at the core of what we do. Our\u2026 and many activities are driven by both innovation capabilities, as well as talent on\u2026 as you all know, after many years of observing the Dassault Systemes, it has always been essential for us. We are focused on enabling team to transform, um, reveal talents. When we acquired metadata in 2019, just two years ago, Tarek and his team, especially with, uh, Glen, his buddy, uh, created this incredible reason to believe that we could have a future together. I'm extremely proud of the significant innovation, strong culture on leadership metadata as brought to the life science sector. We have been able to integrate, scale rapidly, accelerate growth and deliver excellent result, and above all, have fun being together. It's a great pleasure now to have online, Tarek by body, uh, who is now the chairman of the Life Science sector on the scale for, for Dassault Systemes system. And Tarek, would you like to say a few words? Thank you, Bernard. It's uh\u2026 Thank you for the kind words. And, uh, it's really a pleasure to be with all of you today in, in my role. Um, it's been a few years since I've been on an earnings call, and as you say it, it's a lot of fun. Um, so it's been more than two years since we announced coming together. And honestly, I can't be more excited about what we've been able to accomplish and the progress we've made since that time. It's been an incredibly challenging environment as, as you all know, um, integrations are never easy and doing it on a global scale is you even more difficult and then doing it in the midst of a pandemic is an even more difficult. Um, but I would say that the integration has been a tremendous success, and I really want to thank Bernard and Pascal for all the support that they have given us and our teams. And I- I'd like to also thank you, our teams who have come together focused on creating value for our customers and ultimately for patients. You know, our teams are delivering amazing innovation and execution to advanced clinical trials and new treatments for patients during what's been an unprecedented time. And it feels like we're just getting started, given the tremendous opportunities that we see ahead of us. Our impact on improving the patient experience and scaling precision medicine has never been clearer. You know, at the end of the day, it's what Glen and I always dreamed about. And we're convinced we would be able to do one day. And it's what brought us together as organizations in the first place. And it's becoming a reality. As many of you know, we suffered the tragic loss of Glen de Vries, my best friend and our co-founder late last year. He helped transform our industry. And his vision has always been an inspiration for all of us. Glen helped set the highest standards for medidavid- data, and he drove us to innovate and solve the most complex problems with energy and creativity. And I am absolutely convinced that we will pursue progress in life sciences and healthcare with the same passion that he had. And we have an amazingly strong team to support that. By continuing to do everything we can do to support the business, we are honoring Glen's legacy, and we will ultimately ensure healthier lives for patients everywhere. We have a strong leadership in place today, and they will help carry us into the future. And together with Bernard and Pascal, and now Ruben, I share the conviction and confidence in our promising future. I want to hand the call back to, you Bernard. Thank you, Tarek. Thank you, my friend for your leadership, and also the incredible moment we had all of us together when we decided in less than one hour that the future was together, and that was only two years ago. So, um, I am also confident that we can make the difference, uh, and, um, we have now, uh, an incredible, um, connection between people and tremendous opportunities, uh, to provide great solutions for our customer. So with that, Pascal, you have the floor. Thank you, Bernard. Hello everyone, I hope you are doing well. And thank you for joining us today. So turning to our financial results, the strong business momentum we experienced throughout the year continue into the first quarter, visiting in the performance well aligned with our guidance. So let's start with the Q4 top lines year over year comparisons. Total revenue grew 10% to one billions, 370 millions above our 7 to 9 percent range. So software revenue also grew 10% and all organically. License and other revenues rose 15% to 348 million well above the guidance. And we are back to 2019 levels. Subscription and support revenue increase 8%, driven by the high leverage subscription growth. Reflecting strong metadata, uh, performance, but also the 3D experience, uh, momentum and, and the recurring revenue represents 72% of the software revenue. Zooming on services. Servicing was up 10%, and we achieve a services gross margin of 27.1%, substantially better compared to last year. And it's coming mainly from the effort we made to improve the efficiency when we were in the middle of the pandemic, uh, I would say 18 months ago. From a profitability stand point, in the first quarter, we deliver a Q4, a strong operating margin of 36.8%. This will well align with our guidance of 36.4. When taking into account the currency impact of 40 basis point. EPS grew 17% to 29 cents compared to our guidance of 27 to 28 cents. Few words on the account. It's an important topic. I know you have questions usually on this. So in type of account, we were\u2026 we are well aligned with our objectives. We saw strong <inaudible> activity again in Q4 and the lower attritions. And overhaul, head count grew 4% and research and development was up 6%. So I think given our track of innovation and our mission driven culture, we are confident in our ability to continue to attract and retain top talents over the mid to long term. And this is still a priority for 2022. Let's us take a deep dive into our revenue performance first, and let's zoom on the software revenue by geo. The Americas grow 7% during the first quarter, driven by subscription growth, which is a definitely, uh, key trend in north America. In 2021. The regions benefited from strong performance in iTech, transportation, and mobility and life sciences at large. And now America has represents 38% of the total software revenue. Europe increased 10%, thank to a strong resiliency throughout the regions. And in 2021, transportation and mobility and industrial equipment grew <inaudible>. Europe represented 37% of software revenue in 2021. Asia rose 12%, driven by market expansion in Japan, India, and Southeast Asia. And in 2021, China grew 19%, and Asia at large represent 25% of the software revenue. Let's say, if you work on the product line performance. Industrial innovation software revenue rolled 8% to six, uh, under rather 82.3 million in Q4. This growth has been driven specifically by <inaudible>, where the growth is exceeding the double digits. And it's mainly due to a large part to large client wins we did in Q4. In Ovia showed also a strong subscription growth, which is against new trend. And I think this subscription model is relatively suitable for all the collaborative, uh, set of solution we have. And cattier finally is back to 2019 levels. So I think we have, again, on our trajectory. Life sciences software revenue reach 245.1 million in Q4, an increase of 9%. Metadata grew over 15% on the back of a strong comparison base, if you remember. And we continue to see a very good momentum across the metadata portfolio, including metadata RA, the core products, metadata, AI know the diversity in the analytics and artificial intelligence and metadata passion cloud, which is the factor standard for the decentralized clinical trial. This, um, momentum is also visible in all the\u2026 across the hand markets we are serving. So not only the pharmaceutical and biology, um, companies, but also the contract research organization and the medical devices company. So we saw high double digits growth in attach rate against this quarter, which is extremely important because not only we are capturing new customers, but we are growing inside those customers. From a product line perspective, we saw strongly metadata performance was partially upset someone by lower and expecting bio rav- bio revenue. This was driven by the delay of two large renewal, but we expect to sign both renewal during the first half, so it's really a temporary impact. If we step back a little bit, you know, we are one year after we have decided to create the life science engagement model, which is, uh, nothing more than combining all the different, uh, capability and resources we have to address this market. And this has been done through the leadership of the metadata management team, especially, uh, Michael Pre. And for that, Michael, thank you. You did extremely well. And now we are confident that this being in place with the strategy, we have to provide life science industry and end-to-end solution that connect us between ideation, development, manufacturing, commercializations almost what we did in our industry like aerospace decades ago. I think it's pretty unique on the\u2026 on the marketplace and we will make the differentiations. Moving now on to the mainstream innovations, software revenue rose 14%, to 312.2 million, uh, in Q4. SolidWorks first deliver a strong result with software revenue growing high single digits. And we continue to see options of our 3DEXPERIENCE works family, you know, the cloud based solutions doing this period. Centric performing extremely well with a high double digit, I should say, close to triple digit- Yep. Revenue growth. And not only it's, um, you know, it's delivering the numbers, but in term of KPIs, we are now reaching more than 550 customers, representing more than 4,500 brands. And with an extremely high level of satisfactions. Not only, uh, it's true in the fashion industry, but since, uh, almost two years, um, century PMM, thanks to Chris Growth, is expanding into new vertical, such as food and beverage, cosmetic and personal care, and other customer consumer segments. So again, very pleased by this move and, uh, it's paying off. Good result is also when the strategy is working. And as you know, we have two KPIs to measure this. The first one is the drug coming from the 3DEXPERIENCE, and for the full year for 2021, the 3DEXPERIENCE revenue grow 15%, driven by strong subscription growth. And now it's account for 30% of the total software revenue, which is an increase of 200 basis points compared to the last year in 2021, the cloud revenue, which is the other one, KPIs we are monitoring, increased 23%, driven by the continuing lens in life sciences, of course, but not only, but also, and more and more by the 3DEXPERIENCE. And cloud now account for 20% of our software of revenue had 200 business per compared to last year. All the clients, you know, we have across all the sectors are transforming extremely rapidly, and they are turning to Dassault Systemes to help them to adopt new business model, accelerate innovation, embracing sustainability imperatives, putting consumer patient and citizen the center of experience. And our strategy is really to enable them those transformations with cloud native applications or cloud extension to an existing on-premise investment. And our 3DEXPERIENCE platform has been developed to make both. All those good result is also\u2026 are also reflected into the cash flow. And for the fiscal year 2021, the cash flow from operation roll 30% year-over-year to 1 billion, 630 millions, which is, uh, converting 33% of the revenue to operating cashflow. Cash reach a little bit less than 3 billion, 2 billion, 980 million, an increase of 831 million versus an increase of 204 million last year. And finally, our net financial debt position at the end of the year decreased by a billion 152 millions, to, uh, less than 900 million to be precise, 890 million. And it has to be compared with 2,000,000,004 we had in December, uh, 31st in 2020. This, in a net is putting us a year, more than a year in fact, ahead of a our schedule on our delivering objectives. Now, to discuss the 2022 objectives, I'm very pleased to introduce Rouven Bergmann, our new chief financial officer. And Bernard mentioned, Rouven has played a vital role in integrating metadata and it has been a real pleasure to work together for the last two years. And it's a successful partnership, I think. So Rouven, we are delighted to have you with us over to you on the floor. Thank you, Pascal, and hello everyone also from my side. And before I would start to outline um, the financial objectives for 2022, uh, I also want to share that I'm, um, thrilled and very happy to be here today with you, uh, in this new role. I've really enjoyed the opportunity to meet with some of you already and learn from many colleagues at Dassault Systemes, in particular UPAS cars, since the acquisition of Metadata, which, you know, as you know, you've completed more than two years ago. And now, uh, with the successful integration, I'm looking forward to getting to know all of you, and the broader investment communities during this year. And I know we already have concrete plans to do that. So with this, uh, let me turn to the full years financials for 2022, our financial objectives. As discussed, we expect the broad-based dynamics we experienced in the fourth quarter and 2021 to continue into 2022. We are focused on driving durable, long-term growth. Our growth drivers are well-established as highlighted by Bernard and Pascal. First, we are enhancing our leadership position across our major brands. Second, we are accelerating the momentum with 3DEXPERIENCE and industry solution experiences, and we are bringing new customers as well as expanding within our installed base. And third, we are focused on delivering new experiences and value with cloud. So we will continue the momentum of metadata and metadata patient cloud. We will also expand the user base with the 3DEXPERIENCE Works family\u2026 Works family in the mainstream market and deliver new value at scale with large enterprise partnerships, like what you see happening with Reno or <inaudible>. Now, with this in mind, we are targeting for full year 2022, total revenue growth of 10\u2026 9 to 10 percent and software revenue growth in the same range. When thinking about our software revenue growth, let's keep in mind that last year, we had a very strong year of license growth with 23% year on year, which brought us back ahead of 2019 levels. And now for this year, we expect to continue healthy double digits growth at around 10 of up to 12 percent, which reflects continued strong demand within our installed base. This trend is more in line with what we saw our performance in the fourth quarter. We anticipate recurring software revenue to increase by nine to 9.5%. An acceleration of 100 to 150 basis point was this last year driven by continued momentum and subscription growth with cloud and solid improvement in support revenue. Also, resulting from the very good license growth we experienced throughout last year. For services revenue, we are projecting to grow between 8 to 9 percent, reflecting the increased activity levels of delivering innovation to our clients across all segments with solid margin performance. From a profitability perspective, this past year, we demonstrated the long term scalab- long term scalability inherent to our business model. As we said through 2021, we plan to accelerate investments into our business and reengage in activities which were impeded by the pandemic. Accelerating the growth in our workforce in line with our long term plan is our top priority. And as such, we anticipate the non IFRS operating marching to be in the range of 32.7 to 33.1 percent. Again, this is consistent with our pri- with our prior communication. Now, let me continue with our proposed objectives for earnings per share. We expect non IFRS EPS to grow between 3 to 6 percent, reaching one Euro at the high end. This EPS guidance assumes a tax rate in line with 2021 levels of about 23.2%. Our financial objectives assume a Euro to US dollar conversion of 1.17. Now I will provide some additional color on what to expect for Q1. As you are aware, our business has some seasonality and we expect to see growth rates progressing throughout the year. We expect Q1 total revenue growth of 7 to 9 percent, with software revenue increasing in the same range and services revenue up 5 to 7 percent driven by continued broad based momentum across our geos. We expect the operating margin at a range of 32.3 to 33 percent with an EPS growth of 3 to 7 percent, versus last year. As you heard from us during this call, We're confident in the long of opportunity ahead, and we look forward to keeping you abreast of our progress throughout the year. And now, Pascal, I'll hand the call back to you. Thank you, Rouven, for\u2026 to summarize. I think, the stage set for the future of growth. On one hand, our long term strategic visions has been validated. Investment we made 10 years ago to a net, the experience economy are paying off. And whatever you take, the platform, the virtual twin experiences, the industry solution we have in the cloud, they are durable, competitive advantage. In parallel, that's what Bernard say, we are helping our clients also to transform to a sustainable economy. And this is becoming an affordable and significant opportunity to deepen and expand our partnership and our impact. This, if you combine the two, will be a strong secular of hybrids to underpinning growth across all the three sectors of the economy we are serving. In addition to this, I think we have the right leadership in place to execute against the tremendous opportunity before us and we\u2026 our commitment to clients to drive our strategy will continue, and we thank them for their continued trust. So finally, I think, uh, Rouven and I will be extremely pleased to see you in-person when we'll have the ability to go back on the road. But I think it has been so long when we haven't seen each other. I think be Bernard, Rouven, it's direct, of course, you remember the time to take care, uh, of the questions. Operator? Thank you. The participants will now begin the question and answer session. As a reminder, if you wish to ask a question, please press Star and One on your telephone keypad and wait for a name to be announced. The firs question comes from a line of Nicholas David from Odo BHF. Please ask the question. Yes, hi. Good afternoon, Bernard, Pascal and Rouven, Nadia as well, obviously. Thank you for taking my, my question. Um, my first one is regarding licenses gross. Um, you aren't expecting double digit growth, um, of licenses in 2022. So for the second year in a row, uh, so congrats for that, because I think that, uh, that was an ambition, uh, to sustain such a growth, uh, the growth of licenses. Um, my first question is, do you think that such growth is sustainable beyond 22? And, uh, if so, uh, also, do you think that this improved, uh, growth trend in licenses, uh, is more linked to, um, the momentum of your project cycle, uh, so internal to your company? Or more linked to the consequences of the, of the\u2026 of the same CREs we just, uh, we are living right, now and it's more macro impact, uh, you are benefiting, uh, of? Um, and my second question is, um, still regarding licenses, sales, uh, several, uh, software players, including some of your competitors mentioned that the difficulties the client have had in hiring, uh, have led to, to some delays in launching project and having negative impact on license sales. So my question is, uh, to what extent, uh, you may have this kind\u2026 you may suffer from this kind of, of impact, uh, regarding your, your, your license sales in the coming quarters. Thank you. Rouven, you want to take the, the first one? Yeah. Happy to, happy to. Um, yeah, so I think the best way to conceptualize, uh, this, uh, Nicholas, thank you for the question is, um, yes, we had in 2021 very strong, licensed performance with 23%, uh, for the full year. Um, you know, of course this was, uh, was obviously a lower comparable basis 2020, Q4 or 15% growth again- against I think a, uh, uh, a good, uh, comparability, you know, Q4 of 2020, we saw the rebound starting to happen. And so it was a real proof point for us in the fourth quarter, um, to achieve double digit growth. And that trend is what we continue to forecast into 2022, uh, with 10 to 12%. And I think, uh, the area\u2026 the, the sources of growth for\u2026 um, that supports that underpins this assumption is that, you know, we have well-established an, an operating model between CapEx and OPEX, for our customers. Uh, we are serving industries where we have significant installed bases, uh, that are transforming to the cloud to the subscription model, but it will take time. And, uh, we are committed to support our customers, um, and support them in a way what their\u2026 what their preferences are in terms of how they want to spend, um, and make the investments. Um, you know, these are very sticky investments, uh, very, uh, long term relationships where our customers are capitalizing on their investments for decades, uh, that we continue to, uh, to innovate and, um, and further drive value, you know. And I think with the 3DEXPERIENCE and the power by extension that we deliver, we make these investments also really valuable and ready for the future. On the second part of the question, Pascal, if I may, uh, um, on, um\u2026 uh, is the, the client and hiring challenge having an impact on our license? I\u2026 we see it the total opposite way because the nature of our audience is changing. Um, for years we've been, or we continue to focus on engineering production, but now we just really experienced platform. We also reach, uh, supply management, costing, uh, on many other functions within the company. The example, uh, <inaudible> is, is really amazing in terms of size at, uh, Toyota motor also, and many other clients that I could name. So the intent with the platform phenomena, the 3DEXPERIENCE platform is to reach audience that we could not reach before. Uh, as a matter of fact, you know, the, the 3DEXPERIENCE collab, collaborative environment is now being used by clients to evaluate materials, cost, weight, supply efficiency, all based on the three universe, not on number of dashboards, but on the real product itself of all the way you produce it. So we see this as a\u2026 as a long lasting, uh, growth factor on, uh, Pascal mentioned that it's noticeable in, even in with our business applications that we call now on the, uh, a category of Innovia where we deliver business experiences for program management, project management, costing, even for ESG reporting, um, or CO2 reporting because the, the platform has this capability in short. So we don't see the negative effect. That's, uh, that's very clear. Thank you. And maybe one, one very quick from my side is, um, understand that you increase, uh, salaries, um, to reduce a bit, but do you think that you would need also to increase the volume of, of, of, of shares granted to employees to reduce further their at tuition? So any, any insight about- I think we have- Please, please-\u2026 or give vice chairman of the board because <laugh>, uh, that's not on the bugdet side is on the shoulder side <laugh>. Uh, no\u2026 we have\u2026 we have, I think we have a very, uh, stable, uh, uh, predictable, uh, portfolio of, uh, allocation. And we think that, um, it, it, it, it provides a good, compelling, um, incentive for people on, uh, we created this together model, uh, last year, um, which we was really to provide, uh, an plan for people to buy a shares at a certain discount on, on guarantee the result over first few, certain number of years, very successfully, uh, successful program. But we integrated, integrated that allocation as part of the overall policy. So, so the no deviation, I would say if Pascal, you want to add something. No, I think, uh, well, you know, Nicholas, not the first time we discussed this, I think we are extremely\u2026 We have a lot of discipline on this. Why, so, because if you want this to be, uh, long term and not only a one off, you need to integrate it in the new\u2026 in your business model. If I compare with the competitors or the peers, usually, uh, you know, they allocate, uh, an envelope, which could be sometimes three times bigger. However, I think it's not sustainable over the time. Especially if you look at, at the end, how much of the operating profits grows through this. I think, do your job, do the sanity check, you will see it's balance, it's fair, it's agreeable and sustainable. And that's basically our philosophy and our, uh, principle. So, so you could count us to continue what we did in the same, uh, the same manner. That's clear. Thank you, and congrats for the set of results. Thank you Nicholas. Thank you Nicho. Thank you. The next question comes to line of Charles Brennan from Jeffery's. Please ask your question. Great, good afternoon. Thanks taking my question. Hopefully, it's second time, lucky <laugh>. Across the industry, we're seeing this cloud momentum gather pace, and it's referenced in your statement with some of your legacy customers moving to the cloud. So I was wondering if I could just ask four questions related to the cloud. The first of which is just in terms of your product portfolio, can you remind us how much is native cloud versus available on the cloud via extensions? Secondly, I think you've traditionally said that the move to the cloud or, or growth in the cloud would be largely incremental to your core business, but certainly this morning, you were talking about product lines, like a Naver and SolidWorks, moving to the cloud. Those are both traditional licensed product lines. And I'm just wondering if we're starting to get to the stage where you're starting to see traditional licenses cannibalized by, by the cloud. Thirdly, it feels like some of your competitors are being a little bit more progressive in driving this agenda. I'm just wondering what it would take for you to be a little bit more proactive in enforcing a shift to the cloud. You're obviously doing that in the life sciences vertical, uh, I guess Rouven's well placed to, to manage a, a more progressive cloud transition. Uh, I'm just wondering what the catalyst would be for you to go down that route. Uh, and very lastly, uh, on MNA uh, I guess traditionally we see a bigger transaction from Dassault every couple of years. Uh, I, we must be getting into the window where we're due the next one. Should we assume that any future MNA from here will be of a, a cloud-based business model, uh, and is that one of the catalysts that's gonna get you to the target of having 30% of the, uh, of the revenues in the cloud? Thank you. Well, we could do probably the rest of the call on your question, Charlie. But Bernard, you want to take the first one? I, I could on the product portfolio, on the Pascal of course stepping. Uh, first of all, we have reach a point where\u2026 Um, first of all, the cloud approach for us above all, is a way to reach new category of users. Second, the cloud approach for, for us is about providing new delivery system for the capabilities we have, roles, process, and solution. Why? Having browser native services on mobile tablets and PCs is a big thing for the nature of software we do. And the Ikea story with 4 million users in a few months is an illustration exactly of that. Uh, it's all going through browser based, uh, same as you mentioned, uh, sharp on the, uh, on the, um, clinical trial, okay. Uh, but we are doing that also for design and we are doing that\u2026 And as a matter of fact, the portfolio in short as we reach a point where, where now\u2026 uh, there are more solutions, products and roles on the cloud native than we have on premise. However, I want to make sure, uh, it's clear. We love the on-premise. There are programs on the on-premise will become private clouds. They will become absolutely private clouds. Uh, and we are going to do that to do so with customers. In fact, we have started to do it for highly sensitive program because, uh, the, the value of doing that is, is so well recognized by, by clients. So we value this hybridation to reach the audience and provide really a 3D for all approach, um, that will make the difference and accelerate the platform phenomena across all functions. If you think about people now doing supply negotiation, in the past they were using, um, ERP dashboards. Now they are looking at the product itself and they have the price on the part, and they know where it's sourced from. It's, it's a new world from there. We metaverse before metaverse because they see what's happening. So enough said, but they don't seek an validation. I see massive compramodality, uh, on that, on that point. And just to, to echo what you say, Bernard, you were mentioning Innovia. Again, you still have asked time to understand what Innovia is about today. Innovia is not anymore product life cycle management capability. It's as well say, it's a set of business applications, you know, allowing the procurement to source, to cost, to negotiate, to contract, allowing program manager, to run the program, to do their review, to supply chain. This is what we are talking about, and it's an extension compared to what we used to do. So that's just an example. And on SolidWorks, we are talking about the works family. We are not talking only about SolidWorks. And the works family, you have familiar works. You have Demia works, you have, uh, Innovia works. And those, those, um, set of, uh, services are not, uh, well deployed in the mainstream market right now. And by the way, under works family, they are all cloud. They are on cloud. So there's no on premise anymore. All of them? Are all cloud. All of them. So that's the reason why, you know, it's really an extension and it's still an extension compared to\u2026 There is maybe some overlap that is quite limited. Now, coming back to what could be the shift to force the subscription model, but that's not our way of thinking. We are here to serve our customers, to transform them and to evolve their business model. So what is the point? To impose your business model when it's not aligned with your customer's business model, knowing at the end, the license or subscription we are doing, uh, I mean, good profitability with both, you will notice. So I think our thinking process is much more the transformation of what we do. We lead automatically to a subscription model for many things we do, but we want to do it in with a\u2026 with a lot of alignment with our customers. That's I think making a big difference compared to many of our competitors. And last but not least the question related to MNA, yeah. I mean, you notice that we will be leverage, uh, almost, uh, in six months from now. So, which gives us the ability to do a, uh, all the move, if we want. The cloud is not the, I will say the purpose. The purpose is ready to extend what we do, uh, having the ability to expand the addressable market and maybe change the nature of what we do. For example, if we want to focus on the data centricity of our, uh, solutions and technology, for sure, the cloud is probably the way to do it, but again, it's a means, it's not the goal. So that's what I can say at this stage. It's probably too early to speak about it. And maybe, I don't know, at the time of the capital market there, in June we could probably discuss much more open to this topic. Perfect. Thanks so much. Thank you. So next question, please. Thank you. The next question comes to line of JBlish Howard from Griffin securities. Please ask your question. Um, thank you. Hello everyone. Um, I'll ask all my questions at the same time, uh, just, uh, given me the time remaining on the call. Um, first, um, could you talk about the performance in 2021 and what your expectations might be for 2022, with respect to your two principal sales channels, would you now call CSE and CPE in know formally BT and VS, Of course? Could you comment on, uh, those two channels and anything you might be doing to, uh, uh, invest in or alter perhaps, uh, either of those channels? Um, secondly, one thing we see among a number of your principal competitors, uh, is a, uh, implementation of, or plan to implement, uh, a faster product release cadence. We see this in both in CAD and PLM, for example. And I'm wondering if in lieu of your historical summer and winter releases that you've done for for many, many years, there might be some rationale for accelerating, um, your product release, uh, cadence, particularly in, uh, in alignment with, uh, with your cloudy business. Um, thirdly, on, um, 3DX. Um, one thing that seems to be occurring is that within the overall 3DX number, while ANOVIA seems to able to be the largest part of it as it's been, um, other brands like <inaudible>, are growing their contribution. If you could comment on that and whether you think that brands other than INNOVIA might eventually account for the majority of the 3DX business. And lastly on 3DX works, uh, I understand still quite early, of course, only six quarter market. Um, but do you think that you have any visibility to, uh, penetrating, let's say more than 10% of the SolidWork space, uh, with 3DX works and thereby make it an, an increasingly, uh, material business. Thank you. A few clarification Pascal, if I may put\u2026 uh, first of all, Dassault Systemes is providing\u2026 not anymore functionalities, but we are providing roles, processes on industry solutions. Uh, so when we deliver roles, there is a price on the roles. There is a price on the process to do the job, and we do it by industry and industry segment. This is unique and no one of the competitors are doing that. Uh, so it's important to understand it. Uh, the second thing is I, uh, on a\u2026 and then I will let Pascal on the general performance. The second remark is we do six weeks scale on delivery on the cloud. So Jayblish, please notice that for a large percentage of our install base, we are already there every six weeks, the world is getting new capabilities and it's working extremely well with an <inaudible>, which is very high, um, on providing satisfaction. Some large companies are already there. Uh, uh, we have taken the example Wig, which it's all cloud a 100%. Rannovo for 3D collaborative environment suppliers, all cloud, every six weeks it's updated. So we are already with this, uh, in, in a big way, all cloud are following that cadence. So I think we are faster than most of the other players on that standpoint. So just topic for clarification. On last remark we don't, we don't count\u2026 catch on the 3D experience line for who can explain more. We count chache for chache. We count <inaudible> each branch for what they are, no matter if they are independent or if they are based on the 3D experience platform. So we, we continue to keep that, uh, uh, integrity in the way we report. Now the last thing about the 3DEXPERIENCE works, it should be noticed that outside works, everything new is native cloud. Uh, similar works is native cloud on only cloud for <inaudible> for customers. And we have also now a full suite of\u2026 suite of, uh, 3D\u2026 of SolidWorks functionalities that are delivered on a browser. And this explains the incredible success of cloud in China, believe it or not, more than in any of our countries, because, I think in China, they have\u2026 uh, we have the approval to run cloud or own licenses and, and really distribute in a big way. So that's all what I wanted to clarify on, and Pascal, maybe you want to put some more on- On the channel, maybe I can see if you words. So first of all, you know, the, the, the best way to assess the performance of the channel is really to look at the incremental revenue and the license is still probably a good indicator across all the different engagement model, right? So if you\u2026 if you follow me on this, uh, all of them are growing highers than 20%. So when I say it's a broad base, it's really a broad base. And, and, and it's, uh, the\u2026 what we call the process channel, which has the best performance in term of license this year in 2021. So by, uh, being much more close to 30 than 20%. So\u2026 and it's not a surprise when you think about it, because during the pandemic, uh, the direct sales resisted relatively well, the mainstream, the theory also, but the process, the supply chain, we really the one being on the pressure. And we have been able to almost, uh, catch up the, like, uh, in 2020 in 2021. So I think, uh, we are relatively on a good path. To compliment what Bernard said on the 3DEXPERIENCE, uh, distributed across all the brands, uh, you, you have to be a little bit careful. This is true. That Innovia or before Innovia, almost to serve of the, of Innovia is 3DEXPERIENCE based, but it's a serve more than a serve for Innovia, also for Ktea. So it's not the only one. Okay. Um, if I may quickly\u2026 uh, my annual question on Solidwork unit volume, uh, my calculation is that it looks like your 2021 SolidWorks new commercial seed volume was similar to, perhaps slightly better than where you were in 2019. So perhaps just around 76,000 or so, and not quite back to where you were in 2018, just yet. This is true, but with one big difference, the average price increased, which means we are more and more capable to enrich, uh, the package. And one of the reasons you, you should remember J, um, I will say 60% of the units are coming from existing customers. So they are the one not buying anymore the, the base package, are the one buying the full package. That's basically the reason why also you have such a growth, it's a combination of units and price. Value up. Yes. Okay. Uh, also by the way, thank you for the, uh, headcount and hiring comments that, uh, always useful insight. Thank you J. By the way, you will have a neighbor, uh, because, uh, Hoover, uh, family is still in New York for a few months and he will probably fly, uh, to New York in the coming weeks. So that's right. Great. I'll pick you up at the airport, you know. Okay <laugh>. Maybe later for a coffee. Next question, please. Thank you. The next question comes to line of Neil Steel from Redburn. Please ask your question. Hi, thanks very much. I just have a, a couple of quick ones. Uh, the first one is just looking at, um, sales and marketing, uh, expenses, and I suppose the OPEX cost, uh, ratios in general. Uh, quite clearly, uh, as we've gone through the pandemic because there's travel and also, uh, hiring, um, you've, you, you are running with thousand marketing at around about 3 to 400 basis points below where we were sort of pre pandemic. I'm just wondering, would you expect over the next couple of years for that to pick up to closer to the sort of 29 / 30 percent, uh, cost ratio that we've seen in the past, or are there structural reasons as to why hence for thousand marketing, uh, should be at sort of a, a structural lower level? That's the first question? Rouven, Pascal, will attend to this question. So, you know, as, uh, the chief operating officer, I, I learned something during the pandemic. We have been capable to grow without having, uh, more resources. And believe it or not, we have increased dramatically the productivity. If I compared to ' 19 it's per head per salespeople, it's more than 11%. So, so why I'm saying this, because it's gonna be a combination between obviously more resources, uh, because we need to reinforce, uh, the coverage we have in certain region of the world or certain verticals. But at the same times, I still believing we still have\u2026 uh, we still, we still can continue to improve the productivity maybe not at this level every year, but at least a few, uh, percentage point. it's probably something we could, uh, be able to achieve. So\u2026 And this will give probably the ability for us to finance a different go-to market. Cause, uh, you\u2026 we are talking about the traditional one, but there are activities where we need to invest because it's a different way to go to market and still on-brand unique and we still need to invest. So, so the net is, uh, it'll not be maybe\u2026 uh, do not have a big difference. However, we have some level to extend, uh, the different nature of the go-to market we have. That's probably the way- <inaudible>, So, so just to clarify you suggesting that we will see quite a\u2026 over the next couple of years, sales and marketing cost ratio will go back up, but perhaps not back up to the 30% level, or are you suggesting it's more sustainable at the sort of 25, 26% level? No, no. It will increase because as I say to you, uh, we did not hire a, almost one single person each one last year. Okay. I mean, it's not sustainable. However, if you do the math, you have to include some productivity effect because we had some productivity the last two years, and now it's part of my duty to make sure that we grow the coverage, but the same time we are also improving the productivity. Okay. Thank you. And just, um, zeroing in, on, on life sciences, obviously, um, taking all of the commentary together with, uh, regards to the growth in metadata and so forth. Um, it looks as though the softness that you saw, uh, in Q4 was quite clearly with the sort of the original seller businesses. Um, is that a little bit surprising? That's more on the discovery side, I think their product set. And have you actually signed the deferral there? Uh, or is that sort of, uh, if you like a permanent deferral and you'll never fully recover that revenue as we go through the 2020\u2026 uh, 2022 year? Well, you- Yeah, happy, happy to\u2026 so, uh, you know, the impact that we had in the, in the fourth quarter is temporary. Um, these are two renewals, uh, that we are actively working on, um, too close in, I would say early 20, 22, uh, it could be the first quarter. It could be the second quarter. Yeah. Uh, these are two major customers of ours where we have established relationships. And it's only a question of time. Um, I think the other part that I would like to add to the Biovia, uh, uh, business as well and life sciences, we are also aggressively transforming Biovia to- towards a more subscription model than what it used to be, because it was heavily dependent on licenses and that could it some variability from time to time. So that's another factor, um, that we will, um, talk about throughout 2022. Okay. Thank you. Thank you. One final question, please go on, uh, Nadia. Yes, of course. The last final questions come from the line of Jason Similia from KCBM. Please ask the question. Great. Thanks for fitting me in just a couple quick ones on a couple of the brands. Uh, first on Same, you know, it's nice to see double-digit growth there. It's been doing quite well for the past few quarters from what I can remember, you know, so my question here is, you know, is the strength we're seeing, you know, from share gains versus, you know, simulation competitive market, or is it more, you know, broader industry strength, uh, recovery, you know, from, from that? Similia, uh, I think, uh, what is be- there are two major factors where basically we create a game-changer situation. Number one, under SolidWorks, install base customer may use\u2026 to use our competitor, uh, product, uh, on desktop. Uh, now we are offering cloud-based Similia, extremely successful, easier to provision and to put in operation. And it has created a very nice dynamic in the, what we call the works family. Uh, John Paulo is doing a very great job on, on, on the topic, going to work, uh, on the full works family and not only SolidWorks. And we have just announced that the new CEO of SolidWorks is, uh, Manish Kumar. Uh, but, uh, John Paulo is taking the full scope responsibility for 3D expense works. Uh, that's one driver on the second one is new multi-physics platform based integration, which is connecting, um, you know, the power flow, uh, the E mag, the stress, and all of this together in a consistent environment. And we see a lot of customers moving from, uh, isolated simulation to integrated system simulation. Uh, I think it's unstoppable in my mind and we have plenty of, uh, opportunities to continue to sustain a strong growth in this area. Perfect. And then maybe one quick final one, you know, SolidWorks, um, maybe earlier in 2021 had some pretty robust growth, you know, possibly from the pent up demand, you know, this quarter 8% growth, you know, feels quite good, normal, maybe close to what we were seeing pre-pandemic, you know, is that the right way to think about the SolidWorks business, you know, normalizing from these levels? I think so you're right. I mean, if you remember\u2026 so the works was really the first product line to cover. Yep. And, uh, there is no base effect compared to that year, and 8%, 8 to 9 is a, is a good number. Okay, perfect. Thank you all. And have a good afternoon. Thank you everyone for participating. It's always a great pleasure to, uh, exchange with you and advise your questions. And, uh, yeah know that, uh, Pascal and Houven are now committed to do roadshows and, uh, visit you as quickly as possible, as soon as possible and hopefully face to face. With that, thank you very much. Enjoy your day and talk to you soon. That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day."
    },
    {
        "audio": "4483857.mp3",
        "file_id": "4483857",
        "ticker_symbol": "SEMHF",
        "country_by_ticker": "Germany",
        "un_defined": "Europe and Northern America",
        "major_dialect_family": "Other",
        "language_family": "Germanic",
        "file_length": "4292",
        "sampling_rate": "24000",
        "transcription": "Good morning, ladies and gentlemen, and welcome to Siemens Healthineers Conference Call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the safe Harbor statement on page two of this Siemens Healthineers Presentation. This conference call may include forward looking statements. These statements are based on the company's current expectations and certain assumptions, and are therefore, subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Marc Koebernick, Head of Investor Relations. Please go ahead, sir. Thanks operator, and welcome dear analysts and investors to today's call also from my side. Our first quarter results were released at 7:00 AM CT this morning, and you can find all the material, presentation, earnings release, and the recording of the call on our IR webpage. I'm sitting here with Bernd Montag, CEO of Siemens Healthineers, and Jochen Schmitz, CFO. We'll be taking you through our first quarter results in the usual detail. After the presentation, you will have the chance to ask questions. Please, may I ask you to limit yourselves to two questions each, some things never change. With this, I pass the word over to our CEO, Bernd Montag. Bernd, the floor is yours. Thank you, Marc. Good morning dear analysts and investors. Thank you for dialing in, um, and expressing your continued interest in Siemens Healthineers. It has been a few months since we last spoke at our 2021 Capital Market Day. In case you missed it back then, and have a few hours to spare, you can still watch it on our webpage. Let me start by shedding some light on our financial performance in Q1, which shows that we have been able to take the momentum from 2021 over into the new financial year, despite our quite challenging environment. We increased our order backlog with an excellent equipment book to bill rate at 1.2, which is for all segments roughly on the same level. Comparable revenue growth was strong with 9.5% driven by an excellent 20% growth in diagnostics, including \u20ac329 million of Rapid Antigen sales. Varian had a very solid start to the fiscal year and contributed \u20ac750 million to the revenue. Imaging continues to be strong with 6% comparable revenue growth and Advanced Therapies with 3% growth. The adjusted EBIT margin for the group came in at 17.6% in Q1. Foreign exchange headwinds, and currently higher procurement and logistic costs were mostly offset by a better than expected rapid antigen contribution. Our adjusted earnings per share increased year on year, and was \u20ac0.55 cents in Q1. Free Cash Flow was strong with \u20ac556 million. We have raised the outlook for the group in terms of comparable revenue. We now expect three to 5% growth from previous knee zero to two, um, for adjusted basic earnings, especially we expect 2.18 to 2.3 Euro cents from previously 2.08 to, uh, 2.20. This increase is the result of higher than expected Antigen revenues. We now assume 700 million of revenues out of Rapid Antigen testing in fiscal year ' 22. So while it looks like it's shaping up to be another successful year at Siemens Healthineers, and Jochen will explain in more depth the numbers of this successful start. Let me recap a bit on what we told you at our Capital Markets Day. What makes Siemens Healthineers so unique? The basis for our success is the set of unique capabilities, which we have systematically built in the past years. A set of capabilities, which we keep strengthening every day, patient twining, physician therapy and digital data and AI. Patient twining means adding more effective and efficient ways to accurately describe the state of an individual patient. Having the ultimate vision of a digital twin of a patient in mind on which diagnosis, therapy selection and response control can be based very individually. This is why we drive imaging to new levels of insights, develop new diagnostics tests and work on making imaging and diagnostics more productive and accessible. Position therapy means using cutting edge technologies to deliver individualized therapies often with sub millimeter, sub millimeter accuracy, whether it's cancer, neural or cardiac disorders. The importance of precision in treating patients is what makes Varian so unique in cancer therapies. It is also why advanced therapies is focusing on making more and more procedures minimally invasive by image guidance and robotic assistance. Precision improves results, reduces side effects, in short makes therapies better for patients. Our third strengths is our unique competence in digital data and AI. It is key for scaling the application of technological advances, for having the next patient benefiting from the knowledge generated by diagnosing and treating millions of patients before, and for connecting patient training with precision therapy. Our unique capabilities allow us to pioneer breakthrough innovation to fuel further growth. Let's look at some of the most recent examples. First, the MAGNETOM Free.Max, our lightest, smallest and most cost-effective MR System. The MAGNETOM Free.Max comes with a basically helium-free technology that's significantly reduces total cost of ownership and therefore makes MR more accessible and consequently improves access to high quality diagnosis globally. Since its launch, we have seen more than 50% of systems being sold into new markets. That means into setting where MR could not go before. Buyer decisions are driven by favorable infrastructure requirements and ease of use, especially for those first time users. It was released in August 21, and we see a steady order ramp up also for the little sister, MAGNETOM Free.Star. The Naeotom Alpha is the first FDA cleared-photon counting CT on the planet. After more than 15 years of development, over 280 patents and over 100 publications, we have successfully launched Naeotom Alpha on November 18th ' 21. Described by the FDA as the first major imaging device advancements for CT in nearly a decade, Naeotom Alpha is seeing an impressive customer interest in both private and academic institutions. Our customers confirm that for photon counting technology has the potential to become the new global technical standard in CT in the decades to come. More than 35,000 patients were already scanned using the new system of, um, as of today. And we started to book orders in fiscal year ' 21 for a selected customer group of early adopters already. Atellica CI 1900, Atellica Solutions' little sister is targeted towards mid-size labs hub and spoke settings in the emerging countries. It brings the Atellica philosophy of combining quality and throughput to even more customers bird wide. Speaking of Atellica, in Q1, we were capable to sign a contract for more than 40 Atellica solution analyzers with Ascent in California, making it one of the country's largest single site Atellica Solution locations. Turning the page over to physician therapy, Ethos, our AI driven adaptive radiation therapy system provides data-driven, personalized cancer care with maximum impact by minimizing side effects. Since launch, we have booked more than 110 orders for ethos already around 50 systems are installed with a remarkable number of over 15,000 adaptive sessions since launch. And with core path, we are on the way to advance endovascular robotics to better and more accessible state-of-the-art/ treatment. All of this is enabled by the glue of digital data and AI. Like our AI-led companion, ovarian oncology as a service offering. As an example, we advanced clinical decision making with a comprehensive AI powered portfolio with our AI companions, providing solutions for anatomies covering 35% of imaging procedures. By 2025, we aim to increase this number to 85%. These breakthrough innovations, our unique capabilities and the focus and scale of our broad products and solutions portfolio allow us to benefit from and to contribute to the three company-wide growth vectors that we presented at our Capital Market Day. These growth opportunities include fighting the most threatening diseases, enabling efficient operations and expanding access to care. Our unique technologies and competencies are tackling exactly these opportunities, and we tirelessly strengthen them even further. As a result, we will have even more impact on global healthcare and accelerated growth. And while we pursue these three company-wide growth makers, each segment keeps a razor sharp focus on its respective targets, and contributes to our midterm targets that we presented at our capital markets day. As a reminder, we aim to grow our comparable revenue growth by 6% to 8% per year, and our adjusted EPS by 12% to 15% per year in the years from 23 to 25. Quickly turning to Varian, I highlighted already before the incredible success of Varian, um, with the rollout of Ethos, taking a lead in the adaptive therapy market. However, besides this, Varian also delivered a very remarkable quarter. Varian had a very solid start with a very positive revenue growth across all regions with revenues reaching, um, \u20ac750 million. At the same time, Varian has been capable to further expand its, its strong order backlog with an equipment book to build off 1.23 in the first quarter. Documentation of this strong performance are two notable long-term partnerships we signed with the Oulu University Hospital and the US oncology network. The partnership with Oulu University Hospital in Finland is a 10 year strategic partnership to build a comprehensive digital diagnostic and therapeutic ecosystem that addresses the entire cancer treatment pathway and advances the quality of care for cancer patients in Northern Finland. Through this partnership, Varian and Siemens Healthineers will provide Oulu University Hospital with a technology and services package that includes both imaging and radiation therapy equipment for cancer treatment, software solutions for improved workflow and decision support, and a range of services from equipment maintenance to staff training and workforce development. This is just one of many proof points of combined deals that we have in our pipeline. So stay tuned for more combined deals to come. At the same time, during the quarter, Varian signed a multi-year agreement with the US Oncology Network further extending the existing partnership. The US Oncology Network is the largest network of community oncologists in the United States. The agreement includes software, service, and equipment solutions across the US, including service support for over 150 linear accelerators. Also, in terms of profitability, Varian achieved a strong quarter. With an adjusted EBIT of \u20ac117 million and a margin of 15.7%, Varian, Varian is already right in the little of its margin target range of 15% to 17% and therefore, very well on track to deliver on what we have committed. So before I hand it over to Jochen for the financials and our updated outlook, let me just say how proud I am on how we as a team have managed the challenging times and that we consistently work and deliver on our target to pioneer breakthroughs in healthcare for everyone everywhere. And with this, over to you Jochen. Thank you Bernd, uh, and also good morning, everyone also from my side, glad that you are joining us again. Let me take you through our financials of our first quarter in fiscal year ' 22. As Bernd highlighted before, we see the momentum from fiscal year ' 21 to continue in the first quarter of our fiscal year ' 22. Let me start with giving some color on the dynamics and the equipment orders first. We continue to post very good equipment order intake growth in the high single digits, a very healthy dynamic both year over year, as well as sequentially. Underpinned by the, again, very good equipment book to build 1.2 in Q1. In revenue, we also continue to see good underlying revenue growth. I.e. excluding Rapid Antigen revenue of 4.5% growth with growth across the board. This is particularly good when you take into account that we grew by around 10% ex-Antigen last year. And this, again, was on the last quarter. In fiscal year 20, which was not impacted by the pandemic. This is for me, a clear testimony, not only to the accelerated gross momentum, and at the same time, and as important to our unique resilience in extremely challenging environments. In particular, the appearance of the Omnicron Varian accelerated the momentum of the antigen business in Q1 with 329 million of revenue, primarily in AMEA, which brings us to the overall 9.55% comparable revenue growth. Bear in mind that we received, uh, the OEA approval for the US market only at the end of December. Therefore, we did not see US revenue from the antigen business in Q1. I will talk later in my presentation in detail on what we have assumed for the Antigen business in the remaining fiscal year. In the geographies, we also see the very good underlying momentum continuing. Also in China, we saw very tough coms in the prior year, quarter. Last year in Q1, we saw significant equipment grows in China due to government-backed preparations for potential second COVID 19 wave. In Q1, we also saw tearing from foreign exchange translation of around three percentage points. So revenue in Q1 grew by around 12%, if you take out portfolio effects only. This growth, we saw also drop through to the bottom line with 12% growths on our adjusted earnings per share this quarter. Obviously, there were some moving part in between. Adjusted EBIT margin came in at 17.6% below the stellar prior year quarter. Bear in mind that last year's Q1 was exceptionally good, since we posted the highest margin of the fiscal year in Q1, which is quite unusual. So we see some degree of normalization in the Q1 margin this year. On top of this, we saw two major headwind this quarter. Headwinds from foreign exchange on the bottom line, and currently, higher costs from procurement and logistics related to the current situation of global supply change in the COVID-19 pandemic. On the other\u2026 inaudible change in the Covid-19 pandemic. On the other side, we saw tailwind from the higher rapid antigen contribution. I will talk in more detail later in this presentation on the different profit impacts this quarter, and what to expect in the course of the remaining fiscal year. Below the EBIT line we posted minus-30 million Euros of financial income, which was above our normal run rate for interest expenses due to a negative impact from the variation of smaller equity investments. We continue to expect the targeted 50-70 million expenses, financial income net for the full fiscal year, unchanged to our guidance from early November. Tax rate came in at 29%, slightly about prior year quarter. Regarding cash, with also a very strong start to fiscal year 2022 in generating free cashflow, with a strong free cash generation of 556 million Euros, despite significantly higher bonus payouts, and the ongoing challenges in the supply chain with its impacts on inventory levels. This was largely driven by excellent cash collection. Now, let us have a look at the dynamics in the different segments. Bear in mind that Varian has no comparable prior year quarter yet, and therefore is not included in the comparable gross numbers yet. We will include Varian in our comparable growth from Q3 onwards. Let us now have a look at our segment performance. As Berndt has already covered Varian, I will commenting the remaining three. Imagining continues to be strong with 6% revenue growth, driven by very strong growth in molecular imaging, CT, and MRI, on the back of very strong prior year growth fueled both by healthy underlying growth in the core business, as well as, uh, some pandemic related demand. On the adjusted EBIT line, imaging showed a good performance of 20% margin. However, it was 340 base points below prior year's record margin, partially due to headwinds from foreign exchange, and procurement and logistic costs. Our marketing and sales activities for the new product launches in the first quarter also impacted the margin slightly negatively. Diagnostics showed excellent growth driven my rapid antigen sales, as well as a very solid core business growth, given the normalization of the test volume for routine examinations. Excluding the rapid antigen contribution, core business continues with solid growth at more than 3%. On the margin side, profitability was up by 530 base points year over year from the highly accretive rapid antigen business. Excluding antigen, the core business sustained solid underlying profitability. I will give more detail what this means for the diagnostic performance going forward on the next slide. At the same time, we also saw an impact of around 300 base point headwinds from foreign exchange, and procurement and logistics cost, which were overcompensated, obviously by the antigen contribution. Advanced therapies saw 3% growth this quarter, a decent performance on a strong comparable of 6% in prior year, and almost 10% in Q1 of fiscal year ' 20. Despite a softer growth quarter, we see advanced therapies well on-track for growth this year with a healthy order backlog. Q1 margin in advanced therapies was down to 14.3% in Q1, versus a very strong prior year quarter, and in the guided range for this fiscal year. In this quarter, the margin was negatively impacted by the headwinds from foreign exchange, and procurement and logistic cost of around 150 BPS, and also by ongoing investments for inaudible. In ier- in our diagnostic business, we now assumed a higher amp- uh, rapid antigen revenue contribution of 700 millions Euros in fiscal year 2022, up from previously communicated 200 million. Since our fiscal year 2022 outlook announced, uh, in November, the situation has changed significantly with the Omicron variant wave. Adding to this, we have received the FDA emergency use authorization approval in the United States, States, both was not factored into our original guidance. The team worked very hard to get the US approval, and meet the additional demand which arose from this opportunity. However, the full year visibility of, on the testing demand is still relatively low and the situation is still very dynamic. Based on the trends we experienced over the last years, we anticipate strong demand in Q1 and Q2, and then softening demand during the Summer month. Additionally, pricing has come down substantially for tenders in Germany, and considering we are not the only player to receive the US approval for its Covid-19 antigen test, we should see our pricing and volumes evolve over time in the United States. So, the overall market becomes more and more competive- -tive, with more capacity overall. Therefore we expect revenues to decline sharply in the second half. Profitability this segment is largely a result of the development in volume and prices. We expect profit accretion from rapid antigen peaking in the first half, to then decline sharply in the second half due to the expected lower demand and price erosion. Finally, a few comments on the Q1 performance of diagnostics core business. Excluding rapid antigen margin accretion, we continue to see that the core business is developing according to our plans with a solid underlying profitability. And this needs to be evaluated taking into account the current global supply chain challenges. Taking everything into consideration, we can be very happy with the steady improvements in our diagnostic segment. We continue to be on track with our plans to turn around the business. Now, let us have a closer look at the different profit impact that we expect to be more material in this fiscal year. You'll see on the slide the four topic that we currently consider material, and the year over year impact on adjusted EBIT in the first half and the second half of this fiscal year. And you also see that they all have somewhat different profiles in terms of year over year comparison over the course of the year. Let me start with what we just talked about, our rapid antigen testing. We expect a very positive accretion in the first half year, turning into a very negative year over year impact in the second half, due to the slowing demand, and at the same time, comparing against the very strong second half of last fiscal year. Regarding foreign exchange, as said before, we see a translational tailwind of around three percentage points this quarter, particular from the strengthening of the US dollar, and we expect this to continue throughout the year. However, since we do hedging on a rolling basis, uh, for three to six months forward, the impact on the EBIT line is usually trading the top line impacts by the said three to six months. Consequently, we expect a negative impact from foreign exchange on the first half bottom line, turning\u2026 in second half. The topic of impacts from incentives followed as during the course of last year. So, let me start that the updated assumption for rapid antigen for this fiscal year is already fully reflected in our books. Also group incentives related to antigen are kept this year. So, any incentive impacts from antigen will be limited to the diagnostic segment from now on as the new assumption is already beyond the set cap. For fiscal year ' 22, we expect an overall tailwind from incentives, skewed towards the second half. We expect the tailwind in the second half the fiscal year to be larger. Since we booked in last year's Q4 the employee bonus provision of 56 million Euros. The tailwind from incentives in Q1 was largely compensated by higher travel and marketing cost. And now to the impacts from procurement and logistic cost, related to the current situation of global supply chains. We are aware that this a big topic currently, also in the capital market. So, let me give you three main messages that sum up our current situation, and what we expect for the remainder of the year. First, very important, we did not see material impacts on our revenues from supply chain issues so far. And we assumed that we will not see material impacts going forward. Obviously, there is uncertainty from the future development of the pandemic and, for example, from new variants which we cannot foresee. Second, we see the headwinds mainly in procurement and logistic cost of around 100 base points in margins year over year, skewed towards the first half of the fiscal year. These headwinds have two main driver. One driver is price p- increases due to shortages, most notable in the lo- electronic components and in certain raw materials like metals. The other driver is logistic cost, including structural changes, e.g. switching from sea to air freight, and mitigation mi- measures in our manufacturing to secure production. And this brings me to the third message. Thanks to our team, we have been managing these challenges extremely well so far, and we expect to continue to manage the situation well going forward. Our procurement, manufacturing, and R&D teams work closely together on mitigation and new solutions, working together with our suppliers who are closely integrated into our value chain. Albeit, we managed the situation, relatively speaking, very well, the hundred base points year over year headwind now reflects the intensified global supply chain challenges. And, of course, this is also reflected in our updated outlook, which brings me directly to the next chart. We raised the outlook for fiscal year 2022 due to the new assumption of 700 million Euros for rapid antigen revenues in fiscal year 2022. Consequently, we raised the revenue target for diagnostics to low single digit negative growth. This race, this raises the outlook for the group to 3-5 % comparable revenue growth. We also raised the outlook for adjusted basic earnings per share. The range for the adjusted EPS is now between 2 Euros and 18 cents, and 2 Euros and 30 cents. This new range obviously includes the different profit impact that we have discussed before, e.g. the headwinds from procurement and logistic cost, as well as the higher rapid antigen contributions in diagnostics. This results in a net impact of around 10 cents higher outlook, by which we increase the outlook for adjusted earnings per share. The diagnostic margin fiscal 2022 is now expected in the low teens, driven by the higher contribution from the rapid antigen business. And all other targets for the segments and the other items of the previous outlook remain unchanged. One comment on the margin target for imaging and the range 22-23 %. We currently expect the imaging margin to be around the lower end of the range, mainly due to the formentioned headwinds from procurement and logistic cost. This reflects an element of caution, since there is uncertainty, especially how headwinds and mitigation meas- measures will play out in the second half of the year. Let me also add a comment on what we expect in Q2 where we have, obviously, better visibility. For comparable revenue growth, we expect momentum from Q1 to continue into Q2 for all segments. On the margin side, we expect imaging margins in Q2 to continue to be somewhat below the 22-23 margin range, whereas we expect the, the other segments some more pressure from procurement and logistic cost. So, margin in the other three segments might end up around what's likely lower compared to Q1. And with this I close my presentation and hand it over t- to you, Mark, for Q&A. Thanks, Johann. So, um, I will be, obviously, managing the Q&A, but let me just hand it also sh- briefly to the operator to start the Q&A session. Thank you, gentlemen. We will start today's question and answer session where we would like to ask you to limit yourself to two questions. If you wish to ask a question, please press the star key, followed by the digit five on your telephone keypad. Again, ladies and gentlemen, please press star-five on your telephone keypad. So, great, I see you're lining up here. Um, first caller on the line would be Veronika Dubajova from Goldman Sachs. Veronika, your line should be open, please ask your questions. Um\u2026 hi, guys, good morning, and thank you for taking my questions. I have two, please. Um, one is on the Covid-19 guidance. I mean, obviously you, you've already delivered 329 million of, of sales, um, in the first quarter. And just looking at the 700, it seems to me like there might be some room for outside e- even just thinking about the second quarter. So, maybe, Johann, you can give us a little bit thinki- a little bit of your thinking on, you know, why Q2 shouldn't be at least as good as Q1, and in that context, why the 700 might be maybe a bit more cautious. I know you mentioned pricing, but I'm just curious, you know, in terms of demand, if you can give us a little bit of insight in- into what you're seeing at the moment. Um, that would be my first question. And then my second question is on the imaging margin. Obviously, coming in at around 20% in, in Q1, and assuming Q2 is similar, that does leave you quite a lot of work in the second half, um, to do. Uh, how much visibility do you have on component pricing, and, you know, transportation costs as you move into the second half of the year? Have you been able to lock in some prices there that help you? Um, and therefore, you know, how de-risked is that 22% on a full year basis? Thank you. Yeah, hello Ven- Veronika. Thank you very much for the good questions. Um, on, let me start with, uh, antigen first. Yeah, I mean\u2026 a- as you, as, as you s- as you know, we were always relatively conservative with assuming in our outlook, uh, an antigen revenue portion, yeah? And, um, w- we have good visibility, uh, o- on, on the 700 millions, yeah? And, uh, I, I would also expect, uh, to see a relatively similar level of revenue in Q2 as, as we saw in Q- Q1. At least, yeah, and, uh, this leaves then, uh, some trailing out antigen revenue for the remainding, remaining quarters, yeah? That's, that our, is our current thinking. I mean, there are a lot of, I would see, variables still open, yeah? Pricing, uh, availability, uh, channel development in the United States, and o- and other things, yeah? Uh, which, uh, led us to give you, I would say, uh, uh, I would say a very balanced, yeah, uh, guidance for 700 million a- assumption for 700 million in our outlook, yeah? On the imaging margin, I mean, you asked here several questions around this. Um, when, last year, uh, you saw, uh, quite some, quite some, I would say, spread in the margins, yeah? From 18% in Q3 up to, I think, 20, 23, 24%, uh, in, in, in the, in the, in, in the highest quarters, um, and, um, we started now with st- and, and ended up on average with 21%, yeah? Um\u2026 inaudible was 20% with significant headwind from, uh, foreign exchange, as well as, uh, procurement and logistic cost. I mean, we expect, uh, those, uh, procurement logistic cost to be skewed towards the first half of the fiscal year. Yeah, this our assumption. Visibility is, is, is not super great in this regard, yeah? But this is what we currently assume, yeah? Um, and, um, and we have, um, a, a clear plan to get, uh, to, to- Uh, a clear plan to get, uh, to, to the lower end of, of the range, yeah, as I highlighted, yeah. Um, but, uh, visibility is, is beside backlog, yeah. Where we have good visibility. Strong, I would say, um, I would say s- s- strong s- I would say, security on the top line, yeah. I think we, we still have some limited visibility on, on, on certain cost items, yeah. But I'm still confident that we can reach, uh, the lower end of the bend. Very clear. Thank you so much, Johan. Thanks Veronica. So, um, then I would, uh, head over to the next, uh, person on the line. This would be Patrick Wood from, uh, Bank of America. Um, Patrick, you should be live now. Please ask your questions. Perfect. Thank you very much for, for taking my questions. Um, I guess the first one, uh, predictably on the, the margin side, I'm just curious as to, you know, you clearly have quite a lot of offset work going on within the business to manage some of those increased costs. Just curious, what are some of the things that you're actually doing within the business to offset those costs? Um, some detail there would be great. The other side, maybe actually on the demand side of things, you know, the near it's, um, good to know it's in the, you know, the early, early launch phases, uh, with early adopters. But if you were asked when, when should we expect it to become more in a full commercial launch, um, is that a, you know, really back off of this year or, you know, when do you feel you're gonna be able to put more, uh, more of the pedal down and, and push the product in a more aggressive way. Thanks. Thank you, Patrick. Um, so maybe I rephrase the question. Yeah. How do we offset, um, the cost? I mean, the other thing is also how do we, how do we preserve margins here? Because margin is the difference of price and costs. Yeah. Um, and, um, I mean, uh, one big topic is, is of course to very fully manage pricing. Yeah. And also to make sure, um, that, um, that, uh, we, we use our pricing power, um, and there I'm, uh, we have, we have good signals. Yeah. That, um, um, that we, we a- we also make good progress on that front. Yeah. I mean, we see it, um, also in the order book. Yeah. That, um, that, that pricing quality is, is, um, is, is, is good. Yeah. So, um, don't only look at the, um, at the, at the cost side. Yeah. And, um, when it comes to the component supply aspects, I'm, I believe that, um, we, we are getting into more, more, uh, uh, stable waters. Yeah. Um, which, uh, which will, which, which, which will also help, um, to, to ease the effect from the area, but in the end, I mean, I think please bear in mind, two things on the one hand, I think we did a great job also compared to some of our competitors in safeguarding, the top line. Yeah. Which is I think the <laugh> first and big topic to achieve. Yeah. Um, and secondly, we will manage very carefully the cost implications, but on the other hand, there's a big topic in, in the, in the in then it comes to pricing power, um, and, and also passing some of these effects, um, um, on, so to say. Um, when it comes to the fortune counting, I mean this, this year is, uh, is, um, the year of a, of a roll out two selected customers, yeah. Where we were, uh, so that the, um, I mean, an early commercial rollout, I would say, um, the, the full commercial effect, you will see, um, in the next fiscal year, but what we, what we see so far in terms of interest, in terms of also, um, real demand, um, but also in terms of price realization is very, very encouraging. And maybe Patrick, one other aspect on that, uh, margin topic, maybe we have, uh, made a deliberate decision to have a clear prioritization to be able to deliver our products, yeah, to our customers, yeah. Currently that is, this doesn't come for free. Yeah. We need to be clear about this. Yeah. This is a deliberate decision. Yeah. And that's also why we currently do not see any material impact on the top line, yeah, because of the strengths of our team, but also based on the decision we made, yeah. Uh, and, um, and I think we feel so far in relatively, in a relative term speaking comfortable with that decision. Yeah. Uh, and, uh, and, uh, we will obviously observe it very, very carefully. Yeah. If things would get, yeah, out of control in this regard, yeah, we would, might need to do the different things differently, but we don't expect this to happen. Fabulous. Thanks for taking the questions. Any questions. So, um, next one on the line would, uh, be, uh, Lisa Cly from Bernstein. Um, Lisa, um, line should be open, please ask your questions. Hi, there, I have two questions on that IVD business. First, on your US antigen revenues, um, are you selling to specific government programs, or are you going to pharmacies, uh, more of a sort of direct to consumer approach, just curious as to the channels and whether you may expand that over time. And then, um, second question, just on the IVD business X, um, antigen, um, nice to hear that there's some, you know, decent revenue growth and, and margin improvement there. If we think about the underlying demand for sort of routine tests, how close are we to getting back to normal volumes? Are we at sort of 85%, or is it more or less than that? Thanks. Yeah, let me, um, go first here. Um, I mean the, the primary, um, um, customer group, when it comes to antigen testing or rapid test in the United States is, is let's say large customers. Yeah. And we are not, uh, and we are not, uh, we don't have the channels, yeah, uh, and, and, and not the ambition yet to go into the, into, uh, too much into, into a scattered ret- retail space. So number one is of course the big government programs. Yeah. This is also what, what our strength is, um, and has been in Europe. Yeah. We had the, the claim to fame. Yeah. For Siemens Healthineers as a super agile company was to make sure to, to deliver a big quantities of super reliable tests with high confidence and certainty. Yeah. So, um, in, in, in terms of millions of tests, which need to be delivered at once, and this is also, um, one aspect, um, we are now living up to in the US when it comes to the government program. Um, we are also, um, um, looking at larger retail chains. Yeah. And, and, and, um, and, and, and we'll see how that, how that market develops, yeah, but that is currently baked into our, into the forecast of the 700 million. Um, when it comes to the, um, core business. I mean, yes. Um, it had a in diagnostics, um, I'm very, um, happy with the, with the, with the start we had here. Yeah. It, it, uh, shows a nice continuation of the trend, um, of, of a step by step, um, um, i- i- i- improvement towards the, the targets we have set, uh, for this business. Um, th- then it comes to how, how close this business is to the, let's say pre pandemic levels. I think it's pretty, um, uh, it's, i- I mean, I can't give you a clear number. Yeah. I mean, but it is more in the, in the, in the 90 to, to a 100% normal. <laugh>. Yeah. But what you still see and which is, which is, uh, uh, when you double click on it is, um, that when it comes to the testing menu, yeah, there might be some shifts, yeah, compared to what normally has been done compared to two years ago, there maybe two years ago, more wellness tests, and now there are still more secondary COVID related tests yeah, which are baked in, yeah, because of some COVID related comorbidities or so. Yeah. But overall, um, we are largely back, um, to, uh, to, to, um, normal, to a normal, uh, situation in that business. Okay. Thanks for that. inaudible. Okay. Um, next one on the line should be, uh, James from Jeffreys. Um, James, your line should be open. So please ask your questions. All right. Thank you so much. It's uh, James inaudible from Jeffreys. Um, two questions please. So just on procurement and logistics, and you mentioned you don't have a lot of visibility, so I'm just curious, what's changed in the past three months when you first gave guidance, you know, where were the additional pressures which weren't initially anticipated and without that visibility, how do you have confidence we weren't the additional pressures in the second part of the year. Uh, and then my second question is, um, just on inaudible, I think, you know, you said it's gonna be included in comparable sales growth from Q3 this year. Um, I think we just looked back a bit, I think in Q3, um, before I think you said it was around 17%, um, can't remember the Q4 number off top of my head, but from April, I think you sort low teens to expect. So just wonder if you can give us a flavor what that was, uh, in Q1, uh, so we can, um, see the, the trajectory for that. Thank you. Yeah. Thanks for the question, James. I think what has changed, uh, since the initial assumption was, uh, that, uh, I think we, we, we saw, I would say the, the shortages and the, the, the necessity to buy, uh, at spot rates, certain components ha- has increased, yeah, relative to where we stand at, at, uh, uh, early November. Uh, um, secondly, as I said before, and we deliberately made the decision to, to, to, to prioritize the ability to be able to deliver to our customers. Yeah. And by this, we had to do because of the difficulties, it's because it's not only price of components, yeah. It's, even when you have shortages, you also need to be super agile and flexible in your internal processes, which, uh, sometimes also lead to, I would say to, to certain disruptions in, in your internal processes, which might also lead to later ability to, to manufacture things. Yeah. And therefore you also have certain logistic challenges following up. Yeah. And that's also why I said structural changes from C to air freight and things like this. Yeah. And I would say the, the tension just increased across the board. But as band said, yeah, what we currently see is that we see a stabilization of some in particular in, on the supply side of component th- things, which gives us, I would say, um, some confidence, yeah, in, in, in, in being able even to manage that even, even, even better than we have already managed it today. Yeah. And there's also, and also the, the, I would say the learning curve we currently walk through, we are being under this pressure, and the organization is helping, uh, to optimize our internal processes, according to the challenging environments. Yeah. On, on the variant side, uh, on a performer basis, yeah, the growth rate on revenue in, in Q1 was in the, in the low teens again. Yeah. So a Super strong start, fully in line what, what we have guided for, for, for varying, for the full fiscal year. That's great. Thank you. Thanks James. So, um, next one online should be inaudible from inaudible. Uh, inaudible yeah, you should be live. Hello. Good morning Dan. Good morning Johan thanks, thanks for taking my questions. I have two. Uh, the first one a- and sorry if you mentioned that in your pre prepared remark, but the, uh, the line was a bit patchy, but it relates to the diagnostics margin, uh, excluding the, the COVID contribution. Uh, I think you have a guidance for, for fiscal year 2022, which is to reach, um, uh, a mid single digit to high single digit margin, uh, for, for the, the underlying diagnostic business. So just curious whether, uh, that was, uh, in line\u2026 whe- whether the Q1 margin was in line with that guidance or, or maybe marginally above and any help in understanding profitability of the COVID tests, uh, uh, i- in Q1 would also be helpful. I think you had previous indicated that the, the pricing had been, maybe halved in some, in some instances. So just willing to understand what the profitability of the underlying business and the COVID test if possible. And the second question relates, uh, sorry for that. Again, to the logistics and procurement costs, uh, it's more looking at the midterm, uh, guidance that you had indicated that your capital market day back in November. Uh, you, you, you have said that you expect an improvement on that side in age two. So, uh, you would say that there is nothing, uh, structural there that could, uh, prevent you from reaching your, your midterm guidance, both in imaging and, and diagnostics for, for, for the, for the next few years? Thanks for, for the questions. Um, as you rightfully said, our guidance for, for the diagnostic business or core business for this fiscal year is on the profitability side, mid-single digit to a higher single digit. And we were at the lower end of, of this range, yeah. In, in, in the range, but on the lower end, also due to the fact that we had significant, as we highlighted, significant headwind form foreign exchange, as well as, uh, the, the procurement and logistic costs behind. In, in diagnostics, it's primarily the logistic cost currently. Yeah. Um, and we feel, but we feel well on track to get, uh, to stay in that line and, and see progress, uh, a- as we proceed through the year. Yeah. Um, on the procurement and logistic front, um, I do not see this as a critical item for our midterm targets. Yeah. We consider this a temporary problem, yeah, which, uh, should, uh, should be dealt with, uh, over time. And as Dan already said beforehand, when we have also mitigation measures, uh, when you, when you extend this topic, not only to COVID 19, but also to the inflation topic, yeah, that we can, uh, that we can also in a, in a, I would say in a very meaningful way, uh, address it by, by significant price discipline. Yeah. And we have initiated the measures and we will see, uh, we expect to see also benefits from this kicking in, in the, in the l- in the, uh, I mean, according to when the, the, the orders come in, yeah, and turn that into revenue, uh, more in the, in the later end of this fiscal year and then in the, in the next years. Yep. Okay. Thanks. Yeah. Um, then I, um, would pass it over now to, um, Hassan from Barclays. Um, Hassan your line should be open. I can't hear you. <silence>. Let me just a second. I dunno if we have any technical issues here, maybe just a second Hassan, I hope we get you into the line in a second or two. Please record your name after the tone, and press the pound key. The conference is in presentation mode. Okay. Um, so we try it again. crosstalk which is in the conference. Um, you're\u2026 yo, are you live now Hassan? Give us- Yes. Yes. Wonderful. Hi. I can hear you now, Mark. Thank you. Thank you. Brilliant. Um, I have two questions please. So firstly, just to follow comments on the top line, uh, your competitors have clearly seen headwinds and have talked about deferred installations. Uh, i- is this something that you are seeing at all or is this, um, getting worse in, in fiscal Q2? And then second, could you elaborate on your comments on pricing burn and, and whether you have any meaningful ability to offset cost increases and pass them on to customers, or are you seeing an overall level of pricing deflation? Thank you Hassan. I mean, um, first of all, and, and here I, uh, c- coming back to Johan's point, yeah, yeah, we say the, we made a decision <laugh> to deliver, uh, um, but on the other hand, we, uh, we have the- To deliver, uh, um, but, on the other hand we are, uh, we have the ability to deliver, you know? Which is I think something which sets us apart. Um. Yeah. Because, uh, here really this organization does a wonderful job here in, in, in extremely, um, quickly reacting new, to new, uh, situations. I mean, it's similar to us and what we do in the antigen tests and so on, yeah? So, um, it is, um, um, very, very, um, encouraging and I'm very proud how the organization is dealing with the, um, with the, with the topics when it come to\u2026 I mean, your question is more about the o- I, I, I understand, is outbound logistics, yeah? The, the, the question of is our customers ready to take reorders and so on. So here we are very flexibly, um, reacting, um, and, um, and, and, and prioritize then one customer over the other. Um. We see we are confident when it comes to the visibility we have in turning order book into, into revenue. Also in the short term that, that this challenge is not increasing, yeah? So, and you can trust us, yeah, that we, that, the way we were able to handle it in Q1, um, um, will, will continue. And here we really stand out in the market and to some extent our ability to deliver, yeah, helps us to, um, to, to, to n- uh, to, to even game share, yeah. Um. Yeah. Because, um, uh, s- some of the, um, the, the, um, some of the delivery times, um, of, of competitors are just not, not what the market accepts. Um. And that brings me also to the other topic, yeah, when it comes to, um, when it comes to pricing. It is, it is, um, i- i- um, i-\u2026 Of course the, the p- some of the pricing which, which, which, um, which we have, um, is set by the, um, you know <laugh> at the point of the order intake. And as you know, in our business, um, typically on the, on the imaging site, um, orders, um, the time between order and, and r- and, and revenue, or between book and bill, is, is in the range of six to nine months, yeah? So that means, yeah, that pricing measures, yeah, which we have initiated, um, and which we see in the order book here, um, will also materialize towards the second half of the year. Um. And we see, um, actually a good acceptance of this, both internally so to say in the sales force, but also that when it, when it, when it, when it comes to, uh, when it comes to customers. Yeah. So, um, and as a last point, please also bear in mind here about 50% or more, 55% of our revenue, um, is recurring revenue. Um. And in\u2026 And f- and especially when it comes to the service, uh, uh, aspects, yeah, we have also, uh, price adjustment clauses and so on, and are also protected, yeah, when it comes to in- uh, when it comes to, um, um, um, infla- inflationary tendencies, yeah. Perfect. Thank you so much. Thanks Ansan. Sorry for the technical problems. Um. So, now we hand over to, uh, Daniel Wendoff. You're the second but last one on the queue. Um. Uh. Daniel, uh, your line should be open. Please ask your questions. Yes. Good, good morning everyone. I hope you can, can hear me well. Thanks for taking my questions. I have a, a question. The first question on the very end top line development. Um. Maybe you can, you can, uh, tell us a bit how the combination, uh, now with inaudible as helped, uh, uh, through that, if at all. And, yeah, maybe give a, give a few examples what, uh, what really drove, drove the revenue line, if it was helped at all by being part of inaudible. Then I have a, I have a question on the, uh, Atellica low to mid throughput, uh, solution, the CI, uh, 1900. Um. What is the key marketing message you would, you would\u2026 Customers hear on, on this front given that the, the end-market is slightly different, competition is slightly different. So, what is really the key, uh, thing standing out for the Atellica solution in the mid to, uh, the low to mid, uh, segment. Thank you. Okay. So, so thank you, Daniel. I mean, looking at, at Varian, um, there is on the one hand, um, when it comes to, um, the revenue development, um, very, a very, very strong, um, A, recovery of the business, yeah, coming from, from, from, from the pandemic. Um. And\u2026 Which, which, which on the one hand is triggered by a c- by a very, very strong competitive situation of Varian as a quote-unquote standalone business. But in addition, and that's what we see on the order book, yeah, we see, um, many bills, yeah, some of them have already been booked, yeah. Like, like, um, the one example I gave on, uh, Oulu in Finland. But many are in what we call the funnel, yeah? Which is the s- project, um, the sales force is working on where there is a, um, a, a super encouraging and, uh, momentum across the entire, uh, globe, yeah, in, in the sales teams to team up and to work jointly on opportunities. And that goes in both directions, yeah? This can be, um, uh, you know, specialty, oncology customers who know, um, i- i- or, or, uh, who are s- s- strongly tied to Varian here, or have strong connections who, and who know when to go into the, um, um, uh, o- a- ha- or expand the, the relationship to imaging and it ca- w- and, and, and it can be, um, using the strength we have in C-level relationships, as inaudible as classic, if you wish, um, to pull in the Varian, um, um, team. Um. And to use this, um, additional, um, additional effect, it is, um, using our strength as inaudible classic, again, yeah, in, in, in parts of the world were Varian hasn't been as strong, yeah, in terms of, um, sales presence, sometimes not even having a direct sales force. Um. So here we are extremely positive about the internal momentum, and it also shows in the numbers. And looking at the order book, we see\u2026 Uh. I mean, uh, it's not only a very strong start on the revenue side in, in, in, in Varian with the 750, um, but, um, you need to look at the, uh, book to bill of 1.23, yeah, so that m- t- that, uh, that the orders have been even 23% more than that, yeah. So, here, um, a clearly very, very strong, um, and, and, uh, uh, i- i- a, um, a start and, and I'm very, very bullish when it comes to this. Um. Second question was\u2026 crosstalk. Uh. The CI 90, what is the, what is the, um, what is the positioning of the product. Basically, um, it, it s- it expands the philosophy of Atellica solution, yeah, which is highest throughput, highest quality, um, uh, uh, at\u2026 So, highest quality test in the, in, in high, um, throughput, yeah. So the, the, the, the unique mix we bring as Siemens Healthineers, as a engineering company in the lab, yeah, to new customer groups. And these are, on the one hand, the mid-size labs in the developed countries, very importantly hop and spoke deployments, that means, um, hospital networks who use the quote-unquote big Atellica Atellica solution in the hop and, um, the small Atellica associated spoke places, which brings them on the one hand, so-called reside concordance, yeah. The same test resides, but also allows them to purchase the same reagents and so on, yeah. So this is a big requirement in the market. Um. And the third, uh, topic is, um, it is an ideal system for, um, for labs in the emerging countries. Very good. Thank you. Thank you. So, um, now we, um, go over to the last one for today. That should\u2026 The last, not, but not least. Uh. Falko Freidrichs from Deutsche Bank. Falko, you should be live now. Uh. Thank you and good morning. I have two questions as well please. Firstly, on your new imaging launches, um, um, how, how would you describe the, the replacement behavior of your customers in light of these launches? Um. So is it that the replacement side, it might actually be shortened a bit now because your customers really want to get their hands on this new technology or, or is that not really the case? And then secondly, on advanced therapies, um, can you just provide a bit more color on the underlying trends you see there at moment, with regard to the recovery from the pandemic, uh, and potentially customer wins. And also was there anything specific that stood out in the quarter that caused this very strong performance in the Americas? Thank you. Okay. Uh. Thank you, Falko. On, on the imaging launches. Two, uh\u2026 I think they come in two different buckets, yeah? On the one hand, um, when it comes to, um, what we do with the Magnetom Free, uh, Max and also Free.Star, which is the smaller version of it, this is about creating new ma- markets for MRI. Um. And it's bringing MR to places where, where it, where, where it couldn't go before, yeah? So to see, to\u2026 From that point of view, it is no- it is independent of replacement cycles, yeah, to answer your question, yeah. Because it, so to say, comes on top of the normal course of business. Um. And we are, um, very happy with what we are seeing, that the products exactly do that, yeah? Bringing MR to the outpatient clinic, which so far m- only had CT. Uh. Or bringing MR to places in emerging countries which didn't do it, or bringing MR to, um, to, um, clinical specialties outside meteorology, yeah? So, irrespective of replacement cycle, this is typically installations where there a- is no MRI before. On the photon counting CT, um, this is\u2026 I mean, I, I commented, um, before, yeah, that, uh, that, uh, uh, um, v- t- th- the f- th- th- this is in the, an early phase of, um, of, of launch, yeah, where we have, um, where we have a lot of excited, um, and exciting customers, um, who are, who come in either from the academic medial centers, um, or, uh, in a very prestigious, um, private institutions. Here, the topic of a, uh, of shortening a replacement cycle can definitely happen, because one of the reasons to buy the product is to be, to stay at the forefront of medical research, yeah. This is more the academic medical center type of thinking, or to be a quality leader in terms of what type of diagnosis you can offer as a private imaging center, yeah. So, and, and when your business model is to be competitive, um, and an early adopter, because you are an innovator as a healthcare provider, it shortens the replacement cycle. And the good thing is that this effect of shortening the replacement cycle will over time migrate into broader segments of the market, yeah. Because, um, I sometimes use this, uh, um, a little bit maybe trivial analogy of comparing photon counting CT to flat panel, uh, TV or to HDTV. When a technology like this is available, people make the decision to go to the next level product earlier than when, um, the next generation offers just little improvements, yeah. Maybe I'll answer your question. On, on the Americas you just highlighted that the, that inaudible a strong quarter in the Americas. I think that is also when this, uh, uh\u2026 As you know, this is not a book and bill business, so it was nothing which happened at the end of the day in, in, in the quarter from a market success. It, it\u2026 This is a success we had o- o- over the last years with the strong order intake also on the AT side, which then materialized in, in, in the quarter as revenue, yeah. Uh. And it\u2026 By the way, it was across th- the both of Americas. This was, it was not US only, you know, so on, on a much lower scale, yeah, uh, uh, there is, uh, very good revenue growth in Latin America on, on the AT side, yeah. So I think nothing what you can really point out too particular in the quarter, but it was a particular driver of the revenue line in the quarter, mm-hmm <affirmative>. Okay. Thank you. Okay. So, um, this ends, uh, our call for today. Thanks for your participation, for your continued interest in Siemens Healthineers and your questions in today's call. We look forward to seeing some of you on our road show in the next days or at inaudible conferences early March, or at the Barclays Conference in Florida in person maybe. Uh. Til then, stay healthy, your health and your esteem. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the investor relations section of the Siemens Healthineers website. The website address is corporate.Siemens-Healthineers.com/investor- relations. Please record your name after the tone and press the pound key. The conference is in presentation mode. The conference will begin\u2026 The conference is in presentation mode. The conference will b- uh-\u2026 Healthineers.com/investor-relations. Be available on the investor relation section of the s-\u2026 Stay healthy, your health and your esteem. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the investor relations section of the Siemens Healthineers website. The website address is corporate.Siemens-Healthineers.com/investor-relations."
    },
    {
        "audio": "2020-Annual-Results-Call-Recording.mp3",
        "file_id": "2020-Annual-Results-Call-Recording",
        "ticker_symbol": "MTNGH",
        "country_by_ticker": "Ghana",
        "un_defined": "Sub-Saharan Africa",
        "major_dialect_family": "Other",
        "language_family": "African",
        "file_length": "4385",
        "sampling_rate": "16000",
        "transcription": "Good afternoon, ladies and gentlemen. And welcome to MTN Ghana 2020 annual results call. Please note that all participants are currently in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing * then 1, * then 0. Please note that this call is being recorded. I would now like to turn the conference over to Jeremiah Opoku. Please go ahead, sir. Okay, uh, good afternoon, everyone. And I'd like to apologize for the long hold. Um, we\u2026 The call operator had some technical, um, problem. So, um, let's begin the call. Apologies again. Um, I'd like to thank everyone for joining us today to discuss MTN Ghana's annual results for the year ended 31st December, 2020. I'm Jeremiah Opoku, investor relations manager for MTN Ghana. With me on the call today are Selorm Adadevoh, CEO of MTN Ghana, Kobina Bentsi-Enchill, acting CFO for MTN Ghana, and Thato Motlanthe, group executive for investor relations. So Selorm will speak about MTN COVID's initiatives and provide updates on some regulatory matters. After which he will delve into the company's annual performance and outlook, before we move on to the Q&A session, which will be facilitated by the call operator. With that over to you, Selorm. Thank you very much, Jeremiah. And good afternoon to everyone. And, you know, thank you for making the time to join us on this call today. Um, I'd like to again, you know, apologize for the delay due to technical issues. We'll try to extend the call for a few minutes over to be able to accommodate the delay as a result of that. As mentioned, you know, I'll talk about our initiatives to support the fight against COVID-19 and then update you our operational performance, as well as touch on some regulatory issues, um, before looking at, you know, the outlook for 2021. In 2020, general economic and business performance was influenced by the spread of the COVID-19 pandemic with devastating impact across the globe. In Ghana, we experienced a sim- a significant contraction in the first half of the year, with some signs of improved economic activity in the second. Indeed, the impact of the pandemic has been felt by everyone, and many of us have loved ones who have been affected by COVID-19. MTN Ghana and our staff have also been impacted by COVID-19, notwithstanding the initiatives we put in place to ensure the safety of our people. On yesterday's data from the Ministry of Information, Ghana has had 81,245 confirmed cases, 6,614 of which are still active, and 584 unfortunately deaths. For us at MTN Ghana we have had a total of 158 of our staff, who tested positive with COVID-19. We're thankful that 80 of those have since recovered, although sadly one employee has passed on. Our thoughts are with the family of our lost colleague and with the nation as we go through these tough times together. It's in light of these challenges that we at MTN launched our Yellow Hope initiatives to provide support to our people, our customers, our partners, and to the government of Ghana. In support of our customers, we zero-rated all Mobile Money P2P, peer-to-peer transfers, up to a value of GH\u20b5 100 per day from March 2020. This did not only save our customers over GH\u20b5 94 million in fees, but also facilitated greater social distancing and deepened financial inclusion to increase the adoption of digital currency. We're happy to announce that this offer is still active. To further support government's efforts, the MTN Ghana Foundation donated GH\u20b5 5 million worth of PPEs and other essentials to the government's COVID-19 trust fund for onward distribution to frontline medical workers. We also deployed PPEs and sanitizers, as well as ensure the adherence to all COVID-19 safety protocols across our branch network and offices. We'll continue to prioritize the safety of our customers and our people through this period and beyond. In supporting the efforts of government agencies, we zero-rated several public websites providing health and other COVID-19 related information. We also provided free access to over 200 websites for academic use by public and private educational institutions and committed to provide them this until the end of the pandemic. MTN Ghana support- supported with others, several other initiatives targeted at educational institutions, government agencies, and various ministries at the forefront of the fight against COVID-19, the details of which are included in the SENs released document. In August 2020, we launched the BE WISE campaign to encourage Ghanaians to wear their face masks and to wear them correctly. And this transitioned into MTN's global Wear It For Me campaign to build awareness around the importance of correctly wearing a face mask to combat the spread of the virus. The fight against the pandemic continues into 2021, and MTN remains committed to provide ongoing support to combat COVID-19. In January 2021, MTN Group announced a $25 million donation to support the African Union's COVID-19 vaccination program. The donation will help secure up to seven billion doses of the vaccine for health workers across the continent, contributing to the vaccination initiative of the Africa Centers for Disease Control and Prevention. MTN Ghana is pleased to play its part in this initiative to support the government of Ghana. As of the end of December 2020, the accumulative value of MTN Ghana's efforts to fight COVID-19 was GH\u20b5 139 million. As we progress through 2021, we will remain focused on supporting our people, our partners, and our customers, while ensuring network resilience and efficiency in delivering in our quest to make the lives of our customers a whole lot brighter. I will now tend to operational results for the year 2020. We're pleased with the overall performance in a very challenging period, with good growth in our subscriber base, which was helped by the heightened need for reliable and resilient data and digital services in this era of the pandemic. To help maintain the quality and availability of service for our data and Mobile Money customers, we invested 1.5 billion Ghana, GH\u20b5 1.5 billion in network capacity and infrastructure expansion. As part of this, we rolled out 200 2G, 200 3G, and 950 LTE sites, which helped relieve the pressure on our infrastructure and significantly enhance our service delivery across the nation. Our smart CAPEX deployment helped support a 105% growth in data traffic and reach 1,875 total 4G sites nationwide. That's 1,875 total 4G sites nationwide. This translated to a 71.7% 4G population coverage. And we're committed to our mission of having 4G on every site in the coming year. Service revenue growth remained in the double digits, expanding by 16.4% year-on-year, driven by good growth in voice, data, and mobile, Mobile Money and digital. Voice revenue grew by 8.1% year-on-year and was supported by 23.4% increase in our subscriber base, as well as various customer value management initiatives, which helped manage churn and improve usage. The contribution to service revenue from voice continues to decline, reaching 41.8% from 45% in the year, in the year prior, as other services increase their contribution in line with our strategy to diversify our revenue. Growth in data revenue was strong at 21.3% year-on-year. This was due to growth in our active data subscribers by 32.4%, a higher number of smartphones on the network, and a general increase in usage. As mentioned earlier, the higher usage was partly due to shifts in consumer behavior brought about by the pandemic and enhanced network infrastructure. Data revenue contribution to service revenue increased from 28.4% to 29.6% year-on-year. Mobile Money revenue grew by 32.2% year-on-year as the number of active users increased by 16.3%. This was the result of various promotions in the year, increased P2P transactional activity, and the offer of more advanced services, such as retail merchant payments and international remittances. In line with our revenue diversification strategy, Mobile Money revenue contribution to service revenue rose from 18.6% to 21.2% year-on-year. Digital revenue declined by 6.2% year-on-year. This was due to the impact of applying a principal versus agent accounting standard across the MTN Group in 2020, with zero impact on the bottom line. For a like-for-like comparison, digital revenue would have grown by 34.5% year-on-year. We've come a long way in our digital journey, and we're pleased to report a 328% surge in the number of active subscribers owing to some enhancements in our video and gaming offerings made during in the period. We also observed an increased adoption of MyMTN and Ayoba super-apps. And we intend to employ strategies to continue this growth. Digital revenue contribution to service revenue declined accordingly from 3.9% to 3.1% year-on-year. Our reported earnings before interest, tax, depreciation, and amortization grew by 20.8%, with a corresponding margin expansion of 1.9 percentage points to 52.7%. We continue to manage our cost efficiently and benefited from OPEX reductions arising from COVID-19 impact and digital distribution efficiency. This resulted in healthy expansion of our EBITDA and EBITDA margins. The overall improvement in our revenue lines, coupled with our prudent cost management and efficiency, resulted in 38.4% growth in profit after tax. And after reviewing the full year performance, as we have recommended a final dividend of GH\u20b5 0.05 per share, So that's five Ghana pesewas per share, Bringing the total dividend for 2020 to eight Ghana pesewas per share. This represents 70.5% of profit after tax and a 33.3% increase in dividend per share compared to 2019. I will now touch on some regulatory updates. Um, key ones would be the SMP and localization. In terms of SMP, we continue to have productive and constructive engagements with our regulators and our policy, policymakers. However, due to the elections in December and the ongoing vetting and appointment of the substantive ministries, these discussions have stalled since early, since late November to early December. We're optimistic that we'll continue these discussions to influence the implementation of the remedies to achieve SMP going forward. Our primary objective is to ensure the remedies that are implemented have a long-term i- impact on the sustainability of the industry. In terms of localization, we're committed to continue to progress localization to achieve the 25% localization target agreed with the government of Ghana. In December last year, December 2020, we launched an employee share options program, which has committed an additional 4.41% towards localization. So that brings our total percent localization to 16.9%, of which 12.5% was as a result of the IPO in September 2018, and the 4.41% additional commitment from the employee share option program in December last year. We'll update you subsequently on the plans to achieve the remainder of the localization as we go through, through the year. In terms of Mobile Money, Payment Systems and Services Act, the localization requirement to achieve a 30% localization by the end of December 2020 has also been revised. The Central Bank has recently informed us by extending the, the timeline from December 2020 to January 2022. We continue to work with our advisors in developing the plans to be able to execute this plan to achieve the set targets of 30% localization for the Mobile Money Limited entity, a wholly owned subsidiary of Scancom PLC. We look forward to providing further agr- up- updates on our progress in subsequent releases. Just a quick update on MTN Ghana's 25th anniversary. The year 2021 marks a significant milestone in the journey of MTN Ghana's contribution to providing vital telecommunication and digital services in Ghana. As part of our 25th anniversary, we are committing the equivalent of US$ 25 million, which is approximately GH\u00a2 150 million, to a fund supporting Ghana's post-COVID-19 recovery efforts. MTN Ghana would also work to deepen its strategic partnership with the Government of Ghana through investments in digital ecosystem projects, as part of the government's long-term transformation agenda. We are excited about this development and grateful to our customers and stakeholders for their support. More details will be shared as discussions and agreements progress with government and our partners. In terms of the outlook, the outlook for 2021 will be shaped by the extended impact of the pandemic. While economic growth projections by entities, such as the World Bank and the IMF, are optimistic, we remain cautious due to the potential longer-term dampening effect of COVID-19 on the Ghanaian economy. As a business, we remain focused on our people, on our customers, and on supporting government through the provision of a resilient network to support economic growth. We continue to target service revenue growth within guidance range of 13% to 15% and employ prudent cost strategies to continue to improve our margins and further ensure growth in our bottom line. MTN Ghana will continue to prioritize its investments in infrastructure expansion to meet the needs of Ghanaians in this era of accelerated digitalization. Continued growth in service revenue would largely be driven by data, mobile financial services and digital. In 2021, we will continue our journey from a traditional mobile telecoms operator to an emerging digital operator. We have therefore designated 2021 as the Year of the Customer: the Digital Experience. I will now hand over to the, the conference call operator for questions and answers. Thank you very much. Ladies and gentlemen, at this stage if you would like to ask a question, please press * and then 1 now. If you decide to withdraw the question, please press * and then 2. Again, if you would like to ask a question, please press * and then 1. The first question we have is from John Kim from UBS. Hi, everybody. Thanks for the opportunity. Two unrelated questions, please. Firstly, uh, cash flow to the Group level, we should be thinking about the management fee as well as the dividend. All the dividend counts we should be using about 83%, if I heard you correctly, uh, of the, um, of the collective dividend up to Group. Question mark. Uh, second question, uh, I know that there's been, um, some legal process around, eh, MTN Ghana being declared dominant. That's done and dusted. And have you seen any remedies? Or do you know of, of ones to come? Thank you. Okay. Thank you for you question. Can you just clarify the very first question about cash flow to Group? I wasn't sure it was just a statement or a question. I wasn't quite sure what the question itself was. Sure. Uh, my understanding is that Ghana pays a management fee to Group, uh, and it's also entitled to a share of the dividend, uh, at the Ghanaian level. And my understanding, from what you said earlier, is that's about an 83% ownership. Question mark. Okay. Please, so what was the question? You want us to clarify that or? Because you've restated the facts, and it's correct. I'm not sure what you're, what exactly the question is. All right. Sorry. Uh, can you qu- can you quantify that for us in either rands, cedi, or, or dollars, please? Okay, on the total dividends plus management fee paid at the Group? Please. Okay. All right. So, I'll hand that question over to, to Kobi, who is the acting CFO. But before Kobi comes in, let me just answer the question on, on SMP. And yes, you know, eh, MTN was declared a significant market power, market player in July 2020. And since then there have been a number of developments. And at this stage in October 2020, we implemented one of the seven remedies that were, that were imposed on us, and which was a 30% reduction in asymmetric interconnect rate. And we continue to have dialogue and discussions with the regulators, while we look at the implementation of the remaining six remedies. Our primary objective is to get to a point where the remedies that are implemented have a long-term impact on the sustainability of the industry. It's really important, because that would ensure that the objectives of SMP are met broadly, eh, as opposed to a reduction in, in MTN performance base, but minimal impact on the industry. So that's really what the discussions are about. And the engagements so far have been encouraging. However, you know, it's stalled to some degree following the election in December and the ongoing process to appoint the substantive Minister for Communications and Digital. Once that process is concluded, we'll be able to resume discussions in progress, and, and we'll be able to give an update at the next quarterly investor call. Thank you. I'll hand it over to, to Kobi now to, to give you the numbers and the details for the dividend and management fees paid up to Group. Thanks. Thank you. Yeah, This is, this is Kobi. Um, for, for dividends and, well, dividend and, uh, the, the, the management fee that we expect to pay, it counts up to, uh, GH\u00a2 949 million. Um, we are paying dividends of, uh, 840 there about, and, uh, management fee of 268 million. Okay. Helpful, thank you. Thank you. The next question we have is from Myuran Rajaratnam from MIBFA. Hi, guys. Um, thanks for the opportunity to ask questions. Um, first question is about the interconnect traffic regulations and SMP. Um, we saw that the voice revenue increase wasn't great, actually was a decrease of some sort in the fourth quarter, if I get my numbers right. How much of the asymmetric cut is part of this? Or is it purely just customer behavior and, or was there, um, additional competitive pressure or anything like that? Because you added subscribers, so I'm just trying to understand what are the dynamics behind this? Some color would be useful. And the second question is, excluding your, you know, wonderful product in wireless broadband, fixed broadband, um, what's the average data usage per megabu- byte, in megabytes, uh, per customer? Thank you. Okay. Well, thank you very much. Let me start with the, the average, you know, data usage per customer. And we're currently seeing somewhere between 3.5 GB per customer per month to somewhere around four, 4 GB per customer per month. Um, so that's the average that consumers are using. Obviously, that, that number has increased, um, during the year based on the demand for data and digital services as a result of COVID-19. Now the question you asked on, on voice. Yes, the voice trend, if we look at the voice trend quarter-on-quarter for 2020, you would see a- a decline from Q1 into Q4. However, the Q4 trend is actually, um, a bit of an anomaly, um, because you have some one-time adjustment effects that have taken place. So, you know, that trickles up to the top line revenue as well, if you look at the year-on-year performance. In, in terms of voice, just to give you some comfort, what we're seeing in Q1, at least in January so far, with double digit growth year-on-year for the month. Um, so again, just to put that number into context, um, there were some once-off adjustments, um, and, you know, interconnects was related to that. And then the second component, which is not a one time, eh, but a permanent adjustment, will be the SMP. However, the SMP effect is, is less than 1% of total revenue. It's about 0.6%, um, so that effect is, is not the, the most significant driver of the trend that we're seeing, so would expect to, to come back to our normal trends around, you know, late single digits to, to early double digits, um, as far as the voice, the voice growth year-on-year goes. Great. Um, just to come back on the data usage per subscriber, is that 3.5 to 4 GB, uh, per mobile subscriber? Or is that also contains in the denominator your fixed wireless LTE product also? So just <crosstalk>. No, it's the mobile. Oh. The mobile subscriber. Oh, that's pretty good. Thank you. Thank you so much. Um\u2026 Thank you. The next question we have is from Preshendran Odayar from Nedbank. Hi, everyone. Uh, congratulations on the results, and thanks for the opportunity to ask questions. Uh, I've got two quick ones. Uh, I think the gist of it have been answered. But just on your Q4 operating metrics, so, you know, your revenue and EBITDA. Uh, it seems to have slowed down in the last quarter. Now, I know you, on the last question, on Myuran's question, you, that you mentioned that, um, there were some one-off adjustments. Uh, was there anything else that was causing the slowdown? Because, y- you know, up until September, it was looking pretty strong, uh, both in terms of, like I said, revenue and, and margins. But quarter four looks quite weak, uh, and a huge slowdown. Um, and then the second question, if I can, um, I know you guys announced a buyback of 1.1 million shares in December, and I think this is, this had like a, a deadline to get KYC for the subscribers done by the 23rd, which was about two days ago. Is there any update on that on how much you guys have to do? And how does that in- impact your, your overall localization, um, to get to 25%? Uh, thanks. Okay, thank you very much. Let me take the first question, and I'll have Kobi answer the question on the buyback, um, and what the implications are for localization. So in terms of the first question, I think, you know, there are two effects. When you look at overall performance, you mentioned revenue and EBITDA. Eh, I believe the, the answer I gave, you know, previously on the revenue side should satisfy the revenue trend. However, if you look at the EBITDA trend as well, you know, there was some impact and, eh, and, eh, you know, an appearance of a slowdown. The reason for that is primarily- mm-hmm <affirmative>. <crosstalk>, once, once we had easing up, easing up of supply chains, we're able to accelerate, further accelerate our CAPEX deployment, and that has a direct impact on, on our EBITDA. So for the previous quarters, because of that slowdown- Hmm. we're not as aggressive in CAPEX spend as we would normally be. And a lot of that CAPEX ending up being spent in Q4. So that's the explanation for the bottom-line side, and my previous answer should hopefully address the revenue side of that as well. <crosstalk> Well, <crosstalk> thanks, yeah, I <crosstalk>\u2026 Oh, sorry. Yeah. Okay. So on, on the buyback, it's, it's, it's due to kro- KYC issues as you're aware. Um, we've, we've managed, uh, this process with the, uh, regulator. So, we are going through the process of updating the KYCs of the related par- eh, par- eh, parties. Uh, we've gotten to the end of the process, where the outstanding ones- <crosstalk>, uh, uh, <crosstalk>\u2026 will be bought back and sold onto, onto the market again. So that is the positioning. Yeah, it has no effect on the 12.5%, because that one is locked, uh, per the IPO, initial IPO that we had. That, that number is locked. It doesn't have any impact on that. Kobi, I mean, uh, can you give us an indication of how many of those, that 1.1 million share or subscribers have actually done their KYC? So is the impact going to be a lot less than the 1.1? Uh, the l- the last check of, of it, it's, uh, 1,420 potential, uh, shareholders have updated their, their records in that. Okay. All right, thank you very much, gentlemen. Welcome. Thank you. The next question we have is from Jonathan Kennedy-Good from J.P. Morgan. Good afternoon. I just wanted to come back to your revenue guidance of 13-15 %. Um, you mentioned that voice was growing double digits so far this year, and the other lines are all growing, you know, 20% and north of that. So just trying to understand why, um, the conservative guidance is there. Uh, you know, potentially more competitive pressure on the voice horizon- Uh-huh <affirmative>, <crosstalk>. So yeah, <crosstalk>\u2026 given changes in termination rates? And then second question, um, just on your digital revenue, um, could you tell us how many Ayoba users you actually have and, and what kind of revenue opportunities you've seen there, whether that's, um, starting to scale somewhat? Okay. All right. So let me just try to give some context, first of all, on the voice side. Yes, we're seeing, you know, double-digit voice growth, um, so far this year. It's one month in the year. However, what I said before- <crosstalk>\u2026 was that we expect the on the year, voice growth year-on-year somewhere between the high single digits to the early double digit. Right? Voice is some- something like 40%, 41% of total revenue. So a single-digit, late single-digit to early double-digit year-on-year growth will cool down the bulk of the total revenue. So that's the first reason why the, you know, the estimate is in the 13-15 %. The second component is that, you know, one, SMP deployments or remedy implementation has only status, so there'll be some incremental impact of SMP, depending on where we land with, with the Ministry, which, while a new development before we gave our estimates of 13-15, we've maintained the estimates of 13-15, despite the impact, incremental impact of some of the SMP measures. And so I think, you know, it's, it's a, it's a, it's a reasonable assessment of, of where we believe we would land by the end of the year. In terms of Ayoba users, we ended last year over 700,000 Ayoba users. And in terms of revenue, today, I mean, we're not really generating revenue from Ayoba. It's a platform strategy that we have in mind. Ayoba is intended to be a super-app. So at this stage, it's really driving adoption and building a usage behavior, and the monetization will be at another stage. And so for now, revenue is not a primary focus. We're just building a base, so that we can expand on the platform capabilities of Ayoba, as part of our longterm strategy. Thank you. Thank you. The next question we have is from re- from Sunil Rajgopal from HSBC. Please go ahead. Hi. Um, I just want to check on, uh, the regulatory developments. I mean, I, I know there are some, uh, some, some, uh, implementations are made right now. And, uh, what is, what is your take from the discussions that are ongoing with the regulator? And, uh, do you expect, uh, a- any more, uh, any more, <inaudible> coming up, uh, on this <inaudible>? Okay. Okay, thanks for your question. W- I think the first thing to point out is that there were seven remedies that were, that were imposed at a time of, you know, sending us the SMP and designation. And, and although, it was only one has been implemented. While our discussions have been encouraging, we would expect, you know, a few more to be implemented through the year. What we're focused on currently in our engagement is, is really the implementation, the definition of those specific remedies, to ensure that the broader objective of SMP is achieved. And, you know, those discussions, like I said, have stalled since the elections. And once the substantive minister is put in place, we will resume those discussions and progress, and progress to a, to a point, where we can give you something more specific, probably at our next quarterly update. But for now, we've implemented the one, which is a 30% reduction in asymmetric interconnect. And we'll continue to monitor that as we go forward. And maybe, maybe if I can just follow up, um, I mean, what would you think, uh, broadly that, uh, the implications would be, given that the government here is, uh, planning to acquire or propose to acquire one of the smaller operators there? So, what, what kind of potential implications do you s- foresee there on that move? Okay. Look, it's, it's a very difficult question to, to, to answer, um, because there, there has really been very little shared on this acquisition by government of AirtelTigo. Now just to point out, you know, typically in, in a, in a situation where there's an acquisition from a buyer, you would understand their investment appetite, their ambition of a new buyer, if it's really, you know, just to hold the same position, if it's really to challenge for number one, number two, if it's really to build scale. And based on that understanding, we'd be able to model a potential impact. At, you know, at this point, the only thing that has been shared is the fact that government's interest is to ensure that jobs are secured and jobs are saved. And however on the business side, there has been no indication of the ambition and no indication of the potential investment strategy of a potential new buyer. And we also understand that government's role may be just to hold and attract new investors- <crosstalk>\u2026 so we're still at a very early stage, as far as what that the, what the outcome of this process would look like. And, and based on that, we'll have a much more concrete sense of the impact. So my, my apologies, I won't be able to give you a real sense, and, but we continue to monitor this. And to the extent that we can share thoughts on impact, we will. Sure. Thank you. Thank you. The next question we have is from Nick Padgett from Frontaura Capital. Hello, and again, thank you for the opportunity to, uh, speak with you. Um, I, I again want to, apologies, I again want to ask about revenue that some of the other questioners have asked about. Um, undoubtedly, in total it was a great year for 2020. Um, but as others have mentioned, you know, Q4, the revenue pace was a little softer. And I've heard everything you've said so far, but I still have a few, eh, you know, uncertainties about the Q4 numbers. So, you know, my observation is that, sequentially if we look at the two prior years, you know, going back to 2018, Q4 revenue was 15% higher than Q3. And in 2019, it was 9% higher. Uh, but, you know, this year, it was basically flat. Um, I, I heard you say there were some one-offs, but that would be quite a bit of one-off to, um, you know, be that, to explain all of that difference. So I wonder is there something else. Like, you know, COVID really, I think, helped your revenue in the first three quarters. Could it be that things are normalizing, um, and so the, the slower growth, um, is the result of the normalization? Although your guidance, um, you know, as mentioned, is sort of unchanged, so that maybe is counter to that point. Or was there just anything else unique about Q4, other than the one-offs? Or maybe the one-offs were bigger than I thought. I'm just still, s- you know, still looking for additional some kind of clarity on that, if you, if you could explain, uh, Q4. Sure. Let me, let me start by saying if we, if we normalize the effects for the adjustments that we made, Q4 over Q3 would have been about a 9% year-on-year growth, so it would have been in line with 2019 as you mentioned. Okay. So that's a starting point, right? Okay. Um, if I take the second point, or are we seeing, you know, a change in trend from a consumer behavior standpoint? The answer is yes. I mean, we're seeing a lot more people using data and digital. As far as, you know, the pandemic goes, it changes in behaviors from, you know, people going to physical school and now at-home working. And but if I look at the Q1 to Q4 trend, it, it doesn't suggest, um, that there is a, there is a specific issue, right? If we look at what happened in Q4, most of our schools went back, and, and, and therefore the usage of data from home would have gone down, but that'll be compensated for by other, eh, you know, other behaviors. So there's quite a lot going on in terms of shifts in behavior. And one, as easing of the restrictions start to unfold, those behavior changes that we saw in Q2, Q3 would be reversed as well. So there's quite a lot of mix going on. But organically, yes, we're seeing a slower growth in voice than we're seeing for the other areas, which is expected, but not to the extent that the numbers will depict here, because we normalize. We're seeing something like a 9% year-on-year growth. Okay. But 9% sequential from Q3 to Q4, uh- That's correct, yes. if not the one-offs. <crosstalk> Okay, so that's\u2026 Thank you for clarifying that. That's more than I would have guessed. And, and maybe you said that number at the beginning, and I missed it. Uh, but- Yeah, no problem. So, w- w- what\u2026 I mean given <laugh> that is such a large number, what, what kind of one-offs, what kind of adjustments would these be? I guess that\u2026 It clarifies one answer and then raises <laugh> a new question of just what, what are those. Sure. I wouldn't have even guessed that kind of, uh, um, one-offs could occur. Sure. So outside of, so outside of SMP and those interconnects and there was also a principal agent adjustments on the digital side that affected the overall total, total business. And perhaps we can go offline and go into a bit more detail on this, if you would like. The finance team can work you through this. Okay. But those are the two, those are the two areas that we made the adjustment. Okay. Um, were, were these\u2026 I gu- So I'm going to ask this, because I think it's, it's on my mind and probably others, and I understand you probably won't give me a- <laugh>\u2026 won't be able to answer it, <laugh> but I'll just ask anyway for the benefit of everyone. You know, sometimes we see when a company has a great nine months, you know, they they take the foot off the accelerator a bit, and they still report a very good year. Sure. Or, you know, discretionary items that don't necessarily have to be recognized are recognized in, uh, in Q4. And so I just can't help wondering if that's the case of, uh- <crosstalk>\u2026 um, maybe the Q4 you report is a bit of a low aberration, because you could still have a great year anyway and that just m- you know, sets you up for, you know, another good growth year next year. No, it's a, a creative question, but no, the answer is no. Um, you know, we had to make these adjustments. And, and we should see an even out of these through the year, so\u2026 Okay. Well, fair enough. Thank, thank you for answering. You're welcome. Thank you. The next question we have is from Ali Nasser from Vergent. Hi, Selorm and team. Thank you for the opportunity. I just have, uh, questions around, uh, MoMo, please. Uh, m- maybe starting with the structure of, uh, any potential transaction that takes local ownership to 30% by the, the new timeline, um, just curious, eh, y- how do you ensure that the interests of, uh, MTN Ghana's shareholders are, not only protected, but maximized in case of a transaction? And, um, y- how you, you know, what kind of, uh, transaction options do you foresee, uh, to get to 30%? Okay. Um, so at this point, I mean, it's, you know, it's a bit early for us to tell, um, however, what I can say is if you look at the Scancom levels, Scancom is a wholly owned sub- you know, eh, Mobile Money Limited is a wholly owned subsidiary of Scancom. mm-hmm <affirmative>. And therefore, we're able to achieve the 25% of Scancom and split the shareholders across Mobile Money Limited would have achieved 25% of the 30%. So the question you're asking- <crosstalk>\u2026 really applies to the 5% surplus above the 25%. And, and we haven't defined a structure for that as yet. And, but, but just to sort of explain the component of the 30% that will be impacted by the question, that would be the 5% that remains. You know, once we make progress on this, we'll share, you know, we'll share that with you. And- Um, but in the shareholder, yeah. but again, in the interest of <crosstalk>\u2026 The interest of shareholders will absolutely be taken into consideration- Sorry, yes? Yes, one <crosstalk>. um, for effect, which has dilution and, you know, things like that. I'm sure that's where the question is going. Yeah, no, that I didn't even think about the indirect, so that's really helpful. Just on that point, um, the ESOP, will that need to vest in 2021 for it to count as local shares? Or does it have a longer vest, um, uh, duration? No, it has a longer vesting duration. Um, so there are two components there in about three years to five years, so\u2026 Okay. So you would, you would recognize the local, I guess, you'd recognize these shares as they vest in terms of them, as they count as local shares, right? <crosstalk> That's right. But the allocation- <crosstalk>\u2026 will be made and reserved. But they would be, they would become real shares once they vest, yes. Okay, okay. Great. Uh, and just operationally on, on MoMo- <crosstalk>\u2026 the monetization has been really impressive. Uh, I, if you look at this, the revenue per average user. Um, can you just talk about some of the initiatives that you've put in place this year or whether consumers have changed the way they, they use, uh, MoMo that have, that have driven that monetization? And then, uh, second part of that question is, I, I've noticed that the, um, subscriber growth in MoMo has lagged voice and data, um, in the year. And I was wondering, you know, w- what do you think is prevet- preventing faster adoption and penetration among your, uh, voice users? Okay. I think, I think a way to think about that\u2026 Let me just start with the growth in MoMo. Um, you know, both MoMo and data have about the same number of active users, you know, 10.7, 10.8, So the difference is not really significant. If you really think about the need for data versus the need for MoMo in a, in a year like we've just had, um, then it's actually quite impressive that MoMo is keeping the same, is keeping pace with data growth in terms of subscribers. So I think, you know, we may have under indexed in data in previous years and when we have done better, which is why you have seen a, a, you know, a slight difference in the percentages. But if you look at the actual numbers, MoMo and active data are at the same using the MTN definition, which for me suggests that MoMo is actually doing quite well. So that's the first point. In terms of monetization, a, a number of things have happened. You know, one, we've increased subs by about 16%. But we've also seen a significant increase in usage in average transactions per user. mm-hmm <affirmative>. And it's important, because if you look at other markets that are, you know, mature Kenya, for example, the biggest driver of ARPU growth is increase frequency of transaction and, two, increase frequency of transactions across a broader base of sub-products within the Mobile Money suite. So when we think about advanced services, things like our loan products, international remittances, payment services, those new products allow users to have a higher level of stickiness and, subsequently, a higher level of usage per, per, per user per month. So we've seen, you know, significant growth there upwards of five transactions per month. Last year, we were sort of around the 4 to 4.5. So it's been a 20%, 30% increase in, in usage frequency as well. So those are the primary drivers. And, you know, as we continue to expand our product portfolio, we should continue to see these usage frequencies increase over, over the coming year as well. It's great. And, and that's also in the context of, uh, zero rating on, on the 100, uh, cedis, that, that kind of growth. Um- That's correct, yeah. That's correct. that happened end of the year. Right. Okay. Sure. Yeah. Eh, could you, just from that point, um, uh, Selorm, if you don't mind, w- uh, uh, I <inaudible>, if you look forward that, or maybe just looking at 2020, how did this get out between peer-to-peer and, and some of the new products that are, you know, more, uh, sticky in nature? Sure. So, if I take our advance services in total, we're, you know, we're talking sort of 12% to 15% in, in terms of percentage of revenue. So, you know, it's, there's still growth, you know, as far as the mix, the product mix is concerned. And, and the level of adoption there is also still growing. But if we think of the future, you know, advanced services really represents the future of Mobile Money, because the, the basic transactions, P2P, cash-in, cash-out, will start to normalize in terms of incremental growth. And so for us, it's really building the foundations for the future and making sure that mix, we get that mix right, so that we can continue to sustain the growth as we go forward. Um, so that's really, really the response to that. Great. Last one, uh, just on this is just related to the the float size, which you, uh, saw on the balance sheet. I think you've exceeded a billion dollars. It's about doubled versus the 2019 December close. And I calculate that\u2026 Um, I don't know if this is the right way of doing it, but if you look at kind of an average wallet size, it's now over US$ 100, about 107. And I was just wondering if that is consistent with what you observe. Or am I looking at things, uh, you know, from an accounting basis? Because that seems like a big number for Ghana in, in the, in the wallet size. Sure. And I think the first thing to note is that the float covers a couple of different areas. It covers our merchant. Hmm. It covers our consumers. It covers our agents. And, you know, I believe sort of the bank float may be part of that as well. So, it's, it's hard to take that number and just divided it by the number of customers and get the wallet size, um\u2026 Yeah. That's what I thought. Okay. That's what I thought. Thank you for that clarification. You're welcome. Thank you. So we have a few more questions on the conference call. Do you have time to take, um, a few? Yeah, hi. Um, maybe we can take more questions, and then we can end the call. Sure, not a problem. This from Darren Smith from 337 Frontier Capital. Hi, uh, good afternoon, good morning. Congrats on the great results. Um, couple of questions from me. Um, could you just talk about the growth in both voice and data you're seeing? Uh, do you have any indication if these are market share gains? Is the market growing as quickly as you guys? Um, and could you talk a little bit about sort of any kind of pushback from, uh, your two competitors? Um, it sounds like, as you said, Tigo and, uh, Airtel, uh, that's a bit more complicated, but I'm just\u2026 Any update on competition would be helpful. Um, also the GH\u00a2 139 million- mm-hmm <affirmative>. that you guys booked as related to, uh, sort of COVID initiatives, I'm assuming that's on the income statement. And i- is it fair to assume that a lot of that comes out in 2021? Or are these going to be recurring expenses? Um, and then the last question, j- I just want to confirm. You said your, eh, The advanced services and MoMo is around 12% to 13% of revenue. Um, i- in that- last year, I think you, you guys were closer to, uh, like, maybe 2% or 3% in that line. Am, am I right in saying that? And can you just unpack that a little bit? Where is the, where's the, the growth in that, that advanced services coming from? It sounds, uh, it sounds like you guys are gaining good momentum there. Okay. Thanks, thanks for the questions. Let me start with advanced services. Um, last year we're just around 10%, not 3%. So we've seen something like a, you know, 40% to 50% growth in that line, um, in terms of the percent of mom- m- Mobile Money revenue. So that's just to clarify in the numbers you have. <crosstalk> okay. And the growth is really, the growth is really coming from payment where, you know- <crosstalk>\u2026 we've continued to expand the number of- <crosstalk>\u2026 merchants we have. All right. We came out of last year with about- Thanks so much. I think <crosstalk>. 150,000 merchants end of this year. <crosstalk> <crosstalk> We ended this year with over 170,000 merchants and we continue to see increased activity at various merchant points. So the expansion of the merchants increases your ability to use- <crosstalk>\u2026 and the opportunity to use your Mobile Money wallet. <crosstalk> And in the year with a pandemic, where there have been a lot of restrictions and things like that, that has also helped accelerated <inaudible>, accelerated the change in behavior. And, and can I ask the, the, the relationship, uh, that MTN Group announced with MasterCard. Is that, is that being implemented in Ghana as well? And is that, eh, eh\u2026 Hi, <crosstalk> Yeah, that's a, that's a global deal for us, so yes, it will an implication for Ghana as well. Okay. Okay. Now, your, your second question was, you know, the 139 million. Just to break it down, this is, you know, the, the COVID impact for us, in terms of what we spend in cash, but also what we've given up in revenue. So, the 139 million includes the 94 million of P2P for Mobile Money Limited. And the balance of that would be what we spent in cash, which would show up in our income statements. Um, so yes, we've continued a P2P, the free P2P GH\u00a2 400, um, daily. We've continued that so far in 2021. And in terms of the spend, we will continue to spend on COVID until we get to a point where we don't have any need for it. So these numbers will be baked into 2021 as well. Got it. <crosstalk> So the, so the third question was on voice and data and if we're seeing market share growth. Um, you know, I think in voice, um, market share has been marginally growing, but it's fairly flat. Um, but in terms of, of data, we've seen some market share growth. Unfortunately, we haven't had a recent, a recent, eh, release from the NCA regulator on, on the industry position. And the numbers we have are quite old. So until we receive that, it's hard to give a very concrete sense of, you know, whether we're seeing market share in data or not. Um, I know all the operators. As an industry there was a surge in demand for data. And therefore to the extent that you are able to provide the capacity, you'd see growth, um, especially during the COVID period. So I'd expect that, um, that, you know, market share may have grown marginally in data or will remain about flat in load. But that would have been an entire industry effect from COVID-19. Got it. And, and it's, sorry, just- <crosstalk>\u2026 uh, a go\u2026 No, please, go ahead. No, no, you, you continue on. No, I was just, in terms of competition, I mean, the dynamics in the marketplace have been linked to the acquisition or the exit of Airtel and, and potentially Millicom from the market. Like I said before, we don't have enough detail to really ascertain and assess what this means for our business going forward. And as soon as we have more information, we'll be able to share that. Our focus continues to be ensuring that we invest smartly. We continue to focus on resilience and quality of service. And we're also expanding our technology so that we can have 4G on every site in the coming years. And that continues to be our focus, and, and also build out our home network, um, where we see a lot of opportunity in the future. Can I just one related question on competition in, in Mobile Money. I mean, are you seeing\u2026 Is, is there any competitive response there? I mean, are, are you guys, my understand- I mean, the bit of digging I can do, uh, to try to understand sort of the distribution and agent network for Vodacom and AirtelTigo, I mean, it, it seems very, very limited. Uh, I, are, I mean, are they even trying in Mobile Money at this point? Or, or, or is it, is it, is the game yours right now? No, it absolutely isn't. And, you know, the, for us if you think about Mobile Money today, I mean, you know, we're talking by the MTN definition about 10 million customers. We have a population of about thirty-maybe-two, thirty-one million. So, the, I mean that's only 30% of the total population from an active Mobile Money user penetration standpoint. From that perspective, I mean, I think there is a lot of opportunity to continue to drive financial inclusion, you know, point one. But if you look at the frequency of transactions, it's still in single digits, where we should be in double digits. Now, to really get to double digits you need an industry ecosystem maturity that allows that to happen, for which we would need the other players in the market to continue to drive behaviors towards electronic currency, mobile money currency, things like that. So, to an extent at this stage of the game, any effort from our competitors would help accelerate the growth in the industry, because it's at such a nascent stage. I mean, even though you have seen float numbers of six billion and above. I mean, we're at a very, very young stage, in terms of the Mobile Money opportunity. So we don't see growth from our competitors as compromising the pie. We really see it as accelerating the growth of the pie. And we can have a much larger share of that growth in terms of, you know, the, in terms of s- In terms of the growth of the pie, we can have a much larger share of that incremental growth. Um, so we encourage it. We, we, you know, we also do think there is an innovation engine that's lacking in the marketplace. And some of the initiatives from the Central Bank to try to license these smaller players, all of that will continue to drive innovation within the ecosystem to allow us to reach the maturity that we require to continue to grow faster, so a lot of opportunity. I mean, we don't see that as a negative at all. We would encourage more people to invest, because it drives the whole market. There's still, you know, 90% of cash usage in Ghana at the moment, despite the pandemic and all of that. So there's a lot of work to be done. And, you know, if we all bring our energies together as an industry, we'll get the ecosystem to grow. And we'll all benefit from that. Got it. All right. Thanks so much. And congrats again on the good, great results. You're welcome. Thank you. Final question is from Brad Virbitsky from Equinox Partners. Thank you for, uh, thank you for giving me the chance to ask the question. Um, I have two questions. Uh, the first is, in the comments, you talk about investing, uh, GH\u00a2 1.5 billion in network expansion, um, whereas the CAPEX for the year is r- roughly around a billion. So I assume that, you know, the incremental, um, half a billion cedis came out of the income statement. I'm, I'm curious sort of what, what part of network expansion you capitalize and what part you expense? Um, and then the second question is, uh, so you, you talk about 2021 being the year of the digital, uh, or your digitalization, eh, what specific initiatives are, are you doing around that? And what is that <inaudible>? Sorry, the last part your question, you went, you sort of dropped off. If you could just from the year of the customer, and what initiatives. Yeah, well, what specific initiatives are, are you doing around that, uh, this year? And, and what, what is it, what is it really, really mean to, to be the year of the digital customer? Okay. All right. So I'll take the second question, and Kobi will answer the question on the CAPEX, where we look at the core CAPEX versus the rest. He can give you the details there. But let me start with the year of the customer. So when we talk about the year of the customer, there are a number of different things that we look at. We have about six pillars that we've developed, in terms of digitizing our business. And, you know, one of them is, you know, operations, internally trying to automate and digitize a lot of our process internally. A lot of us are working from home now, and therefore, it's not only a good-to-have or a nice-to-have, but it's a need-to-have, um, so that we can continue to work effectively and support the business. So that's the first component, and I won't dwell too much on, you know, what that means, but we can go into the details there. The second one is really on our product side, where to <inaudible>, to look at some of the initiatives we've launched, we've gone from using scratch cards. Um, you know, 15%, 20% of our recharge sales came from scratch cards two years ago, and we've dropped that to about 5% last year. And we're seeing we're going to get to zero by the end of this year. And again, that's, you know, part of digitizing our sales channel, our primary sales channel on recharge, where you have newer channels that can support that transaction. So you have MyMTN app, for example. We have, you know, electronic, electronic sales of recharge, eh, as far as agent goes. And, and you have these sort of different channels that you can purchase, uh, recharge from. You'd have online channels as well, websites channels and things like that. When we think about becoming a platform player in the next three to five years, then the foundation for that is really being built, from our perspective, around open API for Mobile Money, where we can have, you know, customers accessing our APIs and connecting to us, you know, without having, you know, significant interaction with us. Looking at our Ayoba super-app, which started off as a messaging app, but we're looking at implementing micro-apps. Um, so you could think of WeChat in, you know, in Asia. That's really what Ayoba looks like. Um, so currently, we have about six or seven micro-apps already implemented. And we'll continue to expand on that, looking at, you know, relevant, local, local apps that can fit within the Ayoba ecosystem and continue to expand that. So it's a very exciting time for us. We're bringing a lot of things together. We see ourselves as, you know, sort of a central player, where we can be the core of a lot of these transactions. And the innovation from the start-up industry can be on the outside of that core and connect to that core to be able to provide their services to, to Ghanaians. When we think about customer experience, there is a lot of opportunity there as well. Today, I mean, we have a lot of people have to call into our call centers. They have to walk to our stores to get basic service. And a lot of these things can be done, if you haven't, if have the right digital platform. So MyMTN is really the pivot for that, where we're seeking to allow people to do things themselves. We want to increase the percent of self-service interactions with our, with our support team. And, and that's a big focus for us this year. Um, so there are number of initiatives around that, looking at things like chatbots, looking at AI that can support customers remotely, looking at IVR solutions as well, which we already have in place, but really to expand the usage of these to our customers, because our customers tend to be a bit shy of adopting some of these solutions that we have in place. Um, so that's just to list a few of them, um, but there are several other things that we're doing beyond just, you know, support, beyond just sales channels on the product side, simplification of our portfolio, digitizing their interactions, consolidating our short codes. These are all things we're doing to simplify the journey and the experience for our customers. And finally, on the technology side, um, ensuring that our technology platforms and infrastructure can support a digital ecosystem. So the network, this is why having 4G on every site is important to us. And two, looking at modernizing our IS systems, so that we can have the right environment from a security standpoint, from an operational standpoint, and from a reliability standpoint to deliver on these digital services. So, there's quite a lot baking there that we're working on. We're going to be very busy this year. All right. So on the, on the- Great. Thank you. That was <crosstalk>. Yeah. On the CAPEX side, eh, just, just to, to clarify. All CAPEX spend are capitalized within the year they occurred, so none, none is set aside for any other. And, and beyond that, the, the core CAPEX, um, is, is the 858 that maybe you made reference to. But the total CAPEX for 2020, um, when you, you, you check it under IFRS 16 was 1,489, and under IAS 17 is 1,397. So, so the, that is our CAPEX, uh, uh, details. So all of them are capitalized, were capitalized within the 2020 year. And just to add that the difference between the core and total will be things like licenses, right, Kobi? <crosstalk>, yeah, licenses and software that are related to network, uh, systems. Sorry. Can you c- clarify on the CAPEX question? So, uh, <inaudible>, the, the number that I saw was <inaudible>. It was even when you add the licenses and whatnot, it was still only just over one. Just over? Because we have, we have spectrums, as well as core network assets. Spectrums were over 360 million. Hmm. So tho- those add up, plus other software and licenses. So, eh, eh- Okay. maybe, maybe we'll have to look at what you're looking at and give you better clarity, but <crosstalk>. Okay. And in just this\u2026 One quick follow up on that is how much of your CAPEX would you consider to be growth CAPEX relative to, uh, maintenance CAPEX? Uh, come again? I didn't quite catch what he said. How much your- <crosstalk>. CAPEX is would you consider m- m- maintenance of the existing network versus\u2026 Maintenance? Maintenance, you have to look at OPEX, so maintenance doesn't form part of CAPEX. Oh, no, I think to clarify, I think the question is, you know, we have maintenance CAPEX, which would be we need to implement that to keep the network going with an existing capacity, and then there's incremental capacity in <crosstalk>. Like adding, adding, w- adding, adding capacity to existing networks? Yeah. Perhaps we can take that offline and look at the breakdown, if, if I may suggest that. Yeah, that's what I, what I suggested. So, so maybe we'll pick it up, uh. Jeremiah, take notes, and, and then let's get back to him on, on the details. Okay. Th- thank you. Appreci- Appreciate the time. Thank you. Sir, do you have any closing comments? Um, yes, please. Um, so, um, I'd like to, um, thank everyone for making time for, to join us today, um, for this call. Um, again, I'd like to apologize for the, um, long hold, um, at the start of the call and the, um, extension of the time of the call as a result of this hold. Um, I know there are quite a number of, um, um, questions in the queue, um, but I'll be glad if, um, if you can reach out to me. And then I can, um, assist you with your, um, unanswered questions. Um, And you can also visit the, um, investor page on our website, that's mtn.com .gh, um, to download our financials and access any other relevant, um, investment information, um, which includes the transcript and audio for this call, which I'll be adding up, um, in the coming week. Um, so thank you. And you may now end the call. Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines. <silence>"
    },
    {
        "audio": "4479944.mp3",
        "file_id": "4479944",
        "ticker_symbol": "HDB",
        "country_by_ticker": "India",
        "un_defined": "Central and Southern Asia",
        "major_dialect_family": "Other",
        "language_family": "Asian",
        "file_length": "3892",
        "sampling_rate": "44100",
        "transcription": "Ladies and gentlemen, good evening, and welcome to HDFC Bank Limited's Q3 FY'22 earnings conference call on the financial results presented by the management of HDFC Bank. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the please commentary by the management. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your Touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to you, sir. Good evening, and a warm welcome to all the participants, first to start with the environment and the policies that we operated in the quarter were conducive for growth with good tailwinds from monetary and fiscal policy. You all know about the activity indicators faring better in Q3, like the PMI, GST collections, e-waybills, etc. etc. but also up to date about the CPI or RBI policy rate stance and the liquidity conditions. Now in that backdrop, the equity capital market was robust in the quarter. Private issuance raising almost INR 82,000 crores. We were mandated for eight IPOs. Indian bond market also saw a total fundraise of approximately INR 1.87 lakh crores in the quarter. The bank maintained its ranking as one of the top three arrangers in the INR bond market. Now, with that, let's go through five themes at a high level before we delve into the quarter financials. One, the bank's balance sheet continues to get stronger, for instance, the capital adequacy ratio is at 19.5%, CET1 at 17.1%. Liquidity is strong as reflected in our average LCR for the quarter at 123%. Balance sheet remains resilient. The GNP ratio is at 1.26%, floating and contingent provisions aggregating to INR 10,100 crores has been de-risking the balance sheet and positioning for growth. Two, investments in key enablers are picking up in executing our strategy. We opened 93 branches in the quarter, 171 branches year-to-date nine months period. To give additional context, we have added 525 branches over the past 21 months, that is, during the COVID period, positioning us for capitalizing the opportunity. We onboarded little more than 5,000 people in the quarter, 14,300 -plus people during the nine months period. We have onboarded about 17,400 people over the past 21 months during the COVID period to get the people ahead on the productivity curve as the economy accelerates further. There is a growing impetus on digital. We have taken the steps necessary to ensure our customers have great and consistent experience in whatever channel they choose to bank with us. Key initiatives like a streamlined modern customer experience hub allowing access to content across channels and devices will be introduced soon. We are also committed to continuously enhancing the digital experience for our customers through a fully revamped payment offering. We have taken multiple steps to ensure robust, scalable, and secured technology setup to strengthen even further. Some key initiatives include capacity for UPI has been tripled, net banking and mobile banking capacity has been doubled to manage 90,000 users concurrently, a significant step, as most of our customers now rely on digital channels for banking needs. The bank has migrated <inaudible> four data centers in Bangalore and Mumbai to state-of-the-art facilities. The bank is moving to the next level of disaster recovery with DR automation and implementation of hot DR active <inaudible> asset setup for key application. Significant upgrades and network and security infrastructure to support our exponential growth in digital transactions. Our digital capability is coupled with rich data on customers' behavior, take for instance the traditional retail product, wherein close to 80% new loans go through digital scorecards or automated underwriting. In Q3, we received a total of 245 million visits on our website, averaging 31 million unique customers per month. As per our analysis, we had 30% to 70% more visits on our website with vis-a-vis public-private sector sales, close to 60% of the visits were through mobile device indicating the mobile simplicity of the footfalls. Three, on customers acquiring new liability relationship with setting new high, preparing for broad basing and deepening relationship in times to come. During the quarter, we opened about 2.4 million new liability relationships, 6.4 million new liability relationships during the nine months period of this financial year, exhibiting a growth of 29% over the same period last year. Four, our market leadership in digitizing the economy is setting new high. In Q3, we achieved the highest ever issuance with 9.5 lakh card issuances. Since late August, when we recommenced issuance of new cards, we have so far issued 13.7 lakh cards. Credit cards spends for the bank has grown 24% year on year and debit card spends has grown 14% year on year. The spend growth reflects both increased customer engagement and economy improvement from a consumption perspective. In similar lines for our PSE partnership and to scale our business further, we have signed MOUs with two large payment banks for distributing certain products. This opens up further opportunity to scale among other places growth in semi-urban or rural areas leveraging partner distribution access points and feet on street. We have further scaled emerging growth segments, such as easy EMI, consumer durables targeting our preferred customers through segmented sales and marketing. Consumer finance business has 1 lakh-plus active distribution points. We have over 5 million customers with easy EMI options. The bank merchant offering is scaling to provide enhanced value-added services across various segments. The bank has 2.85 million acceptance points as of December with a year-on-year growth of 35%. The bank's acquiring market share stands at approximately 47% with a 19% share in terminals processing about 300 million transactions per month. Bank has been focusing in SURU locations and investing in training and offering segment-specific solutions. Over 50% of new merchant sourcing is from SURU locations. Five, asset volumes are gaining momentum to reach new high, driven through relationship management, digital offering, and breadth of products. In the wholesale segment, corporates continue to generate strong cash flows across sectors presenting in fair degree of prepayments. Trade continued to be an opportunity for credit growth. factoring, invoice financing, export financing, import financing are some of the products we participated into growth. We are also making progress in MNC segment with our ambition to be the largest player in the space. Corporate banking and other wholesale loans grew by 7.5% over prior year and 4.4% over prior quarter. On the retail assets front, the momentum pickup observed during Q2 continued its stride in Q3 as well, witnessing a robust sequential asset growth of 4.7% and year-on-year growth of 13.3%. This has been on the back of a strong incremental disbursals during the quarter. Commercial and rural banking businesses saw robust growth this quarter. This is seeing a sequential growth of 6.1% and year-on-year growth of 29.4%, reflecting underlying economic activity and continued market share gains. Now let's start with net revenues. Net revenues grew by 12.1% to INR 26,624 crores driven by an advances growth of 16.5% and the deposit growth of 13.8%. Net interest income for the quarter, which is at 69% of net revenues, grew by 13% year-on-year and registered a sequential growth of 4.3%. The core net interest margin for the quarter was at 4.1%. This is in the similar range of previous quarter. Net interest income growth is reflective of underlying shift from unsecured lending essentially gravitating toward higher-rated segments in the COVID period. This is also represented in our ratio of net interest income to RWA, which is consistent at around 6%. Moving on to details of other income, which is at INR 8,184 crores, was up 9.9% versus prior year and up 10.6% versus prior quarter. Fees and commission income constituting about two-thirds of other income was at INR 5,075 crores and grew by 2% compared to the prior year and 2.6% compared to prior quarter. Retail constitutes approximately 93% and wholesale constitutes 7% of fees and commission income. Fees, excluding payment products, grew year-on-year by 17% and fees on the payment products degrew year-on-year due to lower fees on card loan products, cash advances, over-limit fees, reflective of a cautious approach to card-based lending, as well as customer preferences. However, card sales, ANR, and interchange have come out robustly, which positions us for future growth, and the customer propensity to use card product for loans and revolver increases. In addition, during the festive period, we offered certain fee waivers to incentivize customer engagement. FX and derivatives income at INR 949 crores was higher by 69% compared to prior year, reflecting pickup in activities and spreads. Trading income was INR 1,046 crores for the quarter, prior year was at INR 1,109 crores, and prior quarter was at INR 676 crores. Some of the gains from investments were monetized in line with our strategy. Other miscellaneous income of INR 1,113 crores includes recoveries from written-off accounts and dividends from subsidiaries. Now moving on to expenses for the quarter at INR 9,851 crores, an increase of 14.9% over previous year. Year-on-year, we added 294 branches, bringing the total branches to 5,779. Since last year, we added 1,697 ATM cash deposit and withdrawal machines, taking the total to 17,238. We have 15,436 business correspondents managed by common service centers, which is higher by about 1,900- slightly over 1,900 compared to the same time last year. Cost-income ratio for the quarter was at 37%, which is similar to the prior-year level. As previously mentioned, in technology investments are further stepped up and retail segments pick up further, we anticipate the spend levels to increase driven by incremental volumes, sales, and promotional activities, and other discretionary spend. Moving onto asset quality. GNPA ratio was at 1.26% of gross advances as compared to 1.35% in prior quarter and 1.38% on a pro forma basis in prior year. It's pertinent to note that of the 1.26% GNPA ratio, about 18 basis points are standard. These are included by us in NPA as one of the other facility of the borrowers in NPA. Net NPA ratio was at 0.37% of net advances. Preceding quarter was at 0.4%. The annual slippage ratio for the current quarter is at 1.6%, about INR 4,600 crores as against 1.8% in prior quarter. Agri seasonally has contributed approximately INR 1,000 crores to slippages or about 25 basis points annualized rate. During the quarter, recoveries and upgrades were about INR 2,400 crores or approximately 25 basis points. Write-offs in the quarter were INR 2,200 crores, approximately 23 basis points. Sale of NPA, about INR 260 crores, approximately 2 basis points in the quarter included in one of the categories above. Now looking at check bounce and restructuring and so on. The check bounce rate continues to improve in December across most of the retail products and is not only back to pre-pandemic levels but are also marginally better. Further, the early January bounce rate shows continued improvement. Similarly, demand resolution at 97%- 98% for most of the products back to pre- COVID levels and in some cases, better than pre- COVID levels. The better improvement in bounce and non-resolution rates at aggregate level, amongst other things, illustrates the overall portfolio quality. The restructuring under RBI resolution framework for COVID-19 as of December end stands at 137 basis points. This is at the borrower level and includes approximately 28 basis points of other facilities of the same borrowers, which are not restructured, but included here. To give some color on restructured accounts, 40% are secured with good collateral and the predominant good CIBIL score, which we feel is comfortable. Of the unsecured portion, approximately two-thirds are salaried customers and about 40% have good CIBIL scores more than 700. The demand resolution is showing encouraging trends. COVID restructuring has been an enabler for our customers to tide over the uncertainty in the last few quarters. The initial indicators suggest that most of these customers are now pushing to resume their payments with minimal impact to overall quality of the advances of the bank. As mentioned previously, impact of restructuring on our GNPA ratio can be 10 basis points to 20 basis points at any given quarter. We talked about it last quarter and mentioned that. The core-specific loan loss provisions for the quarter were INR 1,821 crores as against INR 2,286 crores during the prior quarter. Total provisions reported were INR 2,994 crores against INR 3,924 crores during the prior quarter. Total provisions in the current quarter included additional contingent provisions of approximately INR 900 crores. The specific provision coverage ratio was at 71%. There are no technical write-offs, our head office and bank books are fully integrated. At the end of current quarter, contingent provision toward loans were approximately INR 8,600 crores, the bank's floating provisions remained at INR 1,400 crores, and general provisions were at INR 6,000 crores. Total provisions comprising specific floating contingents and general provisions were 172% of gross nonperforming loans. This is in addition to security held as collateral in several of the cases. Looking at through another lens, floating, contingent and general provisions were 1.27% of gross advances as of December quarter end. Now coming to credit cost ratios. The core credit cost ratio, that is the specific loan loss ratio, is at 57 basis points for the quarter against the 76 basis points for the prior quarter and 116 basis points on a pro forma basis for prior year. Recoveries, which are recorded as miscellaneous income amount to 25 basis points of gross advances for the quarter against 23 basis points in the prior quarter. Total annualized credit cost for the quarter was at 94 basis points, which includes impact of contingent provision of approximately 30 basis points. Prior year was at 125 basis points, prior quarter was at 130 basis points. Net profit for the quarter at INR 10,342 crores grew by 18.1% over prior year. We'll give you some color on some balance sheet items. Total deposits amounting to INR 14,45,918 crores is up 13.8% over prior year. This is an addition of approximately INR 40,000 crores in the quarter and INR 175,000 crores since prior year. Retail constituted about 83% of total deposits and contributed to the entire deposit growth since last year. CASA deposits registered a robust growth of 24.6% year-on-year, ending the quarter at INR 6,81,225 crores, with savings account deposits at INR 4,71,000 crores, and current account deposits of INR 2,10,000 crores. Time deposits at INR 7,64,693 crores grew by 5.6% over previous year. Time deposits in retail segment grew by 8.3%. Time deposits in wholesale segment decreased by 2.8% year-on-year. CASA deposits comprised 47% of total deposits as of December end. Total advances were INR 12,60,863 crores, grew by 5.2% sequentially and 16.5% over prior year. This is an addition of approximately INR 62,000 crores during the quarter and INR 1,79,000 crores since prior year. Moving on to CAPAD, which I covered at the beginning, total, according to Basel III guidelines, total capital adequacy at 19.5%; Tier 1 18.4%, CET at 17.1%, which I covered previously. Now getting on to some highlights on HDBFSL, this will be on IndAS basis. The total loan book as on December 31 stood at INR 50,478 crores with a secured loan book comprising 74% of the total loans. Conservative underwriting policies on new customer acquisition, which was implemented during COVID continues to be in place and will be reviewed in due course based on external environment. The investments have picked up in Q3, growing 9% quarter-on-quarter and 11% year-on-year. For the quarter, HDBFSL's net revenues were INR 1,982 crores, a growth of 15%. Provisions and contingencies for the quarter were at INR 540 crores, including INR 97 crores of management overlays against INR 1,024 crores for prior year. Profit after tax for the quarter was INR 304 crores, compared to a loss of INR 146 crores for the prior-year quarter and a profit after tax of INR 192 crores for the sequential quarter. As of December end, gross stage 3 stood at 6.05%, flat sequential quarter. 80% of the stage 3 book is secured, carrying provision coverage of about 41% as of December end, and is fully collateralized. 20% of the stage 3 book, which is unsecured, had a provision coverage of 84%. Liquidity coverage ratio was strong at 222%, and HDB is funded with a cost of funds of 5.9%. Total capital adequacy ratio is at 20.3% with a Tier 1 at 14.9%. With markets opening up and customer accessibility improved to near pre- COVID levels, we believe the company is well poised for a healthy growth from here and subject to any impact on further waves of COVID. Now a few words on HSL again on IndAS basis. HSL, HDFC Securities Limited, with its wide network presence of 213 branches in 147 cities and towns in the country has shown an increase of 58% year-on-year in total revenue to INR 536 crores. Net profit after tax of INR 258 crores in Q3 with an increase of 58% year-on-year. HSL's digital account opening journeys are running successfully. There has been a significant increase in overall client base to 3.4 million customers as of end December, an increase of 30% over prior year. In summary, we have reasonably overcome the effects of pandemic over the past 21 months across broad counters of balance sheet, P&L and human capital. While the effect of the latest COVID wave is not clear, which we'll have to watch out over the next few weeks to see where it turns, we are confident of navigating through this, applying our learnings from past waves. Our growth is accelerating leveraging on our people, product, distribution and technology. The quarter results reflect deposit growth of 14%, advances growth of 16%, profit after tax increased by 18%, delivering return on asset over 2%, earnings per share in the quarter of INR 18.7, book value per share increased in the quarter by INR 19.4 to INR 414.3. Thank you very much. With that, may I request the operator to open up for questions, please. Thank you very much. Ladies and gentleman, we will now begin the question and answer session. Anyone who wishes to ask the question may press * and 1 on the Touchtone telephone. If you wish to remove yourself from the question queue you may press * and 2. Participants are requested to use handsets while asking your question. Ladies and gentleman we will wait for a moment while the question queue <inaudible> The first question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead. Hello, congratulations. My first question is on credit cost. So if the total credit cost, including contingencies, has come below 100 after many quarters, around three years. Now you mean that there is no further COVID wave. Is that the new normal we are likely to see over the next few quarters? Mahrukh, thank you. Hope that can yeah <inaudible> Excuse me, sir. I'm so sorry to interrupt. May I please request you to speak closer to the phone, sir? Your audio is not clearly audible. Okay. All right, yeah. I moved my chair, but it's okay. Yeah. Mahrukh, thank you. Yes, a valid question and appropriate. Thanks for asking that. See, we are coming from a COVID cycle where our bookings have been from a retail point of view, have been benign. Second, from a wholesale point of view, which we have shown very highly rated context, right? So we come through the cycle and now starting to begin to get the retail. The recent vintages, when we look at the recent vintage performance, they are far superior both the entry-level scores and the customer profile in terms of how we opened up and started, ah, they are superior, right? And whether, ah, this is a new norm, ah, I would not say that this is a new norm, right? Ah, this is you have to look at credit cost normally over a cycle, over period of a few years, you have to look through a cycle. And that's how you need to look at it. But if you look at our NPA, 1.26%, can bounce around at any time 10, 20 basis points up and down, two quarters ago, 1.47%, now 1.26%. So it can go up and down within a small range, that's where it can come. From a credit cost point of view, well, we have not given a particular outlook as such. But we have averaged in the past, call it, 1.2, 1.3 thereabout, that's the kind of range at which the total cost of credit, total provisions that have come up with. Current quarter is at about 95. So that we call it a little lower than that, right? So in a broad range, if you think about 100 to 150 kind of a basis points, that's wherein last, go back to pre- COVID, that's the kind of range at which we are operating, right? And the credit costs are lower. Then you know, the way we look at it is, it calls for experimenting a few things. It calls for opening up policy. So there is a policy reaction that comes in, right? There's always that the pull and pressure between the business and the credits that happen. So I wouldn't take that 50 or 60 basis points total credit cost or the specific clauses or the total cost of 95 basis points as a good standard for a long time to come. But this is the current corporate where we are. Okay. Thank you. So and my next question is on fees. You did mention that payment and credit card-related fees declined, but were there any one-offs or more, I mean, if you could give more color, was there any one-off or big client promotional expenses, which won't recur so that we know or we can, you know, get a fair outlook on the trajectory in the next few quarters? Okay. Yeah. Again, a good quick question. Thank you. See, the fees INR 5,000 -odd crores that we reported is 2%, right? In the past, we have done pre- COVID if you think about it before that we are very well confirmed and so forth, we have done 20-odd percent or so. We have consistently set the way to think about the fees is somewhere where it should settle mid- to high-teens kind of places, where it can settle, right normally? And again, this quarter, if you think about excluding the payment product, it is at about 17%. Payment products has been unusually low. There are a few things to think about on the payment products. One, as I alluded to, we offered certain fee waivers to incentivize customer engagement, right? So that's one thing which doesn't need to recur every quarter, but it can happen every other quarter, depending on what programs we run, right? But that's part of running the business and the sort of growing the franchise, right? So that's one thing to think about. Second, even from cards point of view, from a credit, I think I alluded to in terms of how customer behavior from a late payment point of view, right, is that the customers are paying very much on time. So that is reflected there too. So the opportunity that we used to get from a late payment definitely doesn't come through. Customers used to take cash advances, that is on the lower end, right? So the cycle has to turn a little more on that, and so we see some cash advances coming through, right? And from a policy point of view, until recently, we were tight on the credit limits, right? So when there is a credit limit, over the credit limit, there is some fees that will come, that was also lower because, from a policy point of view, we've been cautious on that, right? But as we speak now, the policy review has taken place, and we are getting to business as usual subject to another wave of what it does and so on, right? So, that is one aspect that you think in terms of the impact. But then the broader context is required in terms of what is the overall, right? So if you think about the customers itself, particularly I'm talking about the payment products, the cards customers, right? The credit line utilization is at a low, it's like <inaudible> of the pre-pandemic level. So while the spend levels are up 24%, and the interchange is quite robust and good with a good yield that we get on that, but the credit line utilization has got much more to go to get back to the pre-pandemic level. So that's one thing on the people who are spending. So they think they have paid and then if you think about this, they are all paying what is happening to the revolver size, right? That is all sort of 0.7 to 0.8 of the pre- COVID levels in terms of the revolving on cost. So there is much more room for people to get into those revolver type. So that's part of what the strong quality of the book that exists use today, right, and that is part of what some of the fees that come are also muted, which are connected to that. I'll give you another perspective to think about on the cards business, right, on the customers liquidity. Deposit balance, most of our card customers have liability relationships with us, right? We have a good amount of liability relationships. Card customers contributed almost four x, this is pre- COVID, right? If x is the advance, x is the ANR of card, which is the card loans on both at an aggregate level. At an aggregate level, the liability balances of the card customers were typically four x. Right now, it is five x. So which means customers are sitting in a good amount of deposits and liability balances with that. So this is, the economy has come down. Now with the huge amount of liquidity and cash at disposal with people, now it is starting to pick up on growth. And so this is part of the cycle growth that we expect to come back to a reversion, right? So from a long-term point of view, mid-teens to high-teens is what we have said in the past, but that's what one should expect from a cards use point of view. Thanks. But how, in your assessment, how many quarters would it take to reach that long term? See, it depends. It's a combination of both the environment, the economic activity in the environment, and the customer behavior to get on with that. Could be two, three, four quarters, I would expect that I don't want to venture to predict exactly what it is because there's no exact times that tell where it is. But typically, that is what you will see that it takes for a maturity model to operate. And similarly, the same thing applies to, if you think about the PPOP, it is very similar, right? Whether as the loan growth get back, the PPOP should more or less mimic the loan growth. That is what historically that we have shown, that is where historically we have performed, right? That is the kind of what the loan growth is, the headline, that's what most of the lines operate tend to be similar as we go along. Okay. Thanks. Thanks a lot. That was helpful. Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead. Hey, thanks. Thanks for taking my question, and congrats on the recent set of <inaudible>. The first question is about the reconciliation between the, on the restructured loans. What we see in the notes to accounts, that works to be around INR 23,000, that is 1.37 works out to be around INR 17,000. So how do you reconcile both these numbers? Okay. When you see what you said? When I see notes to accounts, the total number works out to be around INR 18,000 crores, plus there would be a R1 number. So both put together is around 25, 900, notes to accounts also mentions that the double counting between R1 and R2 is around INR 2,700 crores or something like that. So the net number works out to be around INR 23,200 crores, whereas our comment shows that it's around INR 17,200 crores, so that is a gap of this around INR 6,000 crores? Okay. Got it. Got your question. See, it is based on what's the template, right? Somebody signed the template, and we fill the template up and put up there, right? So that's something different. And so it is a good point that you raised, right? The INR 25,000, what was there is, what did you grant as a restructuring in R1 and R2 when you add up, that is what it is. And if you eliminate the double count, it is like INR 22,000, right? This originally as granted in several points in time. That means whenever it was granted at those points in time, right? What was the number? That is what you see there. Last September, we reported INR 18,000 crores, right, last September. And currently, we say INR 1.37 crores, that is INR 17,500 crores or so. So first, the INR 18,400 crores to INR 17,500 crores, the moment, they called that about INR 900 crores of movement, that half of it has moved to NPA, half of it is a net of various recoveries and adjustments. So that's a part of what from September to December, things have moved, right. But between the INR 22,000 crores to what we reported in September INR 18,000 crores, that is a net of whatever happened before September, which is between what happened to NPA, what happened to various recoveries and adjustment around that time, right, as we speak in September. That's part of, I think some of you have picked up the number of what was originally granted, but what was outstanding as of September is INR 18,000 crores, and now it's INR 17,500. Okay. So Srini, just correct me if I'm wrong. If I look at the September disclosure, right, the R1 plus R2 minus the double counting, as per the notes to accounts was around INR 22,500 crores, of which, there were NPLs and the amount repaid of the R1 amount that you mentioned in the notes to accounts. So that number was around INR 20,400 crores. Whereas as per our disclosure in September was INR 18,200 crores. So the INR 2,000 crores, what's the difference between the amount which was reported as of September and between your result date, is that my understanding correct? Correct. Correct. Various other recoveries and other things that came until the reporting date. Okay. Okay and right now also, is a similar situation wherein you have not reported the NPLs and the repaid amount out of R1 and R2. So the, as for the notes to account, it could be around INR 23,200 crores, but after the recovery, NPLs, everything and the repayment, etc. it's around INR 17,500 crores. This quarter, notes to account simply calls for, it was again mandated, right, it calls for reporting only R2 as originally granted, which is reflecting INR 18,000 crores or something in the notes. INR 18,000 crores is not the outstanding, right? INR 17,500 crores is the outstanding. So whatever was mandated to show in the notes, that's what we showed. But both when I talked and I gave the 1.37, that is INR 17,500 crores. This is R1, R2 whatever is the restructuring outstanding on the balance sheet, that is the number that you are mentioning- That is correct. That is correct. Okay. The second question on the, can you just give some qualitative comments related to the tenure of this book? You mentioned as one of your comment that 10, 20 basis points would be shifting to gross NPL at any given point in time. But that could be a situation that almost 25%, 30% of this group can slip over a period of next one year. So when we are talking about 10, 20 basis points of that particular quarter or over the tenure of the book, so for example, it was around 1.37, then out of this 1.37, only 20 basis points can slip into NPL category. I just wanted to clarify that number. Okay. By the way, there is no particular signs of 10, 20, or something. This is based on what our analytics comes up to say, based on what experience we have seen, based on the customer profile, which I alluded to say, for example, the one that I gave about 40% are secured, right, fully collateralized and with a good CIBIL score, which we feel very comfortable with, right? Then on the unsecured portion, we said about, call it, roughly about two-thirds or so are salaried customers where we feel quite comfortable, right? And then on the balance, where we keep watch, about 40% or so have good CIBIL score, CIBIL score more than 700 or so, right? So based on various, these kind of analysis, that's where we said we feel comfortable that 10, 20 basis points at any particular point in time, that can be within our tolerable range, right? And from a restructuring point of view, generally, the restructuring can run up to two years, right? And again, if there was one year of loan left and two years granted, now the person has got it for over three years to go. Okay. So again, just again, clarifying over here is almost 15% to 20% of the book can slip as per your analytics. Is that the number correct now? That 10, 20 basis points of 1.37%. So it's around whatever that 7% to 15% of the book can keep based on your analytics or the customer data that you have? No. I don't want to venture into extrapolating for the 10, 20 basis points into various time periods. Yes, got it. Got it. Okay. The second question is related to the credit growth. Historically, we had x multiple of the system credit growth that we always used to guide about as just an indicated number. But, now when I see at the system level because of the consolidation in the larger segment within the PSU band, the system may be growing at x percent, but the private sector banks are growing much faster than that. And some of our larger peers are also growing at a significantly higher rate than that of the system. How do we see our credit growth? Do you still maintain that x percentage that we used to talk about in the past or we can have better opportunities to grow much faster and gain market share? Secondly, your comments on the three specific products, one is payment products, second one is the commercial and rural banking, it is growing very fast at around almost 30% Y-O-Y. And lastly, corporate and wholesale banking, since we have developed quite a bit of capabilities over the last two years and grown this book aggressively as a share of overall loan book. So these are my questions. Thank you. Okay. Now, thank you. A long question, but I'll try to be short and crisp as possible. If you think about the loan growth and the market share, one thing is that, you know, our loan growth is consistent, right, consistently growing, including during the COVID period and one has to look at it in not one quarter, two quarters but over a longer period of time, one has to look at how we are growing rather than the one period. So essentially looking at the consistency of growth over a longer period. For example, you can take a two-year growth, right, a longer period. And that includes the COVID period too, we've grown at 35%, right? But call it, high-teens annual that kind of a growth rate that's why. And similarly, you can go back for five-year period between 2016 to ' 21 or something like that, again, about 2 plus, that will be a little more than double, call it, IP type of growth. That's what we had in that time. So one has to evaluate in the current circumstances, one also has to evaluate based on an incremental basis, right, what we have grown. We believe based on an incremental basis, we have a share of more than 25% or so on an incremental basis, right, from what has happened. If you think about it, INR 1,79,000 crores in the past 12 months, a INR 3,25,000 crores in 24 months, right? And again, we focus on appropriate products, we touched upon the categories of commercial and rural or wholesale and retail. Yes, at some point in time, we did grow good amounts of wholesale with a good demand. We were there for the customers to support them in terms of the wholesale, very highly rated. And now we see a lot of prepayments happening, that's about 7-odd percent is what year-on-year we see in the wholesale. On the commercial and rural, enormous opportunity and very fast growing. About one-third of the country's GDP is contributed by that kind of a segment, right, that segment. And we want to participate more vehemently in that group, in that segment, and we will continue to bounce on that one. On the retail, we were subdued, rightfully so from a policy point of view, we are back, and that is what we are seeing in the sequential growth at 4.5% or so. So net-net, I mean coming back to the same summary, which is now one quarter or two quarters doesn't establish what the growth is, it's about the consistency of growth and over a period of time. And that's how we must look at it in terms of our growth, and we will continue to capture market share. And again, in a balanced portfolio, across secured, unsecured in retail, across commercial and rural and wholesale, so across various product spectrums, customer spectrum. Thank you. The next question is from the line of Aakriti Kakkar from Goldman Sachs. Please go ahead. Yeah. Thanks, Srini. Good evening, Rahul here. A couple of questions. First one, on the asset quality bit. Just wanted to confirm, was there any new restructuring that we did in this quarter? No, no new restructuring, but part of that net change that I gave you INR 500 crores is a plus and a minus mix of INR 500 crores, which is whatever was in the pipeline that came through that was about INR 500 crores or so the new payment, but was not a new granted, application granted, whatever was in the pipeline that came. But then the paydowns and other things that happened. So net-net, it is at INR 17,500 crores, 1.37%. Understood. Thanks. The second question is on the slippages and credit costs. I think Mahrukh also asked this question on the credit cost also 95 basis points and slippages also are one of the lowest at least in the last three quarters. assuming no pandemic impact, do you think this could be a new normal over the next few quarters? And then in that context, how do you plan to build up the PCR buffer from here? Shall we continue to see more and more floating pumping in come through? A good question. You touched upon another aspect of what Mahrukh also touched upon. But you know as a bank, we don't give one particular outlook or our forecast in terms of how to look at as a credit but all I can point you to historical to say that in the recent COVID time period, we operated 1.2%, 1.3% kind of thing. If you go to a little before the COVID period, 100 to 120 basis points, somewhere there we operated, currently including the COVID, the contingent provisions about 95 basis points. But yes, over a period of time, again, when you look at it, we should revert to that kind of what was the pre- COVID mean, type of a mean reversion should happen towards there, right? And current quarter is reflective of what we have booked because the recent vintages, call it, the 18-months or 15, 18, 21-months type of vintages that we have booked across various segments, right, across various segments, they are of very good quality. Retail book is typically two years on an average retail book, and it was of a very good quality. And our innovation lab is working on several things, including opening up new to bank, right? So that means what previously, that we had about, call it, 80% of existing to bank personal loan or call it, two-thirds to 70% existing to bank card loans. So now our innovation lab is making progress toward using alternative data from the market to see how new to bank could be as efficiently scored and passed through the muster on the scoring models together. So yes, I wouldn't ask you to project based on the current quarter, but if you think about it from a pre- COVID non what it is and that's the kind of. So, your second aspect of the question on the building of the provisions and so on, right? See, our buildup of the contingent provisions goes back several quarters and much before the onset of the COVID period, right? So for example, if you look at June ' 19 or so, when we initiated the build of our contingent provisions, that was starting point of countercyclical provisions done, right? At that time, the contingent provisions were less than INR 1,000 crores. Today, it's built up, it's more than INR 8,500 crores, right, or about 70 basis points of gross advances or 18 basis points, including floating provision, whichever way you look at it, right? What it does is that it takes, it makes the balance sheet much more resilient for any shocks, uncertainty pandemic can bring and what does such resiliency do? It supports good execution on the front line for our growth, including making several experiments in our lab, as I alluded to. So that's how we should think about. We evaluate it quarter to quarter. There is no preplanned type of how this runs. We take it as it comes in a quarter and evaluate. Got it. Srini, just two more questions. The other question was on the credit card or the payment product profitability. You laid out a few points why it was muted this quarter. But when you think about the structural profitability of the product and also what regulators are thinking, any thoughts as to how we should think about what are the components that would still remain remunerative while the component which could witness some pressure. You pointed about the fee waiver, the late payment fee etc. sort of coming down. So, how should we think about more from a one-to two-year perspective? Good question, right. We will come to that the regulatory or any other things that will come to that. But from an overall buoyancy point of view, see the first aspect of a card is about the spend and the spend has quite picked up 24% or so year-on-year growth, right. So, that is something that has happened. And the next thing as the spend goes up, the credit line utilization needs to go up, as I said, the credit line utilization due to the spend coming down over a period of the COVID came down. Now it needs to go up, but still credit line utilization is at about 0.8 of the pre-pandemic level. So that should start to go up. And then along with that gets to the revolving and so on and so forth, everything else that comes, right? And from a fee-charging point of view, it is various fees, the penal type of fees or incentive type of fees or loan origination kind of fees, those are routine and will happen, moves on as the volumes come up, right? Any other type of fees where that can be a regulatory constraint also comes with a cost, right? So that means you need to think about not just the fees, also you need to think about the cost that goes with the fee. For example, there are certain fees that goes out, there has to be a certain cost also that goes out, right? And what are the type of costs that can go out? You see that there is a balance between what you earn on the fees and what you spend on the expenses, call it the rewards, call it the cashback, call it the sales promotion, the marketing promotion. They all have some linkages across the P&L, right, from top to bottom, these are the kind of linkages. One cannot look at only one isolation as a structural change, right? There's no such structural change. But if there were to be a structural change, one has to look at it across all P&L lines in terms of what is discretionary and what supports what right? And then accordingly, one has to model. But from an aggregate sense, the cost profitability model should remain intact irrespective of whatever. Last question on the digital strategy, you know, you've announced a partnership with the two entities. So can you just talk about this partnership with Fintechs or the entities that you're moving about? And how does this sort of feed your digital tool strategy to acquire and retain the customers, and also from operating leverage point of view? That is the last question. Thank you Sri. Okay. Thank you. I know this is more of a, it is a key question and getting talked about everywhere in terms of partnerships and how we think about and the cost-income and so on and so forth. Maybe it's the time I'll take two or three minutes or so to describe, right, how we think about it and you can see whether it fits in with what you're all thinking. In a bank, you like to look at things in three different kind of activity, call it like that, right? One is the customer acquisition, the second one is customer servicing, and third one is the relationship management. So this is the continuum of how one engages with the customer on WhatsApp. The various Fintechs and the partnerships that we are all talking about is on the front end there, on the customer acquisition side, right? We have several channels for acquisition, branch, we have a virtual relationship model, we have a feet on street model, we have a physical DSA model, right? And then now we have a digital marketing model developed over the last three years based on analytics. And now we have a partnership model, where, call it a fintech partnership or any other type of partnership that we think about, that is another model. And we do get, I gave you some time ago in terms of regarding 2.4 million liability relationship. That's a key ingredient that comes in based on which every other product starts to work on that, right? And so that is the kind of inflow of customers. So you get a little more accelerated customer acquisition. At the end of the day, you measure the effectiveness of that through the better cost of acquisition, which is the optimal cost of acquisition, that's where it gravitates to, if a branch brings in accounts, brings in relationships at a cost that is much better than the fintech or better than a partnership, that is where things gravitate to, right? That's part of the cost of acquisition model, that's how you think about that. You can set another fintech or a service or a mobile banking feature or various other things that goes in customer servicing, that is enabling customers to do things where it can be done on self-service or where it is done through relationship management, how on a straight-through basis, on a paperless basis that we execute. That's where you measure that to a cost to income, whether are you at an optimum level in a cost to income where you are able to support the customers activity in an optimum manner. So that you measure through how we are executing on that aspect of it, right? Now, on the relationship management, which is where the most of the money, right, which somewhere in the past we have done, we said last year, I think we mentioned it, call it about a third, less than a third, little less than 30% of our customers provide little more than two-thirds of value to the bank, right? And 30% of the customers are the ones where we have a relationship management. So at the end of the day, you can bring in any customers through any channel, optimum cost of acquisition, you service them through physical approach through any way, at the end of the day, the value it comes to relationship management, right? That's what at least in our case, we have published that and we have talked about this in the past. So you think about the relationship management that brings in. Now, there are certain things in relationship management. For example, in the relationship management, we implemented, we've talked about over the last 12 months actually during the COVID period, the analytics-based engagement with the customer, the next best action that we implemented, right, in terms of how it rank orders customer preferences based on products, behavior, and intent to purchase and that the recommendations that come, we have for 20 million customers, we have recommendations that we have an engagement with, again, it is digitally driven, proprietary driven internally through analytics, technology helps there, but the delivery is through relationship management. So this is, it can't be delivered through a mobile banking or an Internet banking or a fintech partnership or any other partnership can't be delivered, right? It gets delivered through, because that's where the value comes through a relationship approach, right? So, that is something that the capability is coming from there. So that's, probably I'll leave it there, I've taken a minute or two more than what I've said I will do. I hope that gives a perspective of how we think about it. Yes, yes. Thank you so much, Srini. We'll definitely take it off-line as well. Thank you so much. Thank you. The next question is from the line of Saurabh from J.P. Morgan. Please go ahead. Hi. Good evening, Srini. Sir, just one question. One, this is on your net interest margin. So how should we think about the progression from here? The book mix clearly seems to be getting better. And if rates rise, you clearly seem to be better positioned. So would you expect that the NIM should go up from here? And in that context, to your earlier comment that PPOP will grow in line with loan growth, shouldn't ideally this growth be better? Thanks sir. Okay. See, Saurabh, thanks for asking again a key part of the, part of the dynamics from the P&L to think about, right. See, historically, over a period of three years, five, 10, 15, right, we have seen all of those, which you have seen, too. The bank has operated in a band of, call it, 3.94% to 4.45%, right, to 4.4% and 4.5%. That's the band at which, by the way, that is based on average assets, not interest-earning assets, because we don't want to get confused with denominator being what it is, denominator in this case that I quoted the numbers is average assets because there's processory thing in the industry about using interest-earning assets, but that's a different matter, I would say, 3.94% to 4.4%, 4.5%, right, that's the band at which. Currently, we are at the low end of the band because the retail product, where we see much more of yield coming, much more of a spread coming, and it comes with the higher RWA, right? So it comes with higher risk rating on those, right, as that comes there. We brought that down and it's in mid- 40s, and it's starting to take its own legs and start to grow, right? So one is that it needs to take its time to grow back to what it was, call it, two years ago, right? So that's the journey. And the journey if you look at the sequential that you have seen, about 4.5%, call it, 18% or so with the growth on the retail portfolio, right? And the next part of that could also be on the retail front itself, the mix of the retail front, right, whether in the current rate scenario, what sort of loans that yield, right, it also depends on the segment in which we operate. In the recent past, we have had a good growth in retail. This quarter, 4.5%. Last quarter also, it was 4-something, right? So it's going to take a few quarters for that to come back to life. But within that, as we came out of COVID and starting to focus on this, we have five categorization for the corporate salaries segment, which, where many of our high-yield products are targeted to, right? Category A, B, C, D, E right? And category A, B, C, category A, category B, category C is a kind of a very popular where we have had a good success to start with right now. And we should have a broad base as we go along with better yield and rates also going up. So that is something to keep in mind that, and the other aspect of it is also the government segment. The government segment in our analytics, risk analytics model can typically be a lower risk relative to the rest. And we'll come in a risk-based pricing model, it will come with a relatively lower yield than the rest. So that is something also we are focused and continuing to focus on that also. So at the end of the day, it will take a few quarters for the mix of retail and within the mix of retail to be much more broad-based across all the segments within the retail that we are talking about to come up. So that is one aspect of what we can think about the NIM coming up. The other aspect of the NIM is also about the rates itself, right? If you think about the REPO rate, loans linked to REPO rate, slightly under a third right now, right, about 31, 32, slightly under one-third of our loan book is linked to REPO rate and about little mid-single-digit or so is linked to T-bills, right? And so which is, if you go back two to three years ago, when we were in the mid- to high end of that NIM range, the components- that means the composition of these two, they were very meagre, right? We're very low. I wouldn't call it single digit, but very low it was. So it has moved up and now the rate starts to move up, that is going to give something. And of course, the cost of, as the rate starts to move up, that will have an impact on the cost of funds too. But the cost of funds can come with a lag. I'm saving deposits not necessarily on the time deposits, it can come with a lag, right? So that's the kind of way you think about it, saying, one is the rate environment and another is the mix of retail that can come and bring in that. Got it, Srini. So ideally, it should move up, so that's what I was coming to that if your NIMs tend to move up, shouldn't your operating profit be better than loan growth is the limited point I was trying to get that? Saurabh, it's a good point that you say, right, but from at least my point of view, my perspective I'll tell you that you need to be continuously investing, right? And when you make those continuous investments, then that is where you get to the long term. So in a static book, what you say is right, right? If you look at it in the short term, say, don't make any other change. Just allow these two changes, change the mix from the loans and change the segment to be between retail, get a higher-yield segment, and should that be, yes, it will be. But you know that it is not a unidimensional model, right? It should be a dynamic model where you invest for the future. That's why I alluded to in my opening remarks about the branch investment, about the people investment, about the technology investment. We need to do that for the future. You don't see a return on it today. You will see the return on it in a couple of years' time, right? Because the branch maturity model takes anywhere from two years to three years to be in a reasonable state and between five years to 10 years to get to be a robust state, right? There is people productivity. And so we need to make those continuous investments on those. And so that is why the ones that I mentioned that the pre-provision operating profit or PPOP limiting kind of a lending growth rate. That's how historically we've been because continuously, we have added branches. So if you think about in the last five to 10 years, we've added 2,600 branches in the last five years to 10 years. In the last one years to three years, we've added 1,100 branches, right? And so that, these are the kind of investments continuously we do to model so that it's dynamically maintained for a longer term to come. Got it. Thank you, Srini. Thank you. Thank you so much. Thank you. Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead. Yeah, hi. Srini, I have a question on these, on the fees for the payments products in the sense that are you seeing pressure on interchange fees, are the MDR levels coming down? So the reason why I'm asking this question is that as, of course, you can just tell us what has been the experience? And secondly, from a, from the new digital payments paper, I know it's always difficult to second guess what the regulator is thinking. But you really think there can be further reduction with respect to MDRs and debit cards? Can there be something on credit cards? Can UPI be monetizable? I'm just asking all these questions because everything has got to do with the payment-related fees. So if the regulator is thinking only in one direction as to bring down the transaction cost, then this is not going to be one-quarter phenomenon. You're going to be prepared for subsequent several quarters. How is the management thinking about taking care of some of the regulatory challenges here? Thanks so much Srini. Thank you Suresh and it is indeed important to address it and think about- and say about what we think, right? But there are two aspects to this. One is we experience itself in terms of what we see on the interchange or the MDR. There has been no pressure on interchange or MDR from a rate point of view, right? It has been quite steady and quite nice. So that is something from our recent experience that has not been inhibiting our kind of a fee line. The rate is quite all right. Now when the MDRs, we'll address that because it is easy to address, we will come to interchange. See, MDR, we don't make on a net basis, we don't make much, we don't make anything on MDR for that matter. That means if it is an internal customer, that means we have an issuing card where MDR business stays interchanged to the issuing card, right? So, and if it is a third-party card, <inaudible> card, our MDR business case interchanged through a third-party issuer. So MDR business as such is pretty neutral, but we still very, very vehemently pursue MDR relationship or merchant relationship, 2.85 million and we continuously grow that because of the sandwich strategy, which is along with that comes a liability and comes the asset value, right, which liability we have already started. And assets, we are working on various models since we have come to a reasonable value there. We still have to do a lot to grow there, but that's part of that strategy so that MDR as such there is nothing to take it away on MDR because it's nothing there to take it away. So that's one. Now coming to the interchange, it is being held steady. If there is any other pressure on interchange, Suresh, I have alluded to little earlier in some other context of the question, which is, interchange in isolation for us, it should not be looked at. Interchange should be looked at in the context of, what is the rewards that is offered on the card, right, what are the rewards, cost of the reward funds, cost of the cashback funds, cashback cost which is there. Cost of the sales and promotion marketing type of costs that are there, right? So these, when you draw a P&L only on the sales, so that means keep the revolver to the side. keep those people who do the cash advances and who do the limit enhancement or spend more than the limits and habitually pay late, keep them to the side, right? And so pure transactors, if you see and you draw a P&L on the transactors, it is like that MDR sandwich strategy. You keep the customer engaged because you got a slope on the liability side of the customer, and you are able to do certain things on the asset side of the customer. So if they interchange for any reason, right, which you can't predict for any reason that has to move up or down, then you get the other levers on the P&L gets operated, right, which is when you look at rewards, when you look at your cashback, then you look at your marketing and sales promotion. And so you look at all of those and try to manage the P&L to profitability. Okay. Okay. Thanks. Thank you. Yeah. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Oh okay. Thank you, Janice. Thanks for all the participants for dialing in today. We appreciate your engagement. And if you do have nothing more that we could help you from your understanding, Ajit Shetty in our investor relations will be available to talk at some point of time in the future. Please stay in touch with us. Thank you. Thank you on behalf of HDFC Bank Limited. That concludes this conference. Thank you all for joining, you may now disconnect your lines."
    },
    {
        "audio": "4452058.mp3",
        "file_id": "4452058",
        "ticker_symbol": "HEPS",
        "country_by_ticker": "Turkey",
        "un_defined": "Northern Africa and Western Asia",
        "major_dialect_family": "Other",
        "language_family": "Asian",
        "file_length": "3152",
        "sampling_rate": "16000",
        "transcription": "Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome, and thank you for joining me, the Hes, Hepsiburada Conference Call and Live Webcast to present and discuss the second quarter 2021 financial results. All participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. As they start now, I would like to turn the conference over to Ms. Helin Celikbilek, Investor Relations Director. Ms. Celikbilek, you may now proceed. Thanks operator. Thank you for joining us today for Hepsiburada second quarter 2021 on this call. I am pleased to be joined on the call today by our CEO, Murat Emirdag, and our CFO, Korhan Oz. The following discussion, including responses to your questions reflects management's views as of today's date only. We do not undertake any obligations to update or revise this information except as require by law. Certain statements made on today's call are forward looking statements. Actual results may differ material from these forward looking statements. Please refer to today's earnings release as well as the risk factors described in the safe harbor slide of today's presentation. Today's press release, the 6-K in our prospectus file with the ACC on July 1st, 2021 and other ACC filings for information about factors, which could cause our actual results to differ materially from these forward looking statements. Also, we will reference certain non- IFS measures during today's call. Please refer to the appendix of our supplemental slide deck as well as today's earnings press release for presentation of the most directly comparable IFS measure, as well as the relevant IFS, non- IFS reconciliation. As a reminder, our reply of this call will be available on the Invest Relations page of Hepsiburada's website. With that, I will hand it over to our CEO, Murat. Thanks, Helin. We are so excited to have our first earnings call ever as the only NASDAQ listed Turkish company. Before we dive into the second quarter results, I would like to take a moment to give an overview of our Super App ecosystem and focus on some of the key fundamentals that contributes to the success of Hepsiburada. Hepsiburada is a homegrown company that has played a fundamental role in the development of eCommerce in Turkey over the last 20 years. Our name Hepsiburada literally means everything is here, and is synonymous with a seamless online shopping experience and benefits from very strong brand awareness. Our vision is to lead digitalization of commerce. To that end, we have evolved from an eCommerce platform in an integrated ecosystem of product and services centered on making people's daily lives easier. We operate in a attractive market that has a large, young, urbanized, and tech savvy population. The Turkish market is at an inflection point with a growing eCommerce penetration expected to exceed 20% within total retail by 2025. That, that roughly 90% of total retail is still offline offering a large opportunity for growth. Our Super App is at the center of our value proposition and act as one-stop-shop for customers by offering a broad range of products and services and by creating differentiated user experience. Today, we are a one-stop-shop for customers' everyday needs from products and services to groceries and payments. We constantly seek new ways to differentiate our customer experience with valued services, such as frictionless return pick up, expedited delivery services, card splitting, instant customer loan, and our loyalty club offering. Also, we continue to expand into new strategic assets, including HepsiExpress, our own demand grocery delivery service, HepsiPay, our digital wallet companion solution, HepsiFly, our airline ticket pay platform, and HepsiGlobal, our inbound and cross border business. With our growth-oriented business model, we recorded a GMV growth at 64% CAGR between 2015 and 2020 as we disclosed in our IPO prospectus. Our solid operational execution, capital efficiency, robust logistics network, deep technology capabilities, household brand name, hybrid business model, and integrated ecosystem have positioned us as a homegrown company to emerge as the first ever NASDAQ listed Turkish company. Let me stop here and now turn to our second quarter results. Next slide, please. In the second quarter, our GMV grew by 38% compared to the same period of last year to 5.9 billion Turkish lira in line with our plan. This perform brings the first of GMV growth to 58% on a yearly basis. Total number of orders in the second quarter were 13.1 million, which is the highest we have recorded to date in a single quarter. It is important to highlight that these results heading against a strong baseline effect of COVID-19 pandemic last year, and are driven by a greater active customer base over frequency, active merchant base, and total number of SKUs compared to the second quarter of last year. HepsiJet, our in-house last mile delivery service achieved present in every city in Turkey, by the end of June, 2021. Hail to our Super App ecosystem value proposition, we continue to invest and scale our strategic asset, particularly HepsiExpress and HepsiPay, which are well positioned for strong growth. Within that context, we launched our digital wallet, HepsiPay Cuzdan\u0131m embedded in Hepsiburada in June, 2021. HepsiExpress, our own demand grocery delivery service has expanded its partner to over 40 brands across over 1,800 stores. Overall, this results indicate our ability to deliver strong growth across the ecosystem. Let's have a detailed look into key assets. We operate a large, fast, and scalable in-house logistics network with last mile deliveries, fulfillment and operations capabilities powered by our propriety technologies. We believe that our nationwide logistics network is key to our success. We operate six fulfillment centers covering more than 120,000 square meters strategically located across Turkey. In the second quarter, HepsiJet achieved presence in every city Turkey reaching 137 cross-docks with HepsiMat, our nationwide pick up and drop off network expanded to more than 1,500 branded pick up and drop off points across lockers, partner local stores, gate stations, and retailers. As a result of its expansion, HepsiJet conducted more of retail deliveries and more of marketplace deliveries in Q2 2021 compared to the same period of last year. With HepsiJet, we are able to offer a variety of valued services including same-day, next-day delivery options, delivery by appointment including weekend and frictionless return, which is HepsiJet picking up your return from your door at your preferred schedule. In line with our efforts to enrich valued services, HepsiJet also began rolling out two main cargo handling service in Q2, addressing the need for high quality and reliable service in the relevant categories. We believe that our robust logistics network gives us a significant competitive edge in offering strong customer experience. Let's take a look at another strategic asset, HepsiExpress. At HepsiExpress, we aim to become a mainstream grocery shopping destination. And better in Hepsiburada Super App, HepsiExpress offers both instant and scheduled delivery options, addressing grocery needs for on-demand and planned grocery shopping. By the end of second quarter of 2021, HepsiExpress has become one of the strong players in this market with around 2,600 outsourced picking and delivery agents and has expanded its ecosystem to over 40 brands and roughly 1,800 stores with presence across more than 50 cities in Turkey. We believe HepsiExpress will be a key enabler to attract new customers, to engage our existing audience and to unlock further synergies across services in Hepsiburada. Let's take a look at HepsiPay. HepsiPay is designed to be a companion wallet to spend, save, and mobilize in a flexible way across online and offline channels. Having acquired its license in 2016, HepsiPay marked an important milestone by launching HepsiPay Cuzdan\u0131m, which I will refer to as HepsiPay Wallet as an embedded digital wallet product on our platform on the 10th of June. It is\u2026 Its daily penetration amongst eligible audience has been faster than our expectations. HepsiPay Wallet enabled instant returns, cancellations, and cash back. Along with HepsiPay Wallet, HepsiPay also introduced Hepsipapel, a cash back points program that allows customers to earn and redeem point during purchases with the wallet on the Hepsiburada platform. The Hepsipapel program has been instrumental in the rapid growth of HepsiPay Wallet. HepsiPay will enable peer to peer money transfers, and will constantly explore new use cases across online and offline. I will now leave the floor to Korhan, our CFO, to run you through the financial performance in Q2. Thank you, Murat, and hello. What inspires us in our mission of being reliable, innovative, and sincere companion in people's daily lives? In our view, this broad mission boils down to focusing on key three aspects of online shopping, selection, price, and delivery. On selection, without compelling value proposition, we doubled our active merchant base as of June 30th, compared to the same base a year ago. This is reflected in our offering to customers as almost doubling our SKUs on our platform during the same period. On pricing, we seek to provide the best value for our customers by offering competitive prices, which we have continued to uphold in Q2. On delivery, our large, fast, and scalable in-house logistics network stands out as one of the key strengths which we have done by increasing our overall footprint across Turkey. These key strengths have been instrumental in driving continued customer growth on our platform, as well as higher order frequency on a yearly basis. As such, our tota number of orders grew by 38% reaching a record, 13.1 million in the second quarters. A combination of these factors has resulted in 38% GMV growth in the second quarters. This performance was achieved against an already strong second quarter of 2020 due to baseline effect of COVID-19. To normalize this effect on growth figures, we have shown here two year compounded growth rates. So for the first and second quarter of 2021, compared to same period last year, compounded two year growth rates were 68% and 86% respectively indicating a continued quarter over quarter momentum. It is worth mentioning that we will continue to see the baseline effect of last year on the growth figures for the upcoming two quarters as well. Let me now walk you through our hybrid business model. Our hybrid business model offers a healthy combination of retail and marketplace. Having launched our marketplace six years ago, we have gradually increased its contribution to GMV bringing it to 69% in the second quarter of 2021. Hence, the GMV shift to 3P is expected to have strategic advantages on our business in the long term, facilitating a wider selection, availability, and its competitive pricing. Since our launch of the marketplace, we have always regarded our merchants as our long term business partners. With this mindset, we have focused on creating value added services for our merchants. We empower them with our comprehensive end-and-end solutions to thrive digitally. Our set of advanced tools and services include the merchant portal with merchants store management tools and advanced data analytics. In Q2, we upgraded our merchant portal by introducing new modules that further contributed to overall efficiency by increasing self-service actions. We also offer them advertising services through HepsiAd, so that they can effectively advertise inside and outside Hepsiburada to drive their sales. We give them access to our last-mile delivery service, HepsiJet, as well as our fulfillment service, HepsiLojistik where we can take care of storage, handling, and checking of the merchandise on their behalf. We also help them get better with eCommerce by providing comprehensive training sessions through our training portal. Last but not least, we provide them with financing options to have them in their effective working capital management. In 2020, our financing program exceeded, uh, 1.3 billion Turkish lira in volume with an 11.4 times growth in merchants and suppliers financing from 2018 to 2020. All these value added services have contributed to he Hepsiburada shaping into one of the most attractive digital platforms for merchants to access 33 million members on our platform as of last year end. We will continue to work towards growing our merchant base through our, uh, through these capabilities. Now let me elaborate on our GMV and revenue growth in the second quarters. As we have stated already, our GMV growth was 38.2%, whereas, our revenue grew by 5.2% in the second quarters compared to the same period, 2020. Our GMV refers to the total value of orders, products sold through our platform over a given period of time, including value added tax without deducting returns and cancellations, including cargo income and excluding other service revenues and transaction fees charged to our merchants. Our revenue consists of sale of goods, which is our retail model, and we re- we refer to it as 1P. Plus marketplace revenue, which is our marketplace model, and we refer to it as 3P, plus delivery service revenue and other revenues. Indirect sale of goods, which is retail, we act as a principle and initially recognized revenue on a growth basis at the time of delivery of the goods to our customers. In the marketplace, revenues are recorded on the net bases, mainly consisting of marketplace commissions, transaction fees, and other contractual charges to our merchants. Our revenue grew by 5.2% in Q2 2021 compared to the second quarter of last year. This was mainly driven by a 67.2% increase in our delivery services and other revenue, and a 2.3% growth in our marketplace revenue. Whereas, the revenue generated from sale of goods, which is retail remained as flat, also detailed in the next slide. On the upper part of this slide, we show the dynamics and practice that have had an impact on our revenue growth in the second quarters. While our GMV grew by 38.4% in Q2 ' 21, our revenue growth was 5.2% reflecting the 11 percentage points rise in the share of marketplace GMV. Please note that marketplace revenues are recognized on a net basis, i.e. representing commissions and other fees. Whereas, the direct sale of goods, tha- that is retail is recognized on a gross basis. The contribution of the electronics domain to overall GMV was around the same level as the same period last year. However, we sold more electronics including appliances, mobile, and technology through marketplace in Q2 ' 21 than the same period of last year. We continue to widen our selection with expanding merchant base and competitive prices in the market by our strategic margin investments, as well as discounts given to our customers for temporary marketing campaigns. Accordingly, we invested in certain non-electronic categories, such as supermarkets to drive all the frequency and also invested in electronic categories to fortify our market position. Additionally, we observed higher customer demands for lower margin products across different categories, such as digital products, gadgets, and appliances, including accessories, Bluetooth devices, and robot vacuum cleaners. There is 60% increase in delivery service revenue compared to the second quarter of last year that's primarily attributable to 38% driving number of orders as the last higher delivery service revenue generated from third party operations during the same period. At the bottom part of this slide, we disclose the EBITDA as the percentage of GMV bridge between Q2 2020 and Q2 2021. EBITDA was negative TL 189 million compared to positive TL 71 million in Q2 2020. This corresponds to a total 4.9 percentage point decline in Q2 2021, compared to the same period in EBITDA as a personage of GMV, which is driven by 2.4 percentage point decrease in gross contribution margin, 1.5 percentage point rise in advertising expenses, and approximately 1 percentage point rise in other OpEx items, excluding the cost of inventory sold and depreciation and amortization. The 2.4 percentage point decline in gross contribution margin is driven by strategic margin investments with shift in electronics GMV to 3P and the discounts given to our customers for temporary marketing campaigns offset by other revenue streams. Negative 1.5 percentage point margin impact through advertising expenses was to accelerate key g- growth drivers in core business, and also to scale new strategic assets. We consider these expense as an investment in our long term growth, while strengthening our market position. Negative 0.7 percentage point margin impact through shipping and packing expenses was mainly driven by changing some of our delivery partner mix to improve customer experience and around 23, rise, percent rise in unit costs. Negative 0.4 percentage point margin impact through payroll and outsource staff expenses was mainly due to additional around 1,200 employees over the past year, along with the impact of any of salary rise in February, 2021. As a result, EBITDA as a percentage of GMV resulted as negative 3.2% amounting to negative TL 189 million. Now, let's have a look at our net working capital and free cash flow generation in the next slides. This quarters, we generated a strong operating cash flow through effective working capital management. Accordingly, net cash provided by operating activities increased by TL 595 million reaching TL 749 million in Q2 2021. This increase was primarily due to increase in changing working capital through changing trade receivables of TL 355 million, which is mainly driven by credit card receivables. Changing inventories of TL 301 million, and changing trade payables and payables to merchants by negative TL 97 million. Our na- net CapEx is TL 44 million in Q2 2021. During this period, our investments were mainly in product development across app, website, and mobile platforms as a result of our growing operations. And purchase of property and equipment mainly consists of hardware and intangible assets arriving from website development costs. As a result, our free cash flow increased to TL 569 million as of Q2 2021 from TL 136 million year on year. Now, I will leave the floor back to Murat to share our guidance with you. Now, let's look at ahead to the second half of the year. As the second half of the year began, the Turkish eCommerce market had encountered several challenges. These included the nationwide extension of the bank holiday period during the celebration of Eid al-Adha in July and the lift off of lockdown measures as of July 1st, both of which adversely impacted consumer behavior in online shopping. The tragic wildfires on the Mediterranean coast of Turkey, and later the devastating flood in the Black Sea region have altered the priorities of the public agenda in early August. While these adverse circumstances impact the markets, we will continue to prioritize GMV growth in the second half of 2021. We believe this to be especially important, given the seasonality of our market, which favors the second half of the year. As a result, our key principle remains to prioritize growth, to create long term value by attracting more customers, increasing order frequency, adding more merchants, expanding our selection of catalog, maintaining price competitiveness, and scaling our new strategic assets. We are committed to investing in and delivering strong full year GMV within 28 to 29 billion Turkish lira range. With this, we end our presentation. We can now open the line for questions. Thank you for listening. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question, may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your hands when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from a line of Tiron Cesar with Bank of America. Please go ahead. Yes. Hi, uh, good morning or good afternoon, everyone. Thanks for the call and the opportunity to, to get questions. I have four questions. Sorry about that. Um, the first one is on the, uh, outlook for the market in, uh, in 2H. Uh, by reading the press release and also from your, for, from your comments, do I understand correctly that the outlook for H2, uh, seems to be a little bit tougher than what you expected, uh, probably, uh, one or two months ago, and that you need to invest more than expected to, um, uh, achieve the same GMV number? Um, just wanted to check if I understood that, uh, that right. Uh, my second question would be on the, uh, on the take rate, uh, for 2Q. Can you please give us some, uh, indication on the, on the take rate, uh, and also, uh, help us probably understand. It looks like, um, it, it dropped, um, a little bit. Um, uh, third question would be on the, uh, contribution margin, um, comments, uh, from the, from the press release. Uh, just wanted to understand better, um, uh, dimension of, uh, of discounts that you've given to your customers for temporary marketing campaigns. Uh, if you can help with that. And then, um, the, uh, the last question would be on the, um, uh, o- on dimension from the press release that, uh, you've observed some, um, um, uh, increased demand for, uh, lower margin products. Uh, just wanted to, uh, to understand if, if that has reversed into, into Q3, and, uh, what you attribute th- this to. Thank you so much. And sorry for the many questions. Thank you, thank you, Cesar, uh, for, for your question. Uh, for the first one, outlook, is, uh, whether outlook looks tougher or not. Um, well, the recent trends observed, we observed in Q2 and early Q3 are reflected on the outlook as well as the seasonality of our market, which favors the second half of the year. And, um, the Turkish market is an inflection point, uh, and this is the right time for us to prioritize our growth. That is why we raise capital and, uh, are focused on investing in and delivering long term value creation. Um, in terms of the take rate, um, our growth contribution margin declined to 2.4 percent- 2.4 percentage points to, uh, 8.3% compared to the second quarter of last year, mainly due to underlying dynamics in revenue growth. This 2.4 PP decline in growth contribution margin is driven by, as you said, strategic margin investments in certain categories like electronics to fortify our market positions and in non-electronics to drive further frequency by our customers. And also into CRM, which we called it as temporary margin investment, and this will be gradually reduced, uh, throughout the time. And also, um, shifting electronic, uh, electronics GMV into 3P, meaning marketplace, we sold more non-e- no- more electronics from the marketplace, uh, unit, and therefore, this affected our gross contribution. And finally, the discounts given to our customers, uh, to widen, and, sorry, t- to continue widen our selection with expanding merchant base and competitive prices in the markets by our strategic margin investments, as well as discounts given to our customers for temporary marketing campaigns. Um, in terms of, uh, lower margin products, um, those lower margin products are, uh, mainly, um, gadgets, appliances, Bluetooth devices, and robot vacuum cleaners, uh, and also 1P, 1P electronic products shift into the GMV. Mostly those products, uh, consists of appliances, mobile devices and technology devices, which has, uh, lower margin compared to non-electronics. Um, well, depending, depending on the market evolution, uh, we expect this trend ma- may, uh, continue in the third quarter as well, but we have always been, um, prioritizing our growth, uh, to create long term value by attracting more customers, increasing our order frequency and adding more merchants, expanding our selection of catalog, maintaining price competitiveness, and scaling our new strategic assets. Thank you. Thank you. The next question is from the line of Adisa Miriam with Morgan Stanley. Please go ahead. Hi everyone. Thanks for taking my questions. Uh, firstly, just following up on, on the, the take rate. Um, so you, you mentioned that you've seen a shift from electronics from 1P to 3P. Just wondering what has, has been driving that, and do you see that specifically as a, as a permanent shift? And then also just on, on the discounts that you also mentioned as well, how much of this was sort of driven by any competitive pressures? Were, were there sort of more competitive pressures than you anticipated at the start of the quarter? And if you could just comment on the sort of current competitive environment that you're seeing at the moment. Um, and then finally, just on, uh, the payments, I think you mentioned there that it was, uh, the, the development was ahead of expectations. If you could just give a bit more color on that, that would be great. Thank you. Um, thank you, Miriam. Um, for the take rate, um, well, uh, we continue to widen our selection with expanding merchant phase and competitive prices in the market by our strategic margin investments, as well as discounts given to our customers for, um, uh, for campaigns. Accordingly, we invested in certain non-electronic categories, such as supermarkets to drive our order frequency and also invested in electronic categories to fortify our market's position. Um, please note that we are very strong in electronics. And in electronics, the biggest opportunity comes from offline. Um, on the competitive environment, let me hand also over to Murat. Thank you, Korhan. Let me just quickly address competition and let me take next question. I mean, let me remind you that we operate in this attractive market that has a large, young, urbanized, and tech savvy population. We have been operating in this market along with several players for many years and proven our growth trajectory. So the, the Turkish market is an inflection point with a growing eCommerce penetration expected to exceed 20% within total retail by 2025. That said, roughly 90% of total retail is still offline. Hence, our largest opportunity is offline retail. And we would like to capitalize on this opportunity and create long term value by expanding our customer base order frequency, virtual base, our selection, and maintaining our price competitiveness and scaling our new strategic assets. And of course our solid operational execution, capital efficiency, robust logistics network, deep technology capabilities, household brand name, hybrid business model, and integrated ecosystem well positions us for success. Third question, if I'm not mistaken is about HepsiPay. HepsiPay is correct? Yes, yes. Yeah. Uh, it is correct. So HepsiPay is designed to be a companion wallet to spend, save, and mobilize money in a flexible way across online and offline. Having acquired its license in 2016, HepsiPay marks, uh, this important milestone by launching this Cuzdan\u0131m, HepsiPay Wallet as an embedded digital wallet on our platform on the 10th of June. As said, as we mentioned, the daily penetration amongst eligible audience has been faster than our expectations, but yet it's too early to disclose numbers. But HepsiPay Wallet enables instant returns, cancellations, and cash backs. Along with HepsiPay Wallet, HepsiPay also introduced papel program, a cashback points program that allows customers to earn, redeem points during purchases with the wallet on our platform. HepsiPay will enable peer to peer money transfers and will constantly explore new use case scenarios across online and offline. Actually, in line with our Super App value proposition, we'll continue to invest and scale our strategic assets to the benefit of our customers, including HepsiPay, which is well-positioned for strong long term growth. Got it. Great. Thank you very much. Thank you. The next question is from a line of Tuncer Asli with Goldman Sachs. Please go ahead. Hi, thank you very much for the presentation, and congratulations on the first set of results post your IPO. So I have a couple of questions. Um, first on the, on the active user base, are you able to share some sort of granularity around the actual, um, growth rates? Um, as it will be important, so just anything sort of anecdotal would be, would be helpful as well. Um, I know that there were, there were a couple of questions on the, on the take rate, but I couldn't hear clearly, my line was breaking up. So the, the implied take rate for the second quarter is quite low. Um, is this a pure mix effect or is there any change in the take rates across categories potentially due to competitive pressures? And is that something that will, um, imply lower take rates going forward for the rest of year and potentially beyond that? And my, uh, next question is, what are your expectations on profitability for the, the, for the, for the rest of the year? Where do you see most of the, most of the pressure coming from? And related to that, how is the prof- profitability profile across your new, um, across your new business life, especially, um, HepsiExpress? Thank you, Asli. Um, um, for the active, uh, user base, um, unfortunately, we do not share our active user base on a quarterly basis, but we will share the increase by the end of the year, uh, as a year-end figure. However, um, our active user base and frequency keeps on increasing, I can give you, uh, this guidance. On the margin, uh, margin investment, and, uh, the, uh, the take rate effect, I can say our, uh, growth contribution margin declined by 2.4 percentage points reaching 8.3% compared to the second quarter of last year. And this is mainly due to, uh, dynamics in revenue growth. There's a 2.5 percentage point decline in gross contribution margin driven by strategic margin investments and, uh, because of CRM, uh, which is, we call that temporary margin investment. And those strategic margin investments are done, uh, to, um, in electronics, uh, to fortify our market position and in non-electronics to drive frequency, uh, for this, uh, to bring additional GMV for our company. We continue to widen our selection with expanding merchant base and competitive prices in the market by our strategic margin investments, as well as discounts given to our customers for temporary, um, temporary campaigns. And, um, accordingly, we invested in certain, uh, categories, non-electronic and electronic categories, such as supermarkets, uh, and some electronic categories. Please note that we are very strong in electronics. And in electronics, uh, the, the biggest opportunity comes from offline. And in order to capture these offline customers, we have been making, uh, on and off basis, uh, margin investments to gain additional, uh, GMV. On the first question, um, expectations about the profitability. Uh, the Turkish market is an, uh, inflection point, and this is the right time for us to prioritize our growth. That is by the raise capital and we are focused on investing in and delivering long term value creation. As a result, our key principles remain to prioritize growth, to create long term value by attracting more customers, increasing order frequency, and adding more merchants on our platform. And, um- The next question, maybe I can take the next question. It was about the profitability for new businesses. Right? Uh, let me remind- Yeah. you, at HepsiExpress, we aim to become a mainstream grocery shopping destination. For HepsiPay, it is designed to be a companion wallet to spend, save, and mobilize money in a flexible way across online and offline. So with this strategic mindset, we will certainly prioritize growth for our strategic assets. In line with our Super App value proposition, we will continue to invest in and scale our strategic assets to the benefit of our customers. And HepsiPay and our HepsiExpress are particularly important to us because they are well-positioned for strong long term growth. Okay, thank you. So basically, from my understanding, these strategic margin investments, sort of the, the temporary discount fee could continue as long as you see the growth opportunity from these? Exactly, that's right. Exactly. If we see the growth opportunity, we can continue those, uh, those campaigns and margin investments. The key principle always will remain that we're gonna increase our customer base, merchant base, frequency selection. And that is our core principle. Okay. Thank you. And going forward from what I understand, sorry for this, for the follow up. So you will be tracking, we will be tracking growth, um, in GMV, uh, obviously, but we will be, uh, seeing disclosure from you on the total, on the total orders, rather than, uh, breakdown of things like active user base and the, and the frequency? We will see the total order numbers. Yeah. That is, that is true by the year-end, we will be sharing our customers, uh, base increase and the frequency numbers in detail, but on a quarterly basis, we don't disclose. We only give the overall growth numbers. Okay. Thank you. Thank you. The next question is from a line o- from a line of Kilickiran Hanzade with J.P Morgan. Please go ahead. Uh, thank you for the presentation. Majority of my questions are asked, but I have some, uh, more. Um, the first one is, um, about competition. Uh, how are you planning to respond to accelerated last mile and fulfillment investments by Trendyol? I think they are now much bigger than you on the fulfillment side. And, uh, how many merchants, uh, have been already on board for ful- fulfillment services? Because you have given some sort of statistics during the IPO, and I just wanted the developed ones here. And what is the share of total orders delivered by HepsiJet? What is the progress here? Um, and you also mentioned about some share incentives to management, I think, which is now included in your payroll cost in the second quarter. Uh, can you please give some details about this? Um, and finally about your working capital, uh, there was a big release in the second quarter. So how should we think about this developing in the second half from a cash flow perspective? Thank you. Um, would you mind? Yeah, let me take the first question. Uh, maybe let me just first remind you our well-defined use of proceeds plan. As you remember, uh, we have a very strong well-defined use of proceeds, which includes exploration of our growth flywheel, scaling of our strategic assets, investing and scaling our operations, logistics, and technology infrastructure, and of course, driving further talent. Within that context, as we discussed briefly so far, we also definitely invested and scaled our capabilities across design. We operate a large, fast, and scalable in-house logistics network with last mile deliveries, fulfillment, and operations capabilities powered by our proprietary technology. I mean, as you remember, we mentioned as a result of its expansion, now HepsiJet achieved presence in every city in Turkey reaching 137 cross-docks with HepsiMat, our nationwide pick up and drop off network expanded to more than 1,500 pick up and drop off points across the country. And as a result of this expression, HepsiJet conducts more of retail deliveries and more of marketplace deliveries in Q2 compared to the same period of last year. And also, with HepsiJet, with our logistics capabilities, we're able to offer a variety of valued services, especially frictionless return, delivery by appointment, same-day, next-day delivery options. And also, let me remind you, at TX, interna- at International Business Awards in 2021, we were awarded with a gold award for our frictionless return service in the Best User Experience category. So we believe our robust logistics network gives us a significant competitive edge in offering strong customer experience as we'll continue to do so. Uh, I wanna say thank you. Uh, but is it possible for you to s- share some statistics there? Because I really want to understand the upside in, uh, Hepsi. Uh, so w- what is the current status about, um, the, I mean, on the last mile? How many, and what is share total orders delivered by HepsiJet? And how many merchants have you already onboarded for the fulfillment services to understand the potential growth? Uh\u2026 Yeah. Thank you so much again for the question. Let me tell you, HepsiJet, actually, as you remember also shared in the prospectus is in the early phase of its journey, and it keeps scaling the number of merchants getting onboarded. On the other hand, with HepsiJet, it's just increasing its contribution to retail deliveries, as well as marketplace deliveries compared to the same period of last year. So it keeps growing year over year with respect to Q2 both in 1P and 3P contribution wise, in terms of number of deliveries. Hopefully, this is what happens. And the next question, Korhan? The next que- the next question is about, uh, management incentive plan and how much we recognize in our P&L. Uh, is it correct, Hanzade? Yes, uh, let me- Yes, probably. Yeah. Okay. That's correct. Okay. Uh, i- in total, we have 132 million, uh, recognized in our P&L as, uh, mentioned incentive plan expense. And out of this 98 million Turkish lira is based on discounted cash payments, which is projected to be done within, uh, year 2021. And the second part is 34 millions. Uh, it's based on share based payments, which will be made within the next 18 plus 12 plus 12 months according to our plan. So, uh, in total we recognize 132, uh. and, uh, discounted cash payments 98 share base payment 34. Uh, this is recognized based on vesting plan disclosed in the agreement. Uh, on the working capital side, um, yes, our working capital will keep on improving, uh, in the, uh, second half due to the fact that our GMV will be, will continue to grow in the second half. Uh, and, uh, with a better management, we expect to improve our, uh, operating cash flow in the second half. Okay. So we, there, there shouldn't be any seasonality impacting the working capital, right? I mean the second half of the year. So you can- Uh. assume the similar type of working capital management. The- there is always a seasonality in the second half, especially in the, uh, fourth quarter. Uh, having said that, our, uh, procurement increases significantly and we are, uh, growing significantly in the first quarter. And, uh, based on the seasonality experiences in the past, we expect the better, uh, networking capital, uh, by the end of Q4. It'll improve gradually. Thank you very much. And can I finally ask about the HepsiExpress? You sa- you, you mentioned about new brands to be onboard in, uh, grocery delivery. So, uh, is there any national brand here that you managed to onboard recently? Because we are referring to Q2 results, we cannot actually discuss any future or forward looking plans at this point, but I can tell you HepsiExpress already actually achieved over 40 brands and roughly 1,800 stores with more than 50 cities. And also, as you remember, we launched water service, water delivery service as well. Thank you very much mostly. Thank you. As a reminder, if you would like to ask a question, please press star and one on your telephone. Once again, to register for a question, please press star and one on your telephone. As a final reminder, to register for a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Thanks, operator. I would like to recap what you have heard from us today. Our vision is to lead digitalization of commerce. Today, we are one-stop-shop for our customers' everyday needs from product and services to groceries and payment solutions. Our solid operational execution, capital efficiency, robust logistics network, deep technology capabilities, household brand name, hybrid business model, and integrated ecosystem have positioned that as a homegrown company to emerge as a first ever NADAQ business Turkish company. We operate in an attractive market that is a large, young, urbanized, and tech savvy population. Again, let us remind you the Turkish market is at an inflection point with a growing eCommerce penetration expected to exceed 20% within total retail by 2025. That said, roughly 90% of total retail is still offline offering a large opportunity for growth, and this is the right time for us to capitalize on this opportunity. Our key principle remains to prioritize growth, to create long term value by attracting more customers, increasing our order frequency, adding more merchants, expanding our selection of catalog, maintaining our price competitiveness, and scaling our new strategic assets. With the use of funds raised in our recent IPO and our strong balance sheet, we will continue to invest in our visions. Thank you for everyone for your time today, and we look forward to speaking with you again next quarter. Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant evening."
    },
    {
        "audio": "4466399.mp3",
        "file_id": "4466399",
        "ticker_symbol": "TKC",
        "country_by_ticker": "Turkey",
        "un_defined": "Northern Africa and Western Asia",
        "major_dialect_family": "Other",
        "language_family": "Asian",
        "file_length": "3005",
        "sampling_rate": "44100",
        "transcription": "Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your course call operator. Welcome and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell third quarter 2021 financial results conference call. At this time I would like to turn the conference over to Mr. Ali Serdar Yagci, Investor Relations and Corporate Finance Director. Mr. Yagci, you may now proceed. Thank you Konstantinos. Hello everyone. Welcome to Turkcell third quarter financial and operational results call. Today's speakers are our CEO Mr. Murat Erkan, and our CFO, Mr. Osman Yilmaz. They will be delivering a brief presentation, and afterwards, taking your questions. Before we start, I'd like to kindly remind you to re-read the last page of this presentation for our state fiber statement. Now, I hand over to Mr. Erkan. Thank you Serdar. Good morning and good afternoon to all. Welcome to our presentation, and thank you for joining us. In the third quarter, we recorded 22.3% revenue growth, and our EBITDA reached 4 billion Turkish lira for the first time, implying an EBITDA margin of 43%, 43.1%. Growing 18% year-on-year, we recorded a net income of 1.4 billion Turkish lira, an all-time high quarterly figure. Net income settled above 1 billion Turkish lira run rate per quarter. Our customer-centric strategy, diversified business model, and focus on mobile and fixed network quality, are the key factors of the sustainable performance, which was further supported by increased mobility in these quarters. This strategy has enabled us to continue outstanding growth in total subscriber by 1.2 million, which marks a record of the past 14 years. In the first nine months of the year, we gained a total of 2.5 million subscribers, further strengthening the subscriber base for the upcoming quarters. The R2 trend remains robust at 12% for mobile, and 10% for residential fiber. Lastly, this quarter, the revenue share of digital channels in consumer sales rose to 17%, increasing 5 percentage points year-on-year. We have also distributed the last installment of the 2021 dividend on October 27th. In consideration of these solid results, we further increased our full year guidance, which I will celebrate on my last slide. Next slide. Here we see the operational performance of the third quarter. In all three fronts: mobile, fixed broadband, and IPTV, we delivered a strong net add performance. On the mobile front, we gained a net 464,000 postpaid, and 643,000 prepaid subscribers. This outstanding performance was achieved through our customer-focused offer, innovative storage portfolio, and also supported by increased mobility thanks to vaccination. High net add performance in prepaid subscribers is due to the visit of Turks living abroad, after lifting of restrictions in international travel. The average monthly mobile churn rate was at 1.9%, well below that of the last year. And we believe around 2% monthly churn is a healthy level in this market. The landed mobile output rose to 58%\u2026 58 Turkish lira on 12% increase, thanks to a higher post-pay subscriber base, upsell to higher tariffs, price adjustments, and increased data and digital storage users. Also, our AI-based analytical capabilities observed strong upsell levels and incremental that an upsell post-paid customer pays in two times than the same quarter last year. In the fixed broadband segment, amid the prevailing demand for high-speed connection, with the back to school period, we gained net 60,000 fiber subscribers, with our high-speed fiber internet offers. Our rollout plans are on track, as we exceeded 400,000 new home passes in the first nine months. This quarter, we also welcome our 25th city in our fiber network. We are pleased to register a 251,000 net addition to our IPTV subscribers, exceeding 1 million customers this quarter. IPTV's penetration within the residential fiber subscribers reached 63% accordingly. Residential fiber output rose to 79 Turkish lira on 10% growth. 13% annual fiber subscriber growth should be taken into consideration, where we aim to manage a delicate balance between R2 growth and net addition. Next, an update on the data usage and 4. 5G subscription trends. Average mobile data usage rose 12% year-on-year to 13.7 gigabytes per user. The rise in data consumption was due mainly to higher content consumption, boosted by seasonality and lifted restrictions. Out of the 34 million subscribers signed up for 4. 5G services, around 70% have 4. 5G compatible smartphones, still indicating growth potential for the upcoming quarters, and implying further room for growth in data consumption. Overall, smartphone penetration is at 84%, with 92% of these units being 4. 5G compatible. Moving on to page 6. We reaped the benefit of our careful planned efforts to provide best-in-class services, which is evident by the outstanding net add figures in this quarter. Our well invested high quality network and strong infrastructure is once again confirmed in the GSA report. With its rich spectrum access and well planned modern infrastructure, Turkcell is able to provide speeds of up to 1.6 gigabit per second, which even exceeded the 5G speeds provided by certain operators with this capability. Turkcell ranks among the world's top three operators, and its fastest 4. 5G network infrastructure in Europe. Our longterm invested customer-centric approach, which enables Turkcell to provide service are based in customer exact needs, has made us a winner at the European Customer Centricity Awards. At the Turkcell team, we have realized over 100 projects that touched the hearts of our customers. Additionally, our key strength, including data delivery personalized offer and extensive distribution channel, both physical and digital, stands up as core factors influencing customer decision making. With all of the above, customers have continued to recommend Turkcell over the competition this quarter. Even extended the wide gap with the second best. Next. Now our strategy focus areas, let's zoom into digital services and solutions. The standard of revenue from digital services and solutions continue its strong growth at 31% year-on-year, reaching 435 million Turkish lira. The paid user base reached 3.6 million, up 0.9 million from last year. We are delighted to have reached another remarkable milestone for our digital services, as the IPTV user base exceeded 1 million in September. TV+ has continued to increase its share in the TV market, reaching just above 13% in Q2, and it is the only TV platform has steadily increased its share for the past 12 quarters. Content and product quality enabled us to increase prices, whereby the product enjoys rising retention levels. With its robust infrastructure, BiP, our instant messaging platform, provides seamless communication, and has reached 27 million three-month active users this quarter; triple from the same quarter last year. A quarter of the active user base is abroad, where the leading countries are highly populated countries like Nigeria, Indonesia, and Bangladesh. Our constant effort in our digital services are improving the user experience of the application, and we achieved this by responding to our customer needs. For instance, new features in BiP this quarter include the status posting and video group call with up to 15 people. On Fizy, our digital music services, we have added over 120 podcast series. Next slide. Next is the digital business services. We continue to lead end-to-end digital journey of corporate in Turkey. This has resulted in a revenue of 499 million Turkish lira from digital business services this quarter. Of the total revenues, 75% are service revenues, which rose by 28% year-on-year. From the service revenues, we have seen continued strong demand, particularly in data centers and cloud business, cyber security services, and IoT. We signed 575 new contracts with a total contract value of 221 million. Overall, backlogs from the system integration projects signed to date is at 832 million Turkish lira, which will be contributing to the top line in the upcoming quarters. This quarter we continued our product launch in cyber security and cloud services. <unk> is an economic and flexible cyber solution that works in physical and virtual system. And as the first in the country, object storage is a cloud-based solution for the further support the vision of keeping corporate data in Turkey. Next slide. Last but not least in our tech fin focus. Tech fin services revenue rose to 281 million Turkish lira on 37% year-on-year growth. Paycell saw another remarkable quarter, topping 6 million active users, on a 30% rise year-on-year. The revenue saw 53% year-on-year growth, mainly with traction in the pay later product. We started to monetize port solutions, which includes virtual and physical Android port services. We have installed 1.7 thousand devices at the local SMEs, and also launched our virtual port solution with 900 E-commerce <inaudible> including Turkcell <inaudible>. This quarter, Finance Cell's revenue rose 28% year-on-year, due to higher interest rates and support from emerging insurance business. Finance Cell continues to finance technological needs of broad range of customers, including individual residentials, SMEs, and corporates. To date, we have scored 11 million customers, and we have 24% market share in consumer loans below 5,000 Turkish lira. One of Finance Cell's key strength is the assigning right limit to the right customer, based on Turkcell last data. We have recently launched a new credit model based on machine learning. Initial results indicate high rep two rates and higher limits without negatively impacting the historically low cost of risk levels. Next slide. Let's look at our performance in the international segment, which now generates 10% of group revenues. In this quarter, international revenue grew by 39% year-on-year, thanks to the expanding subscriber base in all three regions. Higher mobile data consumption, and the positive impact of currency movement, organic growth, and excluding the currency impact was at 18%. Our Ukraine business has continued its strong operational performance in this quarter by reaching 8.9 million mobile subscribers on a 14% rise year-on-year. Revenue growth in local currency turn was 24% yearly; exceeding 20% for the last four quarters. This business has seen a 4.6 percentage point EBITDA margin improvement year-on-year on the back of limited interconnection cost and live contract operational expenses. In the local currency terms, Belarus revenues declined 2% due mainly to lower handset sales, which on the other hand, affected the EBITDA margin positively. Belarus we\u2026 In Belarus, we focused on digital subscription. In the third quarter, one out of five new customers opted for live through digital services\u2026 digital channels. Our subsidiary in Turkish Republic of Northern Cyprus recorded strong 24% growth, with rising voice revenues and data usage due to increased mobility after the recovery of education services and tourism in the island. I would like to end my presentation by sharing our new guidance for the full year. Taking into consideration, consideration, our outstanding nine month performance, and expectation for the remainder of the years, we once again revise our guidance upwards. Accordingly, we rise our revenue growth guidance to around 20%. Generating real revenue growth in a high inflationary environment, we revise our nominal EBITDA expectation to around 14.5 billion Turkish lira, and expect to register an operational capex over <inaudible> around 21%. Lastly, as you remember, we held our last Capital Market Day back in November 2019. Since then, COVID-19 pandemic has significantly impacted our industry and the way we do business. This necessitates us to revisit our plan and targets in relation to the core business and strategic focus area. We plan to organize a Capital Market Day after the announcement of Full Year 2021 results, where we aim to reveal our revised three-year business plan and targets. We will make necessary announcements regarding the details of the event in time. I will now leave the floor to our CFO, Osman, for the financial discussion. Thank you Murat. Now let's take a closer look into our Q3 financials. In Q3, we recorded a 9.4 billion TL top line on\u2026 and a 2% year-on-year growth, thanks to subscriber base expansion, higher data and digital service revenues, coupled with contributions from international operations, tech fin, and equity sales. The first nine months growth exceeded 21%. Our EBITDA reached 4 billion TL level on a 19% increase. Net income was solid at 1.4 billion TL, marking 18% yearly growth, mainly driven by sub-top line growth. The bottom line has settled consistently above 1 billion TL, with the contribution of disciplined financial risk management. We are pleased with our solid performance, which exceeded our expectation. Next slide. Long form details on revenue and EBITDA developments. This quarter, with contribution of all segments, we generated 1.7 billion TL incremental revenue. 1 billion TL derived from Turkcell Turkey. This is all possible with a larger subscriber base, R2 growth, and upsell efforts with price adjustment. 258 million TL from international subsidies support the top line, mainly due to robust subscriber and R2 performance of Ukrainian operations, as well as the positive impact of currency movement. Our tech fin segment had a 76 million TL positive impact. Paycell and Finance Cell has supported this with an annual growth of 53 and 28% respectively. The other segment contribution of 334 million TL was mainly driven by increased equipment sales. This quarter, our EBITDA margin was at 43%, percent. The main factors behind the 1.3 percentage points margin of contraction year-on-year were as follows: First, -0.6 percentage points from gross margin impacted by our energy businesses, increased cost of goods sold and rising radio cost due to high energy prices. And secondly -0.7 percentage points from S&M expenses, mainly due to increased selling expenses on the back of record high net activity quarters. Next slide. Now, a few verses on our balance sheet and leverage. Our total debt increased by 700 million TL in this quarter, mainly due to the currency movement. A cash position of around $1.4 million equivalent, which is mainly in FX, covers our debt service until 2025. We maintained our leverage below one time in this quarter, despite the second installment of the last year's dividend amounting to 862 million TL. Excluding the financing business, this was at 0.8 times, the same level as the previous quarter. We generated just over 1 billion TL of free cashflow, thanks to stronger operational performance, as well as relatively lower capex in this quarter. Next slide. Now I will go into management of foreign currency rates. We continue to hold the bulk of our cash in hard currencies as a natural hedging tool. With hedging instruments in place, the share of FX debt declined from 83% to 51% as of the end of this quarter. Our hedge contracts, our cashflow hedges are covering the full maturity of related FX liabilities. We were in a long net FX position of $172 million as at the end of Q3, and we continue to target a neutral to long FX position going forward. Next slide. Now let's take a closer look at our fintech companies' performance, and start with our financing business, Finance Cell. As we communicated before, in line with our expectations, the negative trend in finance, Finance Cell's portfolio ended in Q2, and the growth has gradually started. The revenues rose by 28% year-on-year on the back of higher average interest rate on the portfolio versus last year, and growing insurance revenue. We expect to sustain the long portfolio at around 2 billion TL by the year end. EBITDA rose by 24% to around 120 TL, with a margin of 73%. The 2.3 percentage points margin contraction is due to the base FX as we sold some of our receivables, debt receivables, in Q3, Q3 2020. As a result of strong collection performance and improvement in the customer portfolio, cost of risk has been declining since the start of this year. Cost of risk has remained nearly unchanged at 0.3% for this quarter. Next slide. Lastly, our payments business, Paycell. In line with the global trends, Paycell users continued their payment habits in the post-pandemic period, which is reflected in Paycell's solid operational and financial performance. Paycell continues to see increased recognition, with the contribution of rising active customers and merchant numbers in Q3. In fact, Paycell's three month active users reached 6 million, and the number of merchants hit 14,000. The most popular product on our platform, pay later, delivered another strong performance in Q3. Pay later volume rose by 84% to 455 million TL year-on-year. Transaction volume of Paycell card has increased to six-fold of the same period last year, and reached 657 million TL. As you may remember, at the beginning of the year, we launched Android ports for our corporate customers. Focusing on virtual POS as well, we shifted Turkcell's payment channels to Paycell's virtual ports, providing a revenue channel for Paycell and saving for Turkcell. Thanks to our increased focus on this business, POS transaction volume reached 475 million TL in this quarter. Overall, in Q3, Paycell revenues increased by 53% to 119 million TL, 55% of which are non-group revenues. EBITDA margin was at 46%, impacted by increased human capital investments and S&M expenditures. With its unique product range and disruptive nature, Paycell has always taken its place among regional fintech leaders. As discussed earlier, we are seeking growth capital to scale this business further in Turkey and then globally. This concludes our presentation. We are now ready to take your questions. Thank you very much. The first question is from the line of Kennedy Good-Jonathan, with JP Morgan. Please go ahead. Good evening, and thanks for the opportunity to ask questions. My first question on Paycell, could you give us a sense of what the total payment value across the platform is at the moment, and the growth rate there? And then I just wanted to understand why both payments have declined during the quarter. That's the first question. And the second question, um, I wanted to understand how your pricing strategy is evolving at the moment, given the inflation rates. And whether you can push mobile R2 growth at higher rates than what you've seen at the moment, or whether that, that's hoping for too much into the new year? Okay. Jonathan, thank you very much. For the first question regarding total payment volume is around 500 million Turkish lira. Uh, it's, it's up and down, around 500. And the, the, the bill payment is, you know, because it, it moves from physical channel to the digital channel. So, that's why\u2026 and you might see the decline, but we see growth. But when it moves to the digital channel, we can get it. For the pricing strategy, obviously, you know, to be able to grow the business, there are two options in your hand. One of them is growing subscriber base, and the other one is growing the R2. So we would like to push both of them. This is our strategy since two year, two and a half years back. So, we would like to push R2\u2026 And on the other hand, the inflation was, uh, increasing more than expected by the, by the market. So, our, uh, initial plan was in terms of inflation, it's not gonna grow that much. But we're adapting ourselves based on pricing. But as you know, we have a contract with the customer for 12 months. So it will take some time to catch up the real inflation. But we're gonna push to reach on inflationary pricing. As I mentioned, it was quite harsh in terms of our expectation, but we will catch it up. But on the other hand, I would like to emphasize our, our customer growth, because if you wanna pick one, I would prefer on the customer growth side, because at the end of the day, we can create more value from one customer, especially we have other businesses like Paycell and Finance Cell, and digital services and so on. If we catch customer, we can easily increase the R2 level in near-term. So that's why we would like to continue in this strong <inaudible>. So what\u2026 Regarding growth rate, it is around 85% for payment in Paycell. 84% range, yeah. Sorry I <crosstalk> the first questions, yeah. The next question is from the line of Kim Evan with Excel Capital. Please go ahead. Yes, I, uh, three questions from my side, actually, if I may. Firstly on 5G auction, when to expect the 5G auction? And what's that\u2026 do you expect to be sold? Is it C-band, and 700 megahertz? That's one. Two, on capital intensity in 22, so how do we think about it compared to 21? Do you think capital intensity will increase in 22 compared to 21, given where the year is? And then thirdly, on Paycell's take rates, it's pretty high, 3% in 2020, and like 3.5%, and if you look at the third quarter of 21. Where do you expect that the take rate to evolve when it's\u2026 when the business scales? Thank you. Yeah, thank you very much Evan Kim. First of all, regarding 5G, 5G roadmap auction, obviously there is no official timeline for 5G announced by the regulator. There are a number of explanation or a number of announcement coming from ministry, but obviously, we have to wait for official announcement. 5G is vital technology. We would like to facilitate this on the digitalization of industry and contribute to the economic development of our country. However, we believe there are some issues that need to be addressed for the how to launch. First is the fiber connection of base station, currently similar to the low household penetration, fiber connectivity of the base station is not enough for the full-fledged transition to 5G. Secondly, we believe we have not reached a desired localization rate in the development of 5G network equipment. We think localization rate can only be reached around 20% 2023. This could be even lower for the core network on base station level. Therefore, we believe there are some, some risk for the full-fledged transition to the local 5G network. Uh, regarding the license cost or capex side, first of all, auction structure is not clear yet, and we don't have an official timeline, which limits us in making an estimate regarding a possible capex or frequency payment. The difference between 4. 5G and 5G is that 4. 5G was a great leap over 3G in terms of speed, particularly for the individual user. Therefore, we need some time to see how it's gonna end up for that probably end of this year. For the capex plans 2022 and allocation, we have not finalized our budget planning for the next year, and we will give 2022 guidance when we announce our full year result. But I don't expect a major increase on the capex side, even a little bit decrease, because we spent capex earlier than expected this year, and we get a positive result due to the FX fluctuation. So, next year, probably we're going to spend a little more capex on the fixed line on the fiber side, a little less on the mobile. So, more or less, we're gonna, we would like to keep similar level on the capex side. Sorry for the, for the third question. Could you repeat the third question? It was regarding Paycell, but I couldn't catch the third question. Yes, of course. On Paycell, just a quick question on its decrease. So, basically, we should take Paycell's revenue and divide it by total payment volume. So, it's pretty high by international standards, 3% in 2020. And if you look at the third quarter 21, it's 3.5%. And so I was wondering where do you expect that to settle when the business scales? Thank you. Okay. Let, let me give over to Osman, he, he will answer those questions. Yes, uh, actually Paycell started its business with, uh\u2026 as a business unit within the group, and then it became a standalone company. And now we're expanding Paycell revenues outside of the group. And now, more than half of the revenues are coming out of the group. Actually, the intensity of, uh, revenue, revenues over total turnover is partly on the back of the, uh, two factors. First factor is group, group revenues. And the second, but, but more important factor, is our lending business, pay later business. Many payment companies do not have this pay later business, which is a relatively more profitable part of the fintech business. You can see some international examples. There are companies, fintech companies, payment service companies, which are only processing payments and doing remittances. And on the other hand, there are pay later businesses, which have a higher profitability and higher growth scale. We are a combination of both. We either have a total, uh, high volume\u2026 high turnover. On the other hand, we have a higher profitability, thanks to our strong penetration into prepaid cell network. What we are aiming going forward, is to, first, to penetrate in, in overall Turkish market. We are expanding our footprint also of the Turkcell group, and we are aiming to double our customer base in a couple of years. And then we want to expand regionally, and uh, and then later on globally. That is why we are seeking growth capital for this business. But we will not be doing that at the expense of negative EBITDAs and negative profitabilities. We will keep this healthy balance sheet while doing this growth. That was great. That's very helpful. Thank you. The next question is from the line of Karbachek Andriy with UBA. Please go ahead. Hello, and thank you for the presentation. I have one followup and three questions if I may add. The followup pertains to the fiber connectivity on towers, that you mentioned as a kind of prerequisite to using, um, running, uh, the 5G option properly. So, can you expand on that? Does that mean perhaps that you are, uh, you know, kind of\u2026 or you would be kind of pushing for a, uh, some kind of large scale regulated fiber access needed, you know, across the market to connect base stations, you know, across the operators for, for 5G to really be successful? Is this what you mean? And then the three questions, I believe you mentioned, uh, 400,000, um, homes passed in terms of fiber year to date. Can you give us an idea in terms of the take up on that footprint so far, and where that take up is coming from? Whether these are, you know, green field customers, or whether you are perhaps taking market share in some areas? Second question, if I may understand, in terms of your capex guidance, you are now guiding for the lower. And I know that it's not a huge difference, but with the lira having depreciated again in the fourth quarter, what has changed in your plans? And the third question, a quick one on Ukraine, please, uh, you know, some\u2026 or one of your peers is looking at doing something with their towers in Ukraine. Is this also an area\u2026 I know you're doing that in Turkey, but is it also something that you're, uh, looking at in Ukraine? Thank you. Uh, thank you very much Andriy. For the fiber connectivity, in Turkey, overall for\u2026 I'm talking about all operators, the reaching to the base station with the fiber is around less than 40%. And, and even the incumbent operator has less than 50%. So, in this case, without fiber ex- fiber reaching to the base station, it is difficult to give proper 5G solutions. On the other hand, for existing base station numbers like around 100,000 for all operators, probably when we go the 5G, it's gonna be maybe 10 times higher, the base station. So, it, the fiber connectivity and fiber\u2026 reach, reaching fiber with the proper connection, this is mandatory fiber. Regarding 400K home pass usage, so, uh, it is\u2026 we are, we're gonna see the increasing demand on the fiber. So, our take up rate for this segment is around more than 20% for the first year. But to reach the real take up rate is around 45%. So we are faster than our business case. So, there are, you know, existing green field customer, as well as the customer from the competition. So, in terms of market share, I believe we have more than 50% in the areas that we reach. For the guidance of lower capex, you know, there are two things about capex, uh, with two important actions for this year. First of all, we need advance payment to the suppliers by lowering the cost of equipment, and so, which helps us our, our capex management. The second one is we decided to invest earlier than expected, which means the first half of this year, so which is front loaded investment. So, this is gonna help us to address the capex guidance level. Uh, so for the capex guidance, even though we see a dramatic increase on the FX side, we don't wanna change our, our guidance. For the Ukraine, uh\u2026 actually I have no idea what the, what that the peers are doing on the, on the travel side. So, we\u2026 I don't, I don't wanna comment on things that I, I have no clue about it. All right. Thank you very much. If I may just do a quick followup in terms of the connectivity. So you mentioned, you know, sub- 50% of powers, even for the incumbent, for the market about 40%. Uh, but what, what is your proposal then? What do you think needs to be sorted for the 5G auction to make sense at this stage? Uh, obviously we publicly announced our proposal. Uh, Turkey needs common infrastructure companies, common investment portfolio, because if everybody invests on expensive fiber side, it doesn't help countries' economy, it doesn't help for, you know, services side of it. If we invest capex under grant, we will probably run out of money to give services to the customer, uh, digital services, I mean. So, that's the\u2026 the, you know, this one proposal on the table: let's have common investment on fiber. Let's compete on the services side, not the infrastructure side. Because infrastructure competition is old world, old world competition. Understood. And if I may, sorry, one final one. What do you think needs to happen for, for, you know, a common infrastructure company to, to, uh, be a reality in Turkey. What do you think needs to happen? Thank you. I think, uh, the wise way, and intelligent way to establish this thing, I think, uh, the ministry has the vision to implement such a common infrastructure company. And there are, you know, the intention to do so. So we'll see what is gonna happen. But I think the vision is there. The vision of the Prime Minister\u2026 sorry, the president, is there. The vision of the ministry of transportation and communication is there. So, I think this is the, the wise way. <crosstalk> thank you. And then obviously, Turk Telecom concession has uncertainty. The ministry of communication also told that this uncertainty sometimes blocks some of the things. But I think, uh, you know, reasonable people understand that Turkey needs common fiber infrastructure. That's clear. Thank you very much. The next question is from the line of Nagy Nora with <unk>. Please go ahead. All right. Good evening, and thank you for the presentation. Only one question from my side, please. Do you plan to take the <inaudible> valuation out of the new legislation, so that, uh, to use that as the first taxing company as we have seen uh, in the case of Turk Telecom? Thank you. Okay. Let's let Osman to take this question. Actually, uh, we disclosed the same application in Q, in our Q2 financial. And there are further opportunities on our balance sheet which we are evaluating further, and we will decide on this issue in our year-end financial. I see. Thank you. The next question is a followup question from the line of Karbachek Andriy with UBS. Please go ahead. Uh, thank you. Just, just one follow up please, in terms of the other headlines that we saw today, with you looking for monetizing the, the fintech business. Is it still the case that you prefer a strategic partner who would help you develop this business, uh, from the minority perspective? Or, or, or are you, you know, are you in a different place compared to the past of couple of quarters, where you were kind of suggesting this would be the preferred option? Thank you. Okay, thank you. First of all, regarding the, the monetization or strategic partnership, uh, this was not a secret. It was, you know, we were talking about secure online, we were talking about our tower business, we were talking about Paycell on the fintech side. So, I think, uh, this is a good, good opportunity that\u2026 and we are planning to offer minority stake. And the partner we're looking for should ideally be able to contribute to Paycell's growth story; not only provide growth capital. They should be able to share knowhow, make expansion plans, and make sure that the business further evolves and potentially gets ready for an IPO in the next couple of years. Thank you. The next question is from the line of Dimirak Kayahan with AK Investment. Please go ahead. Hi. Thank you very much for this presentation. On the, uh, Paycell side, do you have some kind of evaluation range for this Paycell? And the second question is related to the first remark about the inflationary pricing, and the <inaudible>. If I understand right, you expect the <inaudible> at least to converge to somewhere close to the inflation. And the third question involves the Ukrainian operations. I think for the past couple of quarters, the operations are performing quite well. I mean, could you give us some color on that? I think particularly subscriber remissions are strong, because of market share gain or market growth? Thank you. Thank you very much. First of all, regarding Paycell, uh, obviously one of our\u2026 Paycell is one of our most important and valuable asset. Not just, just Paycell, also we have other assets as well. We disclosed the company's financial and operational matrix every quarter in our presentation, and we are quite, you know, open to the market as well. And we all know the fintechs and payment companies around the world enjoy the quite high multiples and thanks to their disruptive nature and unique growth profiles. And these companies are mostly having negative EBITDAs, which makes the relations to be based on the revenues. But our Paycell has a positive EBITDA margin, with strong global profile, thanks to its diversified business model involving group and non-group revenue, as well as individual user running options. Both in terms of revenue growth and EBITDA margin, Paycell is a unique business. So, everybody can do the math for the relation by using the global revenue and EBITDA multiples, thus evaluation of Paycell per, per global average. Regarding about the inflation pricing, R2 growth and so on, I think I tried to explain that we, we would like to keep our R2 in line with the inflation increase. As I said, our initial plan was not expected that much increase on the inflation side. So, to be able to adapt to inflation increase, sometimes we need time. So, I believe that we're gonna catch the inflation. I hope the inflation is not gonna go same, same speed as we see today. So we can catch this, uh, in a while. But on the other hand, we shouldn't forget that you're gaining customer. Two and a half million customer from, uh, year\u2026 at the beginning of the year. So, these customers, when we get the customer, we put them into the, in the system, and provide upsell opportunities for this customer, and sell other, other products like Paycell, digital services, TV, and so on. So, it all takes some time to get the acceptable R2 level from the, the customer who comes recently. So, we have quite important system in terms of using AI and other technology, customer-centricity, and so on, we're going to get to the acceptable level. Regarding Ukraine operation, we, actually this is not the result of the last quarter. We have focus on Ukraine the last couple of years. We invested in the area where we have weak network and captured the customer. So, we're probably gonna continue on the, on the customer side in, in a similar level. But I would like to remind that our subscriber growth is 14% year-over-year, our R2 growth is 9%, it's above the inflation of Ukraine. Plus we are doing better than the competition, and we're gaining market share in terms of revenue, in terms of customer as well. And we're growing almost double percentage points versus the competition. So, we, we're gonna keep grabbing market share, and our expectation is that as well. Uh, thank you. And as a followup on the subscribers additional gain, do you think they can encourage additional development like 1 million per year or another more realistic number for the next years? Uh, to be honest, we are in telecom business, we're in the technology business, we're in services business, and we're in tech fin business, and, uh, and, and so on. So, to be able to successful on this area, you need to get more customer. So, our gaining customers strategy will continue. We hope to see another million next year. As I mentioned, this year is outstanding year. And having such a customer is very important for next year revenues as well. Because you gain this year\u2026 You spend subscriber acquisition cost this year, but you get the real revenue for next year. So I think, uh, the strategy is in line. We are executing well on the operations side, and uh, and we hope to continue this level. Okay. Thank you, and congratulations on the, with the results <inaudible>. Thank you very much. I appreciate it. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you. First of all, I would like to thanks everyone to join the conference call. Uh, I hope to see you in our Capital Market Days, and\u2026 at the end of actually the next, uh, the beginning of next year. So, thank you very much. Have a good day. So, this concludes our call. Thank you for joining. Have a day\u2026 have a nice day or evening. Thank you."
    },
    {
        "audio": "4483506.mp3",
        "file_id": "4483506",
        "ticker_symbol": "SONY",
        "country_by_ticker": "Japan",
        "un_defined": "Eastern and South-Eastern Asia",
        "major_dialect_family": "Other",
        "language_family": "Asian",
        "file_length": "4516",
        "sampling_rate": "22050",
        "transcription": "Ladies and gentlemen, uh, it is now time to start Sony group corporations, FY21, 3 Third Quarter Earning announcement. I'm Okada corporate communications. I'll be serving as master of ceremony today. The session is being held for journalists, analysts and institution investors, to whom we have sent out invitations in advance. This session will be live broadcast through our investors relations website. First we have with us, Mr. Totoki Executive Deputy President and CFO to explain third quarter FY21 consolidated results and the forecast for consolidated fiscal 2021 results. That duration is about 70 minutes. Mr. Totoki, the flow is yours. Thank you, I will cover the topics written here today. FY21 Q3 consolidated sales increased 13% compared to the same quarter of the previous fiscal year to 3 trillion, 31.3 billion yen and consolidated operating income increased the significant hundred and 13.3 billion yen, year on year to 465.2 billion yen. Both were equal heights for the third quarter. Income before income taxes increased 77.8 billion yen year on year to 461.6 billion yen and net income attributable to Sony group corporation shareholders increased 35. 4 billion yen to 346.2 billion yen. Please see pages three to six of the presentation materials for a depiction of each profit metric adjusted to exclude one time items. This slide shows the results by segment FY21 Q3. Next I will show the consolidated results forecast for FY21. Consolidated sales are expected to remain unchanged from our previous forecast of 9 trillion, 900 billion yen while operating income is expected the increase 160 billion yen to 1 trillion, 200 billion yen. We have also upwardly revised our forecast for income before income tax to one trillion, 155 billion yen, and a forecast for net income attributable to Sony group corporations shareholders to 860 billion yen. A forecast for consolidated operating cash flow, excluding the financial services segment has increased 50 billion yen to 940 billion yen. This slide shows are focused by segment for FY21. I will now explain the situation in each of a business segment. First is game and network service segment, FY21 Q3, sales decreased to 813.3 billion yen, 8% lower than the same quarter of the previous fiscal year in which we launched the PlayStation5 and sold the major titles in conjunction with the launch. Operating income increased 12.1 billion yen, year on year to 92.9 billion yen, primarily due to a decrease in selling general and administrative expenses and an improvement in PS5 hardware profitability, partially offset set by a decrease in software sales. FY21 sales are expected to decrease 170 billion yen compared to our previous focus two trillions 730 billion yen and operating income is expected to increase 20 billion yen compared to the previous forecast to 345 billion yen. Total game playtime or PlayStation users in December 21 was 20% lower than the same month of the previous year, which was immediately after the release of PS5, but game play time increased approximately 7% from December, 2019 per quarter, in which there were only a few meta titles released. We think this was solid performance. In the fourth quarter, and in March 31st, 2022, we expect user engagement to increase further because the meta first party titles Horizon Forbidden West, and Gran Turismo 7, will be released. The PC version of God of war released in January, 2022 has received high acclaim among the PC gaming community, obtaining a Metacritic, metascore of 93. Unfortunately, due to limitations on the supply of components, especially semiconductors, an increase in delivery times resulting from the disruption of the global distribution supply chain, we have revised our FY21 unit sales forecast for PS5 hardware to 11.5 million units. Limitations on the supplier components are expected to continue going forward, but we are continuing to exert every effort to meet the strong demand for PS5. On January 31st in the US, Sony Interactive Entertainment entered into definitive agreement to acquire Bungie Inc. One of the world's leading independent game developers. With more than 900 creative people on staff Bungie has a track record of creating blockbuster titles, such as Halo and Destiny. As a longtime partner of Bungie, we have discussed various forms of collaboration with them in the past. Ultimately, we decided to pursue an acquisition because we gained confidence that we could grow even more by combining the corporate cultures of both companies, as well as our strengths in the creatives space. Once part of SIE, Bungie will operate as an independent studio and will continue to publish its content on platforms other than PlayStation. The total consideration for the acquisition is 3.6 billion US dollars, and the complexion of the acquisition is subject to certain closing conditions, including regulatory approvals. From calendar year 2014 to calendar year 2021, the size of the global game content market doubled driven by addon content to revenue from live game services, which grew at an average annual rate of 15% during this period. We expect this trend to continue going forward. Bungie has capitalized on this opportunity from an early stage by incorporating live game services into its premier franchise destiny, and it has accumulated of wealth of experience and superb technology in the space. The strategic significance of this acquisition lies not only in obtaining the highly successful destiny franchise, as well as major new IP, that Bungie is currently developing, but also in incorporating into the Sony group, the expertise and technologies that Bungie has developed in the live gaming services space, space. We intend to utilize their strengths when developing game IP at the PlayStation studios, as we expand into the live gaming services area. Through close collaboration between Bungie and the PlayStation studios, we aim to launch more than 10 dive service game by the fiscal year and in March 31st, 2026. In addition to review the deployment of a game IP on multiple platform as a major growth opportunity for Sony as has been the evidence by the success of PC version of the God of war and other First Party games. Through this exhibition, we intend to acquire new users and increase engagement on platforms other than PlayStation, which will enable us to significantly advance our long term growth strategy for further expanding the ecosystem of our game business. Catalyzed by the acquisition of Bungie, we intend to accelerate the growth of our first party games software revenue, aiming to more than double the current amount by a fly 25. Now I will use this, uh, conceptual, uh, diagram to explain at the high level how this acquisition will be treated from an accounting perspective. Bungie is a private company, the majority of whose shares owned by its employees. So payment of the consideration is structured to incentivize the shareholders and other creative talent to continue working at Bungie after the acquisition closes. Approximately one third of the 3.6 billion US dollar consideration for the acquisition consists primarily of deferred payments, employee shareholders, conditional upon their continued employment and other retention incentives. These amounts will be paid over the course of several years after the acquisition closes and will be recorded as expenses for accounting purposes. We expect about two thirds of these deferred payments and other retention incentives to be expensed in the first two years after the acquisition closes. Next is the music segment or those sales of visual media and platform decreased. If FY21 Q3 sales increased 12% year on year to 295.9 billion yen primarily due to an increase in streaming revenue. Despite the impact of the increase in sales recorded music operating income decreased 4. 0 billion yen year on year to 55.5 billion yen, primarily due to the impact of the decrease in sales of visual media and platform. The contribution to the operating income of the quarter from visual media and platform accounted for the inaudible percentage of the operating income of the segment. If FY21 sales are expected to increase 20 billion yen compared to our previous forecast to one trillion, 90 billion yen and operating income is expected to increase 5 billion yen compared to our previous forecast to 205 billion yen. Streaming revenue in Q3 continue to grow at high rate. 29% year on year in recording music and 27% year on year in music publishing. The recorded music business continued to generate measure hits with an average of 36 songs ranking in Spotify's global top a hundred songs during the quarter. Global superstar singer songwriter Adele's, uh, album 30 became a historic hit remaining number one on the billboard chart who were consecutive eight weeks after its release in November. Next is the picture segment FY21 Q3 sales increased, uh, significant 141% year on year to 461.2 billion yen, primarily due to the blockbuster hit Spiderman, No Way Home, Emotion Pictures, and the licensing of the popular US television series inaudible in television productions, operating income, uh, increased a significant 121.1 billion yen year and year to 149.4 billion yen primarily due to the impact of the increase in sales and the recording of a 70.2 billion yen gain from the transfer of GSN games, which closed on December the 6th, 2021. FY21 sales are expected to increase 40 billion yen compared to our previous forecast to I trillion, 222 billion yen and operating income is expected to increase 97 billion yen compared to our previous forecast to 205 billion yen. Even when one time items are excluded operating income, this fiscal year is expected to be the highest ever for the picture segment. Spiderman, No Way Home was released across the US on December the 17th, 2021, and went on to record the second highest ever opening box office revenue nationwide. According to the most recent data it's cumulative worldwide box office revenue is the sixth highest ever at approximately 1.7 billion US dollars. And it holds the record for highest crossing film in the history of Sony pictures, entertainment. Other franchises, such as Venom: Let There Be Carnage contributed significantly to our financial results. And we are looking forward to the release this month of uncharted, which is a movie version of a popular PlayStation game title. Despite our success, we will continue to pursue our flexible release strategy going forward as we have done by postpo- postponing the US release of Mobius a new film from the Sonny pictures, universe of Marvel characters from January, to April of this calendar year. On December 22nd, 2021, Sony Pictures Networks India, a subsidiary of SPE signed a definitive agreement on merge, uh, to merge SPNI with ZEE entertainment enterprise. The merger represents an opportunity to further accelerate expansion and digitalization of our business by using the strengths of both companies to strengthen our digital distribution service in rapidly growing India, media mark- entertainment market. We expect that the transaction workflow in the inaudible this fiscal year ending March of 31st, 2023, after obtaining approval of the ZEE shareholders and regulatory authorities after the transaction closes, SPE will own the majority of the shares of the merged entity. Then the next is the electronics products and solutions segment. Despite the favorable impact on sales from foreign exchange rate Q3 sales decrease 2% year on year to 286.9 billion yen, primarily due to a decrease in the unit sales of our products, resulting from a decline in stay at home demand and a shortage in the supply of components, despite the favorable impact of foreign exchange rate and an improvement in product mix operating income decreased 23.3 billion yen year on year to 80 billion yen primarily due to the impact of decrease in sales. The FY21 sales are expected to increase 80 billion yen, compared to a previous forecast to two trillion, 360 billion yen, and operating income is expected to increase 20 billion yen compared to our previous forecast to 210 billion yen. Operating income margin for this fiscal year is expected to exceed 8%. The efforts we have been making to improve our profitability are steadily bearing fruits. During quarter three, the impact of the rapid decline in TB panel prices on consumer market prices for TB was more limited than we originally anticipated. And the shift to large size TVs increased primarily in the US Europe and China. As a result, we are able to maintain the average selling price of our TVs especially, the same level at the second quarter ended September 30th, 2021. Nevertheless, we continue to be unable to fully meet the market demand in multiple categories due to, uh, severe limitations on the supply of components. We expect the situation to continue to impact us in the fourth quarter, ending March 31st, 2022. We will continue to exude every effort to procure components as that will be one of the highest priorities for this segment next fiscal year. Next is the imaging and sensing solution segment, uh, FY21 Q3 sales increase a significant 22% year on year to 324.8 billion yen, primarily due to an increase in sales of highend in image sensors, while mobile products operating income increase 13.3 billion yen, year on year to 64.7 billion yen, primarily due to the impact, uh, of the increase in sales, our FY21 sales is expected to decrease, decrease, uh, 30 billion yen compared to our previous forecast of 1 trillion, 70 billion yen. The FY21 operating income forecast remains unchanged from the previous forecast. Despite severe conditions in this smart for market, such as weakness in the Chinese market and shortage of components, especially inaudible the effort we have made here to, to expand and diversify our mobile sensors, customer base, as well as to recover our markets share on a volume basis or having some success. However, it is taking longer than expected to introduce, uh, the high of four months, high resolution custom sensor- sensorss that we have been working on with Chinese smartphone makers. So the speed of, of affordability improvement resulting from an increase in added value products going into next fiscal year will be slightly lower than the originally planned. Recently, the train toward the Chinese smartphone market purchasing larger size segments for the high end product is improving after having segment, uh, due to the con- contraction of our business with a certain Chinese customers. We expect the Chinese smartphone market to normalize in the second half of next fiscal year. Since we feel better about the possibility of sales growth and for the market share expansion next fiscal year, we will focus even more on increasing the added value of our products and the strive to improve profitability on January 25th, 2022 semi\u2026 Sony Semi Conduct Solutions Corporation completed its initial investment in Japan and then Semi conductor manufacturing company limited as a minority shareholder. Sony will support JASM by assisting with the startup of this new logic wave for factory, which aims to, uh, begin mass production during, uh, calendar year 2024. Lastly, the financial service segment, uh, fiscal year 21 Q3 financial services revenue increased 11% year on year to 471.3 billion yen, primarily due to an increase in the net gains on investments in the separate account at Sony Life Insurance Company Limited. Operating income decreased 4.7 billion yen year on year to 35.2 billion yen primarily due to deterioration in valuation on securities at our venture capital business and at Sony Bank. New policy, uh, amount enforce at Sony Life during Q3 grew at a higher rate than our, uh, competitions, uh, driven primarily by our priority, uh, focus area of selling insurance to corporations. FY21 financial service revenue is expected to increase 120 billion yen compared to our previous forecast to one trillion- Only 20 billion yen compared to our previous forecast to one three and 610 billion yen. Our FY 21, our overall income forecast remains unchanged from the previous forecast. Now I'd like to update you on our strategic in- investments. The amount of capital allocated to strategic investments, including the position of the Bungee, which I explained earlier and repurchases of Sony stock from the beginning of the fiscal year on to today, and increasing acquisition and asset purchases that have closed as well as those that have been decided but not closed inaudible approximately 850 billion yen. This slide shows a breakdown of the segments and areas in which we have allocated investment. The music segment among the portion of the chart does not include across 100 billion yen we have invested in music category catalogs because the amount is included in operating cash flow under IFRS. We are making steady, uh, progress in accordance with our current mid-range, uh, plan of making 2 trillion yen on or more of strategic investments as we believe that we, we believe that the evolution of our business portfolio aimed at real long term growth is progressing well. As I mentioned, at the previous earnings announcement, we aim to accelerate the cycle whereby returns generated from previous investments are used to invest in growth, thereby realizing long term growth. At CES 2022 last month, President Yoshida announced that they will stop the Sony mobility in the spring of this year and we will explore the possibility of introducing our vision S to the market. The vision S initiative aims to read the new value and contri- contribute to the evolution of the mobility by leveraging Sony's various technology and content, and by adding new entertainment elements to a safe and secure moving space. Going forward, we will proceed our, uh, with our exploration under the assumption that we will collaborate, ally ourselves with multiple partners. That is the conclusion of my remarks. Thank you very much. It was Mr. Tataki, executive deputy president and the CFO, chief financial officer. From 3:55 we have Q and, Q and A session for media and from 4:20, Q and A by investors and analysts. We set aside 20 minutes each for Q and As. Those, uh, uh, journalists, investors, analysts who have already registered for questions in advance, please be connected to the designated telephone number in advance. And those of you who have not made the registration in advance, you can continue to listen to the Q and A session through internet webcast. Please wait until the session is resumed. <silence> We will begin Q and A session for media shortly. Would you kindly wait until the Q and A session begins? <silence> Thank you very much for waiting. Now we are going to entertain questions from the media. Respondents are Mr. Hiroki Tataki, Executive Deputy President and Chief Financial Officer. Uh, Naomi Matsuoka is the senior vice president in charge of corporate planning, control, finance, and IR. If you have questions, please press asterisk followed by number one. When your turn comes I'll call your name, so please, uh, identify yourself and your affiliation before you ask your questions. I would like to ask you to kindly limit your questions to two. Also, in order to prevent, uh, feedback of the sound, please be sure to switch off the volume of your peripherals. Your cooperation is very much appreciated. In the event that your voice is disrupted because of the communication environment we may have to move on to the next questions, next person. And if you would like to cancel your question, please press asterisk followed by number two. Now we'll have to begin Q and A session. If you have any question, please press asterisk followed by one. The first question is Maslisa from Nikkei Shimbun newspaper. Ms. Maslisa, please. Maslisa, can you hear me? Can you hear us? Yes, I can hear you. I have two questions. First question is you're thinking about strategic investment. The other day, uh, you have, uh, made an acquisition and I, I think that you made an estimate going forth AV and, uh, semiconductors. You will be coming up with new strategies and for each is the size of investment will become larger going forward? So as the main management you'll be, you think that it is necessary to make large, uh, investment and investment deals. You have the seeding made of 2 trillion. But is that going to be, uh, exceeding 2 trillion or, uh, the acquisition in the orders of hundreds of billions of yen? Thank you for your question. Uh, our thinking behind the strategic investment was the question that you have raised. Currently, as you know, three year mid-range plan strategic investment, uh, we will be allocating 2 trillion for strategic investment. And as I mentioned in my speech earlier, 850 billion yen, and we made the decisions up until 850 billion yen and this framework work. We don't think that we need to change in a major way this framework and within this, we will be making, uh, forward looking positive investments. So areas of investment priority area is IPDTC and technology. And this list priority areas remain unchanged. That's all from me. So we'd like to entertain the next question from Masahe Suzuki-san please. Thank you for giving me the floor. I'm Suzuki Obasaki. I hope you can hear me. Yes. Go ahead please. Thank you. I have two parts of questions. First is image sensor that, uh, the, uh, as to this pigment chip that the Taiwan TSMC is the company that you, uh, expect it to interest you the the, uh, the, the supply. Uh, according to some reports, I see this, uh, peaking in, in the, the distribute, uh, uh, like for iPhone and other applications that are in for the high level of the sophisticated cameras. Do you intend to further, uh, ask them to manufacture on behalf of Sony? Because it's a couple, couple connection is different. But, uh, as to some of the fundamental technologies maintained by your company, Sony, but I think the chips are maybe likely to be entrusted to the, the DC, uh, TSMC, and so on to produce on behalf of you. Uh, in conjunction, the TSMC will have a new plant in Kumamoto logical wave of circuitry, uh, that it has been the missing piece so that the Japanese government is likely to give subsidy to that the new plant in Kumamoto, but it's expected that this new, the, uh, the, the chip for the pigment and so forth is likely to be producing commodities as well. Now turning to electric vehicle that the President Yoshida announced about the mobility new area, and then you have a new Sony mobility company is likely to be established in the spring. But, uh, you might have a higher, the, uh, details they have like, uh, the scale of this new company, as well as the exact timing to establish new company, because Mr. Taktaki, as to the new mobility company, together the car emission. Uh, I understand that you have some chat with him about the, the Fitch triggered. You are the founder of Sony Bank and other new businesses in the past. So with a new, uh, big company to the service are you going to nurture this Sony Movie thing to be a big company? As one of the pillars, I'd like to hear your view on the mid to long term in terms of how to nurture Sony mobile thinking. So the turn to the first, uh, uh, the, the question about this, uh, the, the image sensor that you are likely to entrust the production to this, uh, TSMC. But the, the, uh, actually it's, uh, not announced by us. But it, I don't have a direct answer to that. But anyway, as to the external production, uh, uh, by like possible like TSMC, that the logic, the, is mostly to be produced outside. But, uh, it's called this, uh, the master of the process. As to the master process to be instructed outside, it's quite limited, because as of now, that we do not intend to increase the image sensor chip, uh, that is a, a master process. We did not intend to ask the outside company to produce much of that. As to your second part of the question for new mobility, when will that be built? In the spring of 2022 that has been mentioned by, uh, president CEO, uh, Yoshida. As to the exact timing when the company will be established, we have to scrutinize and consider the details of this new company. So after that is decided at that optimal timing, we like to publish that information. Let me add to that the Sony mobility Inc. will be established and we will consider to be engaged in the mobility sector. There was a inaudible we announced so, so we didn't exactly decide on the exact entry into that sector. As to the automobile industry, there are lots of things we have the study about, uh, more, the automobile industry. So as to this, uh, establishment of Sony Mobility Inc. which is the first step in that it will enable us to further deepen our study in consideration. That's what we mean by building a new company. Of course, for the long term future, we might like to nurture this company as a hope to nurture it as an important, big company. But specifically, what would that be a specific business, the scale of the business and other things? Well, uh, it's too premature to mention the details of this new company. Thank you. Next, uh, question. We have Nishida-san, a freelance reporter. This is Nishida speaking. Can you hear me? Yes, we can. Please go ahead. I have two questions. The first question is that the semiconductor devices shortage is the topic, uh, PlayStation five and EPNS products have impact from the shortage and are there any change in the product mix as a result or, uh, any change in the product line, uh, for, to ensure the performance and also that may have an impact on platform? So if you could expound more on the impact of the supply shortage on your performances. And next on the game, business, uh, your rival Microsoft has announced a large scale purchase. Is there, uh, any plan to, uh, have a purchase of a large publisher type supplier? And also, uh, is there, uh, any impact on your game business? Uh, who, because of that kind of a publisher type acquisition by your competitor? Thank you. First about the semiconductor shortage, and to that we do have a variety of impacts on our businesses and largely, we have a shortage of components. So we need to have, put high priority on the high valued products. That is not something new to us though, that the, when the semiconductor, the shortage just started, we made a lot of adjustments to change the product mix and allocate to different product lines. And regarding the PS5, uh, in terms of a short term profit, uh, promotion cost, uh, was saved. Uh, or, uh, high logistics cost has been saved because of the decline in the units. Uh, that leads to the decline in expenses. But, uh, we plan to, we hope to ship as many units as we can. So we will exert our efforts. Now in terms of the impact on the long term platform, that the, right now under the limited, uh, shipping capability, I think that's the short term impact. We think we can catch up. And from PS4, uh, the when we moved from one console generation to the next, uh, there was a large change, drop in engagement, and also sales and profit changes drastically. Uh, so there was a very sharp, cyclical, uh, phenomena that has soft, softened recently. And, and obviously we hope to see a quicker, uh, recovery. But we also see the situation is rather limited in terms of the impact. Now the intents of the acquisition by our competitor, we're not in a position to make any comments. So it is difficult for us to, uh, say anything. But, uh, they have announced the intention to purchase but that has not been completed yet. And what kind of business model change will take place is something we don't have a clear picture yet. So for the competitors, large scale M and A, we do not want to speculate. Uh, and rather, we want to pursue and execute our strategy at the right timing. And we want to focus on that. That's it. We'll have to move on to the next question. Nick KBP, next one please. Hello, can you hear me? Yes, we can. Please. Thank you for letting me, uh, letting me ask questions. I have two questions. First is about VR. At CES the other day, new, uh, uh, device VR two was announced. On the other hand environmentally, the competitors are increasing their units and investing large amount of money and the momentum is there. Currently VR business, how I, how, what is your view about, uh, promoting VR- How I- how- what is your view about, uh, promoting VR business going forward? and second, mobile games. Currently, Sony Music is- is the- is the main player. But SIE, itself, will be, uh, considering a mobile ga- mobile games business. So, what is the direction that yo- you have in mind? Thank you. Your first question regarding VR, PSVR2, at least, we have already explained. Uh, you- user to have that sense of imag- imagined. So the setup itself will be simplified and headset we'll be evolving and we'll be evolving the headsets. And already this is announced. Evolution of head- the headset, 4KHR dis- display with a wider viewing of angle and, uh, movement of the eye of the player is detected looking at certain direction. Then, it's possible to mani- manipulate the\u2026 so for the inaudible, the high resolution for the center of the view and external then lower resolution. But by that high quality image experience can be given to the users, such technology is introduced. Also, the, uh, the motor vibration and head- head set and haptic headset, uh, feedback, this will be introduced as a technology as, uh, we already made decision. In relation to VR, already a further technological, uh, evolution, there's room for evolution hardware and software. Then, uh, with this evolution of technology, I- it is expected that market is also going to expand. Right. So we, Horizon Call of the Mountain, we're the first party title is, no, is already announced simultaneously. So in this way, we have our technology and contents that we have an ecosystem movie, uh, leveraged and we are going to enhance our presence in this market. And then the second question, mobile games, mobile game market itself is a growth area. And PlayStation IP can be, uh, u- used by more users. And this is a great opportunity for us. As for the timing, it's very hard to say exactly when but, uh, PlayStation IP will be deployed for, uh, the, uh, IPs. So- so- so, I believe that we can grow this steady, so these attempts and the specifics. When the appropriate timing comes, then we are going to explain to you more clearly. Thank you. The time is running short. So we like to entertain the last question of- for this session. Himaisa from NHK, please. Thank you very much. Ann Shimai of NHK. I have two parts of the questions. The first is about your performance and achievement because the results are very good. Frankly, I- I like to ask your frank interpretations of that. Despite the COVID-19, you had achieved well, so taking two countries, uh, difficult environment, what kind of good measures will be implemented to- to achieve such a good results? That's, uh one question. The second question is about EV. So in near future investment, uh, in terms of the \u00a52 trillion that- that- for this-this strategic investment. You didn't refer to EV, by this spring new company will be established. And then maybe the different consideration will be made. So, uh, in that strategic investment framework of \u00a52 trillion, that- would that include EV? Uh, you intend to spend the money for EV or you rather than tapping into that, uh, the budget. That may be the more of the game will be the focus of spending money for certain investments. What do you think of this? Now, thank you for your question. As to this question, because this adds to the third quarter, the results what is my impression? My comments, as you mentioned, despite the COVID-19 difficulty, the logistics who were ad- adversely impacted and semiconductor and other device, uh, components as supply was limited for a long time. In many areas, this is the problem lasted for a long time. To cope with that- the situation for each business segment, they would like to look at what we're- will happen next. And by based upon that good forecast, they take, uh, proactive measures to prepare for the difficulty. So that is why I think that we achieved the record high results that the- the sales and the profit, uh, in this third quarter. Bu- but not everything was rosy and good because PS5, there was a big demand. We couldn't supply enough to the- the increasing demand as an image sensor the profitability, that recovery did not progress as- as- as soon as we had expected. Those are the challenges we identified and we'd like to consider that for the future. The sec- second question, that is so investment idea towards EV. Well, about the EV, as has been mentioned earlier, the- we assume that, uh, we'd like to start with the- the asset light conditions with our pos- possible partners to ally with us- to our concept, for example, standalone or we- we might not have that the big production facility or we develop our own battery, that kind of capital intensive activity is not likely to be considered in a business model. Without such a capital investment, as an assumption, we would like to- we achieve the vision we have- they advocated. So, that's how we are considering this- the business. So what's the vision for the EV? Let me repeat that the mobility environment space should be evolved into a more entertainment space for the new kind of the customer experience and values should be provided through that. Thank you. Now, it is time to close the Q&A session for the media. People will be changing our responders so the Q&A session for analyst will start at, uh, 4:20. <silence>. Now, uh, we'll be starting the Q&A session for the investors and analyst. Um, please wait for a few more seconds. Thank you. Thank you for waiting. Now, we'd like to start the Q&A session for investors and analysts. My name is Hayakawa, uh, in charge of, uh, financial services in IR. I will be serving as the moderator. As responders, we have Mr. Hiroki Totoki, Executive Deputy President and CFO and Miss Naomi Matsuoka, SVP for corporate planning and control and finances and IR. and also SVP accounting, <unk>. If you have questions, please press the asterisk and number one at- on your phone, and I'll name you. And we ask you to limit your questions up to two questions and to prevent the holding and please make sure to turn off the volume, um, of the devices around you. And if the line gets chopped, and- because of the time concern, we'll move on to the, uh, next person with a question. And if you want to cancel your request for question, please press the asterisk and two. Now, I'll start the Q&A session. Once again, if you have a question, please press the asterisk and one at your phone. We have from Morgan Stanley for <unk> Thank you. And regarding the games, I have two questions. The first question is that the PlayStation 5, uh, what is your forecast for the future from the second quarter inaudible speaking tone, uh, from the 4- 14,000,000, 14.8 million, uh, original target to that has been set back and especially this time reduced substantially? And what is your forecast for the next quarter? In May last year, Mr. Jim Lion, uh, was saying that the he hopes to- to shoot for the record high and 22 to 23 million, uh, I believe was the target. What is the- your feel for the demand and also what is your pro- prospect for your supply capability? And the second question is that- the regarding your strategic investment, this time you have invested in one of the- for the invest in the Bungie as a games segment investment. Now, uh, the remaining, uh, budget, you have about \u00a5110 billion or so to, uh, invest. And what is your criteria, uh, for investment decisions for them. For example, for game, uh, when you invested in their game, there was a small game house and the- there was a investment for content IP, that was your priority back then. But this time, you will have a total ownership and, uh, you will intend to retain the, uh, subscription or you want to improve your first party, uh, development capability or what is your criteria, uh, for investment decision? Thank you for your questions. The first question was that the PS5, uh, expectation for the next fiscal year. And in the past, the record was the \u00a522.6 million the first presentation, I believe it was a single year units. And that is what we were saying that- that will- will try to copy again. Uh, but in terms of the next year, the- the market demand, uh, is very high, uh, that could allows us to make a record high sales. Now, our partner companies supplying us the components, we are working closely with them collaborating, negotiating and working with them closely, and we hope, uh, we can make that happen. But in terms of PS, there was a\u2026 We believe that the next year, uh, I think it's safe to say that they will continue to have a supply disruption in terms of the components globally because of the distribution, uh, problem and so on. So we can't say for sure, uh, what is exactly the demand for next year. And- but having a high target, we have, and if we bring it down, we may, uh, ease ourselves to go for the lower target. And so I- I think it is good to maintain the high target. So, uh, in the consolidated performance report, we will have a more exact forecast for the fiscal year ' 22. And so that's the first, uh, answer to the first question. The second question was about our concept of strategic investment. And we- in the past, we were investing, we, in IP, and that's what we've been saying. And we will- and, uh, obviously, IPs have market prices as fair values. So we tend to look for the future upside potential, uh, with our involvement and that is our criteria for investment decision. I think that will improve our investment efficiency and also will generate a premium and how- And also will generate a premium and how we can rationalize that premium and in terms of the scale of that investment, we don't have a clear criteria, in terms of the size of the investment but looking at our barns sheet and also financial capabilities so\u2026 capabilities and risk will be studied very closely, uh, to decide any investment. And also you used an example, partial purchase or total purchase, you mentioned and\u2026 and uh, we need to work with our partner. We cannot decide single handedly ourselves, if it is a good, uh, company. We would wish to purchase 100% but if we are adamant about, uh, 100% purchase, we may have difficulty having a good alliance. So, we will\u2026 give considerations for long term partnership and alliance, that's all. I'd like to move on. Katiya Sun from ASMB Sinico. Thank you. I have two questions. First, about uh, impact of the shortage of components next is vision S. The first one, impact of the shortage of components in supplement of materials, number\u2026 page 7, inventory asset included, if you can respond. Shortage of components and cost increase and impact of that. What kind of impact was there? EPNS and GNS as well, can you please invite and quantitatively explain, to cue EPNS 60 to 70 vitium of buffer are rick verse in corporate and this time, up right revision of 20 vitium for profit so compared to second quarter, it turned out\u2026 that it was better, slightly better. But on the other hand, situation is such that it is prolonged. So, what is your thinking behind this? This is the first question. Second question, inaudible the question by the media people talked about inaudible mobility and acid light is your posture in this equating market. The former TV inaudible you will be suffering from long term losses so Sony mobility ink, what kind of risk return are you thinking about and also investment of inaudible resources. Like, uh, situation is first and going forward to the extent that you can share with us. Please enlighten me. Thank you. Thank you very much. First, the shortage of component and the impact of the cost increase including inventory level and uh you asked me to explain first of all, this fiscal year, as in the third quarter, inventory level. I think it's good to talk about the inventory level. By category, if I may explain. Game network service with the holiday season, there's a decrease in inventory level and PS5, shortage of components which resulted in decreasing the inventory so there's no sufficient level of inventory. EPNS\u2026 with the holiday season. The decrease of the completed products, e\u2026 with the increase in TV panel and this is the key and uh in\u2026 readying\u2026 in preparing for the shortage of materials, strategic stock buying is being done. Next fiscal year also, to a certain extent, uh, we are at expecting shortage especially in the first, uh, half and we can then expect that for some of the products so gradually we are building up our inventory. Therefore\u2026 Although there was a decrease of the inventory of the completed products because of the holiday season but stock pile being of\u2026 strategically stockpiling and the confusion of the, this\u2026 supply chain. There's a delay of the delivery period. So, these two factors are affecting one another. The level perenal inventory is perfect level. INSS\u2026 As you all know, in China, smartphone market, the recovery is slower and this, uh, increase in the level of, uh, inventory, the market, which resulted in the level of inventory. But the demand for gas fund X fiscal year and the production capacity and costering that and their building up the strategic inventory toward the end of the fiscal year. And this policy remains unchanged. Therefore\u2026 it's very difficult to say in a summary fashion but next fiscal year\u2026 looking at the business for next fiscal year. As for the inventory that is deemed to be necessary as we move toward the end of this fiscal year we are going to build up the level of inventory, that is a basic thinking. And then, inaudible\u2026 Risk return and investment of manager resources, we are not the stage where we can give you a clear cut answer yet. And, uh, as had repeated and mentioned, asset light is what we have in mind. So\u2026 silence We are not thinking of making big investment into this area, more specifically, development of battery or development\u2026 having the manufacturing facility for the vehicles itself or sells infrastructure or maintaining fracture to be held by us. We are not thinking of doing this. Basically, uh, we tap upon partnerships or similar relationships. And we are going to as asset light as possible and, uh, with the evolution with vehicles without technological element, we are going to contribute and as a long term vision, uh, the space of vehicles are to be turned into new entertainment space. That is our long term vision. Therefore, for example, in the mid range plan, period. Two, three year strategic, uh uh, investment, is that included in that. We are not thinking about investment at that scale and this is not realistic. Please understanding that way. Thank you. Uh, I would like entertain the next question. inaudible Please. Can you hear me? inaudible I have one question. inaudible mentioned, that I like to hear your personal view but\u2026 inaudible North America, what is a final ultimate demand in North America, in case of your company, the game hardware, software and the music and pictures as well, the electronics and\u2026 you cover everything, hardware, software and contents, very comprehensive. So, the venue, uh, summarized the old clivities of that fiscal year and then this, taking into account information, as well as changed of the, uh, interest rate and so on\u2026 Da\u2026 What is s\u2026 your view of the summary? As well as the, uh, toward the next fiscal year, what is the overall perspective according each settlement. If not, please tell us some the highlights of that situation. Thank you. About the question, is about North American demand and business inaudible. Well, I am quite concerned about uh, it's outlook in North America and you say that the\u2026 the interest rates policy is, uh uh, the turning point to be changed. Due politic risks now increase and the mid term election is scheduled to be held. Through all these uh, stable, da\u2026 elements are likely to be influential and depending upon inaudible maybe demand might be affected and I'm getting the latest information and updating that understanding from different business segments but for the time being, there's no clear trend of this deceleration in the North American market. That's my frank perspective right now. However, especially in terms of inaudible during a lot of half\u2026 inaudible the Europe and Japan campared to the previous year, there's sort of a sign of deceleration, of slow down, a little bit but been expected. But in terms, North America better than we had expected, I mean the strength seems to be maintained and the uh, the uh, the momentum is kept in North America. What about entertainment? Generally speaking entertainment is doing well in general. However, your COVID-19 impact. That is inaudible release ruled the subjects to impact. If the number of the infected patients increases, they have to revise this inaudible release, that's a flexible implementation policy. Your deck is likely to have up and down\u2026 But the\u2026 In January demand rate, entertainment per se, is not likely to go through major change according to my interpretation. So in terms of North America, things are going oh\u2026 steady, it seems steady. Uh, is it really true that it will never go through variation cha\u2026 Cause I'm personally always concerned about uh, anyway potentional. I'm always keeping an eye on, who\u2026 if something, some negative designs observed, uh, detected. We like to take quick counter measures. Take action accordingly. Thank you. We are running out of time. So we will make the next question\u2026 next person to be the last. And we\u2026 inaudible of JP Securities. JP Morgan. Uh, I have a son, brother. Uh, I have two questions regarding Bungee. First question, is that the inaudible slide. You explained that how you will be treated, uh, in terms of accounting, uh, the 3.2 a billion yen, one third is about for retention purpose, uh, expenditure, about 1.2 billion dollars and of the 1.2 billion and uh, tow thirds will be uh, used up in the first two years. So that about .4 billion dollars uh, or 400 million dollars annually. And also intangible assets about uh, 20%, about 700 to 800 million dollars, how do you plan to depreciate that? In terms of a term period, over which period? Uh, as long as the best ethmet you have, will be fine. And I know it's only still pending on the regularity authorities approval and so if we have any have in prospect, that would be appreciated. And also, second question is about uh, Mr. inaudible mentioned about, uh, in the future that be\u2026 you can uh, get outside, that will be\u2026 that will be the decision criteria. And, uh oh, what is the case for bungee? And also for Bungee, what is the offsite for them to work with\u2026 to become a part of Sony? And also up sight for Sony to acquire. Is that simply increasing the users? Or\u2026 what kind of KPIs are you expecting to get gained from this investment? Okay. The first question\u2026 silence Uh, it's uh, we explained that the one third\u2026 will be for\u2026 will be, be third payment for retention purpose. For specific numbers, we still need to Squid guys and this time, we're giving you the rough image. So, that is the extent we hope you will understand. We will examine more closely and if have update, we will be sharing you and the, it's be including in the uh, 4PS for the next year. So we will updating that number. Now in terms of inaudible assets, we are actually uh, studying, examining that right now. So generally speaking uh, we uh, look at ten years or so for depreciation and\u2026 but that depends on the contents of uh, such inconjuable assets. So\u2026 Corinunva Sun, do you have comment on that? Let me\u2026 add some comments. The\u2026 what will be treated as expenditures\u2026 expenses will be\u2026 uh, treated two years and that'll one third and there are a lot of conditions and uh, how will you relocate for the first year? And the second year? That would not be 50 / 50 and necessarily.Q And also in terms of the depreciation, the intangible, we will\u2026 will be allocation the purchase to a variety of\u2026 assets and uh, we will identify the price tag for each one of them and then decide the depreciation period, down the road. Okay and the second question was that, the, in case of Bungee uh, what\u2026 in, as I\u2026 commented in my speech, they are\u2026 uh platforms, capabilities rather and ability to distribute to a variety of platforms and also uh they have a paper bullet to devolve. And those are somethings that we have lost and learned from them and they are all our studios will learn from Bungee and that is\u2026 A strong wish we have and\u2026 but this side also uh, is ruling to work closely with us uh, and in the first year inaudible we will put together a, uh, a good plan and drive that and I believe it will generate upside fromt hat kind of work. Now, the\u2026 from the other side\u2026 the Bungee, the personnel retention and recruiting and support them and uh, and we hope to give\u2026 do so. And also, not just all gaming area but the multi using of IP and marginalizing of IPs like uh, good title, maybe game title, maybe put into the pictures, movies and Bungee we want nurture the IP have in the multi dimensional manners and that's there hope. And for that we believe, that we can help that. We have pictures and music and a Bungee can use leverage of platform, so that their IP can flourish and grow big and that's all. The time has come to close. Sony Group Corporations earnings announcement. I thank you very much for joining us today."
    }
]